<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996COMMISSION FILE NUMBER 1-9254
UNUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 01-0405657
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2211 CONGRESS STREET, PORTLAND, MAINE 04122
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211
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
-- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 1996
COMMON STOCK, $0.10 PAR VALUE 73,274,752 SHARES
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
March 31, 1996, and 1995 (Unaudited) 3
Consolidated Balance Sheets as of March 31, 1996,
(Unaudited) and December 31, 1995 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1996, and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Independent Accountant's Review Report 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S TA T E M E N T S O F I N C O M E
Three Months Ended
March 31,
----------------
(Unaudited - Dollars in millions, except per
common share data) 1996 1995
REVENUES
Premiums $ 769.3 $734.0
Investment income 209.7 191.9
Net realized investment gains 3.5 10.9
Fees and other income 20.1 18.3
Total revenues 1,002.6 955.1
BENEFITS AND EXPENSES
Benefits to policyholders 584.3 571.8
Interest credited 51.4 57.1
Operating expenses 180.3 171.1
Commissions 93.6 92.1
Increase in deferred policy acquisition costs (20.0) (29.7)
Interest expense 10.3 7.3
- ---------------------------------------------------------------------------
Total benefits and expenses 899.9 869.7
Income before income taxes 102.7 85.4
INCOME TAXES
Current 26.7 15.7
Deferred 3.9 6.3
- ---------------------------------------------------------------------------
Total income taxes 30.6 22.0
NET INCOME $ 72.1 $ 63.4
===========================================================================
NET INCOME PER COMMON SHARE $ 0.99 $ 0.87
See notes to consolidated financial statements.
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D B A L A N C E S H E E T S
March 31, 1996 December 31,
(Dollars in millions) (Unaudited) 1995
ASSETS
Investments
Fixed maturities available for sale-at fair
value (amortized cost: 1996-$8,997.2;
1995-$8,583.5) $ 9,301.4 $ 9,135.4
Equity securities available for sale-at fair value
(cost: 1996-$21.4; 1995-$21.1) 25.0 25.2
Mortgage loans 1,149.9 1,163.4
Real estate, net 225.9 222.2
Policy loans 220.9 219.2
Other long-term investments 29.1 30.4
Short-term investments 588.7 896.7
Total investments 11,540.9 11,692.5
Cash 42.8 42.5
Accrued investment income 199.4 208.5
Premiums due 238.8 224.3
Deferred policy acquisition costs 1,162.0 1,142.3
Property and equipment, net 160.0 153.7
Other assets 811.8 791.8
Separate account assets 590.8 532.2
Total assets $14,746.5 $14,787.8
=============================================================================
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits $ 1,744.1$ 1,718.7
Unpaid claims and claim expenses 4,861.4 4,856.4
Other policyholder funds 3,722.2 3,840.3
Income taxes
Current 59.6 20.7
Deferred 368.7 392.0
Notes payable 601.3 583.8
Other liabilities 546.9 540.8
Separate account liabilities 590.8 532.2
Total liabilities 12,495.0 12,484.9
Stockholders' equity
Preferred stock (par value $0.10 per share, authorized
10,000,000 shares, none issued)
Common stock (par value $0.10 per share, authorized
120,000,000 shares, issued 99,987,958 shares) 10.0 10.0
Additional paid-in capital 1,093.5 1,088.2
Unrealized gains on available for sale securities, net 104.4 213.1
Unrealized foreign currency translation adjustment (27.8) (23.1)
Retained earnings 1,765.9 1,713.2
2,946.0 3,001.4
Less:
Treasury stock, at cost (1996-26,713,206 shares;
1995-26,980,331 shares) 684.4 691.6
Restricted stock deferred compensation 10.1 6.9
Total stockholders' equity 2,251.5 2,302.9
Total liabilities and stockholders' equity $14,746.5 $14,787.8
=============================================================================
See notes to consolidated financial statements.
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Three Months Ended
March 31,
---------------
(Unaudited - Dollars in millions) 1996 1995
OPERATING ACTIVITIES:
Net income $ 72.1 $ 63.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in future policy benefits and unpaid claims and
claim expenses 153.2 179.5
Increase in amounts receivable under reinsurance agreements (19.5) (6.8)
Increase in income tax liability 43.0 32.3
Increase in deferred policy acquisition costs (20.0) (29.7)
Other 2.8 (61.7)
Net cash provided by operating activities 231.6 177.0
INVESTING ACTIVITIES:
Maturities of fixed maturities held to maturity -- 181.8
Maturities of fixed maturities available for sale 166.6 16.0
Sales of fixed maturities available for sale 389.3 128.4
Sales of equity securities available for sale -- 94.0
Sales and maturities of other investments 60.1 59.7
Purchases of fixed maturities held to maturity -- (216.3)
Purchases of fixed maturities available for sale (973.2) (369.7)
Purchases of equity securities available for sale -- (82.3)
Purchases of other investments (52.4) (67.6)
Net decrease in short-term investments 308.0 154.9
Net additions to property and equipment (14.2) (6.3)
Net cash used in investing activities (115.8) (107.4)
FINANCING ACTIVITIES:
Deposits and interest credited to investment contracts 155.8 159.0
Maturities and withdrawals from investment contracts (273.9) (340.1)
Dividends to stockholders (19.4) (17.4)
Repayment of notes payable -- (1.3)
Net increase in short-term debt 17.3 123.0
Other 4.9 2.8
Net cash used in financing activities (115.3) (74.0)
Effect of exchange rate changes on cash (0.2) 0.4
Net increase (decrease) in cash 0.3 (4.0)
Cash at beginning of year 42.5 36.1
Cash at end of period $ 42.8 $ 32.1
===========================================================================
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Income taxes $ (12.9) $(12.7)
Interest $ 5.3 $ 4.3
See notes to consolidated financial statements.
<PAGE>
UNUM Corporation and Subsidiaries
Form 10-Q
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1996
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the requirements of Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation
have been included in the financial statements. Interim results for the
three month period ended March 31, 1996, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
For further information, refer to the audited consolidated financial
statements and footnotes included in the 1995 annual report to stockholders
of UNUM Corporation and subsidiaries ("UNUM").
NOTE 2. ACCOUNTING CHANGE
- --------------------------
Effective January 1, 1996, UNUM adopted Financial Accounting Standard
("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," which establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used for
long-lived assets and certain identifiable intangibles to be disposed of.
The adoption of FAS 121 did not have a material effect on UNUM's results of
operations or financial position.
NOTE 3. SALE OF TAX SHELTERED ANNUITY BUSINESS
- ----------------------------------------------
During the first quarter of 1996, UNUM Life Insurance Company of America
and First UNUM Life Insurance Company entered into an agreement for the
sale of their respective group tax-sheltered annuity ("TSA") businesses
to The Lincoln National Life Insurance Company ("Lincoln Life"), a part
of Lincoln National Corporation, and to a new New York insurance subsidiary
of Lincoln Life. The sale, which is subject to regulatory approvals,
involves approximately 1,700 group contractholders and assets under
management of approximately $3 billion. The agreement initially
contemplates the reinsurance of these contracts under an indemnity
reinsurance arrangement. These contracts will then be reinsured pursuant
to an assumption reinsurance arrangement upon consent of the TSA
contractholders and/or participants. The purchase price (ceding
commission) at closing is expected to be approximately $70 million. It is
anticipated that it will take several months to obtain the necessary
approvals and otherwise close the sale. There is no guarantee that the
sale will close.
Historical results of the TSA business included in UNUM's Consolidated
Statements of Income were as follows:
Three Months Ended
March 31,
---------------
(Dollars in millions, except per common share data) 1996 1995
Revenues $ 56.5 $ 57.7
Net income $ 4.7 $ 6.6
Net income per common share $ 0.06 $ 0.09
NOTE 4. EARNINGS PER SHARE
- ---------------------------
The weighted average number of shares outstanding used to calculate
earnings per share was approximately 73,118,000 and 72,466,000 for first
quarter 1996 and 1995, respectively. The assumed exercise of outstanding
stock options would not result in a material dilution of earnings per
share.
NOTE 5. DIVIDENDS TO STOCKHOLDERS
- ----------------------------------
On April 12, 1996, UNUM's Board of Directors declared a twenty-seven and
one half cents per share cash dividend. The dividend is payable on May 17,
1996, to common stockholders of record at the close of business on April
29, 1996. During the first three months of 1996, a twenty-six and one half
cents per share cash dividend was paid on February 16, 1996.
NOTE 6. LITIGATION
- -------------------
In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and
a number of lawsuits were pending at March 31, 1996. In the opinion of
management, the ultimate liability, if any, arising from this litigation is
not expected to have a material adverse effect on the consolidated
financial position or the consolidated operating results of UNUM.
NOTE 7. SEGMENT INFORMATION
- ----------------------------
UNUM reports its operations principally in four business segments:
Disability Insurance, Special Risk Insurance, Colonial Products and
Retirement Products. The Disability Insurance segment includes disability
products offered in North America, the United Kingdom and Japan including:
group long term disability, individual disability, short term disability,
association group disability, disability reinsurance and long term care
insurance. The Special Risk Insurance segment includes group life, special
risk accident insurance, non-disability reinsurance operations, reinsurance
underwriting management operations and other special risk insurance
products. The Colonial Products segment includes Colonial Companies, Inc.
and subsidiaries, which offer payroll-deducted, voluntary employee benefits
including personal accident and sickness, cancer and life insurance
products to employees at their worksites. The Retirement Products segment
includes tax sheltered annuities and products which are no longer actively
marketed by UNUM including guaranteed investment contracts, deposit
administration accounts and 401(k) plans. Corporate includes transactions
which are generally non-insurance related.
<PAGE>
NOTE 7. SEGMENT INFORMATION (CONTINUED)
- ----------------------------------------
Summarized financial information for the four business segments and
Corporate is as follows:
Three Months Ended
March 31,
------------------
(Dollars in millions) 1996 1995
REVENUES
Disability Insurance $ 584.3 $ 559.4
Special Risk Insurance 203.2 180.5
Colonial Products 133.9 127.0
Retirement Products 76.4 86.4
Corporate 4.8 1.8
Total revenues $1,002.6 $ 955.1
======================================================================
INCOME (LOSS) BEFORE INCOME TAXES
Disability Insurance $ 64.3 $ 50.8
Special Risk Insurance 19.0 17.0
Colonial Products 18.7 17.1
Retirement Products 6.3 6.7
Corporate (5.6) (6.2)
Total income before income taxes 102.7 85.4
Income taxes 30.6 22.0
Net income $ 72.1 $ 63.4
======================================================================
March 31, December 31,
(Dollars in millions) 1996 1995
IDENTIFIABLE ASSETS
Disability Insurance $ 7,212.1 $ 7,280.3
Special Risk Insurance 1,082.6 1,056.5
Colonial Products 1,020.7 996.5
Retirement Products 4,555.0 4,717.4
Corporate 525.6 372.9
Individual Participating Life and Annuity 350.5 364.2
Total assets $14,746.5 $14,787.8
======================================================================
<PAGE>
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
--------------------------------------
To the Board of Directors and Stockholders
UNUM Corporation
We have reviewed the accompanying consolidated balance sheet of UNUM
Corporation and subsidiaries as of March 31, 1996, and the related
consolidated statements of income and cash flows for the three-month
periods ended March 31, 1996, and 1995. 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, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
April 24, 1996
<PAGE>
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1996
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial
Statements (Unaudited) and Notes to Consolidated Financial Statements
(Unaudited) included elsewhere in the Form 10-Q.
Revenues for UNUM for first quarter 1996 were $1,002.6 million as compared with
$955.1 million for first quarter 1995. Net income for the quarter ended March
31, 1996, was $72.1 million or $0.99 per share as compared with net income of
$63.4 million or $0.87 per share for the same quarter in 1995.
PREMIUMS:
- ---------
Premiums for the three months ended March 31, 1996, and 1995, are summarized by
segment in the table below. For the three months ended March 31, 1996, and
1995, claim block acquisitions generated one-time premium for the Disability
Insurance segment of $1.3 million and $13.2 million, respectively, for group
long term disability ("group LTD"), and $4.3 million in 1995 for long term care
insurance. The non-disability reinsurance operations, included in the Special
Risk Insurance segment, reported block acquisitions of $10.5 million for the
three months ended March 31, 1996. Management intends to pursue additional
claim block acquisitions in the future.
Three Months Ended
March 31,
------------------------
(Dollars in millions) 1996 1995 Change
Disability Insurance
Group LTD $268.9 $265.7 1.2%
UNUM Limited 32.3 26.0 24.2
Individual Disability 87.7 89.3 (1.8)
Group Short Term Disability 36.6 31.8 15.1
Other Disability Insurance 37.8 38.2 (1.0)
Total 463.3 451.0 2.7
Special Risk Insurance
Group Life 97.0 85.9 12.9
Other Special Risk Products 82.5 73.3 12.6
Total 179.5 159.2 12.8
Colonial Products 121.4 116.2 4.5
Retirement Products 5.1 7.6 (32.9)
Total premiums $769.3 $734.0 4.8%
============================================================================
INCOME (LOSS) BEFORE INCOME TAXES:
- ----------------------------------
Income (loss) before income taxes for the four business segments and Corporate
for the three months ended March 31, 1996, and 1995, was as follows:
Three Months Ended
March 31,
------------------------
(Dollars in millions) 1996 1995 Change
Disability Insurance $ 64.3 $ 50.8 $13.5
Special Risk Insurance 19.0 17.0 2.0
Colonial Products 18.7 17.1 1.6
Retirement Products 6.3 6.7 (0.4)
Corporate (5.6) (6.2) 0.6
Total $ 102.7 $ 85.4 $17.3
===========================================================================
During the first quarter of 1996, UNUM reported increased income before income
taxes, as compared with the same period in 1995, which was primarily
attributable to favorable claims experience in certain disability businesses
reported in the Disability Insurance segment and increased investment income
primarily from the reinvestment of the proceeds from the sale of the common
stock portfolio in second quarter 1995 primarily in investment grade fixed
income assets. Partially offsetting these increases were decreased realized
investment gains.
DISABILITY INSURANCE SEGMENT:
- -----------------------------
During the first quarter of 1996, the Disability Insurance segment reported
increased income before income taxes, as compared with the same period in 1995,
which was primarily attributable to favorable claims experience in certain
disability businesses and increased investment income. Partially offsetting
these increases were decreased realized investment gains and increased expenses,
primarily related to continued investments in risk management programs.
Group LTD reported a lower benefit ratio for the first quarter of 1996, as
compared with the same period in 1995, primarily due to continued improvements
in claims incidence and claim recoveries, which management attributes to risk
management programs, partially offset by an increased average claim size.
Management continues to monitor claim trends in group LTD and responds by
periodically adjusting prices on selected new and inforce business, refining
underwriting guidelines and strengthening risk management programs. Management
believes these actions have strengthened UNUM's ability to deal with these
claim trends and the current interest rate environment. The level of earnings
of the group LTD product will be a function of various factors, including
but not limited to, the effectiveness of these continuing actions over time.
During the first quarter of 1996, UNUM Limited's group long term disability
business reported improved claims experience, as compared with the
corresponding period in 1995. Management continues to address the claims
environment in the United Kingdom by periodically adjusting prices on
selected segments of the business that have experienced a higher incidence
of new claims, implementing more stringent underwriting standards and
strengthening risk management programs.
The individual disability business reported a lower benefit ratio in the first
quarter of 1996, as compared with the same period in 1995. The lower benefit
ratio was primarily attributable to various risk management programs which
mitigated the effects of the higher claims incidence. During 1994, UNUM
increased reserves for existing claims by $83.3 million and strengthened
reserves for estimated future losses by $109.1 million. These increased
reserves reflected management's expectations of morbidity trends for the
existing non-cancellable individual disability business. It is not possible to
predict whether morbidity trends will be consistent with UNUM's assumptions;
however, as of March 31, 1996, management believes that the strengthened
reserve levels continue to be adequate.
SPECIAL RISK INSURANCE SEGMENT:
- -------------------------------
The Special Risk Insurance segment reported an increase in income before income
taxes for the three months ended March 31, 1996, as compared with the
corresponding period in 1995. The increase was primarily due to increased
investment income coupled with favorable claims experience and premium growth
in the group life business. Partially offsetting these increases were adverse
mortality in the special risk accident insurance business and reduced fee
income from the reinsurance underwriting management operations. The premium
growth for the group life business reflected increased sales and management's
continued efforts to improve profitability of specific segments of the business
through selected price increases on new and inforce cases. Due to the nature
of the risks underwritten and the relative size of the blocks of businesses,
several of the Special Risk Insurance segment's products can exhibit claims
variability.
COLONIAL PRODUCTS SEGMENT:
- --------------------------
The Colonial Products segment reported increased income before income taxes for
the first quarter of 1996, as compared with the corresponding period in 1995.
The increase was primarily attributable to increased investment income. In
addition, premium growth, attributable to higher sales levels, favorably
affected income before income taxes. During the first quarter of 1996,
Colonial entered into an agreement to reinsure a majority of the mortality
risk on the new and inforce universal life business, which reduced the growth
of premiums.
RETIREMENT PRODUCTS SEGMENT:
- ----------------------------
Income before income taxes decreased in the first quarter of 1996, as compared
with the same period in 1995, primarily due to lower interest spread margins on
tax sheltered annuities ("TSA"). Management expects the lower interest spread
margins on tax sheltered annuities to continue, which may reduce future
earnings for the Retirement Products segment.
During the first quarter of 1996, UNUM Life Insurance Company of America and
First UNUM Life Insurance Company entered into an agreement for the sale of
their respective group tax-sheltered annuity ("TSA") businesses to The Lincoln
National Life Insurance Company ("Lincoln Life"), a part of Lincoln National
Corporation, and to a new New York insurance subsidiary of Lincoln Life. It is
anticipated that it will take several months to obtain the necessary approvals
and otherwise close the sale. There is no guarantee that the sale will close.
Including the expected purchase price of approximately $70 million, management
expects to generate up to $160 million of statutory capital from this
transaction. Plans for the use of this capital may include repaying debt,
investing in new and existing businesses and stock repurchase.
The reduced asset base under management for guaranteed investment contracts
("GICs"), deposit administration contracts ("DAs") and 401(k) plans has
resulted in lower revenues from investment income and reduced amounts of
interest credited. Management expects continued decreases in the amounts of
investment income and interest credited as the related GICs, DAs and 401(k)
contracts mature or terminate. Management expects future earnings for these
closed blocks of businesses to decline, reflecting their run-off nature.
CORPORATE:
- ----------
The decreased loss before income taxes in Corporate for the first quarter of
1996, as compared with first quarter 1995, was primarily attributable to
increased investment income, partially offset by increased interest expense.
INVESTMENTS:
- ------------
At March 31, 1996, the composition of UNUM's $11.5 billion of invested assets
was 80.6% fixed maturities, 10.0% mortgage loans, 2.0% real estate and 7.4%
other invested assets.
FIXED MATURITIES
At March 31, 1996, and December 31, 1995, the fixed maturity portfolio included
$169.6 million and $139.4 million of below investment grade bonds (below "Baa"),
which represented 1.8% and 1.5% of the fixed maturity portfolio, respectively.
These bonds had associated amortized cost values of $164.6 million and $133.8
million, respectively. Virtually all of the nonconvertible, below investment
grade bonds were purchased at investment grade, but were subsequently
downgraded. UNUM had no fixed maturities delinquent 60 days or more at March
31, 1996, or December 31, 1995.
MORTGAGES
UNUM had no mortgage loans delinquent 60 days or more on a contract delinquency
basis at March 31, 1996, compared with 0.2% at December 31, 1995. Management
expects a modest level of additional delinquencies and impaired loans in the
future. Management believes the allowance provided on mortgage loans as of
March 31, 1996, is adequate to cover probable losses. Impaired mortgage loans
as of March 31, 1996, are not expected to have a significant affect on UNUM's
results of operations, liquidity, or capital resources.
REAL ESTATE
At March 31, 1996, real estate held for sale amounted to $33.3 million compared
with $35.5 million at December 31, 1995, and was included in other assets in the
Consolidated Balance Sheets. Given the current real estate environment,
additional foreclosures are anticipated, but at a reduced level from the early
1990s. Current and anticipated real estate acquired through foreclosure is not
expected to have a significant affect on UNUM's results of operations,
liquidity, or capital resources.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
UNUM's businesses produce positive cash flows, which are invested primarily in
intermediate, fixed maturity investments intended to reflect the nature of
anticipated cash obligations of insurance benefit payments and insurance
contract maturities and to optimize investment returns at appropriate risk
levels. Unexpected cash requirements and liquidity needs can be met through
UNUM's investment portfolio of fixed maturities classified as available for
sale, equity securities, cash and short-term investments. To facilitate the
expected sale of the TSA business later in 1996, management expects to primarily
liquidate fixed maturities and accumulate cash and short-term investments.
From time to time, dividend payments, which may be subject to approval by
insurance regulatory authorities, are made from UNUM's affiliates and insurance
subsidiaries to UNUM Corporation. These dividends, along with other funds, are
used to service the needs of UNUM Corporation including: debt service, common
stock dividends, stock repurchase, administrative costs and corporate
development. Income determined using statutory accounting is one of the major
determinants of an insurance company's dividend capacity to its parent in the
following fiscal year. Statutory accounting rules and practices, which differ
in certain respects from generally accepted accounting principles, are mandated
by regulators in an insurance company's state of domicile. In the first quarter
of 1996, UNUM's insurance subsidiaries domiciled in the United States reported
statutory net income of approximately $49 million, as compared with
approximately $31 million for the same period of 1995.
Cash flow requirements are also supported by a committed revolving credit
facility totaling $500 million, which expires on October 1, 1999. UNUM's
commercial paper program is supported by the revolving credit facility and is
available for general liquidity needs, capital expansion, acquisitions and
stock repurchase. The committed revolving credit facility contains certain
covenants which, among other provisions, require maintenance of certain
levels of stockholders' equity and limits on level of debt.
In September 1993, UNUM filed an omnibus shelf registration statement with the
Securities and Exchange Commission which became effective on October 8, 1993,
relating to $450 million of securities (including debt securities, preferred
stock, common stock and other securities). On October 8, 1993, UNUM filed a
prospectus supplement to establish a $250 million medium-term note program
under the shelf registration.
At March 31, 1996, UNUM had short-term and long-term debt totaling $143.8
million and $457.5 million, respectively. At March 31, 1996, approximately
$399 million was available for additional financing under the existing
revolving credit facility, and approximately $96 million of investment grade
debt instruments was available for issuance under the shelf registration.
Contingent upon market conditions and corporate needs, management may refinance
short-term notes payable with longer term securities.
LITIGATION:
- -----------
In the normal course of its business operations, UNUM is involved in litigation
from time to time with claimants, beneficiaries and others, and a number of
lawsuits were pending at March 31, 1996. In the opinion of management, the
ultimate liability, if any, arising from this litigation is not expected to
have a material adverse effect on the consolidated financial position or the
consolidated operating results of UNUM.
On December 29, 1993, UNUM filed a suit in the United States District Court for
the District of Maine, seeking a federal income tax refund. The suit is based
on a claim for a deduction in certain prior tax years, for $652 million in cash
and stock distributed to policyholders in connection with the 1986 conversion
of Union Mutual Life Insurance Company to a stock company. Although UNUM
believes its claims are meritorious, the United States is aggressively
resisting the claims and the ultimate recovery, if any, cannot be determined
at this time.
<PAGE>
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1996
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
(a) Exhibit Index
12. Statement re: Computation of ratio of earnings to fixed
charges 17
15. Letter re: Unaudited interim financial information. 18
27. Financial Data Schedule
27.1 Financial Data Schedule
27.2 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K was filed February 20, 1996, to report that the Registrant
had entered into an agreement for the sale of its tax-sheltered annuity
business to The Lincoln National Life Insurance Company, pursuant to an
agreement dated January 24, 1996.
<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.
Date May 10, 1996 /s/ ROBERT W. CRISPIN
-------------------- -----------------------------
Robert W. Crispin
Executive Vice President and
Chief Financial Officer
Date May 10, 1996 /s/ STEPHEN D. ROBERTS
-------------------- ------------------------------
Stephen D. Roberts
Vice President and
Corporate Controller
<PAGE>
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1996
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
---------------
(Unaudited - Dollars in millions) 1996 1995
Earnings:
Income from continuing operations before income taxes $102.7 $ 85.4
Add: Fixed charges 13.3 10.0
Earnings as adjusted $116.0 $ 95.4
Fixed charges:
Interest expense $ 10.3 $ 7.3
Interest portion of rent expense 3.0 2.7
Total fixed charges $ 13.3 $ 10.0
Ratio of earnings to fixed charges 8.7 9.5
===========================================================================
For purposes of computing the ratio of earnings to fixed charges, earnings as
adjusted consist of income from continuing operations before income taxes and
fixed charges. Fixed charges consist of interest expense and the estimated
interest portion of rent expense.
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
We are aware that our report dated April 24, 1996, on our review of interim
financial information of UNUM Corporation for the three month period ended
March 31, 1996, and included in the Company's quarterly report on Form 10-Q
for the quarter then ended is incorporated by reference in the following
Registration Statements:
o Form S-8 No. 33-31270 pertaining to the UNUM Employees Retirement Savings
Plan and Trust
o Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock Option Plan
o Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock Incentive
Plan
o Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock Incentive
Plan
o Form S-3 No. 33-36873
o Form S-3 No. 33-69132
o Form S-8 No. 33-60124 pertaining to the Colonial Companies, Inc. Security
Saver Plan
o Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 No. 33-55870
Pursuant to Rule 436 (c) under the Securities Act of 1933, this report should
not be considered a part of the registration statements prepared or certified by
accountants within the meaning of Sections 7 and 11 of that Act.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS OF UNUM CORPORATION AND SUBSIDIARIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONTAINED IN UNUM
CORPORATION'S SEC FORM 10-Q DATED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 9,301,400
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,000
<MORTGAGE> 1,149,900
<REAL-ESTATE> 225,900
<TOTAL-INVEST> 11,540,900
<CASH> 42,800
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,162,000
<TOTAL-ASSETS> 14,746,500
<POLICY-LOSSES> 6,605,500
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 3,722,200
<NOTES-PAYABLE> 601,300
0
0
<COMMON> 10,000
<OTHER-SE> 2,241,500
<TOTAL-LIABILITY-AND-EQUITY> 14,746,500
769,300
<INVESTMENT-INCOME> 209,700
<INVESTMENT-GAINS> 3,500
<OTHER-INCOME> 20,100
<BENEFITS> 584,300
<UNDERWRITING-AMORTIZATION> (20,000)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 102,700
<INCOME-TAX> 30,600
<INCOME-CONTINUING> 72,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,100
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>THIS ITEM CONTAINS THE AMOUNTS OF DEFERRED AND AMORTIZED POLICY ACQUISITION
COSTS FOR THE PERIOD PRESENTED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS OF UNUM CORPORATION AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONTAINED IN UNUM CORPORATION'S
SEC FORM 10-K DATED DECEMBER 31, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 1,640,600
<DEBT-CARRYING-VALUE> 6,227,200
<DEBT-MARKET-VALUE> 6,168,600
<EQUITIES> 627,900
<MORTGAGE> 1,216,300
<REAL-ESTATE> 190,800
<TOTAL-INVEST> 10,433,800
<CASH> 36,100
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,035,200
<TOTAL-ASSETS> 13,127,200
<POLICY-LOSSES> 5,445,500
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,058,800
<NOTES-PAYABLE> 428,700
0
0
<COMMON> 10,000
<OTHER-SE> 1,905,400
<TOTAL-LIABILITY-AND-EQUITY> 13,127,200
2,721,300
<INVESTMENT-INCOME> 770,200
<INVESTMENT-GAINS> 45,600
<OTHER-INCOME> 75,500
<BENEFITS> 2,239,000
<UNDERWRITING-AMORTIZATION> (155,300)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 198,600
<INCOME-TAX> 43,900
<INCOME-CONTINUING> 154,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,700
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>THIS ITEM CONTAINS THE AMOUNTS OF DEFERRED AND AMORTIZED POLICY ACQUISITION
COSTS FOR THE PERIOD PRESENTED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
CONSOLIDATED FINANCIAL STATEMENTS OF UNUM CORPORATION AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONTAINED IN UNUM CORPORATION'S
SEC FORM 10-Q DATED SEPTEMBER 30, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 1,524,000
<DEBT-CARRYING-VALUE> 6,383,900
<DEBT-MARKET-VALUE> 6,444,400
<EQUITIES> 669,300
<MORTGAGE> 1,225,000
<REAL-ESTATE> 194,600
<TOTAL-INVEST> 10,325,200
<CASH> 31,300
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 988,800
<TOTAL-ASSETS> 12,910,100
<POLICY-LOSSES> 5,289,500
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 4,082,600
<NOTES-PAYABLE> 381,900
0
0
<COMMON> 10,000
<OTHER-SE> 1,910,100
<TOTAL-LIABILITY-AND-EQUITY> 12,910,100
2,018,700
<INVESTMENT-INCOME> 575,800
<INVESTMENT-GAINS> 36,000
<OTHER-INCOME> 57,400
<BENEFITS> 1,701,500
<UNDERWRITING-AMORTIZATION> (108,900)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 128,900
<INCOME-TAX> 28,200
<INCOME-CONTINUING> 100,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,700
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>THIS ITEM CONTAINS THE AMOUNTS OF DEFERRED AND AMORTIZED POLICY ACQUISITION
COSTS FOR THE PERIOD PRESENTED.
</FN>
</TABLE>
