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 March 31, 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 - 10,763,247 shares outstanding as
of May 4, 1994.<PAGE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
March 31 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........................ $ 2,027,271 $ 1,994,934
Equity securities, at market............................. 5,383 5,623
Mortgage loans .......................................... 338,610 341,713
Policy loans............................................. 129,272 129,152
Short-term investments................................... 40,695 31,108
Other long-term investments.............................. 18,806 20,423
------------ ------------
Total investments 2,560,037 2,522,953
Cash....................................................... 10,835 6,689
Premiums and accounts receivable........................... 11,661 13,938
Due from reinsurers........................................ 46,724 51,139
Deferred policy acquisition costs.......................... 384,910 389,439
Real estate occupied by company............................ 7,153 7,188
Accrued investment income.................................. 39,646 40,209
Federal income tax receivable.............................. 11,976 14,910
Other assets............................................... 36,564 33,632
Separate account assets.................................... 324,683 330,764
Discontinued property and casualty operations ............. 1,035 1,234
------------ ------------
Total assets........................................ $ 3,435,224 $ 3,412,095
============ ============
Liabilities and Shareholders' Equity
Policy reserves............................................ $ 2,518,633 $ 2,489,611
Unpaid claims and other policyholder liabilities........... 64,570 67,367
Deferred revenue liability................................. 46,908 46,464
Other liabilities.......................................... 51,205 55,356
Convertible subordinated debentures........................ 96,050 96,050
Federal income taxes....................................... 55,621 55,696
Separate account liabilities............................... 318,446 324,495
Discontinued property and casualty operations ............. 1,035 1,234
------------ ------------
Total liabilities................................. 3,152,468 3,136,273
Shareholders' Equity:
Common stock............................................. 14,434 14,460
Additional paid-in capital............................... 159,137 159,710
Net unrealized investment gains.......................... 5,584 2,544
Foreign currency translation adjustments................. (1,951) (1,600)
Retained earnings........................................ 200,743 196,499
Treasury stock........................................... (95,191) (95,791)
------------ ------------
Total shareholders' equity....................... 282,756 275,822
------------ ------------
Total liabilities and shareholders' equity....... $ 3,435,224 $ 3,412,095
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31
---------------------------
1994 1993
------------ ------------
(In thousands, except
per share data)
<S> <C> <C>
Revenues
Premiums and other considerations.................... $ 46,894 $ 48,446
Net investment income................................ 49,921 49,919
Realized investment gains............................ 1,590 1,470
Other income......................................... 2,706 2,612
------------ ------------
Total revenues..................................... 101,111 102,447
Benefits and Expenses
Death, surrender and other benefits.................. 32,872 35,154
Increase in policy reserves.......................... 30,193 31,648
Amortization of deferred policy acquisition costs.... 10,106 9,672
Interest expense..................................... 1,993 1,993
General expenses..................................... 10,771 10,256
Commissions, premium taxes and fees.................. 7,704 7,714
------------ ------------
Total benefits and expenses........................ 93,639 96,437
------------ ------------
Operating income before income taxes................... 7,472 6,010
Income taxes......................................... 2,583 1,971
------------ ------------
Net income............................................. $ 4,889 $ 4,039
============ ============
Net income per share
Primary
Net income........................................ $ 0.45 $ 0.38
============ ============
Fully diluted
Net income........................................ $ 0.44 $ 0.38
============ ============
<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.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
USLICO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31
----------------------------
1994 1993
------------ ------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by operating activities........ $ 30,354 $ 76,251
INVESTING ACTIVITIES:
Sale of fixed maturities........................... 17,334 2,927
Maturities and calls of fixed maturity
investments...................................... 78,741 85,444
Sale of equity securities.......................... 724 561
Purchases of long-term investments................. (114,119) (177,748)
Sale of real estate................................ 972 -
Other.............................................. 373 972
------------ ------------
Net cash used in investing activities............ (15,975) (87,844)
FINANCING ACTIVITIES:
Net cash used in financing activities............ (646) (646)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,733 (12,239)
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.............................................. 10,835 2,769
Cash equivalents.................................. 40,695 62,714
------------ ------------
$ 51,530 $ 65,483
============ ============
<FN>
Interest paid during each of the three month periods ended March 31, 1994 and 1993
was $1,576,000.
Federal income taxes paid during the three month periods ended March 31, 1994 and
1993 $4,200,000 and $0, respectively.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
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 ended March 31, 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 adoption on the
Company's financial position (amounts in millions):
3/31/94 1/1/94
Gross unrealized holding gains $64.5 $137.5
Gross unrealized holding losses (53.2) (8.5)
---- -----
Net unrealized holding gains 11.3 129.0
Valuation allowance for reduction of
future gross profits recorded in
deferred acquisition costs and reserves (5.7) (81.6)
Tax effect (2.0) (16.6)
--- ----
Net after-tax increase in shareholders'
equity $3.6 $30.8
=== ====
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<PAGE>
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.<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994, COMPARED TO THREE MONTHS
ENDED MARCH 31, 1993.
Net income for the first three months of 1994 was $4.9 million, or
$0.44 per share (fully diluted), compared to net income of $4.0
million, or $0.38 per share, for the first three months of 1993. The
following table summarizes the major components of net income for the
first quarter of each year.
Three Months Ended March 31
1994 1993 +(-)
(in thousands)
Life insurance operations $8,332 $7,147 $1,185
Realized investment gains* 1,133 856 277
Interest expense (1,993) (1,993) -
Federal income tax (2,583) (1,971) (612)
----- ----- ---
Net income $4,889 $4,039 $850
===== ===== ===
* Net of deferred acquisition cost amortization and the amortization
of present value of future profits of $0.5 million and $0.6 million,
respectively.
The major factors contributing to the improvement in earnings were
increased investment spreads on interest-sensitive life insurance and
annuity policies and favorable mortality and expense trends. The
increased investment spreads resulted from a reduction in credited
interest on policyholder funds of $1.2 million, included in the
increase in policy reserves in the Consolidated Statements of Income,
while net investment income remained level at $49.9 million for the two
quarters. As reported in the Consolidated Statements of Income, death,
surrender and other benefits decreased by $2.3 million for the first
three months of 1994 compared to the 1993 quarter. A decrease of
$200,000 in total incurred general expenses for the 1994 quarter
compared to the 1993 quarter was accompanied by a decrease of $700,000
in the deferral of acquisition-related general expenses, which produced
an increase of $500,000 in the general expenses reported in the
Consolidated Statements of Income.
Net cash provided by operating activities, as reported in the
Consolidated Condensed Statements of Cash Flows, decreased by $46
million for the first quarter of 1994 compared to the first quarter of
1993 primarily because of a decrease of $22 million in fixed annuity
sales for the first three months of 1994 compared to the first three
months of 1993, combined with increases in policyholder fund
withdrawals and surrenders.<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
United Olympic Life Insurance Company ("UOL") and Bankers Security Life
Insurance Society ("BSL") are subsidiaries of USLICO (the "Company").
UOL was merged into another subsidiary, United Services Life Insurance
Company ("USL"), on October 1, 1992. In United Olympic Life Insurance
Company, et. al. v. The Delaware County Bank and Trust Company ("the
Bank"), Case No. C2-91-1076, in the United States District Court for
the Southern District of Ohio, Eastern Division, and United Olympic
Life Insurance Company, et. al. v. Consultants and Administrators,
Inc., Case No. C2-92-142, in the United States District Court for the
Southern District of Ohio, Eastern Division, USL and BSL seek to
recover approximately $10 million in consequential damages and $20
million in punitive damages from Consultants and Administrators, Inc.
("C&A"), a third party administrator, for the transfer by the Bank of
premium trust funds to satisfy indebtedness of C&A. C&A has in turn
filed claims against the Bank, USL and BSL claiming damages for
alledged breach of contract, wrongful attachment, intentional/negligent
interference, fraud, abuse of process and malicious prosecution. C&A
alleges damages of $15 million, requests punitive damages of $40
million plus consequential damages in an amount to be determined. All
litigation involving the Bank and USL/BSL has been settled.
In United Olympic Life Insurance Company, et. al. v. Consultants and
Administrators, Inc. et. al. Case No. C2-92-150, in the United States
District Court for the Southern District of Ohio, Eastern Division, USL
and BSL have filed a declaratory judgment action to determine proper
allocation of approximately $200,000 in commissions. After the Court
issued an opinion effectively ruling that C&A had a right to direct how
commissions which were due should be paid, USL paid all but
approximately $10,000 of the commissions and is now waiting for further
communication from C&A on further payment. USL and BSL also have sued
Paul Bargnesi, President of C&A, individually for approximately
$300,000 for breach of contract. Mr. Bargnesi has counterclaimed for
unspecified compensatory and punitive damages arising from alleged
severe emotional distress and damage to reputation. C&A has also filed
counterclaims in this action essentially identical to those described
in the second case (Case No. C2-92-142) above.
The Company, including its subsidiaries, is engaged in other litigation
in the ordinary course of business. In the opinion of management, the
litigation is not material.
<PAGE>
<PAGE>
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: May 13, 1994
EXHIBIT 11
USLICO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
Three Months Ended March 31
---------------------------
1994 1993
---------- ----------
(In thousands, except
per share data)
PRIMARY
-------
Net income $ 4,889 $ 4,039
========== ==========
Weighted average number of shares
outstanding 10,762 10,755
========== ==========
Net income per share $ 0.45 $ 0.38
========== ==========
FULLY DILUTED
-------------
Net income - before interest adjustment $ 4,889 $ 4,039
After tax interest expense applicable
to convertible debentures 1,295 1,315
---------- ----------
Net income - after interest adjustment $ 6,184 $ 5,354
========== ==========
Weighted average number of
shares outstanding 10,762 10,755
Assuming conversion of
convertible subordinated debentures 3,360 3,360
---------- ----------
Weighted average number of shares
outstanding as adjusted 14,122 14,115
========== ==========
Net income per share $ 0.44 $ 0.38
========== ==========
