FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Quarter Ended June 30, 1994 Commission File # 0-12694
USLICO CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1278620
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4601 Fairfax Drive, Arlington, Virginia 22203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (703) 875-3600
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 the filing requirements
for at least the past 90 days.
Yes X No .
Indicate the number of shares or other units outstanding of each of
the issuer's classes of common stock, as of the latest practical
date.
Common Stock - $1.00 par value - 10,763,187 shares outstanding as
of August 8, 1994.<PAGE>
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<TABLE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
June 30 December 31
1994 1993
(Unaudited)
------------ ------------
(In thousands)
<S> <C> <C>
Assets
Investments:
Fixed maturities available for sale, at market value in
1994 and amortized cost in 1993....................... $1,980,700 $1,994,934
Equity securities, at market............................ 4,358 5,623
Mortgage loans ......................................... 338,477 341,713
Policy loans............................................ 129,111 129,152
Short-term investments.................................. 22,587 31,108
Other long-term investments............................. 49,512 20,423
------------ ------------
Total investments......................................... 2,524,745 2,522,953
Cash...................................................... 3,083 6,689
Premiums and accounts receivable.......................... 12,408 13,938
Due from reinsurers....................................... 42,702 51,139
Deferred policy acquisition costs......................... 421,797 389,439
Real estate occupied by company........................... 7,106 7,188
Accrued investment income................................. 41,212 40,209
Federal income tax receivable............................. 9,085 14,910
Other assets.............................................. 31,676 33,632
Separate account assets................................... 328,668 330,764
Discontinued property and casualty operations ............ 700 1,234
------------ ------------
Total assets....................................... $3,423,182 $3,412,095
============ ============
Liabilities and Shareholders' Equity
Policy reserves........................................... $2,549,639 $2,489,611
Unpaid claims and other policyholder liabilities.......... 61,002 67,367
Deferred revenue liability................................ 47,150 46,464
Other liabilities......................................... 45,355 55,356
Convertible subordinated debentures....................... 96,050 96,050
Federal income taxes...................................... 37,857 55,696
Separate account liabilities.............................. 322,431 324,495
Discontinued property and casualty operations ............ 700 1,234
------------ ------------
Total liabilities................................ 3,160,184 3,136,273
Shareholders' Equity:
Common stock............................................ 14,435 14,460
Additional paid-in capital.............................. 159,156 159,710
Net unrealized investment gains (losses)................ (18,056) 2,544
Foreign currency translation adjustments................ (2,120) (1,600)
Retained earnings....................................... 204,773 196,499
Treasury stock.......................................... (95,190) (95,791)
------------ ------------
Total shareholders' equity...................... 262,998 275,822
------------ ------------
Total liabilities and shareholders' equity...... $3,423,182 $3,412,095
============ ============
<FN>
See accompanying notes to consolidated financial statements.
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<TABLE>
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations.................. $ 43,937 $ 47,092 $ 90,831 $ 95,538
Net investment income.............................. 49,891 49,009 99,812 98,928
Realized investment gains.......................... 209 5,247 1,799 6,717
Other income....................................... 3,654 4,039 6,360 6,651
--------- --------- --------- ---------
Total revenues................................... 97,691 105,387 198,802 207,834
Benefits and expenses
Death, surrender and other benefits................ 31,801 36,151 64,673 71,305
Increase in policy reserves........................ 29,513 32,545 59,706 64,193
Amortization of deferred policy acquisition costs.. 9,234 10,171 19,340 19,843
Interest expense................................... 1,993 1,993 3,986 3,986
General expenses................................... 11,016 11,542 21,787 21,798
Commissions, premium taxes and fees................ 7,055 10,921 14,759 18,635
--------- --------- --------- ---------
Total benefits and expenses...................... 90,612 103,323 184,251 199,760
--------- --------- --------- ---------
Operating income before income taxes................. 7,079 2,064 14,551 8,074
Income taxes....................................... 2,402 634 4,985 2,605
--------- --------- --------- ---------
Net income........................................... $ 4,677 $ 1,430 $ 9,566 $ 5,469
========= ========= ========= =========
Net income per share
Primary
Net income ...................................... $ 0.43 $ 0.13 $ 0.89 $ 0.51
========= ========= ========= =========
Fully diluted
Net income ...................................... $ 0.42 $ 0.13 $ 0.86 $ 0.51
========= ========= ========= =========
<FN>
Earnings per share are based on weighted average shares outstanding. Fully diluted earnings per
share reflect the assumed conversion of the convertible debentures into shares of common stock.
See accompanying notes to consolidated financial statements.
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<TABLE>
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30
------------------------
1994 1993
----------- -----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities........ $ 62,826 $ 114,957
INVESTING ACTIVITIES:
Sale of fixed maturities........................... 44,983 35,997
Maturities and calls of fixed maturity
investments...................................... 120,992 203,275
Sale of equity securities.......................... 982 1,207
Purchases of long-term investments................. (242,199) (372,181)
Sale of real estate................................ 972 -
Other.............................................. 589 962
----------- -----------
Net cash used in investing activities............ (73,681) (130,740)
FINANCING ACTIVITIES:
Net cash used in financing activities............ (1,272) (1,291)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (12,127) (17,074)
BALANCE OF CASH AND CASH EQUIVALENTS
Balance at beginning of year:
Cash.............................................. 6,689 9,366
Cash equivalents.................................. 31,108 68,356
----------- -----------
37,797 77,722
Balance at end of period:
Cash.............................................. 3,083 12,693
Cash equivalents.................................. 22,587 47,955
----------- -----------
$ 25,670 $ 60,648
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<FN>
Interest paid during each of the six month periods ended June 30, 1994 and 1993
was $3,986,000.
Federal income taxes paid during the six month periods ended June 30, 1994 and
1993 were $9,050,000 and $3,350,000, respectively.
See accompanying notes to consolidated financial statements.
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USLICO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of USLICO
Corporation (the "Company") 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. Additionally, certain 1993 amounts have been reclassified to
conform to 1994 presentations. In the opinion of management, all
adjustments considered necessary for fair presentation have been included
in these interim statements.
Operating results for the three-month period or the six-month period ended
June 30, 1994 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1994. For additional information,
refer to the consolidated financial statements and related footnotes
incorporated by reference in the annual report on Form 10-K for the year
ended December 31, 1993.
2. Statement of Financial Accounting Standards No. 115
Effective January 1, 1994, the Company adopted Statement 115 entitled
"Accounting for Certain Investments in Debt and Equity Securities." In
doing so, all fixed maturity securities were designated as "available for
sale" and adjusted to fair value in the balance sheet with net unrealized
gains and losses, net of related income taxes and other adjustments,
reported as a separate component of shareholders' equity. As a result,
this change in accounting method has no effect on net earnings. As
specified by Statement 115, prior year amounts were not restated. The
following summarizes the effect of Statement 115 on the Company's financial
position (amounts in millions):
6/30/94 1/1/94
------- -------
Gross unrealized holding gains $34.2 $137.5
Gross unrealized holding losses (98.5) (8.5)
------ ------
Net unrealized holding gains (losses) (64.3) 129.0
Adjustment of deferred policy acquisition
costs and policy reserves 35.1 (81.6)
Tax effect 10.2 (16.6)
------ ------
Net after-tax increase (decrease)
in shareholders' equity $(19.0) $30.8
======= ======
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3. Statement of Financial Accounting Standards No. 114
Statement 114, entitled "Accounting by Creditors for Impairment of a Loan"
prescribes the recognition criterion for loan impairment and the
measurement methods for certain impaired loans and loans whose terms are
modified in troubled debt restructurings. Statement 114 is effective for
fiscal years beginning after December 15, 1994. The Company has not yet
adopted this new standard, and has not yet determined the effect of this
new accounting standard on its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1994, COMPARED TO THREE AND
SIX MONTHS ENDED JUNE 30, 1993.
The following summarizes the major components of net income for the three
and six month periods ended June 30 (in millions):
Three Months Six Months
1994 1993 1994 1993
---- ---- ---- ----
Life insurance operations $9.0 $0.2 $17.4 $7.3
Ship registry income - 1.3 - 1.3
Realized investment gains* 0.1 2.6 1.2 3.5
Interest expense (2.0) (2.0) (4.0) (4.0)
Federal income tax (2.4) (0.7) (5.0) (2.6)
---- ---- ----- ----
Net income $4.7 $1.4 $9.6 $5.5
==== ==== ==== ====
* - Net of amortization of deferred acquisition costs and present value of
future profits of $0.1 million and $0.6 million for the three and six month
periods in 1994 and $2.6 million and $3.2 million for the corresponding
periods in 1993.
Consistent with the first quarter of 1994, sales of variable annuities
business continued to improve and exceed prior year sales. Sales of
payroll deduction slowed in the second quarter of 1994 although year to
date sales still exceed 1993. While fixed annuity and individual life
sales lag their 1993 performance, second quarter sales exceed first
quarter. In the individual life line of business the industry as a whole
is experiencing lower sales in the comparable product lines, and
management's profitability initiatives in these lines have temporarily
reduced sales. On the other hand, sales of fixed annuities in June 1994
were the highest in 12 months and the sales momentum lost with the
commission rate cuts in the previous year appears to have been regained.
Realized gains decreased compared to 1993 due to reduced bond call activity
caused by increasing interest rates.
The major factors contributing to the improvement in earnings were
favorable death benefits, particularly in the group life line of business.
Interest spreads widened with net investment income for the quarter
increasing by $0.9 million while interest credited on policyholder funds
declined by $1.7 million in the same period. The corresponding year to
date amounts are $0.9 million for net investment income and $2.9 million
for interest credited. Commissions, premium taxes and fees decreased for
the quarter and year to date primarily due to lower premium taxes,
resulting from lower premium revenues, and reduced expense for guaranty
<PAGE>
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fund assessments. Income taxes increased in step with income and also due
to an increase in the Federal income tax rate from 34 percent in 1993 to 35
percent in 1994.
Ship registry income in the second quarter of 1993 represented dividends
from a subsidiary that managed offshore maritime and corporate registry
programs. The subsidiary was sold in the third quarter of 1993.
Net cash provided by operating activities decreased by $52.1 million for
the six month period ended June 30, 1994 as compared to the same period in
1993 largely because of a decrease of $26.8 million in fixed annuity sales
and an increase in surrenders of $17.1 million for the same periods. Net
cash used in investing activities was reduced by the same circumstances.
Annuity surrenders are being affected by the current rising interest rate
environment and by the Company's interest crediting policies, which have
focused on maintaining interest spreads.<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, including its subsidiaries, is engaged in litigation in the
ordinary course of business. In the opinion of management, the litigation
is not material.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
None <PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USLICO CORPORATION
(Registrant)
DAVID H. ROE
DAVID H. ROE
PRESIDENT AND CHIEF OPERATING OFFICER
GLENN H. GETTIER, JR.
GLENN H. GETTIER, JR.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
DAVID W. KARSTEN
DAVID W. KARSTEN
SENIOR VICE PRESIDENT AND CONTROLLER
DATE: August 12, 1994
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EXHIBIT 11
USLICO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
PRIMARY
Net income $ 4,677 $ 1,430 $ 9,566 $ 5,469
======== ======== ======== ========
Weighted average number of shares
outstanding 10,763 10,755 10,762 10,755
======== ======== ======== ========
Net income per share $ 0.43 $ 0.13 $ 0.89 $ 0.51
======== ======== ======== ========
FULLY DILUTED
Net income - before interest adjustment $ 4,677 $ 1,430 $ 9,566 $ 5,469
After tax interest expense applicable
to convertible debentures 1,315 1,315 2,630 2,630
-------- -------- -------- --------
Net income - after interest adjustment $ 5,992 $ 2,745 $ 12,196 $ 8,099
======== ======== ======== ========
Weighted average number of
shares outstanding 10,763 10,755 10,762 10,755
Assuming conversion of
convertible subordinated debentures 3,360 3,360 3,360 3,360
-------- -------- -------- --------
Weighted average number of shares
outstanding as adjusted 14,123 14,115 14,122 14,115
======== ======== ======== ========
Net income per share* $ 0.42 $ 0.13 $ 0.86 $ 0.51
======== ======== ======== ========
<FN>
* Note that antidilutive effects in 1993 of the fully diluted calculation are not
reported. Instead, the fully diluted income or loss per share is set equal to the
primary earnings or loss per share.
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