<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 1997.
Commission file number 1-11834
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PROVIDENT COMPANIES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 62-1598430
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Fountain Square, Chattanooga, Tennessee 37402
------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(423)755-1011
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(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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
------- ------
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1997
- ------------------------------ ---------------------------------
Common Stock, $1.00 Par Value 135,087,876
Total number of pages included are 42
<PAGE>
PROVIDENT COMPANIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Financial
Condition at September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months
Ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Independent Accountants' Review Report 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
(in millions of dollars)
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed Maturity Securities
Available-for-Sale $16,604.3 $10,880.1
Held-to-Maturity 279.0 264.5
Equity Securities 12.2 4.9
Mortgage Loans 35.1 -
Real Estate 98.3 151.1
Policy Loans 1,954.5 1,749.0
Other Long-term Investments 45.6 15.5
Short-term Investments 87.0 252.3
--------- ---------
Total Investments 19,116.0 13,317.4
Cash and Bank Deposits 140.0 19.3
Accounts and Premiums Receivable 133.4 112.4
Reinsurance Receivable 1,046.5 468.3
Accrued Investment Income 368.1 268.3
Deferred Policy Acquisition Costs 397.9 421.8
Value of Business Acquired--Note 4 596.6 5.9
Goodwill--Note 4 604.7 -
Property and Equipment 101.8 59.0
Miscellaneous 29.3 19.6
Separate Account Assets 305.2 300.5
--------- ---------
TOTAL ASSETS $22,839.5 $14,992.5
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
(in millions of dollars)
----------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy and Contract Benefits $ 508.3 $ 411.7
Reserves for Future Policy and Contract
Benefits and Unearned Premiums 12,926.5 8,110.1
Policyholders' Funds and Experience
Rating Refunds 4,600.6 3,881.1
Federal Income Taxes 158.7 49.1
Long-term Debt 725.0 200.0
Other Liabilities 550.5 301.4
Separate Account Liabilities 305.2 300.5
--------- ---------
TOTAL LIABILITIES 19,774.8 13,253.9
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE 5
STOCKHOLDERS' EQUITY
Preferred Stock 156.2 156.2
Common Stock, $1 par 135.1 45.6
Additional Paid-in Capital 749.6 11.4
Net Unrealized Gain on Securities 455.9 90.9
Foreign Currency Translation Adjustment (6.7) (5.2)
Retained Earnings 1,574.6 1,439.7
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 3,064.7 1,738.6
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,839.5 $14,992.5
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(in millions of dollars, except share data)
---------------------------------------------------------------
REVENUE
Premium Income $ 594.0 $ 287.4 $ 1,471.5 $ 883.3
Net Investment Income 362.9 269.5 990.1 822.1
Net Realized Investment Gains (Losses) 6.9 (4.1) 13.1 (10.0)
Other Income 33.3 9.9 87.5 28.0
------------ ----------- ------------ -----------
TOTAL REVENUE 997.1 562.7 2,562.2 1,723.4
------------ ----------- ------------ -----------
BENEFITS AND EXPENSES
Policy and Contract Benefits 451.8 296.4 1,212.2 905.0
Change in Reserves for Future Policy and
Contract Benefits and Policyholders' Funds 197.3 110.5 507.7 357.4
Amortization
Deferred Policy Acquisition Costs 21.4 15.8 57.9 48.8
Value of Business Acquired 9.1 0.1 19.3 0.4
Goodwill 4.2 - 8.6 -
Salaries 55.1 19.5 132.1 56.4
Commissions 65.0 31.7 161.9 94.1
Other Operating Expenses 83.7 36.9 199.5 102.9
------------ ----------- ------------ -----------
TOTAL BENEFITS AND EXPENSES 887.6 510.9 2,299.2 1,565.0
------------ ----------- ------------ -----------
INCOME BEFORE FEDERAL INCOME TAXES 109.5 51.8 263.0 158.4
FEDERAL INCOME TAXES 38.5 18.6 91.5 56.7
------------ ----------- ------------ -----------
NET INCOME $ 71.0 $ 33.2 $ 171.5 $ 101.7
============ =========== ============ ===========
PER COMMON SHARE INFORMATION - NOTE 2
Net Income $ 0.50 $ 0.33 $ 1.34 $ 1.01
Weighted Average Shares Outstanding 134,962,688 91,101,154 120,928,246 90,995,276
Dividends $ 0.10 $ 0.09 $ 0.28 $ 0.27
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended September 30
1997 1996
<S> <C> <C>
(in millions of dollars)
-------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 763.9 $ 514.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investments 1,256.6 1,219.6
Proceeds from Maturities of Investments 1,334.7 944.3
Purchase of Investments (2,195.1) (1,464.5)
Net Sales of Short-term Investments 362.1 108.4
Acquisition of Business--Note 4 (860.0) -
Other (23.2) (52.5)
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (124.9) 755.3
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits to Policyholder Accounts 415.7 299.9
Maturities and Benefit Payments from Policyholder Accounts (1,704.8) (1,684.9)
Net Short-term Borrowings - 151.9
Net Long-term Borrowings 425.9 -
Issuance of Common Stock 388.4 4.4
Dividends Paid to Stockholders (43.3) (34.1)
Other 0.5 (3.1)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (517.6) (1,265.9)
--------- ---------
Effect of Foreign Exchange Rate Changes on Cash (0.7) -
--------- ---------
NET INCREASE IN CASH AND BANK DEPOSITS 120.7 4.0
CASH AND BANK DEPOSITS AT BEGINNING OF PERIOD 19.3 24.8
--------- ---------
CASH AND BANK DEPOSITS AT END OF PERIOD $ 140.0 $ 28.8
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
NOTE 2--COMMON STOCK AND EARNINGS PER SHARE
On July 30, 1997, the Board of Directors authorized a two-for-one stock split
effected in the form of a stock dividend distributed on September 30, 1997, to
stockholders of record on August 28, 1997. Historical share and per share
amounts have been restated to reflect the stock split.
The Company applies Accounting Principles Board Opinion No. 15 (Opinion 15),
"Earnings per Share," and related interpretations in calculating earnings per
common share. Earnings per common share are computed using net income less
preferred stock dividends ($3.2 million for the three month periods ended
September 30, 1997 and 1996, and $9.5 million for the nine month periods ended
September 30, 1997 and 1996) divided by the weighted average number of common
shares outstanding. There is no significant difference between earnings per
share on a primary or fully diluted basis under Opinion 15.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed using net income less
preferred stock dividends divided by the weighted average number of common
shares outstanding. Diluted earnings per share reflects the potential dilution
that would occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock. The Company has issued stock options under its management incentive
compensation plan and to certain non-employee brokers and producers which may
result in the issuance of common stock.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997. Earnings per share as defined under Opinion 15 and as
reported in the accompanying financial statements equals basic earnings per
share as defined under SFAS 128. Pro forma earnings per common share assuming
dilution under SFAS 128 for the three month periods ended September 30, 1997 and
1996, are $0.49 and $0.33, and for the nine month periods ended September 30,
1997 and 1996 are $1.31 and $1.00, respectively.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
NOTE 3--SEGMENT INFORMATION
A summary by segment of the Company's revenue and income before federal income
taxes, excluding and including net realized investment gains and losses,
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(in millions of dollars)
------------------------------------------------------------
Revenue (Excluding Net Realized Investment
Gains and Losses)
Individual Life and Disability $579.1 $264.1 $1,418.1 $ 781.1
Employee Benefits 257.4 144.6 672.8 456.3
Other Operations 153.7 158.1 458.2 496.0
------ ------ -------- --------
Total $990.2 $566.8 $2,549.1 $1,733.4
====== ====== ======== ========
Income Before Net Realized Investment
Gains and Losses and Federal Income Taxes
Individual Life and Disability $ 69.1 $ 34.3 $ 161.3 $ 80.7
Employee Benefits 20.9 8.4 51.8 40.0
Other Operations 12.6 13.2 36.8 47.7
------ ------ -------- --------
Total $102.6 $ 55.9 $ 249.9 $ 168.4
====== ====== ======== ========
</TABLE>
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)- Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
NOTE 3--SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(in millions of dollars)
----------------------------------------------------
Revenue (Including Net Realized Investment
Gains and Losses)
Individual Life and Disability $588.6 $265.2 $1,434.4 $ 788.2
Employee Benefits 259.6 143.9 674.6 455.6
Other Operations 148.9 153.6 453.2 479.6
------ ------ -------- --------
Total $997.1 $562.7 $2,562.2 $1,723.4
====== ====== ======== ========
Income Before Federal Income Taxes
Individual Life and Disability $ 78.6 $ 35.4 $ 177.6 $ 87.8
Employee Benefits 23.1 7.7 53.6 39.3
Other Operations 7.8 8.7 31.8 31.3
------ ------ -------- --------
Total $109.5 $ 51.8 $ 263.0 $ 158.4
====== ====== ======== ========
</TABLE>
Total revenue (excluding net realized investment gains and losses) includes
premium income, net investment income, and other income. Total revenue
(including net realized investment gains and losses) includes premium income,
net investment income, net realized investment gains and losses, and other
income.
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
NOTE 4--ACQUISITION OF BUSINESS
GENEX SERVICES, INC.
On February 28, 1997, the Company acquired GENEX Services, Inc. and GENEX
Services of Canada, Inc. (GENEX), subsidiaries of First Data Corporation, at a
price of $70.0 million. GENEX is a provider of case management, vocational
rehabilitation, and related services to corporations, third party
administrators, and insurance companies. These services are utilized in the
management of disability and worker's compensation cases. The acquisition,
financed through borrowings on the Company's revolving credit facility, was
accounted for by the purchase method. The fair value of the assets acquired and
liabilities assumed were $17.9 million and $8.9 million, respectively. The
purchase price has been allocated to goodwill and will be amortized on a
straight-line basis over a twenty-five year period. The consolidated financial
statements include the operating results of GENEX from March 1, 1997.
THE PAUL REVERE CORPORATION
On March 27, 1997, the Company acquired The Paul Revere Corporation (Paul
Revere), a provider of life and disability insurance products, at a price of
approximately $1.2 billion. The transaction was financed through common equity
issued to Zurich Insurance Company, a Swiss insurer, and its affiliates in the
amount of $300.0 million, common equity of $437.8 million and cash of $2.2
million issued to Paul Revere shareholders, internally generated funds of $145.0
million, and borrowings on the Company's revolving credit facility of $305.0
million. The acquisition was accounted for by the purchase method. The fair
value of the assets acquired and liabilities assumed were $6,630.1 million and
$6,528.3 million, respectively. The purchase price has been allocated
principally to the value of business acquired with the remainder being allocated
to goodwill. The value of business acquired will be amortized with interest
based on premium income for the traditional individual life and disability
income products and on the estimates of future gross profits for interest-
sensitive individual life and individual annuity products. The Company will
periodically review the carrying amount of the value of business acquired using
the same methods used to evaluate deferred policy acquisition costs. Goodwill
will be amortized on a straight-line basis over a forty year period. The
consolidated financial statements include the operating results of Paul Revere
from April 1, 1997.
10
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
NOTE 4--ACQUISITION OF BUSINESS - CONTINUED
PRO FORMA RESULTS
The following pro forma results of operations for the three and nine month
periods ended September 30, 1997 and 1996, give effect to the acquisitions and
the related financing arrangements, including the acquisition of debt and
issuance of common stock equity. The pro forma results of operations, prepared
from historical financial results of operations of the Company, Paul Revere, and
GENEX with such adjustments as are necessary to present the results of
operations as if the acquisitions had occurred as of the beginning of each
period presented, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(in millions of dollars)
-----------------------------------------------------
Revenue $997.1 $ 987.1 $3,018.6 $2,977.2
Income (Loss) Before Federal Income Taxes 109.5 (297.9) 311.4 (139.1)
Net Income (Loss) 71.0 (195.0) 200.5 (97.5)
Net Income (Loss) per Common Share 0.50 (1.48) 1.42 (0.80)
</TABLE>
Revenue and income before federal income taxes include $9.7 million of pre-tax
net realized investment gains for the acquired companies for the three months
ended September 30, 1996, $39.8 million for the nine months ended September 30,
1996, and $36.4 million for the 1997 period prior to acquisition. Net income
includes $6.0 million ($0.04 per common share) of after-tax net investment gains
for the three months ended September 30, 1996, $25.6 million ($0.19 per common
share) for the nine months ended September 30, 1996, and $23.7 million ($0.18
per common share) for the 1997 period prior to acquisition.
In the third quarter of 1996 Paul Revere strengthened reserves in its individual
disability segment by $380.0 million before income taxes which resulted in a
decrease in net income of $244.3 million ($1.83 per common share). The reserve
strengthening resulted from a comprehensive study, completed in October 1996, of
the adequacy of the individual disability reserves under generally accepted
accounting principles.
11
<PAGE>
NOTE 5--COMMITMENTS AND CONTINGENT LIABILITIES
Two alleged class action lawsuits have been filed in Superior Court in
Worcester, Massachusetts against the Company - one purporting to represent all
career agents of Paul Revere whose employment relationships ended on June 30,
1997 and were offered contracts to sell insurance policies as independent
producers, and the other purporting to represent independent brokers who sold
certain Paul Revere individual disability income policies with benefit riders.
Motions have been filed by the Company to dismiss most of the counts in the
complaints, which allege various breach of contract and statutory claims. To
date no class has been certified in either lawsuit. The Company has strong
defenses to both lawsuits and will vigorously defend its position and resist
certification of the classes. In addition, the same plaintiff's attorney who
has filed the purported class action lawsuits has filed 41 individual lawsuits
on behalf of current and former Paul Revere sales managers alleging various
breach of contract claims. The Company has strong defenses and will vigorously
defend its position in these cases as well. Although the alleged class action
lawsuits and the 41 individual lawsuits are in the very early stages, management
does not currently expect these suits to materially affect the financial
position or results of operations of the Company.
Various lawsuits against the Company have arisen in the normal course of
business. Contingent liabilities that might arise from litigation are not
deemed likely to materially affect the financial position or results of
operations of the Company.
12
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Shareholders
Provident Companies, Inc.
We have reviewed the accompanying condensed consolidated statement of financial
condition of Provident Companies, Inc. and Subsidiaries as of September 30,
1997, the related condensed consolidated statements of income for the three and
nine month periods ended September 30, 1997 and 1996, and the condensed
consolidated statements of cash flows for the nine month periods ended September
30, 1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Provident
Companies, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended, not presented herein, and in our report dated February 10,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated statement of financial condition as of December 31, 1996,
is fairly stated in all material respects in relation to the consolidated
statement of financial condition from which it has been derived.
ERNST & YOUNG LLP
Chattanooga, Tennessee
November 7, 1997
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Provident acquired GENEX Services, Inc. ("GENEX") and The Paul Revere
Corporation ("Paul Revere") on February 28, 1997, and March 27, 1997,
respectively. The financial information contained herein includes the accounts
and operating results of GENEX and Paul Revere from the respective dates of
acquisition. Since GENEX and Paul Revere are reflected in the results of the
third quarter of 1997 and not the third quarter of 1996, the difference in
comparability of the periods is frequently attributable to that fact as
indicated below.
OPERATING RESULTS
Revenue excluding net realized investment gains and losses ("revenue")
increased $423.4 million, or 74.7 percent, to $990.2 million in the third
quarter of 1997 from $566.8 million in the third quarter of 1996. The increase
was the result of higher revenue in the individual life and disability segment
($315.0 million) and employee benefits segment ($112.8 million), which was
partly offset by slightly lower revenue in the other operations segment ($4.4
million).
In the first nine months of 1997, revenue increased $815.7 million, or 47.1
percent, to $2,549.1 million from $1,733.4 million in the first nine months of
14
<PAGE>
1996. The increase was the result of higher revenue in the individual life and
disability segment ($637.0 million) and employee benefits segment ($216.5
million), which was partly offset by lower revenue in the other operations
segment ($37.8 million).
Income before net realized investment gains and losses and federal income
taxes ("income") increased $46.7 million, or 83.5 percent, to $102.6 million in
the third quarter of 1997, from $55.9 million in the third quarter of 1996. The
increase was the result of increased income in the individual life and
disability segment ($34.8 million) and employee benefits segment ($12.5
million), which was partly offset by lower income in the other operations
segment ($0.6 million).
In the first nine months of 1997, income increased $81.5 million, or 48.4
percent, to $249.9 million, from $168.4 million in the first nine months of
1996. The increase was the result of increased income in the individual life
and disability segment ($80.6 million) and the employee benefits segment ($11.8
million), which was partly offset by lower income in the other operations
segment ($10.9 million).
Net income increased $37.8 million, or 113.9 percent, to $71.0 million in
the third quarter of 1997, from $33.2 million in the third quarter of 1996. Net
realized investment gains after taxes were $4.7 million in the third quarter of
15
<PAGE>
1997, compared to after-tax losses of $2.8 million in the third quarter of 1996.
For the first nine months of 1997, net income increased $69.8 million, or 68.6
percent, to $171.5 million, from $101.7 million in the first nine months of
1996. Net realized investment gains after taxes were $8.8 million in the
first nine months of 1997, compared to after-tax losses of $6.5 million in the
first nine months of 1996.
INDIVIDUAL LIFE AND DISABILITY
Revenue in the individual life and disability segment increased $315.0
million, or 119.3 percent, to $579.1 million in the third quarter of 1997, from
$264.1 million in the third quarter of 1996. The increase was primarily the
result of the acquisition of Paul Revere, which contributed $309.8 million of
revenue to this segment in the third quarter of 1997. Premium income in this
segment increased $207.5 million, or 127.8 percent, to $369.8 million in the
third quarter of 1997, from $162.3 million in the third quarter of 1996. The
increase was primarily the result of the acquisition of Paul Revere.
For the first nine months of 1997, revenue in this segment increased $637.0
million, or 81.6 percent, to $1,418.1 million, from $781.1 million in the first
nine months of 1996. The increase was primarily the result of the acquisition
of Paul Revere, which contributed $616.8 million of revenue to this segment
16
<PAGE>
since the date of acquisition. Premium income in this segment increased $411.9
million, or 85.3 percent, to $894.8 million in the first nine months of 1997,
from $482.9 million in the first nine months of 1996, reflecting the acquisition
of Paul Revere. Premium income in the individual disability income line of
business increased $397.2 million, or 91.2 percent, to $832.5 million in the
first nine months of 1997, from $435.3 million in the first nine months of 1996.
The increase was primarily the result of the acquisition of Paul Revere.
In November 1994, the Company announced its intention to discontinue
selling individual noncancelable disability contracts with long-term own-
occupation provisions (other than conversion policies available under existing
contractual arrangements). Similarly, the Company is phasing out the sale of
individual noncancelable disability policies with long-term own-occupation
provisions by the Paul Revere insurance subsidiaries. The Company is focusing
on replacing the traditional noncancelable own-occupation contracts with "loss
of earnings" contracts which insure income rather than occupation. Following
the discontinuation of sales of these individual noncancelable disability
contracts, the Provident companies experienced a decline in annualized new sales
premiums in 1996, but in the first quarter of 1997, annualized new premiums
increased from the year ago quarter indicating market acceptance of the new
product. During the transition to the new products in the Paul Revere insurance
subsidiaries, annualized new premiums in this line are expected to decline as a
17
<PAGE>
result of a period of lower premiums associated with the new products. Revenue
is not expected to be significantly impacted due to continued favorable
persistency. The magnitude and duration of the expected decline are dependent
on the response of customers and competitors in the industry.
Income in the individual life and disability segment increased $34.8
million, or 101.5 percent, to $69.1 million in the third quarter of 1997, from
$34.3 million in the third quarter of 1996. The increase is primarily due to the
acquisition of Paul Revere and improved results in the Company's individual
disability income line of business. In this line, income increased $26.9
million, or 98.9 percent, to $54.1 million in the third quarter of 1997, from
$27.2 million in the third quarter of 1996. This improvement is primarily due to
a higher level of net claim resolutions in the third quarter of 1997 compared to
the third quarter of 1996 and the acquisition of Paul Revere. Management
believes substantial investments in the individual disability claims management
process since the first quarter of 1995 helped produce the improvement that has
occurred in this line over the past two years. The major elements of this
investment include an emphasis on early intervention to better respond to the
specific nature of the claims, increased specialization to properly adjudicate
the increasingly specialized nature of disability claims, and an increased level
of staffing with experienced claim adjusters. The individual life line of
business produced income of $8.3 million in the third quarter of 1997, compared
18
<PAGE>
to $6.6 million in the third quarter of 1996. The individual annuities line of
business produced income of $6.7 million in the third quarter of 1997, compared
to $0.5 million in the third quarter of 1996. Both of these lines of business
benefited from the acquisition of Paul Revere.
For the first nine months of 1997, income in this segment increased $80.6
million, or 99.9 percent, to $161.3 million from $80.7 million in the first nine
months of 1996. The increase is primarily due to the acquisition of Paul Revere
and improved results in the Company's individual disability income line of
business. In this line, income increased $64.0 million, or 103.9 percent, to
$125.6 million in the first nine months of 1997, from $61.6 million in the first
nine months of 1996. This improvement is primarily due to a lower level of new
claims in the first nine months of 1997 compared to the first nine months of
1996, a lower level of reopened claims, and the acquisition of Paul Revere. The
individual life line of business produced income of $21.4 million in the first
nine months of 1997, compared to $18.0 million in the first nine months of 1996.
The individual annuities line of business produced income of $14.3 million in
the first nine months of 1997, compared to $1.1 million in the first nine months
of 1996. Both of these lines of business benefited from the acquisition of Paul
Revere.
19
<PAGE>
The Company performed a loss recognition study on its individual disability
income business as of September 30, 1993. The study resulted in a $423.0
million pre-tax or $275.0 million after-tax charge to operating earnings. The
charge was required under generally accepted accounting principles ("GAAP") due
to the significant decline in interest rates in 1993 and the increased level of
morbidity experienced by the Company. Since 1993, the Company has performed
annual reserve adequacy studies to determine the continued adequacy of the
reserves that were established. Based upon the December 1996 reserve adequacy
study, which incorporated management's best estimate for the assumptions used,
reserves were adequate at December 31, 1996.
The Company continually studies and refines its methodology for analyzing
frequency and severity rates, as well as other factors that may affect reserve
adequacy. Management intends to continue to work to provide the Company with a
better methodology for anticipating changes in morbidity rates and a better
methodology for reflecting those changes in the management of its business.
Significant testing of any methodology must be undertaken. Current indicators
suggest a sufficiency in the Company's reserves.
It is not possible to predict with certainty whether morbidity, interest
rates, and expenses will continue at a level consistent with the assumptions
used in the loss recognition study, improve, or deteriorate; however, the
20
<PAGE>
current assumptions as to these factors represent management's best estimates in
light of present circumstances. Additional increases to reserves would be
required if there is a material deterioration in morbidity, interest rates,
and/or expenses. As part of its ongoing management of this line of business,
the Company conducts an annual reserve adequacy study to validate the continued
adequacy of current reserves.
EMPLOYEE BENEFITS
Accidental death and dismemberment and accident and sickness are now
reported in the group life and group disability lines of business, respectively;
in previous years, both were included with affinity groups in the packaged
products line. Prior year results have been reclassified to conform to current
period reporting. The reclassification did not change total revenue or total
income for the employee benefits segment.
Revenue in the employee benefits segment increased $112.8 million, or 78.0
percent, to $257.4 million in the third quarter of 1997, from $144.6 million in
the third quarter of 1996. The increase was primarily the result of an increase
in premium income in this segment of $80.8 million, or 68.5 percent, to $198.7
million in the third quarter of 1997, from $117.9 million in the third quarter
of 1996. The increase was primarily the result of the acquisition of Paul
Revere, which added $70.8 million of premium income in the group life and group
21
<PAGE>
disability lines of business. Premium income declined in the medical stop-loss
and affinity groups lines of business in the third quarter of 1997, compared to
the third quarter of 1996. In the third quarter of 1997, revenue was positively
impacted by the acquisition of GENEX. GENEX is a leading provider of case
management, vocational rehabilitation, and related services to corporations,
third party administrators, and insurance companies. These services are
utilized in the management of disability and worker's compensation claims. In
the third quarter of 1997, GENEX's revenue totaled $21.7 million.
For the first nine months of 1997, revenue in this segment increased $216.5
million, or 47.4 percent, to $672.8 million from $456.3 million in the first
nine months of 1996. Premium income increased $142.3 million, or 37.5 percent,
to $521.3 million in the first nine months of 1997, from $379.0 million in the
first nine months of 1996. The increase is the result of the acquisition of
Paul Revere, which added $141.5 million of premium income to the group life and
group disability lines of business since the date of acquisition. GENEX's
revenue since the date of acquisition totaled $50.3 million.
Income in the employee benefits segment increased $12.5 million, or 148.8
percent, to $20.9 million in the third quarter of 1997, from $8.4 million in the
third quarter of 1996. The group disability line of business produced income of
$7.4 million in the third quarter of 1997 compared to $1.0 million in the third
22
<PAGE>
quarter of 1996, primarily due to the acquisition of Paul Revere. Voluntary
benefits reported income of $4.7 million in the third quarter of 1997 compared
to $2.4 million in the third quarter of 1996. The affinity groups line of
business produced income of $2.5 million in the third quarter of 1997 compared
to a loss of $0.8 million in the third quarter of 1996. The medical stop-loss
line of business produced income of $0.6 million in the third quarter of 1997,
compared to a loss of $0.3 million in the third quarter of 1996. These increases
were partly offset by lower income in the group life line of business which
produced income of $5.2 million in the third quarter of 1997 compared to $6.1
million in the third quarter of 1996.
For the first nine months of 1997, income increased $11.8 million, or 29.5
percent, to $51.8 million, from $40.0 million in the first nine months of 1996.
The increase is primarily the result of increased income in the group disability
and affinity groups lines of business and the acquisitions of Paul Revere and
GENEX, which were partly offset by lower income in the group life and medical
stop-loss lines of business.
OTHER OPERATIONS
The other operations segment includes the Company's group pension products,
its corporate-owned life insurance ("COLI") product, the dental block acquired
23
<PAGE>
from Paul Revere, the excess risk reinsurance line of business of Paul Revere,
corporate interest expense, goodwill amortization, and corporate (unallocated)
capital and assets. These closed blocks of business have been segregated for
reporting and monitoring purposes. The group pension products include the
Company's traditional guaranteed investment contracts ("GICs"), group single
premium annuities ("SPAs"), and synthetic GICs.
On June 30, 1997, the Company announced that it had entered into a
marketing agreement with Ameritas Life Insurance Corporation ("Ameritas")
whereby Provident will market Ameritas' dental products. The two companies also
entered into an agreement that involves the transition of the Company's block of
dental insurance to Ameritas. The dental block, which was acquired in the Paul
Revere acquisition, produced $48.3 million in premium income in 1996 and $36.1
million in the first nine months of 1997. The full transition of the dental
business to Ameritas is expected to be completed by November 1997.
Revenue in the other operations segment declined $4.4 million, or 2.8
percent, to $153.7 million in the third quarter of 1997, from $158.1 million in
the third quarter of 1996. The decline is primarily the result of a decrease in
funds under management resulting from the strategic decision to discontinue the
sale of products in the group pension line of business. Revenue in this line
declined to $70.0 million in the third quarter of 1997, from $97.6 million in
the third
24
<PAGE>
quarter of 1996. This decline was partly offset by the excess risk reinsurance
line of business and dental business of Paul Revere, which produced revenue of
$11.2 million and $12.3 million, respectively, in the third quarter of 1997.
For the first nine months of 1997, revenue in this segment declined $37.8
million, or 7.6 percent, to $458.2 million, from $496.0 million in the first
nine months of 1996. The decline is primarily the result of a decrease in funds
under management resulting from the discontinuation of the sale of products in
the group pension business. Revenue in this line declined $82.1 million, or
26.0 percent, to $234.1 million in the first nine months of 1997, from $316.2
million in the first nine months of 1996.
The Company announced in December 1994, that it would discontinue the sale
of traditional GICs. Funds under management for the group pension line,
excluding deposits for synthetic GICs, totaled $3.43 billion at September 30,
1997, compared to $5.03 billion at September 30, 1996, a decrease of 31.8
percent.
Also, in keeping with management's strategic desire to focus its resources
in the other two segments, the Company decided to discontinue the sale of
synthetic GICs and is selling this block of business through an assumptive
reinsurance transaction which is subject to the approval of the contract holders
25
<PAGE>
and respective state regulators. This sale is expected to be completed by
December 31, 1997. Accumulated funds from the Company's synthetic GICs totaled
$1.51 billion at September 30, 1997, and $2.18 billion at December 31, 1996.
Revenue in this segment is expected to continue to decline as a result of
the discontinuance of the sales of traditional GICs and group SPAs and the run-
off of the funds under management. As the traditional GICs mature, capital will
be available for use by the Company as amounts allocated to this line are
released.
Income in the third quarter of 1997 declined $0.6 million to $12.6 million
from $13.2 million in the third quarter of 1996. The decline in this segment
was due to lower income in the group pension line of business, which declined
$1.2 million to $10.3 million in the third quarter of 1997 from $11.5 million in
the third quarter of 1996. The decline in this line was primarily the result of
lower funds under management and lower income from a reduced amount of capital
allocated to this line. Income from the COLI line of business increased to $5.2
million in the third quarter of 1997, compared to $3.9 million in the third
quarter of 1996. The excess risk reinsurance line acquired with Paul Revere
produced income of $2.5 million in the third quarter of 1997. Interest expense
on the long-term debt in the third quarter of 1997 totaled $11.8 million,
compared to $3.0 million in the third quarter of 1996.
26
<PAGE>
For the first nine months of 1997, income in this segment declined $10.9
million to $36.8 million, from $47.7 million in the first nine months of 1996.
The decline is primarily the result of lower income in the group pension line,
which produced income of $28.0 million in the first nine months of 1997,
compared to $38.8 million in the first nine months of 1996. Interest expense on
the long-term debt in the first nine months of 1997 totaled $27.1 million,
compared to $9.4 million in the first nine months of 1996.
Management expects that income in 1997 from the group pension line will
decline from the levels recorded in 1996 as the funds under management decline.
LIQUIDITY AND CAPITAL RESOURCES
On March 27, 1997, the Company consummated the acquisition of Paul Revere
("Paul Revere Merger") pursuant to the Amended and Restated Agreement and Plan
of Merger.
The Paul Revere Merger was financed through common equity issuance to
Zurich Insurance Company, a Swiss insurer, and its affiliates, common equity
issuance and cash to Paul Revere stockholders, debt, and internally generated
funds. The debt financing was provided through an $800.0 million five-year
revolving credit
27
<PAGE>
facility with various domestic and international banks. The revolving credit
facility was established in 1996 to provide partial financing for the purchase
of Paul Revere, to refinance the existing bank term notes of $200.0 million, and
for general corporate uses. At September 30, 1997 and December 31, 1996,
outstanding borrowings under the revolving credit facility were $725.0 million
and $200.0 million, respectively. The credit facility has a current interest
rate of 6.025 percent and contains certain restrictive covenants governing the
Company's ability to pay dividends and requirements that the Company satisfy
certain financial covenants, including requirements as to minimum adjusted
statutory surplus and risk-based capital levels. The Company believes the cash
flow from the combined operations will be sufficient to meet its operating and
financing cash flow requirements. Periodically, the Company may issue debt or
equity securities to fund internal expansion, acquisitions, investment
opportunities and the retirement of the Company's debt and equity. As of
September 30, 1997, the Company has a shelf registration with an unused balance
of $900.0 million that would allow the Company to issue various types of debt or
equity securities.
As a holding company, the Company is dependent upon payments from its
wholly-owned insurance subsidiaries and GENEX to pay dividends to its
stockholders and to pay its expenses. These payments by the Company's
subsidiaries may take the form of either dividends or interest payments on
28
<PAGE>
amounts loaned to such subsidiaries by the Company.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends or make other payments to their affiliates in excess of
certain prescribed limitations. In Tennessee, the state of domicile for
Provident Life and Accident Insurance Company, Provident Life and Casualty
Insurance Company ("Casualty"), and Provident National Assurance Company,
regulatory approval is required if an insurance company seeks to make loans to
affiliates in amounts equal to or in excess of three percent of the insurer's
admitted assets, or to pay cash dividends in any 12-month period in excess of
the greater of such company's net gain from operations of the preceding year or
ten percent of its surplus as regards policyholders, as determined at the end of
the preceding year in accordance with prescribed or permitted accounting
practices. The Paul Revere Life Insurance Company ("Paul Revere Life") is
domiciled in the Commonwealth of Massachusetts. The maximum annual dividend
which a Massachusetts insurance company is permitted to pay without the prior
approval of the Massachusetts Commissioner of Insurance is the greater of (a)
ten percent of the insurance company's surplus to policyholders as of the
thirty-first day of December next preceding or (b) the insurance company's
statutory net gain from operations for the 12-month period ending the thirty-
first day of December next preceding. Legislation enacted in Massachusetts
further provides that any dividend not paid out of earned surplus be made only
with prior approval of the
29
<PAGE>
Massachusetts Commissioner of Insurance. Under Massachusetts law, regulatory
approval is required if an insurance company seeks to make loans to affiliates
in amounts equal to or in excess of three percent of the insurer's admitted
assets. An aggregate of $141.5 million would be available in 1997 for the
payment of dividends or other distributions by the Company's top-tier insurance
subsidiaries without regulatory approval.
In connection with simplifying the Company's corporate structure, Paul
Revere Life and Casualty have filed notice of their intention to merge with the
Commissioners of Insurance of respective states of domicile. Subject to
regulatory approval, the merger is expected to be completed in the first quarter
of 1998. Paul Revere Life will be the surviving corporation.
The Company's requirements are met primarily by cash flow provided from
operations, principally in its insurance subsidiaries. Premium and investment
income as well as maturities and sales of invested assets provide the primary
sources of cash. Cash flow from operations was sufficient in the third quarter
of 1997. Cash is applied to the payment of policy benefits, costs of acquiring
new business (principally commissions) and operating expenses as well as
purchases of new investments. The Company has established an investment
strategy that management believes will provide for adequate cash flow from
operations.
30
<PAGE>
During the third quarter of 1997, the Company sold $242.6 million of
commercial mortgage loans acquired through the merger with Paul Revere. The
purpose of this transaction is to increase the liquidity and improve the asset
quality and asset/liability management of the investment portfolio.
As a result of the release of capital generated by the run-off of the GIC
portfolio, the sale of the commercial mortgage loans, and other corporate
actions, the Company has increased its available capital to support the growth
of its businesses, including assisting in the financing of the acquisitions of
Paul Revere and GENEX. Management continues to analyze potential opportunities
to utilize the capital to further enhance stockholder value, including exploring
options that would support the Company's growth initiatives.
INVESTMENTS
Investment activities are an integral part of the Company's business, and
profitability is significantly affected by investment results. Invested assets
are segmented into portfolios which support the various product lines.
Generally, the investment strategy for the portfolios is to match the effective
asset durations with related expected liability durations and to maximize
31
<PAGE>
investment returns, subject to constraints of quality, liquidity,
diversification, and regulatory considerations.
For the past three years, the Company's exposure to non-current investments
has improved significantly from prior years. Non-current investments totaled
$19.9 million at September 30, 1997, or 0.10 percent of invested assets.
The Company's investment in mortgage-backed securities totaled $3.1 billion
at September 30, 1997. Investments in mortgage-backed securities excluding Paul
Revere totaled $2.4 billion on an amortized cost basis at December 31, 1996. At
September 30, 1997, the mortgage-backed securities for the combined companies
had an average life of 9.4 years and effective duration of 7.1 years. The
mortgage-backed securities are valued on a monthly basis using valuations
supplied by the brokerage firms that are dealers in these securities. The
primary risk involved in investing in mortgage-backed securities is the
uncertainty of the timing of cash flows from the underlying loans due to
prepayment of principal. The Company uses models which incorporate economic
variables and possible future interest rate scenarios to predict future
prepayment rates. The Company has not invested in mortgage-backed derivatives,
such as interest-only, principal-only or residuals, where market values can be
highly volatile relative to changes in interest rates.
32
<PAGE>
As with most other fixed income investments, below-investment-grade bonds
are subject to the effects of changes in the overall level of interest rates,
which can affect both capital and reinvestment return. Below-investment-grade
bonds are inherently more risky than investment-grade bonds since the risk of
default by the issuer, by definition and as exhibited by bond rating, is higher.
Also, the secondary market for certain below-investment grade issues can be
highly illiquid. Management does not anticipate any liquidity problem caused by
the investment in below-investment-grade securities, nor does it expect these
investments to adversely affect its ability to hold its other investments to
maturity.
The Company's exposure to below-investment-grade fixed maturity securities
at September 30, 1997, was $1,217.5 million, representing 6.4 percent of
invested assets, below the internal limit of 7.5 percent of invested assets for
this type of investment. Subsequent to September 30, 1997, this limit was raised
to 10.0 percent. The Company's exposure to below-investment-grade fixed
maturities excluding Paul Revere totaled $891.1 million at December 31, 1996,
representing 6.7 percent of invested assets.
Changes in interest rates and individuals' behavior affect the amount and
timing of asset and liability cash flows. Management has added resources in the
investment area to address modeling and testing of all asset and liability
33
<PAGE>
portfolios to improve interest rate risk management and net yields. Testing the
asset and liability portfolios under various interest rate and economic
scenarios allows management to choose the most appropriate investment strategy
as well as to prepare for the most disadvantageous outcomes.
During the first quarter of 1997, the Company executed a series of cash
flow hedges in its individual disability income portfolio, hedging $205.0
million of expected cash flows in the years 2001 and 2002 using forward interest
rate swaps and $85.0 million of expected future cash flows in the years 2000 and
2001 using options on forward interest rate swaps.
During the second quarter of 1997, the Company executed a series of cash
flow hedges in its individual disability income portfolio, hedging $250.0
million of cash flows in the year 1997 using futures contracts, $215.0 million
of cash flows in years 1999 through 2002 using forward interest rate swaps, and
$510.0 million of cash flows in the years 1998 through 2002 using options on
forward interest rate swaps. The options on futures produced a deferred gain of
$2.8 million.
34
<PAGE>
During the third quarter of 1997, $30.0 million notional amount of forward
interest rate swaps were unwound, producing a net investment yield of 9.07
percent. Also, $50.0 million of forwards were unwound, producing a net yield of
8.31 percent.
Also in the third quarter, $65.0 million of options on interest rate swaps
were written. Options of $240.0 million were written to hedge cash flows in the
years 1997, 1998, 1999 and 2002. The purpose of these actions in the individual
disability income portfolio was to hedge the reinvestment of future cash flows
and protect the Company from the potential adverse impact of declining interest
rates over the next five years.
During the first quarter of 1997, $100.0 million notional amount of forward
interest rate swaps related to the group pension cash match hedge settled,
producing a realized investment loss of $1.4 million. This was offset by a $1.6
million realized gain on the sale of the hedged assets. In addition, $150.0
35
<PAGE>
million of options on forward interest rate swaps were added to hedge expected
future cash flows for the single premium annuity portfolio in the years 2002 and
2003.
During the second quarter of 1997, $100.0 million notional amount of
forward interest rate swaps related to the group pension cash match hedge
settled, producing a realized investment loss of $1.1 million. This was offset
by a $1.1 million realized gain on the sale of the hedged assets. In addition,
$150.0 million of options on forward interest rate swaps were added to hedge
expected future cash flows for the single premium annuity portfolio in the years
2002 and 2003. During the third quarter of 1997, an additional $100.0 million
notional amount of forward interest rate swaps settled, producing a realized
investment loss of $1.6 million which was offset by a $1.6 million realized gain
on the sale of the hedged assets. The purpose of these actions was to hedge the
reinvestment of future cash flows and protect the Company from the potential
adverse impact of declining interest rates.
YEAR 2000 ISSUES
In 1996 the Company completed the planning phase of a project to modify its
computer information systems enabling proper processing of date data relating to
36
<PAGE>
the year 2000 and beyond. The Company is now in the process of executing its
plan and expects all systems to be compliant by the end of 1998. The total cost
of the project is estimated to be between $6.7 million and $8.3 million. The
Company is expensing all costs associated with these system changes.
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at September 30, 1997, and
for the three month and nine month periods then ended have been reviewed, prior
to filing, by Ernst and Young, LLP, the Company's independent accountants, and
their report is included herein.
37
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 15 Letter re: unaudited interim financial information
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K: None
38
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Provident Companies, Inc.
(Registrant)
Date: November 10, 1997 /s/ J. Harold Chandler
__________________________________
J. Harold Chandler
Chairman, President and
Chief Executive Officer
Date: November 10, 1997 /s/ Thomas R. Watjen
__________________________________
Thomas R. Watjen
Vice Chairman and
Chief Financial Officer
39
<PAGE>
INDEX OF EXHIBITS
EXHIBIT PAGE
Exhibit 15 Letter re: unaudited interim financial information 41
Exhibit 27 Financial Data Schedule (for SEC use only) 42
40
<PAGE>
EXHIBIT 15
Board of Directors and Shareholders
Provident Companies, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 33-47551, Form S-8 No. 33-88108 and Form S-8 No. 33-62231)
pertaining to the Provident Life and Accident Insurance Company MoneyMaker, A
Long-Term 401(k) Retirement Savings Plan, the Provident Life and Accident
Insurance Company Stock Option Plan of 1994 and the Provident Life and Accident
Insurance Company Employee Stock Purchase Plan of 1995 and in the Registration
Statements (Form S-3 No. 333-17849 and Form S-3 No. 333-25009) of our report
dated November 7, 1997 relating to the unaudited condensed consolidated interim
financial statements of Provident Companies, Inc. which is included in its Form
10-Q for the quarter ended September 30, 1997. All of the shares of Class B
Common Stock of Provident Life and Accident Insurance Company of America were
exchanged for shares of Provident Companies, Inc. pursuant to an Agreement and
Plan of Share Exchange effective December 27, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Chattanooga, Tennessee
November 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 16,604,300
<DEBT-CARRYING-VALUE> 279,000
<DEBT-MARKET-VALUE> 296,100
<EQUITIES> 12,200
<MORTGAGE> 35,100
<REAL-ESTATE> 98,300
<TOTAL-INVEST> 19,116,000
<CASH> 140,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 397,900
<TOTAL-ASSETS> 22,839,500
<POLICY-LOSSES> 12,926,500<F1>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 508,300
<POLICY-HOLDER-FUNDS> 4,600,600
<NOTES-PAYABLE> 725,000
0
156,200
<COMMON> 135,100
<OTHER-SE> 2,773,400
<TOTAL-LIABILITY-AND-EQUITY> 22,839,500
1,471,500
<INVESTMENT-INCOME> 990,100
<INVESTMENT-GAINS> 13,100
<OTHER-INCOME> 87,500
<BENEFITS> 1,719,900
<UNDERWRITING-AMORTIZATION> 57,900
<UNDERWRITING-OTHER> 521,400
<INCOME-PRETAX> 263,000
<INCOME-TAX> 91,500
<INCOME-CONTINUING> 171,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,500
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>"POLICY LOSSES" INCLUDE RESERVE FOR FUTURE POLICY AND CONTRACT BENEFITS OF
$12,864,300 AND UNEARNED PREMIUMS OF $62,200.
</FN>
</TABLE>
