<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 March 31, 1998.
Commission file number 1-11834
---------
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
---------------------------------------------------
(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 MARCH 31, 1998
- ------------------------------ ---------------------------------
Common Stock, $1.00 Par Value 135,335,859
Total number of pages included are 35
<PAGE>
PROVIDENT COMPANIES, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Financial
Condition at March 31, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1998 and 1997 6
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 8
Notes to Condensed Consolidated Financial Statements 9
Independent Accountants' Review Report 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
<PAGE>
PART 1
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relating
to such matters as financial performance and the business of the Company. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order for the Company to comply with the terms
of the safe harbor the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's forward
looking statements, which involve certain risks and uncertainties. These
factors include, (i) heightened competition, including specifically the
intensification of price competition, the entry of new competitors, and the
development of new products by new and existing competitors; (ii) adverse state
and federal legislation and regulation, including limitations on premium levels,
increases in minimum capital reserves, and other financial viability
requirements; (iii) failure to develop multiple distribution channels in order
to obtain new customers or failure to retain existing customers; (iv) inability
to carry out product design, marketing and sales plans, including, among others,
planned changes to existing products (which may result in reduced market
acceptance of the revised products) or planned strategies to penetrate new
market segments; (v) loss of key executives; (vi) changes in interest rates
causing a reduction of investment income; (vii) general economic and business
conditions which are less favorable than expected; (viii) unanticipated changes
in industry trends; (ix) inaccuracies in assumptions regarding future morbidity,
persistency, mortality, and interest rates used in calculating reserve amounts;
(x) failure to continue improvement of the Company's disability insurance claims
management process; and (xi) litigation involving the Company's business and
activities. See "Risk Factors" included in the Company's report on Form 10-K for
the year ended December 31, 1997 (pp.17-20), incorporated herein by reference.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
(in millions of dollars)
-------------------------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Investments
Fixed Maturity Securities
Available-for-Sale $16,982.1 $17,035.1
Held-to-Maturity 293.5 306.8
Equity Securities 16.8 10.0
Mortgage Loans 18.0 17.8
Real Estate 48.5 87.1
Policy Loans 1,999.5 1,983.9
Other Long-term Investments 24.5 22.6
Short-term Investments 157.8 57.5
--------- ---------
Total Investments 19,540.7 19,520.8
Cash and Bank Deposits 57.6 37.7
Accounts and Premiums Receivable 131.8 166.4
Reinsurance Receivable 1,002.6 987.2
Accrued Investment Income 391.3 363.2
Deferred Policy Acquisition Costs 393.1 362.9
Value of Business Acquired 557.3 560.8
Goodwill 726.8 732.3
Property and Equipment 113.4 109.2
Miscellaneous 28.2 26.2
Separate Account Assets 342.3 310.9
--------- ---------
TOTAL $23,285.1 $23,177.6
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
(in millions of dollars)
-------------------------------------------
<S> <C> <C>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy and Contract Benefits $ 539.0 $ 531.2
Reserves for Future Policy and Contract Benefits
and Unearned Premiums 13,353.8 13,193.8
Policyholders' Funds and Experience Rating Refunds 4,020.8 4,328.0
Federal Income Tax Liability 241.1 190.1
Short-term Debt 573.6 150.7
Long-term Debt 200.0 725.0
Other Liabilities 501.7 468.6
Separate Account Liabilities 342.3 310.9
--------- ---------
TOTAL LIABILITIES 19,772.3 19,898.3
--------- ---------
MINORITY INTEREST PREFERRED SECURITIES OF SUBSIDIARY COMPANY 300.0 -
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE 5
STOCKHOLDERS' EQUITY
Preferred Stock - 156.2
Common Stock, $1 par 135.3 135.2
Additional Paid-in Capital 753.7 750.6
Retained Earnings 1,692.0 1,635.2
Accumulated Other Comprehensive Income - Note 6 633.4 603.6
Treasury Stock (1.6) (1.5)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 3,212.8 3,279.3
--------- ---------
TOTAL $23,285.1 $23,177.6
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
(in millions of dollars, except share data)
-------------------------------------------
<S> <C> <C>
REVENUE
Premium Income $ 587.2 $ 287.5
Net Investment Income 361.8 262.5
Net Realized Investment Gains 6.2 4.7
Other Income 38.4 16.6
------------ -----------
TOTAL REVENUE 993.6 571.3
------------ -----------
BENEFITS AND EXPENSES
Policy and Contract Benefits 467.0 291.7
Change in Reserves for Future Policy and Contract Benefits
and Policyholders' Funds 168.6 110.1
Amortization
Deferred Policy Acquisition Costs 19.6 17.3
Value of Business Acquired 8.7 0.1
Goodwill 5.5 0.2
Salaries 54.7 23.5
Commissions 69.0 31.2
Interest Expense on Debt 15.6 6.3
Other Operating Expenses 72.0 28.1
------------ -----------
TOTAL BENEFITS AND EXPENSES 880.7 508.5
------------ -----------
INCOME BEFORE FEDERAL INCOME TAXES 112.9 62.8
FEDERAL INCOME TAXES 41.8 22.0
------------ -----------
NET INCOME $ 71.1 $ 40.8
============ ===========
NET INCOME PER COMMON SHARE
Basic $ 0.51 $ 0.40
Assuming Dilution $ 0.50 $ 0.39
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 134,929,080 93,211,708
Assuming Dilution 138,645,330 95,425,690
DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.09
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
(in millions of dollars)
----------------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 188.2 $ 108.2
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investments 572.0 233.7
Proceeds from Maturities of Investments 362.8 385.2
Purchase of Investments (694.5) (297.1)
Net (Purchases) Sales of Short-term Investments (99.9) 150.6
Acquisition of Business--Note 4 -- (857.8)
Other (11.1) (3.4)
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 129.3 (388.8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits to Policyholder Accounts 102.3 86.1
Maturities and Benefit Payments from Policyholder Accounts (427.2) (511.5)
Net Short-term Borrowings 422.9 --
Net Long-term Borrowings (Repayments) (525.0) 425.9
Issuance of Minority Interest Preferred Securities 300.0 --
Redemption of Preferred Stock (156.2) --
Issuance of Common Stock 3.2 301.9
Dividends Paid to Stockholders (17.5) (11.4)
Other (0.1) 0.1
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (297.6) 291.1
------- -------
Effect of Foreign Exchange Rate Changes on Cash -- (0.7)
------- -------
NET INCREASE IN CASH AND BANK DEPOSITS 19.9 9.8
CASH AND BANK DEPOSITS AT BEGINNING OF PERIOD 37.7 19.3
------- -------
CASH AND BANK DEPOSITS AT END OF PERIOD $ 57.6 $ 29.1
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-7-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
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 month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. 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, 1997.
NOTE 2--DEBT AND EQUITY SECURITIES
On February 24, 1998, the Company repaid the $725.0 million outstanding
borrowing on its revolving credit facility and redeemed its cumulative preferred
stock outstanding of $156.2 million at $150 per share equivalent to $25 per
depositary share. The debt repayment and preferred stock redemption were funded
through short-term borrowings.
In May 1997, the Securities and Exchange Commission declared effective a shelf
registration statement pursuant to which the Company may issue up to $900.0
million in debt and/or equity securities. On March 16, 1998, the Company
completed a public offering of $200.0 million of 7.25% senior notes due March
15, 2028. On March 16, 1998, Provident Financing Trust I, a subsidiary trust of
the Company, issued $300.0 million of 7.405% capital securities in a public
offering. These capital securities, which mature on March 15, 2038, are fully
and unconditionally guaranteed by the Company, have a liquidation value of
$1,000 per capital security, and have a mandatory redemption feature under
certain circumstances. The Company issued 7.405% junior subordinated
deferrable interest debentures which mature on March 15, 2038, to the subsidiary
trust in connection with the capital securities offering.
-8-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
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 March 31
1998 1997
(in millions of dollars)
----------------------------------------
<S> <C> <C>
Revenue (Excluding Net Realized Investment Gains and Losses)
Individual Life and Disability $560.8 $262.0
Employee Benefits 259.4 145.8
Other Operations 167.2 158.8
------ ------
Total $987.4 $566.6
====== ======
Income Before Net Realized Investment
Gains and Losses and Federal Income Taxes
Individual Life and Disability $ 75.1 $ 25.8
Employee Benefits 26.8 12.3
Other Operations 4.8 20.0
------ ------
Total $106.7 $ 58.1
====== ======
</TABLE>
-9-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
NOTE 3--SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
(in millions of dollars)
---------------------------------------
<S> <C> <C>
Revenue (Including Net Realized Investment Gains and Losses)
Individual Life and Disability $569.9 $266.9
Employee Benefits 261.0 145.6
Other Operations 162.7 158.8
------ ------
Total $993.6 $571.3
====== ======
Income Before Federal Income Taxes
Individual Life and Disability $ 84.2 $ 30.7
Employee Benefits 28.4 12.1
Other Operations 0.3 20.0
------ ------
Total $112.9 $ 62.8
====== ======
</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.
-10-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
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) 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 is being
amortized on a straight-line basis over a 25 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 $437.5 million and cash of $2.5
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 $6,680.0 million and
$6,675.4 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. Goodwill is being
amortized on a straight-line basis over a 40 year period.
The following pro forma results of operations for the three months ended March
31, 1997, 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 the period presented, are as
follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31, 1997
(in millions of dollars,
except share data)
------------------------
<S> <C>
Revenue $1,027.7
Income Before Federal Income Taxes 111.2
Net Income 69.8
Net Income per Common Share
Basic 0.50
Assuming Dilution 0.49
</TABLE>
-11-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
NOTE 4--ACQUISITION OF BUSINESS - CONTINUED
Revenue and income before federal income taxes include $36.4 million of pre-tax
net realized investment gains for Paul Revere for the three months ended March
31, 1997. Net income includes $23.7 million ($0.18 per common share) of after-
tax net investment gains for the three months ended March 31, 1997.
NOTE 5--COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
In December 1997, the Company entered into a definitive agreement with American
General Corporation (American General) under which various affiliates of
American General will acquire the Company's individual and tax-sheltered annuity
business for approximately $58.0 million in cash. In addition, American General
is acquiring a number of miscellaneous group pension lines of business which are
no longer actively marketed. The sale does not include the Company's Canadian
annuity business, traditional guaranteed investment contracts, or group single
premium annuities. The transaction is expected to close in the second quarter of
1998. The Company expects to record a gain when the transaction is closed.
Contingent Liabilities
Two alleged class action lawsuits have been filed in Superior Court in
Worcester, Massachusetts against the Company. One of the alleged lawsuits
purports to represent all career agents of Paul Revere whose employment
relationships ended on June 30, 1997, and who were offered contracts to sell
insurance policies as independent producers, and the other purports 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 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.
NOTE 6--COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income, which establishes standards for reporting and presentation of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments and unrealized holding gains and losses on the Company's
available-for-sale fixed maturity and equity securities, which prior to adoption
were reported separately in stockholders' equity, to be reported as components
of comprehensive income. Prior periods have been reclassified to conform to the
requirements of SFAS 130. SFAS 130 had no impact on the Company's net income or
stockholders' equity.
-12-
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
MARCH 31, 1998
NOTE 6--COMPREHENSIVE INCOME - CONTINUED
The components of accumulated other comprehensive income, net of related tax,
are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
(in millions of dollars)
-----------------------------------
<S> <C> <C>
Net Unrealized Gain on Securities $651.7 $624.3
Foreign Currency Translation Adjustment (18.3) (20.7)
------ ------
Accumulated Other Comprehensive Income $633.4 $603.6
====== ======
</TABLE>
The components of comprehensive income (loss), net of related tax, are as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1997
(in millions of dollars)
----------------------------------
<S> <C> <C>
Net Income $ 71.1 $ 40.8
Change in Net Unrealized Gain on Securities 27.4 (67.4)
Change in Foreign Currency Translation Adjustment 2.4 (0.4)
------ ------
Comprehensive Income (Loss) $100.9 $(27.0)
====== ======
</TABLE>
-13-
<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 March 31, 1998,
and the related condensed consolidated statements of income and cash flows for
the three month periods ended March 31, 1998 and 1997. 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, 1997, 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 3, 1998,
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, 1997, 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
May 12, 1998
-14-
<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
first quarter of 1998 and not in their entirety for the first quarter of 1997,
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 $420.8 million, or 74.3 percent, to $987.4 million in the first
quarter of 1998 from $566.6 million in the first quarter of 1997. The increase
was the result of higher revenue in the individual life and disability segment
($298.8 million), the employee benefits segment ($113.6 million), and the other
operations segment ($8.4 million).
Income before net realized investment gains and losses and federal income
taxes ("income") increased $48.6 million, or 83.6 percent, to $106.7 million in
the first quarter of 1998 from $58.1 million in the first quarter of 1997. The
increase was the result of increased income in the individual life and
disability segment ($49.3 million) and the employee benefits segment ($14.5
million), which was partly offset by lower income in the other operations
segment ($15.2 million).
Net income increased $30.3 million, or 74.3 percent, to $71.1 million in
the first quarter of 1998 from $40.8 million in the first quarter of 1997. Net
realized investment gains after taxes were $4.1
15
<PAGE>
million in the first quarter of 1998, compared to $3.1 million in the first
quarter of 1997.
INDIVIDUAL LIFE AND DISABILITY
Revenue in the individual life and disability segment increased $298.8
million, or 114.0 percent, to $560.8 million in the first quarter of 1998, from
$262.0 million in the first quarter of 1997. The increase was primarily the
result of the acquisition of Paul Revere, which contributed $302.7 million of
revenue to this segment in the first quarter of 1998. Premium income in this
segment increased $212.6 million, or 131.7 percent, to $374.0 million in the
first quarter of 1998, from $161.4 million in the first quarter of 1997. The
increase was primarily the result of the acquisition of Paul Revere.
In November 1994, the Company announced its intention to discontinue the
sale of individual disability products which combined lifetime benefits and
short elimination periods with own-occupation provisions. At the same time
Provident began introducing products that insured "loss of earnings" as opposed
to occupations, and these products generally contained more limited benefit
periods and longer elimination periods. Since the acquisition of Paul Revere in
March 1997, the Company has discontinued the sale of certain Paul Revere
products that are not consistent with the Company's strategic direction for its
product portfolio. The Company expects to continue to offer on a limited basis
selected Paul Revere products with own-occupation (while not working) features
applying stricter underwriting standards. The Company is in the process of
repricing these selected products and making modifications to their features
where appropriate. Going forward, the Company expects to offer a limited
portfolio of own occupational based coverages along with its more complete line
of loss of earnings related disability coverages.
In 1997, sales of individual disability income contracts declined compared
to the previous year, reflecting the disruption associated with the
consolidation of the Company's and Paul Revere's sales offices, realignment of
the field sales force, and the continued
16
<PAGE>
product transition. In the first quarter of 1998, new annualized sales in the
individual disability income line totaled $26.2 million, compared to $33.9
million on a pro forma basis in the first quarter of 1997, reflecting the
continued product transition.
Revenue is not expected to be significantly impacted by the transition in
products due to continued favorable persistency. The magnitude and duration of
any future decline in sales, such as that experienced during 1997, are dependent
on the response of customers and competitors in the industry.
Income in the individual life and disability segment increased $49.3
million, or 191.1 percent, to $75.1 million in the first quarter of 1998, from
$25.8 million in the first quarter of 1997. The increase is primarily due to
the acquisition of Paul Revere and improved results in its individual disability
income line of business. In this line, income increased $46.7 million, or 217.2
percent, to $68.2 million in the first quarter of 1998, from $21.5 million in
the first quarter of 1997, reflecting the acquisition of Paul Revere and a
higher level of net claim resolutions in the first quarter of 1998 compared to
the first quarter of 1997. Management believes the substantial investment in
the claims management process since the first quarter of 1995 helped produce the
improvement that has occurred in this line over the past three 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 $6.9 million in the first
quarter of 1998, an increase of $2.6 million, or 60.5 percent, over the $4.3
million in the first quarter of 1997. The increase is the result of the
acquisition of Paul Revere.
The Company strengthened its reserves on its individual disability income
business as of September 30, 1993 which resulted in a $423.0 million pre-tax or
$275.0 million after-tax charge to operating earnings. The charge was required
under generally
17
<PAGE>
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 studies to determine the
continued adequacy of reserves is held for its individual disability business.
Based upon the December 1997 reserve adequacy study, which incorporated
management's best estimate for the assumptions used, reserves were adequate at
December 31, 1997.
The Company performs regular studies of the frequency and severity rates,
as well as other factors that may affect reserve adequacy. It intends to
continue to refine its methodology for projecting the effects of changes in
morbidity and interest rates to reflect anticipated changes in the management of
its business. Significant testing of any methodology must be undertaken. Current
projections and studies indicators suggest a sufficiency in the Company's
individual disability 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 reserve adequacy study, improve, or deteriorate; however, the
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.
EMPLOYEE BENEFITS
Revenue in the employee benefits segment increased $113.6 million, or 77.9
percent, to $259.4 million in the first quarter of 1998, from $145.8 million in
the first quarter of 1997. The increase was primarily the result of an increase
in premium income in this segment of $84.7 million, or 76.1 percent, to $196.0
million in the first quarter of 1998, from $111.3 million in the first quarter
of 1997. The increase was primarily the result of the acquisition of Paul
Revere, which added $71.3 million of premium income in the group life and group
disability lines of business. Also in the first quarter of 1998, revenue was
positively impacted by the acquisition of
18
<PAGE>
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 first quarter
of 1998 GENEX's revenue totaled $23.1 million, compared to $7.2 million in the
first quarter of 1997.
Income in the employee benefits segment increased $14.5 million, or 117.9
percent, to $26.8 million in the first quarter of 1998, from $12.3 million in
the first quarter of 1997. The group disability line of business produced income
of $14.3 million in the first quarter of 1998 compared to $3.7 million in the
first quarter of 1997. This increase is due to the acquisition of Paul Revere
and the impact of updated factors used in calculating Social Security offset
amounts and probabilities and claim termination rates, resulting from year-end
1997 group disability reserve studies. The group life line of business produced
income of $7.2 million in the first quarter of 1998 compared to $1.0 million in
the first quarter of 1997. This increase is due to the acquisition of Paul
Revere and lower loss ratios and improved deficit recoveries on experienced-
rated cases. GENEX produced income of $1.2 million in the first quarter of 1998
compared to $0.5 million in the first quarter of 1997. The improved results in
these three lines of business were partly offset by lower income in the affinity
groups and voluntary benefits lines of business.
OTHER OPERATIONS
The other operations segment includes the Company's group pension products,
corporate-owned life insurance ("COLI"), medical stop-loss, individual
annuities, corporate interest expense, goodwill amortization, and corporate
(unallocated) capital and assets. These closed blocks of business have been
segregated for reporting and monitoring purposes.
On December 8, 1997, the Company entered into a definitive agreement to
sell its in-force individual and tax-sheltered annuity business to various
affiliates of American General Corporation ("American General"). The in-force
business being sold consists
19
<PAGE>
primarily of individual fixed annuities and tax-sheltered annuities in Provident
Life and Accident Insurance Company ("Accident"), Provident National Assurance
Company ("National"), The Paul Revere Life Insurance Company ("Paul Revere
Life"), The Paul Revere Variable Annuity Insurance Company ("Paul Revere
Variable"), and The Paul Revere Protective Life Insurance Company ("Paul Revere
Protective"). In addition, American General is acquiring a number of
miscellaneous group pension lines of business sold in the 1970's and 1980's
which are no longer actively marketed. The sale does not include the Company's
block of traditional GICs or group single premium annuities, which will continue
in a run-off mode. In consideration for the transfer of the annuity reserves,
American General is paying the Company a ceding commission of approximately
$58.0 million. The annuities being sold to American General represent
approximately $2.4 billion of statutory reserves. The transaction, which is
subject to requisite regulatory approvals and certain other conditions, is
expected to close in the second quarter of 1998.
On June 30, 1997, the Company announced that it had entered into a
marketing agreement with Ameritas Life Insurance Corp. ("Ameritas") whereby
Provident will market Ameritas' dental products. The two companies also entered
into an agreement that involved the transition of the Company's block of dental
insurance to Ameritas. The dental block, which was acquired in the Paul Revere
acquisition, produced $12.2 million in premium income in the first quarter of
1997 and $39.2 million for the full year 1997. The full transition of the
dental business to Ameritas was completed in November 1997.
Revenue in the other operations segment increased $8.4 million, or 5.3
percent, to $167.2 million in the first quarter of 1998 from $158.8 million in
the first quarter of 1997. The increase is primarily the result of the
acquisition of Paul Revere. Revenue from the individual annuities line totaled
$41.5 million in the first quarter of 1998, compared to $5.9 million in the
first quarter of 1997. Partly offsetting this increase is a decline in revenue
from the group pension line of business of $27.5 million, or 32.2 percent, to
$58.0 million in the first quarter of 1998, from $85.5 million in the first
quarter of 1997. This decline is primarily the result of a
20
<PAGE>
decrease in funds under management resulting from the strategic decision to
discontinue the sale of products in the group pension line of business.
Management expects that revenue in 1998 from this segment will decline from
the levels recorded in 1997 as the funds under management decline and the sale
of the individual annuities line of business is completed.
Income in the other operations segment declined $15.2 million, or 76.0
percent, to $4.8 million in the first quarter of 1998, from $20.0 million in the
first quarter of 1997. The decline in this segment was due to lower income in
the group pension line of business, which declined to $8.0 million in the first
quarter of 1998, from $10.8 million in the first quarter of 1997. 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 $5.4 million in the first quarter of 1998
from $4.7 million in the first quarter of 1997. Income from the medical stop-
loss line of business declined to $1.1 million in the first quarter of 1998 from
$4.3 million in the first quarter of 1997, reflecting lower premium income and a
higher loss ratio. Interest expense on debt totaled $15.6 million in the first
quarter of 1998, compared to $6.3 million in the first quarter of 1997.
Goodwill amortization totaled $5.5 million in the first quarter of 1998,
compared to $0.2 million in the first quarter of 1997.
Management expects that income in 1998 from the group pension line of
business will continue to decline from the levels recorded in 1997 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"). 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
21
<PAGE>
debt financing was provided through an $800.0 million revolving bank credit
facility with various domestic and international banks. The revolving bank
credit facility was established in 1996 to provide partial financing for the
purchase of Paul Revere and GENEX, to refinance the existing bank term notes of
$200.0 million, and for general corporate uses. At December 31, 1997,
outstanding borrowings under the revolving bank credit facility were $725.0
million. The revolving bank credit facility was repaid on February 24, 1998. The
Company also redeemed its outstanding 8.10% cumulative preferred stock, which
had an aggregate value of $156.2 million, on February 24, 1998. The debt
repayment and preferred stock redemption were funded through short-term
borrowings.
In May 1997, the Securities and Exchange Commission declared effective a
shelf registration statement pursuant to which the Company may issue up to
$900.0 million in debt and/or equity securities. On March 16, 1998, the Company
completed a public offering of $200.0 million of 7.25% senior notes due March
15, 2028. On March 16, 1998, Provident Financing Trust I, a subsidiary trust of
the Company, issued $300.0 million of 7.405% capital securities in a public
offering. These capital securities, which mature on March 15, 2038, are fully
and unconditionally guaranteed by the Company, have a liquidation value of
$1,000 per capital security, and have a mandatory redemption feature under
certain circumstances. The Company issued 7.405% junior subordinated deferrable
interest debentures which mature on March 15, 2038, to the subsidiary trust in
connection with the capital securities offering.
The Company has $400.0 million available for debt and/or equity securities
under its shelf registration statement following the issuance of the senior
notes and the capital securities.
In April 1998, the Company entered into a $150.0 million five-year
revolving credit facility and a $150.0 million 364-day revolving credit facility
with various domestic and international banks. The purpose of the facilities is
for general corporate purposes.
22
<PAGE>
The Company believes the cash flow from its 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 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
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 the Company's insurance subsidiaries' states
of domicile, 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 twelve 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 of
the preceding year end, each as determined in accordance with accounting
practices prescribed or permitted by insurance regulatory authorities. An
aggregate of $141.5 million was available in 1997 for the payment of dividends
and other distributions by the Company's top-tier insurance subsidiaries without
regulatory approval, of which amount $109.9 million was paid. The Company
anticipates that $151.9 million will be available in 1998 for such purposes.
The Company's liquidity 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 first
quarter of 1998. Cash is applied to the payment of policy benefits, costs of
acquiring new business (principally commissions) and operating expenses as well
as
23
<PAGE>
purchases of new investments. The Company has established an investment
strategy that management believes will provide for adequate cash flow from
operations.
During 1997, the Company sold commercial mortgage loans acquired through
the Paul Revere Merger with a principal amount of $268.1 million and a book
value of $258.4 million. The purpose of this transaction was 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
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. These non-current investments are
primarily foreclosed real estate and mortgage loans which became more than
thirty days past due in their principal and interest payments. Non-current
investments totaled $6.9 million at March 31, 1998, or 0.04 percent of invested
assets.
24
<PAGE>
The Company's investment in mortgage-backed securities totaled $3.1 billion
on an amortized cost basis at March 31, 1998 and December 31, 1997. At March
31, 1998, the mortgage-backed securities had an average life of 9.2 years and
effective duration of 7.4 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.
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 investments 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 March 31, 1998, was $1,366.4 million, representing 7.0 percent of invested
assets, below the Company's internal limit of 10.0 percent of invested assets
for this type of investment. The Company's exposure to below-investment-grade
fixed maturities totaled $1,297.1 million at December 31, 1997, representing 6.6
percent of invested assets.
Changes in interest rates and individuals' behavior affect the amount and
timing of asset and liability cash flows. Management continually models and
tests all asset and liability 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
25
<PAGE>
investment strategy as well as to prepare for the most disadvantageous outcomes.
The Company utilizes forward interest rate swaps, forward treasury
purchases, and options on forward interest rate swaps to manage and increase
yield on cash flows expected from current holdings. All transactions are hedging
in nature and not speculative. Almost all transactions are associated with the
individual disability product portfolio. During the first quarter of 1998,
transactions of this type totaled $415.0 million, increasing yield on $63.5
million of purchased securities by approximately 153 basis points.
YEAR 2000
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 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 incremental 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.
26
<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:
Form 8-K filed on March 1, 1998, relating to the Company and the
Provident Financing Trust I (the "Provident Trust") offering for sale
pursuant to a preliminary prospectus, subject to completion,
$250,000,000 aggregate amount of Capital Securities representing
preferred undivided beneficial interests in the assets of Provident
Trust.
27
<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: May 13, 1998
/s/J. Harold Chandler
----------------------
J. Harold Chandler
Chairman, President and
Chief Executive Officer
Date: May 13, 1998
/s/Thomas R. Watjen
--------------------
Thomas R. Watjen
Vice Chairman and
Chief Financial Officer
28
<PAGE>
INDEX OF EXHIBITS
EXHIBIT PAGE
Exhibit 15 Letter re: unaudited interim financial information 30
Exhibit 27 Financial Data Schedule for the three months ended
March 31, 1998 (for SEC use only) 31
Exhibit 27 Restated Financial Data Schedule for the nine months
ended September 30, 1997 (for SEC use only) 32
Exhibit 27 Restated Financial Data Schedule for the six months
ended June 30, 1997 (for SEC use only) 33
Exhibit 27 Restated Financial Data Schedule for the three months
ended March 31, 1998 (for SEC use only) 34
Exhibit 27 Restated Financial Data Schedule for the year ended
December 31, 1996 (for SEC use only) 35
29
<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 May 12, 1998 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 March 31, 1998.
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
May 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 16,982,100
<DEBT-CARRYING-VALUE> 293,500
<DEBT-MARKET-VALUE> 321,600
<EQUITIES> 16,800
<MORTGAGE> 18,000
<REAL-ESTATE> 48,500
<TOTAL-INVEST> 19,540,700
<CASH> 57,600
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 393,100
<TOTAL-ASSETS> 23,285,100
<POLICY-LOSSES> 13,353,800<F1>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 539,000
<POLICY-HOLDER-FUNDS> 4,020,800
<NOTES-PAYABLE> 773,600
0
0
<COMMON> 135,300
<OTHER-SE> 3,077,500
<TOTAL-LIABILITY-AND-EQUITY> 23,285,100
587,200
<INVESTMENT-INCOME> 361,800
<INVESTMENT-GAINS> 6,200
<OTHER-INCOME> 38,400
<BENEFITS> 635,600
<UNDERWRITING-AMORTIZATION> 19,600
<UNDERWRITING-OTHER> 225,500
<INCOME-PRETAX> 112,900
<INCOME-TAX> 41,800
<INCOME-CONTINUING> 71,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,100
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
<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 reserves for future policy and contract benefits of
$13,163,100 and unearned premiums of $190,700.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 15,270,900
<DEBT-CARRYING-VALUE> 269,300
<DEBT-MARKET-VALUE> 255,200
<EQUITIES> 66,000
<MORTGAGE> 280,400
<REAL-ESTATE> 132,800
<TOTAL-INVEST> 18,195,000
<CASH> 29,100
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 582,900
<TOTAL-ASSETS> 22,325,200
<POLICY-LOSSES> 12,393,700<F1>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 500,300
<POLICY-HOLDER-FUNDS> 5,458,700
<NOTES-PAYABLE> 725,000
0
156,200
<COMMON> 66,900
<OTHER-SE> 2,227,200
<TOTAL-LIABILITY-AND-EQUITY> 22,325,200
287,500
<INVESTMENT-INCOME> 262,500
<INVESTMENT-GAINS> 4,700
<OTHER-INCOME> 16,600
<BENEFITS> 401,800
<UNDERWRITING-AMORTIZATION> 17,300
<UNDERWRITING-OTHER> 89,400
<INCOME-PRETAX> 62,800
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 40,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,800
<EPS-PRIMARY> 0.40<F2>
<EPS-DILUTED> 0.39<F2>
<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 reserves for future policy and contract benefits of
$12,330,100 and unearned premiums of $63,600.
<F2>Historical earnings per common share amounts have been restated in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share," and to reflect a two-for-one stock split effected in the
form of a stock dividend distributed on September 30, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 15,910,100
<DEBT-CARRYING-VALUE> 274,200
<DEBT-MARKET-VALUE> 275,300
<EQUITIES> 10,300
<MORTGAGE> 277,700
<REAL-ESTATE> 116,900
<TOTAL-INVEST> 18,621,900
<CASH> 43,900
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 497,500
<TOTAL-ASSETS> 22,401,300
<POLICY-LOSSES> 12,646,400<F1>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 483,900
<POLICY-HOLDER-FUNDS> 4,977,100
<NOTES-PAYABLE> 725,000
0
156,200
<COMMON> 67,400
<OTHER-SE> 2,570,400
<TOTAL-LIABILITY-AND-EQUITY> 22,401,300
877,500
<INVESTMENT-INCOME> 627,200
<INVESTMENT-GAINS> 6,200
<OTHER-INCOME> 54,200
<BENEFITS> 1,070,800
<UNDERWRITING-AMORTIZATION> 36,500
<UNDERWRITING-OTHER> 304,300
<INCOME-PRETAX> 153,500
<INCOME-TAX> 53,000
<INCOME-CONTINUING> 100,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,500
<EPS-PRIMARY> 0.83<F2>
<EPS-DILUTED> 0.81<F2>
<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 RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS OF
$12,583,300 AND UNEARNED PREMIUMS OF $63,100.
<F2>HISTORICAL EARNINGS PER COMMON SHARE AMOUNTS HAVE BEEN RESTATED IN ACCORDANCE
WITH THE PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE," AND TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE
FORM OF A STOCK DIVIDEND DISTRIBUTED ON SEPTEMBER 30, 1997.
</FN>
</TABLE>
<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>
<RESTATED>
<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<F2>
<EPS-DILUTED> 1.31<F2>
<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 RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS OF
$12,864,300 AND UNEARNED PREMIUMS OF $62,200.
<F2>HISTORICAL EARNINGS PER COMMON SHARE AMOUNTS HAVE BEEN RESTATED IN ACCORDANCE
WITH THE PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE."
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE YEAR ENDED DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 10,880,100
<DEBT-CARRYING-VALUE> 264,500
<DEBT-MARKET-VALUE> 263,100
<EQUITIES> 4,900
<MORTGAGE> 0
<REAL-ESTATE> 151,100
<TOTAL-INVEST> 13,317,400
<CASH> 19,300
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 421,800
<TOTAL-ASSETS> 14,992,500
<POLICY-LOSSES> 8,051,300
<UNEARNED-PREMIUMS> 58,800
<POLICY-OTHER> 411,700
<POLICY-HOLDER-FUNDS> 3,881,100
<NOTES-PAYABLE> 200,000
0
156,200
<COMMON> 45,600
<OTHER-SE> 1,536,800
<TOTAL-LIABILITY-AND-EQUITY> 14,992,500
1,175,700
<INVESTMENT-INCOME> 1,090,100
<INVESTMENT-GAINS> (8,600)
<OTHER-INCOME> 34,700
<BENEFITS> 1,661,200
<UNDERWRITING-AMORTIZATION> 64,000
<UNDERWRITING-OTHER> 340,500
<INCOME-PRETAX> 226,200
<INCOME-TAX> 80,600
<INCOME-CONTINUING> 145,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,600
<EPS-PRIMARY> 1.46<F1>
<EPS-DILUTED> 1.44<F1>
<RESERVE-OPEN> 2,481,500
<PROVISION-CURRENT> 910,600
<PROVISION-PRIOR> 107,800
<PAYMENTS-CURRENT> 322,400
<PAYMENTS-PRIOR> 502,100
<RESERVE-CLOSE> 2,675,400
<CUMULATIVE-DEFICIENCY> (2,000)
<FN>
<F1>HISTORICAL EARNINGS PER COMMON SHARE AMOUNTS HAVE BEEN RESTATED IN ACCORDANCE
WITH THE PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE," AND TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE
FORM OF A STOCK DIVIDEND DISTRIBUTED ON SEPTEMBER 30, 1997.
</FN>
</TABLE>
