<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended March 31, 1998
-----------------------------------------------------
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
--------------------- ------------------------
Commission file number 0-18298
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Unitrin, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4255452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One East Wacker Drive, Chicago, Illinois 60601
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(Address of principal executive offices) (Zip Code)
(312) 661-4600
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(Registrant's telephone number, including area code)
Not Applicable
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(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
--- ---
37,620,327 shares of common stock, $0.10 par value, were outstanding as of
March 31, 1998.
<PAGE>
UNITRIN, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1998
and 1997 (Unaudited). 1
Condensed Consolidated Balance Sheets as of
March 31, 1998 (Unaudited) and
December 31, 1997. 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 1998 and 1997 (Unaudited). 3
Notes to the Condensed Consolidated Financial
Statements (Unaudited). 4-7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8-10
PART II. Other Information.
Item 1. Legal Proceedings. 10
Item 6. Exhibits and Reports on Form 8-K. 11-12
Signatures 13
</TABLE>
<PAGE>
UNITRIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Premiums $ 289.9 $ 307.0
Consumer Finance Revenues 28.3 31.4
Net Investment Income 41.8 42.4
Net Gains on Sales of Investments 60.9 1.3
--------- ---------
Total Revenues 420.9 382.1
--------- ---------
Expenses:
Insurance Claims and Policyholders' Benefits 183.7 195.0
Insurance Expenses 118.5 122.7
Consumer Finance Expenses 23.4 29.8
Interest and Other Expenses 2.8 3.1
--------- ---------
Total Expenses 328.4 350.6
--------- ---------
Income before Income Taxes and Equity
in Net Income of Investees 92.5 31.5
Income Tax Expense 31.7 10.6
--------- ---------
Income before Equity in Net Income of Investees 60.8 20.9
Equity in Net Income of Investees 15.2 12.8
--------- ---------
Net Income $ 76.0 $ 33.7
========= =========
Net Income Per Share $ 2.02 $ 0.90
========= =========
Net Income Per Share Assuming Dilution $ 2.00 $ 0.89
========= =========
</TABLE>
The Notes to the Condensed Consolidated Financial Statements are an integral
part of these financial statements.
1
<PAGE>
UNITRIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
Assets:
Investments:
Fixed Maturities at Fair Value (Amortized
Cost: 1998 - $2,293.7; 1997 - $2,274.4) $2,330.8 $2,315.4
Equity Securities at Fair Value
(Cost: 1998 - $125.0; 1997 - $131.0) 177.2 245.7
Investees at Cost Plus Cumulative Undistributed Earnings
(Fair Value: 1998 - $2,132.6; 1997 - $2,031.7) 729.3 705.8
Other 168.7 181.6
-------- --------
Total Investments 3,406.0 3,448.5
-------- --------
Cash 19.7 14.5
Consumer Finance Receivables 520.1 543.6
Receivables 326.4 335.4
Other Assets 574.3 578.7
-------- --------
Total Assets $4,846.5 $4,920.7
======== ========
Liabilities and Shareholders' Equity:
Insurance Reserves:
Life and Health $1,578.1 $1,567.5
Property and Casualty 460.6 468.5
-------- --------
Total Insurance Reserves 2,038.7 2,036.0
-------- --------
Investment Certificates 533.0 566.4
Notes Payable 5.9 81.1
Accrued Expenses and Other Liabilities 728.8 704.2
-------- --------
Total Liabilities 3,306.4 3,387.7
-------- --------
Shareholders' Equity:
Common Stock, $0.10 par value, 100 million Shares Authorized;
37,620,327 and 37,584,928 Shares Outstanding at
March 31, 1998 and December 31, 1997 3.8 3.8
Paid-in Capital 250.1 217.8
Retained Earnings 1,228.2 1,209.7
Accumulated Other Comprehensive Income 58.0 101.7
-------- --------
Total Shareholders' Equity 1,540.1 1,533.0
-------- --------
Total Liabilities and Shareholders' Equity $4,846.5 $4,920.7
======== ========
</TABLE>
The Notes to the Condensed Consolidated Financial Statements are an integral
part of these financial statements.
2
<PAGE>
UNITRIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income $ 76.0 $ 33.7
Adjustments to Reconcile Net Income to Net Cash
Provided by Operations:
Change in Deferred Policy Acquisition Costs 5.9 2.5
Equity in Net Income of Investees before Taxes (23.5) (19.8)
Amortization of Fixed Maturities 5.7 5.5
Decrease in Insurance Reserves and Unearned Premiums (8.1) (11.0)
Increase in Accrued Expenses and Other Liabilities 54.5 16.5
Net Gains on Sales of Investments (60.9) (1.3)
Provision for Loan Losses 5.3 9.9
Other, Net 10.7 23.9
--------- --------
Net Cash Provided by Operating Activities 65.6 59.9
--------- --------
Investing Activities:
Sales and Maturities of Fixed Maturities 189.9 106.8
Purchases of Fixed Maturities (214.2) (198.1)
Sales and Redemptions of Equity Securities 89.0 12.1
Purchases of Equity Securities (22.3) (9.1)
Change in Consumer Finance Receivables 19.1 (15.4)
Change in Short-term Investments 14.8 (3.5)
Other, Net (6.6) (7.0)
--------- --------
Net Cash Provided (Used) by Investing Activities 69.7 (114.2)
--------- --------
Financing Activities:
Change in Investment Certificates (33.4) 31.6
Change in Universal Life and Annuity Accounts 1.8 2.8
Notes Payable Proceeds 10.0 67.0
Notes Payable Payments (85.2) (5.2)
Cash Dividends Paid (24.5) (22.4)
Common Stock Repurchases (1.2) (20.7)
Other, Net 2.4 1.7
--------- --------
Net Cash Provided (Used) by Financing Activities (130.1) 54.8
--------- --------
Increase in Cash 5.2 0.5
Cash, Beginning of Year 14.5 17.0
--------- --------
Cash, End of Period $ 19.7 $ 17.5
========= ========
</TABLE>
The Notes to the Condensed Consolidated Financial Statements are an integral
part of these financial statements.
3
<PAGE>
UNITRIN, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The unaudited Condensed Consolidated Financial Statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission") but do not include all
information and footnotes required by generally accepted accounting principles.
In the opinion of management, the Condensed Consolidated Financial Statements
reflect all adjustments necessary for a fair presentation. The preparation of
interim financial statements relies heavily on estimates. This factor and
certain other factors, such as the seasonal nature of some portions of the
insurance business, as well as market conditions, call for caution in drawing
specific conclusions from interim results. The accompanying Condensed
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K filed with the Commission for the year ended December
31, 1997. Prior year amounts have been reclassified to conform to the current
year's presentation.
Note 2 - Summary of Accounting Policies
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." Under SFAS No.
130, enterprises that provide a full set of financial statements that report
financial position, results of operations and cash flows should also include a
Statement of Comprehensive Income. Under SFAS No. 130, enterprises that provide
interim financial statements to shareholders should disclose total comprehensive
income. See Note 7 - Other Comprehensive Income and Supplemental Cash Flow
Information.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Under SFAS No. 131 public
business enterprises are required to provide disclosures about operating
segments using the "management approach." The Company's Life and Health
Insurance employee-agents also market certain property and casualty insurance
products under common management. Accordingly, the Company now includes the
results of those property casualty insurance products in its Life and Health
Insurance segment. Those products represent approximately 10 percent of premiums
in the Life and Health Insurance segment. It is the Company's management
practice to allocate certain corporate expenses to its operating units.
Consistent with that practice, the Company now includes those expenses in the
results of its operating segments.
Note 3 - Net Income Per Share
The Company determined Net Income Per Share and Net Income Per Share Assuming
Dilution in accordance with SFAS No. 128, "Earnings Per Share" for the three
months ended March 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
(Dollars and Shares in Millions, Except Per Share Amounts) 1998 1997
---------------------------------------------------------- ------ ------
<S> <C> <C>
Net Income $76.0 $33.7
Dilutive Effect on Net Income from
Investees' Equivalent Shares (0.4) (0.3)
------ ------
Net Income Assuming Dilution $75.6 $33.4
====== ======
Weighted Average Common Shares Outstanding 37.6 37.5
Dilutive Effect of Unitrin Stock Option Plans 0.2 0.2
------ ------
Weighted Average Common Shares and
Equivalent Shares Outstanding Assuming Dilution 37.8 37.7
====== ======
Net Income Per Share $2.02 $0.90
====== ======
Net Income Per Share Assuming Dilution $2.00 $0.89
====== ======
</TABLE>
4
<PAGE>
Note 4 - Investment in Investees
Unitrin accounts for its Investments in Investees under the equity method of
accounting using the most recent publicly-available financial reports.
Summarized financial information for Litton Industries, Inc. ("Litton") and
Western Atlas Inc. ("Western Atlas") is presented below.
The amounts included in Unitrin's financial statements for Litton represent
amounts reported by Litton for periods ending two months earlier. Accordingly,
amounts included in these financial statements represent the amounts reported by
Litton for the three months ending January 31, 1998 and 1997. Summarized
financial information reported by Litton for such periods was:
<TABLE>
<CAPTION>
(Dollars in Millions) 1998 1997
- ---------------------------------- ------ ------
<S> <C> <C>
Revenues $ 974 $ 960
====== ======
Cost of Sales $ 741 $ 750
====== ======
Income from Continuing Operations $ 41 $ 36
====== ======
Net Income $ 41 $ 36
====== ======
</TABLE>
Based on the most recently available public information, Unitrin's voting
percentage in Litton common stock at March 31, 1998 was approximately 27.5%.
The amounts included in Unitrin's financial statements for Western Atlas
represent amounts reported by Western Atlas for periods ending three months
earlier. Accordingly, amounts included in these financial statements represent
the amounts reported by Western Atlas for the three months ending December 31,
1997 and 1996. Summarized financial information reported by Western Atlas for
such periods was:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997 1996
- ---------------------------------- ------ ------
<S> <C> <C>
Revenues $ 440 $ 384
====== ======
Gross Profit $ 97 $ 77
====== ======
Income from Continuing Operations $ 32 $ 19
====== ======
Net Income $ 35 $ 37
====== ======
</TABLE>
Based on the most recently available public information, Unitrin's voting
percentage in Western Atlas common stock at March 31, 1998 was approximately
23.3%.
5
<PAGE>
Note 5 -- Business Segments
Segment Revenues and Operating Profit for the three months ended March 31, 1998
and 1997 were:
<TABLE>
<CAPTION>
(Dollars in Millions) 1998 1997
- --------------------------------------------------------------- ------ -------
<S> <C> <C>
Revenues:
Property and Casualty Insurance:
Premiums $170.9 $179.9
Net Investment Income 11.1 12.7
------ ------
Total Property and Casualty Insurance 182.0 192.6
------ ------
Life and Health Insurance:
Premiums 119.0 127.1
Net Investment Income 30.5 31.0
------ ------
Total Life and Health Insurance 149.5 158.1
------ ------
Consumer Finance 28.3 31.4
------ ------
Total Segment Revenues 359.8 382.1
------ ------
Net Gains on Sales of Investments 60.9 1.3
Other 0.2 (1.3)
------ ------
Total Revenues $420.9 $382.1
====== ======
Income before Income Taxes and
Equity in Net Income of Investees:
Property and Casualty Insurance $ 18.8 $ 18.5
Life and Health Insurance 7.5 10.8
Consumer Finance 5.9 3.2
------ ------
Total Segment Operating Profit 32.2 32.5
------ ------
Net Gains on Sales of Investments 60.9 1.3
Other (0.6) (2.3)
------ ------
Income before Income Taxes and
Equity in Net Income of Investees $ 92.5 $ 31.5
====== ======
</TABLE>
6
<PAGE>
Note 6--Legal Proceedings
The Company and its subsidiaries are defendants in various legal actions
incidental to their businesses. Some of these actions seek substantial punitive
damages that bear no apparent relationship to the actual damages alleged.
Although no assurances can be given and no determination can be made at this
time as to the outcome of any particular legal action, the Company and its
subsidiaries believe there are meritorious defenses to these legal actions and
are defending them vigorously. The Company believes that resolution of these
matters will not have a material adverse effect on the Company's financial
position.
In connection with one action, Ronnie Dale Bleeker v. Trinity Universal
Insurance Company ("Trinity"), et al., the District Court of Hildalgo County,
Texas, on February 9, 1995 entered a judgment in the amount of $77.0 million,
including attorney's fees of $38.5 million, against Trinity, one of the
Company's subsidiaries. The case involves an accident in which Ronnie Bleeker, a
former insured of Trinity under a $40 thousand automobile insurance policy,
while driving his truck struck another truck parked alongside a road, killing
one person and injuring several others. Suit was filed against Bleeker by the
injured parties (the "Claim Case"). In 1993, the plaintiffs in the Claim Case
were awarded damages in excess of $9 million. In 1994, these plaintiffs, acting
as assignees of a purported claim by Bleeker against Trinity, filed suit against
Trinity (the "Bad Faith Case") alleging that negligent claim handling by Trinity
led to the large verdict against Bleeker in the Claim Case. The Bad Faith Case
was tried in 1995 and resulted in the judgment against Trinity described above.
Trinity appealed the judgment to the Thirteenth Court of Appeals in Corpus
Christi, Texas. On February 27, 1997, the court of appeals affirmed in part and
reversed in part the judgment of the trial court, reducing the judgment to $12.8
million plus interest, and remanding the case for a new trial on the plaintiffs'
claim of unconscionability. Trinity filed an application for writ of error in
the Supreme Court of Texas. On April 14, 1998, the Supreme Court of Texas
unanimously ruled in Trinity's favor and rendered a judgment that the plaintiffs
"take nothing." The Court's decision also eliminated the plaintiffs'
unconscionability claim. Plaintiffs have a right to petition for a rehearing,
but have not done so as of the date hereof. Management estimates that the
resolution of this matter will not have a material impact.
Note 7--Other Comprehensive Income and Supplemental Cash Flow Information
Other Comprehensive Income related to the Company's investments in Fixed
Maturities and Equity Securities for the three months ended March 31, 1998 and
1997 was:
<TABLE>
<CAPTION>
(Dollars in Millions) 1998 1997
- ------------------------------------------------------ ------ ------
<S> <C> <C>
Increase (Decrease) in Unrealized Gains, Net of
Reclassification Adjustment for Gains Included
in Net Income $(66.4) $(26.9)
Effect of Income Taxes 22.7 9.5
------ ------
Increase (Decrease) in Accumulated Other Comprehensive
Income $(43.7) $(17.4)
====== ======
</TABLE>
The Company's investments in Investees are accounted for under the equity method
of accounting and, accordingly, changes in the fair value of the Company's
investments in Investees are excluded from the determination of Total
Comprehensive Income and Other Comprehensive Income under SFAS No. 130. Total
Comprehensive Income for the three months ended March 31, 1998 and 1997 was
$32.3 million and $16.3 million, respectively.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Property and Casualty Insurance
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in Millions) 1998 1997
- --------------------- ------ ------
<S> <C> <C>
Premiums $170.9 $179.9
Net Investment Income 11.1 12.7
------ ------
Total Revenues $182.0 $192.6
====== ======
Operating Profit $ 18.8 $ 18.5
====== ======
</TABLE>
Premiums in the Property and Casualty Insurance segment decreased by $9.0
million for the first quarter of 1998 compared to the first quarter of 1997 due
primarily to lower volume of automobile insurance. Net Investment Income in the
Property and Casualty Insurance segment decreased by $1.6 million due to a lower
level of investments and lower yields on investments. Operating Profit in the
Property and Casualty Insurance segment increased by $0.3 million due primarily
to non-storm related loss experience. Losses directly attributable to storms
increased by $4.2 million.
Life and Health Insurance
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in Millions) 1998 1997
- --------------------- ------ ------
<S> <C> <C>
Premiums $119.0 $127.1
Net Investment Income 30.5 31.0
------ ------
Total Revenues $149.5 $158.1
====== ======
Operating Profit $ 7.5 $ 10.8
====== ======
</TABLE>
Premiums in the Life and Health Insurance segment decreased by $8.1 million for
the first quarter of 1998 compared to the first quarter of 1997 due primarily to
lower volume. Operating Profit in the Life and Health Insurance segment
decreased by $3.3 million due primarily to costs associated with the elimination
of certain management and administrative positions and lower amortization of
gains deferred on the ceding of certain in-force business.
Consumer Finance
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Dollars in Millions) 1998 1997
- --------------------- ------ ------
<S> <C> <C>
Revenues $ 28.3 $ 31.4
====== ======
Operating Profit $ 5.9 $ 3.2
====== ======
</TABLE>
Revenues in the Consumer Finance segment decreased by $3.1 million for the first
quarter of 1998 compared to the first quarter of 1997 as a result of a lower
level of loans outstanding. Operating Profit in the Consumer Finance segment
increased by $2.7 million due primarily to lower provision for loan losses.
8
<PAGE>
Net Gains on Sales of Investments
Net Gains on Sales of Investments was $60.9 million for the first quarter of
1998 compared to $1.3 million for the first quarter of 1997. Net Gains on Sales
of Investments increased for the first quarter of 1998 due primarily to the
redemption of the Company's investment in Navistar International Corporation
$6.00 Cumulative Convertible Preferred Stock, Series G and the disposition of
the Company's investment in ITT Corporation ("ITT") common stock in connection
with the acquisition of ITT by Starwood Hotels & Resorts Worldwide, Inc. The
Company cannot anticipate when or if similar investment gains or losses may
occur in the future.
Year 2000
The Year 2000 issue (i.e. the ability of computer systems to accurately identify
and process dates beginning with the year 2000 and beyond) affects virtually all
companies and organizations. Some of the Company's computer systems are already
Year 2000 compliant. However, certain of the Company's computer systems use only
two digits to identify a year in a date field. For example, the year 2000 would
be represented in these systems as "00," but would in most cases be interpreted
by the computer as "1900" rather than "2000," thereby potentially resulting in
processing errors.
The ability to process information in a timely and accurate manner is vital to
the Company's data-intensive insurance and consumer finance businesses. The
Company recognizes that the computer systems used by these businesses must be
Year 2000 compliant by December 31, 1999 and, in some instances, well in advance
of that date (e.g., by January 1999 in the case of certain property and casualty
insurance policies with one-year terms expiring on or after January 1, 2000).
The Company is taking steps it deems appropriate to meet this challenge,
including rewriting existing computer applications to be Year 2000 compliant and
replacing other existing computer applications with new applications that
improve functionality in addition to being Year 2000 compliant. The Company is
also reviewing the Year 2000 issue with key service providers. The goal of the
Company and its operating companies is to be substantially "Year 2000" compliant
by the end of 1998, although there can be no assurances that this goal will be
met. If one or more of the Company's operating companies, key service providers
or investee companies fails to make its computer systems Year 2000 compliant by
the necessary dates, such failure could adversely affect the Company's
operations and financial results.
Expense recognized directly related to rewriting existing applications or
replacing existing applications with new Year 2000 compliant applications
totaled $2.4 million and $1.1 million for the three months ended March 31, 1998
and 1997, respectively.
Other Items
Other expenses decreased by $1.7 million for the first quarter of 1998 compared
to the first quarter of 1997 due primarily to lower net interest expense.
During the first three months of 1998, the Company repurchased 20,000 shares of
its common stock in open market transactions at an aggregate cost of $1.2
million. The repurchases were made with general corporate funds. At March 31,
1998, the unused commitment under the Company's revolving credit facility was
$340 million. In addition, for the remainder of 1998, the Company's subsidiaries
would be able to pay approximately $245 million in dividends to the Company
without prior regulatory approval.
On June 20, 1997, Unitrin and The Reliable Life Insurance Company ("Reliable")
entered into a definitive agreement, subject to certain approvals and other
customary closing conditions, providing for the acquisition of Reliable by
Unitrin. If the acquisition is consummated as proposed, Unitrin would issue
approximately 3,760,000 shares of its common stock for all of Reliable's
outstanding common stock. On December 12, 1997, the Missouri Department of
Insurance (the "Missouri Department") issued an order disapproving the proposed
acquisition of Reliable by Unitrin, on the grounds that the effect of the
transaction will be substantially to lessen competition in insurance in the
state of Missouri. On December 23, 1997, Unitrin filed suit in the Circuit Court
of Cole County, Missouri seeking a reversal of the Missouri Department's order.
The Circuit Court has set a May 21, 1998 trial date. Unitrin or Reliable may
terminate the acquisition agreement at any time. However, Unitrin is firmly
committed to the goal of consummating the proposed transaction.
If consummated, the acquisition would be accounted for by the purchase method
and, accordingly, the operations of Reliable would be included in Unitrin's
financial statements from the date of acquisition.
9
<PAGE>
Accounting Changes
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." Under SFAS No.
130, enterprises that provide a full set of financial statements that report
financial position, results of operations and cash flows should also include a
Statement of Comprehensive Income. Under SFAS No. 130, enterprises that provide
interim financial statements to shareholders should disclose total comprehensive
income. See Note 7 - Other Comprehensive Income and Supplemental Cash Flow
Information.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Under SFAS No. 131 public
business enterprises are required to provide disclosures about operating
segments using the "management approach." The Company's Life and Health
Insurance employee-agents also market certain property and casualty insurance
products under common management. Accordingly, the Company now includes the
results of those property casualty insurance products in its Life and Health
Insurance segment. Those products represent approximately 10 percent of premiums
in the Life and Health Insurance segment. It is the Company's management
practice to allocate certain corporate expenses to its operating units.
Consistent with that practice, the Company now includes those expenses in the
results of its operating segments.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS
No. 132 supersedes the disclosure requirements of SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and Termination Benefits," and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 does not address measurement or recognition and,
accordingly, has no effect on the Company's financial position or results of
operation.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires companies to
capitalize qualifying computer software costs incurred during the application
development stage. SOP No. 98-1 is effective for fiscal years beginning after
December 31, 1998, with earlier adoption permitted. The Company intends to adopt
SOP No. 98-1 in 1999. The Company has not determined the effect of adoption.
Caution Regarding Forward-Looking Statements
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the accompanying Condensed Consolidated Financial Statements
(including the notes thereto) contain forward-looking statements, which usually
include words such as "believe(s)," "goal(s)," "estimate(s)" and similar
expressions. Readers are cautioned not to place undue reliance on such
statements, which speak only as of the date of this Quarterly Report. Forward-
looking statements are subject to risks and uncertainties which could cause
actual results to differ materially from those contemplated in such statements.
Such risks and uncertainties include, but are not limited to, those described
under "Year 2000" above, changes in economic factors (such as interest rates),
changes in competitive conditions (including availability of labor with required
technical or other skills), the number and severity of insurance claims
(including those associated with catastrophe losses), governmental actions
(including new laws or regulations or court decisions interpreting existing laws
and regulations) and adverse judgments in litigation to which the Company or its
subsidiaries are parties. No assurances can be given that the results
contemplated in any forward-looking statements will be achieved. The Company
assumes no obligation to release publicly any revisions to any forward-looking
statements as a result of events or developments subsequent to the date of this
Quarterly Report.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning pending legal proceedings is incorporated herein by
reference to Note 6 to the Condensed Consolidated Financial Statements
(Unaudited) in Part I of this Form 10-Q.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement and Plan of Reorganization Among Unitrin, Inc., Unitrin
Acquisition Corporation and The Reliable Life Insurance Company
dated June 20, 1997, as amended. (Incorporated herein by
reference to Appendix A to the Company's Amendment No. 3 to Form
S-4 filed on November 6, 1997)
3.1 Certificate of Incorporation (Incorporated herein by reference to
Exhibit 3.1 to Unitrin's Registration Statement on Form 10 dated
February 15, 1990.)
3.2 Amended and Restated By-Laws (Incorporated herein by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.)
4 Rights Agreement between the Company and First Chicago Trust
Company of New York, as rights agent, dated as of August 3, 1994
(Incorporated herein by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated August 3, 1994.)
10.1 Unitrin, Inc. 1990 Stock Option Plan as amended and restated
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995.)
10.2 Unitrin, Inc. 1997 Stock Option Plan (Incorporated herein by
reference to Exhibit A of the Company's Proxy Statement, dated
April 9, 1997, in connection with Unitrin's annual meeting of
shareholders.)
10.3 Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan
(Incorporated herein by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.)
10.4 Unitrin, Inc. Pension Equalization Plan (Incorporated herein by
reference to Exhibit 10.4 to Unitrin's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10.5 Unitrin is a party to individual severance agreements (the form
of which is incorporated herein by reference to Exhibit 10.5 to
the Company's 1994 Annual Report on Form 10-K), with following
executive officers:
Jerrold V. Jerome (Chairman)
Richard C. Vie (President and Chief Executive Officer)
David F. Bengston (Vice President)
James W. Burkett (Vice President)
Thomas H. Maloney (Vice President & General Counsel)
Eric J. Draut (Vice President, Treasurer &
Chief Financial Officer)
Scott Renwick (Secretary)
(Note: Each of the foregoing agreements is identical except that
the severance compensation multiple is 2.99 for Messrs. Jerome
and Vie and 2.0 for the other executive officers. The term of
these agreements has been extended by action of Unitrin's board
of directors through December 31, 1998.)
</TABLE>
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (continued)
(a) Exhibits (continued).
<TABLE>
<CAPTION>
<C> <S>
10.6 Severance Compensation Plan After Change of Control (Incorporated
herein by reference to Exhibit 10.6 to the Company's 1994 Annual
Report on Form 10-K; the term of this plan has been extended by
Unitrin's board of directors through December 31, 1998.)
10.7 Amended and Restated Credit Agreement dated September 17, 1997
among Unitrin, Inc., the Lenders party thereto, and NationsBank
of Texas, N.A. as Administrative Agent (Incorporated herein by
reference to Exhibit 10.9 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997).
10.8 1998 Bonus Plan for Senior Executives (Incorporated herein by
reference to Exhibit A of the Company's Proxy Statement, dated
April 9, 1998, in connection with Unitrin's annual meeting of
shareholders.)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1998.
[This Space Left Blank Intentionally]
12
<PAGE>
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.
Unitrin, Inc.
Date: May 1, 1998 /s/ Richard C. Vie
----------------------------------------
Richard C. Vie
President and Chief Executive Officer
Date: May 1, 1998 /s/ Eric J. Draut
----------------------------------------
Eric J. Draut
Vice President, Treasurer and
Chief Financial Officer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
the Condensed Consolidated Financial Statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<DEBT-HELD-FOR-SALE> 2,330,800 2,266,100
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 177,200 260,000
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 3,406,000 3,408,200
<CASH> 19,700 17,500
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 4,846,500 5,007,100
<POLICY-LOSSES> 2,038,700 2,069,300
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 5,900 121,600
<COMMON> 3,800 3,700
0 0
0 0
<OTHER-SE> 1,536,300 1,469,500
<TOTAL-LIABILITY-AND-EQUITY> 4,846,500 5,007,100
289,900 307,000
<INVESTMENT-INCOME> 41,800 42,400
<INVESTMENT-GAINS> 60,900 1,300
<OTHER-INCOME> 28,300 31,400
<BENEFITS> 183,700 195,000
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 144,700<F1> 155,600<F3>
<INCOME-PRETAX> 92,500 31,500
<INCOME-TAX> 31,700 10,600
<INCOME-CONTINUING> 76,000<F2> 33,700<F4>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 76,000 33,700
<EPS-PRIMARY> 2.02 0.90
<EPS-DILUTED> 2.00 0.89
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
<FN>
<F1> 1998 Includes Consumer Finance Expenses of $23.4 million and Other Expenses
of $2.8 million.
<F2> 1998 Includes Equity in Net Income of Investees of $15.2 million.
<F3> 1997 Includes Consumer Finance Expenses of $29.8 million and Other Expenses
of $3.1 million.
<F4> 1997 Includes Equity in Net Income of Investees of $12.8 million.
</FN>
</TABLE>
