<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999
Commission File Number 1-7255
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-1219710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 American Heritage Life Drive, Jacksonville, Florida 32224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 992-1776
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of registrant's shares of common stock outstanding at
July 31, 1999
27,904,617
<PAGE> 2
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
(Amounts in thousands, except share and per share amounts)
ASSETS
Investments:
Debt securities, available-for-sale, at fair value
(cost of $979,667 in 1999 and $945,675 in 1998) $ 971,057 984,333
Equity securities, available-for-sale, at fair value
(cost of $20,515 in 1999 and $21,473 in 1998) 29,542 35,795
Mortgage loans on real estate 92,173 88,922
Investment real estate, at cost 588 532
Policy loans 467,322 481,970
Short-term investments 4,377 6,420
----------- ----------
Total investments 1,565,059 1,597,972
----------- ----------
Cash 20,668 10,351
Agents' balances and prepaid commissions 32,758 33,337
Premiums receivable 43,701 44,091
Accrued investment income 37,604 33,889
Deferred acquisition costs and cost of business acquired 259,330 240,554
Property and equipment, at cost, less accumulated depreciation 40,384 36,345
Reinsurance receivables 11,950 11,210
Other assets 54,236 47,938
----------- ----------
Total assets $ 2,065,690 2,055,687
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 325,018 315,866
Policyholders' account balances 1,132,306 1,097,066
Unearned premiums 42,442 45,054
Policy and contract claims 61,061 65,057
----------- ----------
Total policy benefits 1,560,827 1,523,043
Notes payable to banks 60,346 63,571
Deferred income taxes 34,314 47,855
Other liabilities 39,345 39,660
----------- ----------
Total liabilities 1,694,832 1,674,129
----------- ----------
AHLIC - obligated mandatorily redeemable preferred securities of
subsidiaries holding solely subordinated debentures of AHLIC 103,500 103,500
----------- ----------
Stockholders' equity:
Common stock of $1 par value. Authorized 75,000,000
shares; Issued 28,178,297 in 1999 and 28,138,886 in 1998 28,178 28,139
Additional paid-in-capital 43,082 42,161
Retained earnings 209,387 194,854
Yield enhancement, contract and issuance costs of
mandatorily redeemable preferred securities (9,561) (9,561)
Net unrealized investment gains 336 26,514
----------- ----------
271,422 282,107
Less cost of 273,680 in 1999 and 272,715 in 1998 common
shares in treasury 4,064 4,049
----------- ----------
Total stockholders' equity 267,358 278,058
----------- ----------
Total liabilities and stockholders' equity $ 2,065,690 2,055,687
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
(Amounts in thousands, except share and per share amounts)
Income:
Insurance revenues $ 154,543 149,889 $ 77,892 78,360
Net investment income 57,243 54,354 28,921 27,210
Other income 1,408 1,194 831 573
Realized investment gains, net 225 181 72 69
----------- ---------- ----------- ----------
Total income 213,419 205,618 107,716 106,212
----------- ---------- ----------- ----------
Benefits, claims and expenses:
Benefits and claims 97,230 92,302 48,808 48,245
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 60,058 61,332 30,642 31,148
Amortization of deferred acquisition costs and
cost of business acquired 18,773 18,922 9,246 9,864
Other operating expenses 6,486 6,305 3,332 3,159
----------- ---------- ----------- ----------
Total benefits, claims and expenses 182,547 178,861 92,028 92,416
----------- ---------- ----------- ----------
Earnings before income taxes 30,872 26,757 15,688 13,796
Income tax expense 10,340 8,921 5,260 4,634
----------- ---------- ----------- ----------
Net earnings $ 20,532 17,836 $ 10,428 9,162
=========== ========== =========== ==========
Net earnings per share of common stock - basic $ 0.74 0.65 $ 0.38 0.33
=========== ========== =========== ==========
- diluted $ 0.71 0.63 $ 0.36 0.32
=========== ========== =========== ==========
Dividends declared per share $ 0.215 0.210 $ 0.110 0.105
=========== ========== =========== ==========
Average number of shares outstanding - basic 27,597,914 27,547,632 27,598,234 27,577,433
=========== ========== =========== ==========
- diluted 28,899,504 28,325,402 28,907,124 28,615,378
=========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
(Amounts in thousands, except share and per share amounts)
Common stock:
Balance at beginning of period $ 28,139 14,021
Par value of shares issued pursuant to stock split -- 14,056
Other shares issued, net 39 63
--------- --------
Balance at end of period 28,178 28,140
--------- --------
Additional paid-in-capital:
Balance at beginning of period 42,161 42,528
Excess over par value on shares issued 921 628
Additions (deductions) related to exercise of stock options -- (982)
--------- --------
Balance at end of period 43,082 42,174
--------- --------
Retained earnings:
Balance at beginning of period 194,854 183,852
Add: net earnings 20,532 17,836
--------- --------
215,386 201,688
Par value of shares issued pursuant to stock split -- (14,056)
Cash in lieu of fractional shares related to stock split -- (2)
Deduct: cash dividends declared on common stock -
$.215 per share in 1999 and $.21 1998 (5,999) (5,833)
--------- --------
Balance at end of period 209,387 181,797
--------- --------
Yield enhancement, contract and issuance costs of
mandatorily redeemable preferred securities at the
beginning and end of the period (9,561) (9,561)
--------- --------
Accumulated other comprehensive income:
Net unrealized investment gains (losses):
Balance at beginning of period 26,514 25,613
Change during the period (26,178) 5,523
--------- --------
Balance at end of period 336 31,136
--------- --------
Treasury stock:
Balance at beginning of period 4,049 4,229
Add: treasury shares purchased (1,600 in 1999 and 3,207 in 1998) 24 54
Less: treasury shares issued/surrendered (635 shares
in 1999 and 15,270 shares in 1998) (9) (226)
--------- --------
Balance at end of period 4,064 4,057
--------- --------
Total stockholders' equity $ 267,358 269,629
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
(Amounts in thousands)
Operating activities:
Net earnings $ 20,532 17,836
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Change in agents' balance and prepaid commissions 579 2,743
Change in premiums receivable 390 (3,962)
Change in accrued investment income (3,715) (2,602)
Change in reinsurance receivables (740) (1,106)
Amortization of deferred acquisition costs and cost
of business acquired 18,773 18,922
Acquisition costs deferred (27,183) (25,069)
Change in future policy benefits 9,152 7,324
Change in policyholders' account balances 35,240 17,805
Change in unearned premiums (2,612) (7,424)
Change in policy and contract claims (3,996) 2,636
Change in income taxes 2,391 1,710
Provision for depreciation and amortization 4,531 1,518
Change in unearned investment income (161) (171)
Change in commissions, general expenses
and taxes due and accrued (4,687) (699)
Other, net (6,291) (4,761)
--------- -------
Net cash provided by operating activities 42,203 24,700
--------- -------
Investing activities:
Sales of debt securities 13,499 4,853
Maturities of debt securities 57,990 57,531
Sales (purchases) of short-term investments, net 2,042 29,257
Sales of equity securities 3,914 661
Maturities of mortgage loans on real estate 4,318 1,626
Acquisitions, net of cash acquired -- 1,789
Policy loans paid 40,643 12,437
Purchases of debt securities (105,087) (71,826)
Purchases of equity securities (6,134) --
Origination of mortgage loans on real estate (7,562) (11,715)
Policy loans made (25,995) (24,422)
Purchases and additions of property and equipment and
investment real estate (5,459) (2,533)
Other, net 4,014 (8,801)
--------- -------
Net cash used by investing activities (23,817) (11,143)
--------- -------
Financing activities:
Change in notes payable to banks, net (3,225) 11,085
Dividends to stockholders (5,999) (5,833)
Other, net 1,155 11
--------- -------
Net cash provided (used) by financing activities (8,069) 5,263
--------- -------
Increase (decrease) in cash 10,317 18,820
Cash, beginning of period 10,351 23,261
--------- -------
Cash, end of period $ 20,668 42,081
========= =======
</TABLE>
4
<PAGE> 6
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
(1) In the opinion of management, the accompanying consolidated financial
statements, which are unaudited, include all adjustments necessary to
present fairly the consolidated results of operations and financial
position of the Company for the periods indicated. However, certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements, schedules and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1998.
(2) The financial statements of the Company's life insurance operations,
primarily the operations of American Heritage Life Insurance Company
(AHL) and Columbia Universal Life Insurance Company (CUL), have been
included in the consolidated financial statements on the basis of
generally accepted accounting principles.
(3) Earnings per share of common stock were based on the weighted average
number of shares outstanding during each period, excluding treasury
shares.
(4) Current accrued income taxes were included in other liabilities in the
amount of $315,000 at June 30, 1999 and $400,000 at December 31, 1998,
in the accompanying consolidated balance sheets.
(5) Segment information for the six months ended June 30, 1999 (amounts in
thousands) :
<TABLE>
<CAPTION>
Total income Pre-tax Operating Earnings
------------ --------------------------
<S> <C> <C>
Ordinary $ 153,286 $ 26,956
Group 25,814 3,506
Credit 34,100 3,626
Other 980 (4,702)
Realized investment gains 225 -
Intercompany eliminations (986) 1,261
---------- --------
Total income $ 213,419 $ 30,647
---------- --------
</TABLE>
Industry segment assets at June 30, 1999 and 1998 were consistent with
the amounts reported in the Industry Segment Information disclosure
made in the 1998 Annual Report to Shareholders.
(6) 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 to 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.
(7) Subsequent to June 30, 1999, the Company announced that it had signed
an agreement to merge into a subsidiary of The Allstate Corporation.
Under the merger agreement, American Heritage Life shareholders will
receive $32.25 for each American Heritage Life share, receivable in
Allstate shares or upon election by shareholders, in cash, subject to
proration as may be necessary to preserve the tax free nature of the
transaction. The transaction is subject to approval by the shareholders
of American Heritage Life and requisite regulatory authorities and
other customary conditions and is expected to be completed before the
end of 1999.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999 COMPARED TO
PERIODS ENDED JUNE 30, 1998
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 insurance
subsidiaries, American Heritage Life Insurance Company (AHL) and Columbia
Universal Life Insurance Company (CUL). Significant changes in the components of
the consolidated results of operations for the comparative periods are presented
below.
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.
Insurance revenues for the six months ended June 30, 1999 were $154.5 million,
an increase of 3.1% from the $149.9 million for the same period in 1998. For the
three months ended June 30, 1999, insurance revenues were $77.9 million versus
$78.4 million for the same period in 1998, a decrease of .6%. The increase for
the six months was due primarily to an increase in cancer, individual accident
and health and group accident and health insurance revenues, partially offset by
a decrease in credit insurance revenues. The decrease for the second quarter of
1999 was due to a decrease in group life and credit insurance revenues and a
slight decrease in interest-sensitive policy charges.
Because increasing amounts of the ordinary life business are interest-sensitive,
the group business being sold predominately on a self-funded or split-funded
basis and the credit business being written on a reinsured or an administrative
services only basis, in which only the fees charged are included in insurance
revenues for GAAP purposes, it is important to evaluate insurance revenues
including premium equivalents. Including premium equivalents of $202.0 million
and $159.3 million for the six months ended June 30, 1999 and 1998,
respectively, insurance revenues, including premium equivalents, were $356.5
million and $309.2 million, respectively, up 15.3% in 1999. For the three months
ended June 30, 1999 and 1998, insurance revenues, including premium equivalents
of $113.2 million and $86.5 million, respectively, were $191.0 million and
$164.9 million, respectively, up 15.9% in 1999. Ordinary insurance revenues
including premium equivalents were up due in part to an increase in individual
accident and health, cancer, group revenues and annuity revenues and premium
equivalents. The increase was partially offset by a decrease in credit insurance
revenues and premium equivalents which were down due primarily to a decrease in
credit reinsurance and administrative services only business.
For the six months ended June 30, 1999, net investment income was $57.2 million,
an increase of 5.3% over the $54.4 million reported for the same period in 1998.
Net investment income for the three months ended June 30, 1999 was $28.9 million
compared to $27.2 million for the three months ended June 30, 1998, an increase
of 6.3%. These increases in net investment income for the six months and three
months ended June 30, 1999 compared to the same periods in 1998 were due
primarily to an increase in invested assets. These increases were partially
offset by a decrease in Management Security Plan (MSP) policy loan interest due
to a decrease in the average rate charged (6.92% in 1999 versus 7.42% in 1998)
on decreased policy loan balances (see page 8 for discussion regarding MSP
loans.)
The effective yield on invested assets for the six months ended June 30, 1999
was 7.30% compared to 7.29% for the same period in 1998. Excluding MSP policy
loans, the effective yield was 7.37% for the six months ended June 30, 1999 and
7.24% for the same period in 1998.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999 COMPARED TO
PERIODS ENDED JUNE 30, 1998
RESULTS OF OPERATIONS (CONTINUED)
Benefits and claims were $97.2 million for the six months ended June 30, 1999,
up 5.3% from the $92.3 million for the same period in 1998. For the three months
ended June 30, 1999, benefits and claims totaled $48.8 million compared to $48.2
million for the same period in 1998, or an increase of 1.2%. These increases for
the six months and three months ended June 30, 1999 versus 1998 were due
primarily to growth in insurance business and slightly increased morbidity
expenses.
Taxes, commissions, and general expenses aggregated $60.1 million for the first
six months of 1999 versus $61.3 million for the first six months of 1998, or a
decrease of 2.1%. For the three months ended June 30, 1999 and 1998, taxes,
commissions and general expenses were $30.6 million and $31.1 million,
respectively, or an decrease of 1.6%. The decreases were a result of a decrease
in credit earned commissions due to decreased insurance revenues, partially
offset by increases in general insurance expenses, due primarily to increases in
expenses associated with new production, regional expansion and technology.
Pursuant to GAAP, the initial costs directly associated with selling,
underwriting, and processing traditional ordinary insurance products are
deferred and amortized over the premium-paying period of the related policies.
For interest-sensitive products, these costs are amortized over the lives of the
policies in relation to the present value of estimated gross profits from
surrender charges and investment, mortality, and expense margins. These costs
increase as the amount of sales and insurance in force increase. The charge to
earnings for acquisition costs of ordinary insurance is comprised of: (1) the
amortization of costs for policies which remain in force; (2) the write-off of
unamortized costs related to policies which are terminated; and (3) the
amortization of the cost of business acquired. For the six months ended June 30,
1999, the amortization of deferred acquisition costs was $18.8 million compared
to $18.9 million for the comparable period in 1998, or a decrease of .8%.
For the six months ended June 30, 1999, other operating expenses were $6.5
million compared to $6.3 million for the same period in 1998, an increase of
2.9%. For the three months ended June 30, 1999, other operating expenses were
$3.3 million compared to $3.2 million for the same period in 1998, or an
increase of 5.5%. These increases were primarily due to an increase in interest
expense.
Income taxes increased 15.9% for the six months ended June 30, 1999 from the
same period in 1998, primarily as a result of an increase in net earnings and a
slightly higher effective tax rate. For the six months ended June 30, 1999 and
1998, the effective tax rate was 33.5% and 33.3%, respectively.
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. Such assets are made
up of cash, short-term investments, and readily marketable securities.
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.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999 COMPARED TO
PERIOD ENDED JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The increase in net cash provided by operating activities for the six months
ended June 30, 1999, compared to the same period in 1998, was due primarily to a
increase in policyholder account balances as a result of growth in business in
force.
The increase in net cash used by investing activities for the six months ended
June 30, 1999 versus the same period in 1998 was due primarily to an increase in
investment purchases.
The increase in net cash used by financing activities for the six months ended
June 30, 1999, compared to the same period in 1998, was due to the net payoff of
$3.2 million of debt in the first six months of 1999 versus a net increase in
debt of $11.1 million in the first six months of 1998.
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. Policy loans are generally
funded out of cash provided by operating activities and do not represent a
significant restriction on the Company's liquidity.
At June 30, 1999, the fair value of the Company's debt and equity security
portfolio aggregated $1,000.6 million compared with an amortized cost of
$1,000.2 million, or an unrealized gain of $.4 million. At December 31, 1998,
the fair value of the portfolio aggregated $1,020.1 million compared with an
amortized cost of $967.1 million, or an unrealized gain of $53.0 million. This
change in the unrealized gain was primarily due to changes in market conditions.
With respect to the Company's exposure to market risks, see management's
comments in the 1998 Form 10-K.
The Company's amortized cost of high-yield bonds (rated below BBB by Standard &
Poor's Corporation and excluding non-rated and private placements) at June 30,
1999 aggregated $53.9 million with a market value of $51.5 million. At market
value, these investments represented 2.5% of total assets, or 3.3% of total
invested assets. Such holdings were not material to invested assets nor is it
expected that any subsequent gains or losses on these securities would be
material to the operations of the Company.
AHLIC is a holding company, and its liquidity is largely dependent on the
ability of its subsidiaries, primarily AHL, to pay dividends and on external
financings. As a result, AHLIC borrows on an interim basis through lines of
credit with its major banks to cover any short-term cash requirements which may
occur. The decrease in bank debt at June 30, 1999, compared to the amount at
December 31, 1998, reflected the payoff of debt in January, 1999. At June 30,
1999, the debt to total capital (excluding unrealized investment gains) ratio
was 14.0%.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999 COMPARED TO
PERIODS ENDED JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Other:
Year 2000 Readiness Disclosure:
The Company has in place a Year 2000 compliance plan which includes updates and
revisions to existing software, as well as the installation of new or
replacement software. The Company's Year 2000 compliance plan began with a
detailed assessment of systems starting in the fall of 1996. It followed with a
disciplined plan of remediation, replacement and upgrading that resulted in Year
2000 compliant software being in place in most areas of the business enterprise
by the end of the second quarter of 1999, and will result in full Year 2000
compliance by October 1, 1999. Included in the plan are several system projects
not specifically undertaken to remediate Year 2000 compliance issues, but which,
as a result, will ensure Year 2000 compliance in those areas. As of the end of
the second quarter of 1999, the Company has installed or upgraded Year 2000
compliant systems supporting approximately 95% of the Company's business.
The plan also called for a complete and ongoing assessment of the status and
progress of customers, vendors and corporate service partners in achieving Year
2000 compliance. For the most part, failure of any one or a group of customers
or vendors to be Year 2000 compliant will have little or no effect on the
ability of the Company to process business and serve its customers. In the
unlikely event the Company fails to complete those portions of its Year 2000
compliance plan not already substantially done, its ability to electronically
adjudicate claims would be negatively impacted. However, the Company has in
place a proven manual claims adjudication system that would be utilized in such
an unlikely event, and the incremental cost incurred would not be material.
The direct and indirect cost of achieving Year 2000 compliance, including all
remediation, replacement and upgrading of non-compliant systems over the three
years preceding the turn of the century is expected to be approximately $8.3
million. Most of such cost will be capitalized and amortized over the reasonable
useful lives of the new software systems put in place, as they relate primarily
to upgrading or replacing systems for business reasons other that Year 2000
remediation. Costs expensed in 1997, 1998 and 1999 are immaterial to the overall
financial statements of the Company.
Allstate Merger:
The Company announced July 9, 1999, that it had signed an agreement to merge
into a subsidiary of The Allstate Corporation. Under the merger agreement,
American Heritage Life Investment Corporation shareholders will receive $32.25
for each American Heritage Life Investment Corporation share, receivable in
Allstate shares or upon election by shareholders, in cash, subject to proration
as may be necessary to preserve the tax free nature of the transaction. In
addition, Allstate will assume American Heritage Life Investment Corporation's
obligations under its outstanding mandatorily redeemable preferred securities.
The offer values American Heritage Life Investment Corporation at approximately
$1.1 billion. The transaction is subject to approval by the shareholders of
American Heritage Life and requisite regulatory authorities and other customary
conditions and is expected to be completed before the end of 1999. The merger
will allow the Company access to the capital resources and distribution
opportunities necessary to become a dominant player in worksite marketing.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999 COMPARED TO
PERIODS ENDED JUNE 30, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Forward Looking Statements:
The foregoing discussion 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. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Forward-Looking Information" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
PART II - OTHER INFORMATION
Item 1. 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 to in the ordinary course of business and, to date, the
settlement of such claims of this nature have not been material to
the financial position of the Company. In the opinion of management,
based on the currently ascertained facts of the pending litigation,
which the Company intends to vigorously defend, the ultimate
resolution of such litigation should not be material to the
financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
Exhibit 27 Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K
A current report on Form 8-K dated July 8, 1999 was filed
on July 9, 1999 by the Registrant with The Securities and
Exchange Commission, which reported on the merger with The
Allstate Corporation.
10
<PAGE> 12
PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
Date August 12, 1999 /s/ Elizabeth A. Mahin
--------------- -----------------------------------------
Elizabeth A. Mahin
Senior Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Date August 12, 1999 /s/ John K. Anderson, Jr.
--------------- -----------------------------------------
John K. Anderson, Jr.
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HERITAGE LIFE INVESTMENT CORP. FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 971,057
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 29,542
<MORTGAGE> 92,173
<REAL-ESTATE> 588
<TOTAL-INVEST> 1,565,059
<CASH> 20,668
<RECOVER-REINSURE> 11,950
<DEFERRED-ACQUISITION> 259,330
<TOTAL-ASSETS> 2,065,690
<POLICY-LOSSES> 325,018
<UNEARNED-PREMIUMS> 42,442
<POLICY-OTHER> 61,061
<POLICY-HOLDER-FUNDS> 1,132,306
<NOTES-PAYABLE> 60,346
103,500
0
<COMMON> 28,178
<OTHER-SE> 239,180
<TOTAL-LIABILITY-AND-EQUITY> 2,065,690
154,543
<INVESTMENT-INCOME> 57,243
<INVESTMENT-GAINS> 225
<OTHER-INCOME> 1,408
<BENEFITS> 97,230
<UNDERWRITING-AMORTIZATION> 18,773
<UNDERWRITING-OTHER> 60,058
<INCOME-PRETAX> 30,872
<INCOME-TAX> 10,340
<INCOME-CONTINUING> 20,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,532
<EPS-BASIC> .74
<EPS-DILUTED> .71
<RESERVE-OPEN> 65,057
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
