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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 1-11422
PENNCORP FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3543540
(State or other jurisdiction of (I.R.S employer
incorporation or organization) identification no.)
590 Madison Avenue 10022
New York, New York (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 896-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------- ---------------------------------------
Common Stock, $.01 par value New York Stock Exchange
- ------------------------------------- ---------------------------------------
$3.375 Convertible Preferred
Stock, $.01 par value New York Stock Exchange
- ------------------------------------- ---------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 [ ]
The number of Common Stock shares outstanding as of May 4, 1998, was 28,544,780.
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1
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.............................................................................3
Consolidated Balance Sheets.....................................................................3
Consolidated Statements of Income (Loss)........................................................4
Consolidated Condensed Statements of Cash Flows.................................................5
Notes to Unaudited Consolidated Condensed Financial Statements..................................6
Review by Independent Certified Public Accountants.............................................12
Independent Auditors' Review Report............................................................13
Item 2. Management's Discussion And Analysis of Financial Condition and Results of Operations...........14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................22
Item 6. Exhibits and Reports on Form 8-K................................................................22
SIGNATURE
INDEX TO EXHIBITS
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities available for sale, at fair value........................... $ 3,881,096 $ 2,718,982
Equity securities available for sale, at fair value.......................... 28,126 30,257
Mortgage loans on real estate................................................ 283,583 240,879
Policy loans................................................................. 243,635 145,108
Short term investments....................................................... 103,863 84,141
Other investments............................................................ 50,335 95,875
------------- -------------
Total investments........................................................ 4,590,638 3,315,242
Cash............................................................................ 7,232 24,872
Accrued investment income....................................................... 55,448 43,312
Accounts and notes receivable................................................... 31,440 46,655
Investments in unconsolidated affiliates........................................ -- 183,158
Present value of insurance in force............................................. 221,331 263,889
Deferred policy acquisition costs............................................... 177,991 310,117
Costs in excess of net assets acquired and other intangibles.................... 156,641 116,544
Other assets.................................................................... 490,951 420,346
Assets of businesses held for sale.............................................. 1,150,713 --
------------- -------------
Total assets............................................................. $ 6,882,385 $ 4,724,135
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities and accruals.............................................. $ 4,544,152 $ 3,289,925
Notes payable................................................................ 439,231 359,755
Income taxes, primarily deferred............................................. -- 59,125
Accrued expenses and other liabilities....................................... 213,416 135,227
Liabilities of businesses held for sale...................................... 796,813 --
------------- -------------
Total liabilities........................................................ 5,993,612 3,844,032
------------- -------------
Mandatory redeemable preferred stock:
Series C, $.01 par value, $100 initial redemption value; authorized, issued
and outstanding--at March 31, 1998, and 178,500 at December 31, 1997....... -- 19,867
Shareholders' Equity:
$3.375 Convertible Preferred Stock, $.01 par value, $50 redemption value;
authorized issued and outstanding 2,300,000 at March 31, 1998, and
December 31, 1997.......................................................... 110,513 110,513
$3.50 Series II Convertible Preferred Stock, $.01 par value, $50 redemption
value; authorized issued and outstanding 2,875,000 at March 31, 1998, and
December 31, 1997.......................................................... 139,157 139,157
Common stock, $.01 par value; authorized 100,000,000; issued and
outstanding 29,554,369 at March 31, 1998, and 28,860,206 at
December 31, 1997.......................................................... 302 289
Additional paid-in capital................................................... 431,025 397,590
Accumulated other comprehensive income....................................... 37,130 35,034
Retained earnings............................................................ 203,988 211,055
Treasury shares.............................................................. (32,130) (32,130)
Notes receivable secured by common stock..................................... (1,212) (1,272)
------------- -------------
Total shareholders' equity............................................... 888,773 860,236
------------- -------------
Total liabilities and shareholders' equity............................... $ 6,882,385 $ 4,724,135
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 31
1998 1997
------------- -------------
<S> <C> <C>
REVENUES:
Premiums, principally accident and sickness.................................. $ 89,425 $ 66,477
Interest sensitive product policy charges.................................... 34,167 23,226
Net investment income........................................................ 96,215 68,546
Other income................................................................. 11,321 6,040
Net gains from sale of investments........................................... 1,523 3,827
------------- -------------
Total revenues........................................................... 232,651 168,116
------------- -------------
BENEFITS AND EXPENSES:
Claims incurred.............................................................. 82,034 44,655
Change in liability for future policy benefits and other policy benefits..... 56,061 30,108
Amortization of present value of insurance in force and deferred
policy acquisition costs................................................... 23,973 20,819
Amortization of costs in excess of net assets acquired and other intangibles. 3,742 2,278
Underwriting and other administrative expenses............................... 43,261 30,536
Interest and amortization of deferred debt issuance costs.................... 9,917 4,387
Restructuring charges........................................................ 8,017 19,071
------------- -------------
Total benefits and expenses.............................................. 227,005 151,854
------------- -------------
Income before income taxes, equity in earnings of unconsolidated affiliates and
extraordinary charge......................................................... 5,646 16,262
Income taxes............................................................. 2,757 7,557
------------- -------------
Income before equity in earnings of unconsolidated affiliates and
extraordinary charge......................................................... 2,889 8,705
Equity in earnings of unconsolidated affiliates.......................... -- 3,658
------------- -------------
Income before extraordinary charge.............................................. 2,889 12,363
Extraordinary charge....................................................... (1,671) --
------------- -------------
Net income...................................................................... 1,218 12,363
Preferred stock dividend requirements.................................... 4,904 4,927
------------- -------------
Net income (loss) applicable to common stock.................................... $ (3,686) $ 7,436
============= =============
PER SHARE INFORMATION:
Basic:
Net income (loss) applicable to common stock before extraordinary charge..... $ (0.14) $ 0.26
Extraordinary charge....................................................... (0.06) --
------------- -------------
Net income (loss) applicable to common stock................................. $ (0.20) $ 0.26
============= =============
Common shares used in computing basic earnings (loss) per share.............. 28,572 28,441
============= =============
Diluted:
Net income (loss) applicable to common stock before extraordinary charge..... $ (0.14) $ 0.25
Extraordinary charge....................................................... (0.06) --
------------- -------------
Net income (loss) applicable to common stock................................. $ (0.20) $ 0.25
============= =============
Common shares used in computing diluted earnings (loss) per share............ 28,572 29,334
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 31
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities....................................... $ 16,629 $ 88,907
------------- -------------
Cash flows from investing activities:
Cash expended in acquisitions of businesses, net of cash acquired............ (74,762) --
Purchases of invested assets................................................. (285,491) (327,134)
Sales of invested assets..................................................... 244,451 302,420
Maturities of invested assets................................................ 23,462 47,474
Other, primarily short term investments, net................................. 79,577 (89,068)
------------- -------------
Net cash used by investing activities.................................... (12,763) (66,308)
------------- -------------
Cash flows from financing activities:
Issuance of common stock..................................................... 7 866
Treasury stock purchase...................................................... -- (3,538)
Additional borrowings........................................................ 200,000 135,000
Reduction in notes payable................................................... (126,164) (100,139)
Redemption of preferred stock................................................ -- (14,706)
Dividends on preferred and common stock...................................... (6,354) (5,879)
Receipts from interest sensitive polices credited to policyholder
account balances........................................................... 62,748 51,380
Return of policyholder account balances on interest sensitive products....... (144,170) (116,787)
Other, net................................................................... 2,871 (2,874)
------------- -------------
Net cash used by financing activities.................................... (11,062) (56,677)
------------- -------------
Net decrease in cash..................................................... (7,196) (34,078)
Cash at beginning of period..................................................... 24,872 39,464
------------- -------------
Cash at end of period (including $10,444 included with assets classified as
assets of businesses held for sale).......................................... $ 17,676 $ 5,386
============= =============
Supplemental disclosures:
Income taxes paid.......................................................... $ 2,173 $ 1,820
============= =============
Interest paid.............................................................. $ 5,793 $ 2,275
============= =============
Non-cash financing activities:
Redemption of Series C Preferred stock..................................... $ 22,227 $ --
============= =============
Issuance of common stock associated with the acquisition of the
Fickes and Stone Knightsbridge Interests................................. $ 8,500 $ --
============= =============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
5
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
PennCorp Financial Group, Inc. ("PennCorp," or the "Company") is an
insurance holding company. Through its wholly-owned life insurance subsidiaries;
Pennsylvania Life Insurance Company ("PLIC") and its wholly-owned subsidiary,
Penncorp Life Insurance Company (collectively referred to as "Penn Life");
Peninsular Life Insurance Company ("Peninsular"); Professional Insurance
Corporation ("Professional"); Pioneer Security Life Insurance Company ("Pioneer
Security") and its wholly-owned subsidiaries American-Amicable Life Insurance
Company of Texas and Pioneer American Insurance Company (Pioneer Security and
its subsidiaries collectively referred to as "AA Life"); Southwestern Financial
Corporation and Subsidiaries ("SW Financial") and its wholly-owned subsidiaries
Southwestern Life Insurance Company ("Southwestern Life"), Constitution Life
Insurance Company ("Constitution"), Union Bankers Insurance Company ("Union
Bankers"), and Marquette National Life Insurance Company ("Marquette"); Integon
Life Insurance Corporation ("Integon Life"); Occidental Life Insurance Company
of North Carolina ("OLIC"); United Life & Annuity Insurance Company ("United
Life"); Knightsbridge Management, LLC ("Knightsbridge Management"), which
provides management and advisory services to the Company; Marketing One, Inc.
("Marketing One"), a third party marketing organization; and Pacific Life and
Accident Insurance Company ("PLAIC"), the Company offers a broad range of
accident and sickness, life, and accumulation insurance products to individuals
through a sales force that is contractually exclusive to certain of the
Company's subsidiaries and through general agents.
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. All dollar amounts presented hereafter,
except share amounts, are stated in thousands.
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 as well
as revenues and expenses. Accounts that the Company deems to be acutely
sensitive to changes in estimates include deferred policy acquisition costs,
policy liabilities and accruals, present value of insurance in force and
deferred taxes. In addition, the Company must determine the requirements for
disclosure of contingent assets and liabilities as of the date of the financial
statements based upon estimates. As additional information becomes available, or
actual amounts are determinable, the recorded estimates may be revised and
reflected in operating results. Although some variability is inherent in these
estimates, management believes the amounts provided are adequate. In all
instances, actual results could differ from estimates.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130 on January 1, 1998. This statement establishes standards for
reporting and displaying comprehensive income and its components and requires
all items to be recognized under accounting standards as comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Examples of items included in the Company's
presentation of comprehensive income, in addition to net income applicable to
common stock, are unrealized foreign currency translation gains and losses as
well as unrealized gains and losses on securities available for sale.
Comprehensive loss for the three month periods ended March 31, 1998 and
1997, is as follows:
<TABLE>
<S> <C>
March 31, 1998:
Net loss...................................................... $ (3,686)
Foreign currency translation adjustment....................... 1,869
Unrealized gain on securities available for sale.............. 227
-----------
Comprehensive loss............................................ $ (1,590)
===========
March 31, 1997:
Net income.................................................... $ 7,436
Foreign currency translation adjustment....................... (1,827)
Unrealized loss on securities available for sale.............. (54,309)
-----------
Comprehensive loss............................................ $ (48,700)
===========
</TABLE>
6
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. New Accounting Pronouncements Not Yet Adopted
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997 by the Financial Accounting Standards
Board (the "FASB"). This Statement requires that companies disclose segment data
on the basis that is used internally by management for evaluating segment
performance and allocating resources to segments. This Statement requires that a
company report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. It also requires various reconciliations of
total segment information to amounts in the consolidated financial statements.
The Company's current definition of its business segments, significant lines of
business (fixed benefit, life and accumulation products), will be expanded to
significant lines of business by divisional platform (Career Sales Division,
Payroll Sales Division and Financial Services Division). The footnote disclosure
requirements of SFAS No. 131 are effective for fiscal years beginning after
December 15, 1997.
In December 1997, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 97-3. SOP 97-3 provides: (1)
guidance for determining when an entity should recognize a liability for
guaranty-fund and other insurance-related assessments, (2) guidance on how to
measure the liability, (3) guidance on when an asset may be recognized for a
portion or all of the assessment liability or paid assessment that can be
recovered through premium tax offsets or policy surcharges, and (4) requirements
for disclosure of certain information. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998. Early adoption is
encouraged. Previously issued annual financial statements are not restated. The
Company will report the effect of initially adopting this SOP in a manner
similar to the reporting of a cumulative effect of a change in accounting
principle. The Company is currently evaluating the financial impact, which is
expected to be immaterial, as well as the changes to its related disclosures.
In February 1998, the FASB adopted SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 is effective for
fiscal years beginning after December 31, 1997. Earlier application is
encouraged. Restatement of disclosures for earlier periods provided for
comparative purposes is required. SFAS No. 132 standardizes employers'
disclosures about pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
to facilitate financial analysis, and eliminates certain irrelevant disclosures.
The Company is currently evaluating the necessary changes to its related
disclosures.
In March 1998, SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," was issued. This SOP provides guidance
for determining whether costs of software developed or obtained for internal use
should be capitalized or expensed as incurred. In the past, the Company has
expensed such costs as they were incurred. This SOP is also effective for fiscal
years beginning after December 15, 1998. The Company is currently evaluating the
financial impact as well as the changes to its related disclosures.
3. Acquisitions and Other Transactions
On January 2, 1998 the Company consummated the acquisition, from
Knightsbridge Capital Fund I, LP (the "Knightsbridge Fund") and Messrs. Fickes
and Stone, of their respective holdings of common stock and common stock
warrants of SW Financial (collectively, the "SW Financial Controlling Interest")
for an aggregate purchase price of $73,777 (not including acquisition expenses).
The fair value of net assets acquired amounted to $45,520 resulting in $28,257
of costs in excess of net assets acquired which will be amortized over 30 years.
On August 5, 1997, the Company purchased $40,000 of SW Financial
Subordinated Notes (the "SW Financial Notes") from the liquidating trust for the
creditors of ICH Corporation, SW Financial's former parent. SW Financial had
issued the SW Financial Notes as part of the acquisition consideration paid to
the liquidating trust. The SW Financial Notes were purchased by the Company at
par and are included in other investments as of December 31, 1997. As part of
the acquisition of the SW Financial Controlling Interest on January 2, 1998, the
SW Financial Notes were reclassified to purchase consideration for SW Financial
by the Company.
As part of the acquisition of the SW Financial Controlling Interest,
the Company utilized funds available under its revolving credit facility to
refinance $115,015 of SW Financial notes payable at a more favorable interest
rate structure. As a
7
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. Acquisitions and Other Transactions (Continued)
result of such refinancing and the write-off of the associated deferred
financing costs, the Company realized an after-tax extraordinary charge of
$1,671 for the three month period ended March 31, 1998.
The acquisition of the SW Financial Controlling Interest has been
accounted for as a step purchase transaction in accordance with generally
accepted accounting principles, and accordingly, fair values of assets and
liabilities acquired have been determined as of January 2, 1998. The purchase
allocation is preliminary and is expected to be completed by December 1998.
On January 5, 1998, the Company consummated the acquisition of the
interests of Messrs. Fickes and Stone in Knightsbridge Management, Knightsbridge
Capital LLC and Knightsbridge Consultants LLC (collectively, the "Fickes and
Stone Knightsbridge Interests") for total consideration estimated to be $11,382
(not including acquisition expenses). Messrs. Fickes and Stone will each receive
consideration in the form of estimated annual interest payments, ranging from
$301 to $330, due April 15, 1997, each year through 2001 and issuance by
PennCorp of 173,160 shares of the Company's Common Stock to each of Messrs.
Fickes and Stone on April 15, 2001. The fair value of net assets acquired
amounted to $(1,701) resulting in $13,083 of costs in excess of net assets
acquired which will be amortized over seven years.
The acquisition of the Fickes and Stone Knightsbridge Interests has
been accounted for as a purchase transaction in accordance with generally
accepted accounting principles, and accordingly, all assets and liabilities
acquired were recorded at fair value as of the acquisition date which became the
new accounting basis. The purchase allocation is preliminary and is expected to
be completed by December 1998.
On February 18, 1998, the Company announced it had engaged investment
banking firms to review strategic alternatives for maximizing shareholder value,
including the sale of the Company's Career Sales Division.
The following unaudited selected pro forma financial information has
been prepared to illustrate the pro forma effects of: (i) the acquisition of the
SW Financial Controlling Interest including financing thereof, (ii) the
acquisition of the Fickes and Stone Knightsbridge Interests, including financing
thereof ((i) and (ii) collectively the SW Financial pro forma) and (iii) the
impact of the Company's decision to dispose of the Career Sales Divisions ((i),
(ii) and (iii) collectively the Retained Businesses pro forma). The pro forma
statement of income for the three month period ended March 31, 1997, gives
effect to the foregoing as though each had occurred on January 1, 1997. The
unaudited selected pro forma financial information does not include the pro
forma results of operations for the three month period ended March 31, 1998, or
the pro forma balance sheet as of March 31, 1998, as the unaudited selected pro
forma financial information is materially equivalent to the results of
operations for the three month period ended March 31, 1998, and the pro forma
balance sheet as of March 31, 1998, as reported. This unaudited selected pro
forma financial information has been prepared for comparative purposes only and
does not purport to be indicative of what would have occurred had the
acquisitions been made as of January 1, 1997, or results which may occur in the
future.
The Company's decision to dispose of the Career Sales Division, within
a period of time not likely to exceed one year, results in the assets and
liabilities of the Career Sales Division being considered "assets and
liabilities held for sale," and as such segregated from those of the Retained
Businesses for purposes of presentation of the Company's consolidated balance
sheet. In addition, the Company is required to disclose certain information
regarding the impact of the Career Sales Division on the Company's consolidated
statement of income. The following unaudited selected pro forma financial
information is intended to summarize such transactions. The Retained Businesses
unaudited selected pro forma information reflects the historical results of the
Retained Businesses and does not consider the use of proceeds likely to be
derived from the disposition of the businesses held for sale. The significant
subsidiaries included in the Career Sales Division are PLIC and Union Bankers.
8
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PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. Acquisitions and Other Transactions (Continued)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) (Unaudited)
-------------
Retained
SW Financial Businesses
As Reported Pro forma Pro forma
For the three month period ended March 31, 1997 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total revenues........................................... $ 168,116 $ 242,723 $ 169,991
Net income (loss)........................................ 12,363 13,086 5,442
Net income (loss) applicable to common stock............. 7,436 8,176 532
Per share information:
Net income applicable to common stock-basic............ $ 0.26 $ 0.29 *
Net income applicable to common stock-diluted.......... 0.25 0.28 *
* With regard to the potential divestiture of the businesses held for sale,
per share information is not provided due to amounts and use of proceeds
information for the Company being unavailable.
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
Retained
SW Financial Businesses
As Reported Pro forma Pro forma
As of December 31, 1997 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Investments and cash..................................... $ 3,340,114 $ 5,326,882 $ 4,655,522
Insurance assets......................................... 617,318 840,764 470,050
Other assets............................................. 766,703 799,242 623,300
Assets of businesses held for sale....................... -- -- 1,218,016
------------- ------------- -------------
Total assets........................................... $ 4,724,135 $ 6,966,888 $ 6,966,888
============= ============= =============
Insurance liabilities.................................... $ 3,289,925 $ 5,232,139 $ 4,638,392
Long-term debt........................................... 359,755 550,505 395,955
Other liabilities........................................ 194,352 295,641 178,520
Liabilities of businesses held for sale.................. -- -- 865,418
Redeemable preferred stock............................... 19,867 19,867 19,867
Shareholders' equity..................................... 860,236 868,736 868,736
------------- ------------- -------------
Total liabilities and shareholders' equity............. $ 4,724,135 $ 6,966,888 $ 6,966,888
============= ============= =============
</TABLE>
4. Southwestern Life Investment
Prior to the Company's acquisition of the SW Financial Controlling
Interest, through its initial direct investment of $120,000 in SW Financial (the
"Southwestern Life Investment"), the Company beneficially owned 74.8% of SW
Financial's outstanding common stock, including 100% of SW Financial's
non-voting common stock, 14.3% of SW Financial's voting common stock, and 100%
of SW Financial preferred stock. PennCorp was also a 16.3% limited partner in
Knightsbridge. As a result, the Company had an economic interest in SW Financial
aggregating 78.0 percent. Retained earnings of the Company include undistributed
earnings of SW Financial aggregating $40,919 as of December 31, 1997.
On January 2, 1998, the Company acquired the SW Financial Controlling
Interest (see Note 3).
9
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. Southwestern Life Investment (Continued)
Financial information for SW Financial is provided below:
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEET
December 31, 1997
-----------------
<S> <C>
ASSETS:
Invested assets................................................................ $ 2,026,768
Insurance assets............................................................... 114,395
Other assets................................................................... 283,717
-------------
Total assets.............................................................. $ 2,424,880
=============
LIABILITIES AND SHAREHOLDERS EQUITY:
Policy liabilities and accruals................................................ $ 1,942,214
Notes payable.................................................................. 154,750
Accrued expenses and other liabilities......................................... 98,509
Mandatory redeemable preferred stock........................................... 36,891
Shareholders equity............................................................ 192,516
-------------
Total liabilities and shareholders equity................................. $ 2,424,880
=============
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
March 31, 1997
--------------
REVENUES:
Policy revenues................................................................ $ 37,500
Net investment income.......................................................... 31,895
Other income................................................................... 6,184
Net gains from sale of investments............................................. 15
-------------
Total revenues............................................................ 75,594
-------------
BENEFITS AND EXPENSES:
Policyholder benefits.......................................................... 45,282
Amortization................................................................... 6,022
Underwriting and other administrative expenses................................. 11,578
Interest and amortization of deferred debt issuance costs...................... 3,436
-------------
Total benefits and expenses............................................... 66,318
-------------
Income before income taxes....................................................... 9,276
Income taxes.............................................................. 3,653
-------------
Net income....................................................................... 5,623
Preferred stock dividend requirements..................................... 728
-------------
Net income applicable to common stock............................................ $ 4,895
=============
</TABLE>
5. Restructuring Charges
In the third quarter of 1996, the Company initiated a strategic
business evaluation designed to consolidate certain of its operating locations
and corporate functions.
10
<PAGE>
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
5. Restructuring Charges (Continued)
The evaluation considered each of the current operating companies,
including the anticipated purchase of the SW Financial Controlling Interest and
the Fickes and Stone Knightsbridge Interests, and (a) their impact on the
Company's current and long-term profitability potential, (b) the ability to
absorb operations related to future acquisitions, and (c) market focus. The
review resulted in the Company establishing three divisional platforms, Career
Sales Division, Payroll Sales Division and Financial Services Division.
As a result, the Company began to realign its existing operating
companies and incurred restructuring and period costs aggregating $21,052 for
the three month period ended March 31, 1997, directly and indirectly associated
with the initial divisional restructuring which had no future economic benefit
("restructuring costs"), including the costs of employee termination benefits
and relocation, early service contract termination, and facility abandonment.
On January 2, 1998, and January 5, 1998, respectively, the Company
acquired the SW Financial Controlling Interest and the Fickes and Stone
Knightsbridge Interests. The acquisition allowed the Company to complete its
divisional restructuring which began in 1997 and, as a result, during the three
month period ended March 31, 1998, recorded a pre-tax restructuring charge of
$11,767.
The 1998 restructuring charge recognizes: (a) severance and related
benefits incurred due to staff reductions ($3,831), (b) estimated holding costs
of vacated facilities ($2,205), (c) the write-off of certain fixed assets and
other impaired assets ($862) and (d) estimated contract termination costs
($4,869). For the three month period ended March 31, 1998, $1,496 has been
charged against these restructuring accruals.
The Company estimates approximately $2 of pre-tax incremental costs
associated with the 1998 restructuring charge were incurred during the three
month period ended March 31, 1998, and estimates an additional $3,048 will be
incurred through March 31, 1999. These incremental costs will benefit future
operations and do not qualify for accrual. Examples of these incremental costs
include employee travel, relocation and training, and the physical move of fixed
assets.
The Company estimates approximately $84 of pre-tax incremental costs
associated with the 1997 restructuring charge were incurred during the three
month period ended March 31, 1998. These incremental costs will benefit future
operations and do not qualify for accrual. Examples of these incremental costs
include employee travel, relocation and training, and the physical move of fixed
assets.
During the three month period ended March 31, 1998, the Company
re-evaluated the 1997 restructuring charge and reduced the remaining accruals by
$3,750 as a result of the final determination regarding the abandonment of
certain assets.
6. Redemption of Preferred Stock and Certain Equity Transactions
A portion of the consideration for the acquisition of the Fickes and
Stone Knightsbridge Interests included 173,160 shares of the Company's Common
Stock due each of Messrs. Fickes and Stone on April 15, 2001. As a result of the
acquisition, common stock and additional paid in capital increased $3 and
$8,497, respectively, for the three month period ended March 31, 1998.
Effective March 31, 1998, the Company redeemed all of the outstanding
Series C Preferred Stock into 691,528 shares of the Company's Common Stock under
provisions of the Series C Preferred Stock certificate of designation. The
result of such redemption was to increase common stock and additional paid in
capital by $7 and $22,220, respectively, as well as reduce retained earnings by
$1,913 reflecting the difference between the reported and redemption amounts of
the Series C Preferred Stock. Such difference is reflected in both the basic and
diluted earnings per share calculation.
During the three month period ended March 31, 1998, certain employees
exercised stock options and warrants resulting in the issuance of 341,216 shares
of the Company's Common Stock. The result of such exercises was to increase
common stock and additional paid in capital by $3 and $2,725, respectively.
11
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1998 and 1997, financial statements included in this
filing have been reviewed by KPMG Peat Marwick LLP, independent certified public
accountants, in accordance with established professional standards and
procedures for such a review.
The report of KPMG Peat Marwick LLP commenting upon their review is
included on the following page.
(Remainder of Page Intentionally Left Blank)
12
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders of PennCorp Financial Group, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of
PennCorp Financial Group, Inc. and subsidiaries as of March 31, 1998, and the
related consolidated statements of income (loss) and consolidated condensed
statements of cash flows for the three month periods ended March 31, 1998 and
1997. These financial statements are the responsibility of the Company's
management.
We conducted our review 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 financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PennCorp Financial Group, Inc. as
of December 31, 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 19, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
financial information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 1997, is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/S/KPMG PEAT MARWICK LLP
Raleigh, North Carolina
May 14, 1998
13
<PAGE>
Item 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations.
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" should be read in conjunction with the comparable
discussion filed with the Company's annual filing with the Securities and
Exchange Commission on Form 10-K for the fiscal year ended December 31, 1997.
The following discussion should also be read in conjunction with the
unaudited consolidated condensed financial statements and related notes of this
Quarterly Report on Form 10-Q.
CAUTIONARY STATEMENT
Cautionary Statement for purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. All statements, trend analyses
and other information contained in this report relative to markets for
PennCorp's products and trends in PennCorp's operations or financial results, as
well as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual results to
be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: (1) general economic
conditions and other factors, including prevailing interest rate levels and
stock market performance, which may affect the ability of PennCorp to sell its
products, the market value of PennCorp's investments and the lapse rate and
profitability of policies; (2) PennCorp's ability to achieve anticipated levels
of operational efficiencies and cost-saving initiatives; (3) customer response
to new products, distribution channels and marketing initiatives; (4) mortality,
morbidity, and other factors which may affect the profitability of PennCorp's
insurance products; (5) changes in the Federal income tax laws and regulations
which may affect the relative tax advantages of some of PennCorp's products; (6)
increasing competition in the sale of insurance and annuities; (7) regulatory
changes or actions, including those relating to regulation of insurance products
and of insurance companies; (8) ratings assigned to PennCorp's insurance
subsidiaries by independent rating organizations such as A.M. Best Company
("A.M. Best"), which the Company believes are particularly important to the sale
of annuity and other accumulation products; (9) PennCorp's ability to
successfully complete its year 2000 remediation efforts and (10) unanticipated
litigation. There can be no assurance that other factors not currently
anticipated by management will not also materially and adversely affect the
Company's results of operations.
GENERAL
The Company, through its three operating divisions, is a low cost
provider of accumulation, life, and fixed benefit accident and sickness
insurance products throughout the United States and Canada. The Company's
products are sold through several distribution channels, including exclusive
agents, general agents, financial institutions, and payroll deduction programs,
and are targeted primarily to lower and middle-income individuals in rural and
suburban areas. These products are primarily small premium accident and sickness
insurance policies with defined fixed benefit amounts, traditional whole life
and universal life insurance with low face amounts and accumulation products
such as single premium deferred annuities.
The Company's financial condition and results of operations for the
periods covered by this and future "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are or will be affected by
several common factors, each of which is discussed below.
Acquisitions and Other Transactions. On December 31, 1997, PennCorp
shareholders approved the acquisition of the SW Financial Controlling Interest
through the assignment by Messrs. Fickes and Stone and Knightsbridge (the
"Controlling Parties") of certain rights, including common stock and common
stock equivalents of SW Financial. The acquisition was consummated on January 2,
1998 resulting in the Controlling Parties receiving aggregate cash consideration
of $73.8 million (not including acquisition expenses).
In addition, PennCorp shareholders also approved the acquisition of the
interests of the Fickes and Stone Knightsbridge Interests for total
consideration estimated to be $11.4 million. Messrs. Fickes and Stone will each
receive consideration in the form of estimated annual interest payments, ranging
from $301,000 to $330,000, due April 15, 1997, each year through 2001 and
issuance by PennCorp of 173,160 shares of the Company's Common Stock to each of
Messrs. Fickes and Stone on April 15, 2001.
14
<PAGE>
On February 18, 1998, the Company announced it had engaged investment
banking firms Salomon Smith Barney and Fox-Pitt, Kelton Inc. to review strategic
alternatives for maximizing shareholder value, including the sale of the
Company's Career Sales Division. The Company's decision to dispose of the Career
Sales Division, within a period not likely to exceed one year, resulted in the
assets and liabilities of the Career Sales Division to be considered "assets and
liabilities of businesses held for sale," and as such were segregated from those
of the Retained Businesses for purposes of presentation of the Company's
financial information.
Strategic Review of Business Units and Restructuring Charges. As a
result of the tremendous growth of the Company, the diversification of the
underlying business units resulting from acquisitions over time, and the need
for the Company to be able to rapidly integrate future acquisitions, the Company
began a strategic business evaluation during the third quarter of 1996. The
review resulted in the Company establishing three divisional platforms, Career
Sales Division, Payroll Sales Division and Financial Services Division.
As a result, the Company began to realign its existing operating
companies and incurred restructuring and period costs aggregating $21.1 million
for the three month period ended March 31, 1997, directly and indirectly
associated with the initial divisional restructuring which had no future
economic benefit ("restructuring costs"), including the costs of employee
termination benefits and relocation, early service contract termination, and
facility abandonment.
On January 2, 1998, and January 5, 1998, respectively, the Company
acquired the SW Financial Controlling Interest and the Fickes and Stone
Knightsbridge Interests. The acquisition allowed the Company to complete its
divisional restructuring which began in 1997 and, as a result, during the three
month period ended March 31, 1998, the Company recorded a pre-tax restructuring
charge of $11.8 million.
The 1998 restructuring charge recognizes: (a) severance and related
costs incurred due to staff reductions ($3.8 million), (b) estimated holding
costs of vacated facilities ($2.2 million), (c) the write-off of certain fixed
assets and other impaired assets ($862,000) and (d) estimated contract
termination costs ($4.9 million). For the three month period ended March 31,
1998, $1.5 million has been charged against these restructuring accruals.
The Company estimates approximately $2,000 of pre-tax incremental costs
associated with the 1998 restructuring charge were incurred during the three
month period ended March 31, 1998, and estimates an additional $3.0 million will
be incurred through March 31, 1999. These incremental costs will benefit future
operations and do not qualify for accrual. Examples of these incremental costs
include employee travel, relocation and training, and the physical move of fixed
assets.
The Company estimates approximately $2.0 million of pre-tax incremental
costs associated with the 1997 restructuring charge were incurred during the
three month period ended March 31, 1997, and the Company estimates an additional
$84,000 of costs were incurred for the three month period ended March 31, 1998.
These incremental costs benefit future operations and do not qualify for
accrual. Examples of these incremental costs include employee travel, relocation
and training, and the physical move of fixed assets.
During the three month period ended March 31, 1998, the Company
re-evaluated the 1997 restructuring charge and reduced remaining accruals by
$3.8 million as a result of the final determination regarding the abandonment of
certain assets.
For the three month periods ended March 31, 1998 and 1997, the
following tables eliminate, from the reported results of the Company, the
related impact of the: (i) restructuring charges including period costs, (ii)
amortization of deferred acquisition costs and present value of insurance in
force associated with gains and losses resulting from the sale of investments,
(iii) extraordinary charge as a result of certain refinancing, and (iv) early
redemption premiums on preferred stock. The Company believes such information to
be material to the comparability of its operating results.
15
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
Three Month Period Ended
March 31, 1998
Comparative As Reported
As Reported Adjustments (Net)
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING INFORMATION:
Total Revenues............................................. $ 232,651 (1,523) $ 231,128
------------- -------------
Benefits and expenses
Claims................................................... 82,034 82,034
Change in liability for future policy benefits and
other policy benefits.................................. 56,061 56,061
Amortization of present value of insurance in force and
deferred policy acquisition costs...................... 23,973 (1,231) 22,742
Amortization of costs in excess of net assets acquired
and other intangibles.................................. 3,742 3,742
Underwriting and other administrative expenses........... 43,261 (86) 43,175
Interest and amortization of deferred debt issuance costs 9,917 9,917
Restructuring charge..................................... 8,017 (8,017) --
------------- -------------
Total benefits and expenses........................ 227,005 217,671
------------- -------------
Income before income taxes, equity in earnings of
unconsolidated affiliates and extraordinary charge....... 5,646 13,457
Income taxes........................................... 2,757 2,734 5,491
------------- -------------
Income before equity in earnings of unconsolidated
affiliates and extraordinary charge...................... 2,889 7,966
Equity in earnings of unconsolidated affiliates........ -- --
------------- -------------
Income before extraordinary charge......................... 2,889 7,966
Extraordinary charge................................... (1,671) 1,671 --
------------- -------------
Net income................................................. 1,218 7,966
Preferred stock dividend requirements.................. 4,904 4,904
------------- -------------
Net income (loss) applicable to common stock............... $ (3,686) $ 3,062
============= =============
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
Three Month Period Ended
March 31, 1997
Comparative As Reported
As Reported Adjustments (Net)
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING INFORMATION:
Total Revenues............................................. $ 168,116 (3,827) $ 164,289
------------- -------------
Benefits and expenses
Claims................................................... 44,655 44,655
Change in liability for future policy benefits and
other policy benefits.................................. 30,108 30,108
Amortization of present value of insurance in force and
deferred policy acquisition costs...................... 20,819 (1,928) 18,891
Amortization of costs in excess of net assets acquired... 2,278 2,278
Underwriting and other administrative expenses........... 30,536 (1,981) 28,555
Interest and amortization of deferred debt issuance costs 4,387 4,387
Restructuring charge..................................... 19,071 (19,071) --
------------- -------------
Total benefits and expenses.......................... 151,854 128,874
------------- -------------
Income before income taxes and equity in earnings of
unconsolidated affiliates................................ 16,262 35,415
Income taxes........................................... 7,557 6,704 14,261
------------- -------------
Income before equity in earnings of unconsolidated
affiliates............................................... 8,705 21,154
Equity in earnings of unconsolidated affiliates........ 3,658 3,658
------------- -------------
Net income................................................. 12,363 24,812
Preferred stock dividend requirements.................... 4,927 4,927
------------- -------------
Net income applicable to common stock...................... $ 7,436 $ 19,885
============= =============
</TABLE>
YEAR 2000 ISSUES
Many computer and software programs were designed to accommodate only
two digit fields to represent a given year (e.g. "98" represents 1998). It is
highly likely that such systems will not be able to accurately process data
containing date information for the year 2000 and beyond. The year 2000 issue
has the potential to affect the Company and its subsidiaries through the
disruption of the processing of business both internally and between the Company
and other businesses with which it interacts.
The Company has engaged certain outside vendors and focused certain
employees full time efforts to help in the full array of its year 2000
initiative. This includes systems assessment and monitoring advice, actual code
remediation, communication and consultation with critical business partners and
additional data center and testing resources. The Company expects to incur
internal and external costs associated with such expertise ranging from $10.6
million to $14.5 million, which are likely to be incurred primarily during the
remainder of 1998 and early 1999. The Company estimates that it incurred
internal and external costs aggregating $2.3 million for the three month period
ended March 31, 1998.
Each of the operating divisions is primarily responsible for its
remediation efforts with corporate oversight provided as necessary. The Company
believes that the Career Sales Division has substantially completed its year
2000 assessment and remediation efforts, which will be subject to ongoing tests
for the remainder of 1998. The Payroll Sales Division has completed the
remediation of its largest administrative platforms, except for AA Life, and
anticipates successful remediation and testing of the remaining sub-system and
system interfaces during 1998. AA Life is in the process of upgrading its policy
administration system to a year 2000 compliant version. AA Life is relying on
contracted vendor resources in working to complete its upgrade process. The
Company's Financial Services Division has only recently begun its year 2000
remediation efforts. Those efforts are dependent on the utilization of outside
resources. The Company believes that the Financial Services Division has
contracted with sufficient resources to be able to remediate its essential
business systems. In addition, the Financial Services Division has
17
<PAGE>
committed to a strategy of utilizing third party administrative experts, who
have indicated year 2000 compliance, to handle the processing of its health
insurance business, thus eliminating the need for the upgrade or modification of
certain existing health administration systems.
Although the Company believes that its operating divisions, outside
vendors and most critical business partners will be sufficiently compliant that
the year 2000 issue should not cause a material disruption in the Company's
business, there can be no assurance that there will not be material disruptions
to the Company's business or an increase in the cost of the Company doing
business. Although the Company believes that the year 2000 issues should not
cause a material disruption in the Company's business, the Company is currently
evaluating various contingency plans associated with remediation tasks which the
Company believes are at a higher risk for potential failure.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements are funded primarily by its
insurance subsidiaries. The insurance subsidiaries' principal sources of cash
are premiums and investment income. The insurance subsidiaries' primary uses of
cash are policy claims, commissions, operating expenses, income taxes and
payments to the Company for principal and interest due under surplus debentures,
tax sharing payments and dividends. Both sources and uses of cash are reasonably
predictable.
During the three month period ended March 31, 1998, the Company
received $14.6 million in interest payments on surplus debentures and dividends
from its insurance subsidiaries. The primary cash requirements of the Company
were interest payments on notes payable, preferred and common stock dividends
which aggregated $6.4 million for the three month period ended March 31, 1998.
During 1997, the Company initiated a stock repurchase program in which
the Company was authorized by its Board of Directors to purchase up to 4.5
million shares of common stock in the open market, through arranged transactions
and otherwise. For the three month periods ended March 31, 1998 and 1997,
respectively, the Company repurchased -- and 88,889 shares of common stock
resulting in a $-- and $3.5 million increase in the value of treasury shares
held.
For the three month period ended March 31, 1998, certain employees
exercised stock options and warrants resulting in the issuance of 341,216 shares
of the Company's Common Stock. The result of such exercises was to increase
common stock and additional paid in capital by $3,000 and $2.7 million,
respectively.
For the three month period ended March 31, 1997, certain employees and
agents exercised stock options and warrants resulting in the issuance of 118,341
shares of the Company's Common Stock. The result of such exercises was to
increase common stock and additional paid in capital by $2,000 and $864,000,
respectively.
Effective March 31, 1998, the Company redeemed all of the outstanding
Series C Preferred Stock into 691,528 shares of the Company's Common Stock under
provision of the Series C Preferred Stock certificate of designation. The result
of such redemption was to increase common stock and additional paid in capital
by $7,000 and $22.2 million, respectively, as well as reduce retained earnings
by $1.9 million reflecting the difference between the reported and redemption
amounts of the Series C Preferred Stock. Such difference is reflected in both
the basic and diluted earnings per share calculation.
On March 15, 1997, the Company redeemed all of the previously
outstanding shares of Series B mandatory redeemable preferred stock at its
stated redemption value of $14.7 million.
A portion of the consideration of the acquisition of the Fickes and
Stone Knightsbridge Interests was 173,160 shares of the Company's Common Stock
due each of Messrs. Fickes and Stone on April 15, 2001. As a result of the
acquisition, common stock and additional paid in capital increased $3,000 and
$8.5 million, respectively, for the three month period ended March 31, 1998.
RESULTS OF OPERATIONS
For the periods ended March 31, 1998 and 1997, the Company has prepared
the following selected pro forma financial information which considers the
impact of: (i) restructuring charges including period costs, (ii) amortization
of deferred acquisition costs and present value of insurance in force as the
result of gains or losses on the sale of investments, and (iii) the impact of
the Company's decision to dispose of the Career Sales division. In addition, the
1997 selected pro forma
18
<PAGE>
financial information considers the impact of the: (i) acquisition of the SW
Financial Controlling Interest, including the financing thereof, and (ii) the
acquisition of the Fickes and Stone Knightsbridge Interests, including the
financing thereof.
The Company has prepared such information as it believes that the
acquisition of the: (i) SW Financial Controlling Interest, (ii) the intended
disposition of the Career Sales Division, and (iii) the restructuring charge and
period charges are material enough to make historical comparative results for
the periods ended March 31, 1998 and 1997, respectively not meaningful.
The pro forma financial information for the three month period ended
March 31, 1997 gives effect to the acquisition of the SW Financial Controlling
Interest and the Fickes and Stone Knightsbridge Interests as though each had
occurred on January 1, 1997.
The following unaudited selected pro forma financial information has
been prepared for comparative purposes only and does not purport to be
indicative of what would have occurred had the acquisitions been made as of
January 1, 1997, or the results which may occur in the future.
<TABLE>
<CAPTION>
SELECTED PRO FORMA FINANCIAL INFORMATION
(Unaudited)
-------------------------------------------
Businesses
For the three month period Held Retained
ended March 31, 1998 for Sale Businesses PennCorp
- ------------------------------------------------------------------ ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Revenues:
Policy revenues................................................ $ 54,045 $ 69,547 $ 123,592
Net investment income.......................................... 10,493 85,722 96,215
Other income................................................... 4,949 6,372 11,321
Net gains/losses from sale of investments...................... 76 1,447 1,523
Benefits and expenses:
Total policyholder benefits.................................... 37,898 100,197 138,095
Insurance related expenses..................................... 17,196 15,888 33,084
Other operating expenses....................................... 11,689 24,906 36,595
Interest and amortization of deferred debt issuers costs....... N/A N/A 9,695
Income taxes................................................... N/A N/A 5,491
(Unaudited)
-------------------------------------------
Businesses
For the three month period Held Retained
ended March 31, 1997 for Sale Businesses PennCorp
- ------------------------------------------------------------------ ------------- ------------- -------------
(In thousands)
Revenues:
Policy revenues................................................ $ 57,121 $ 70,082 $ 127,203
Net investment income.......................................... 9,381 90,522 99,903
Other income................................................... 4,862 6,913 11,775
Net gains/losses from sale of investments...................... 1,368 2,474 3,842
Benefits and expenses:
Total policyholder benefits.................................... 33,106 86,939 120,045
Insurance related expenses..................................... 13,832 22,227 36,059
Other operating expenses....................................... 12,614 18,867 31,481
Interest and amortization of deferred debt issuers costs....... N/A N/A 8,748
Income taxes................................................... N/A N/A 17,028
</TABLE>
19
<PAGE>
BUSINESSES HELD FOR SALE
Career Sales Division. The Career Sales Division, which includes the
operations of Penn Life, markets and underwrites fixed benefit accident and
sickness products and, to a lesser extent, life products through a sales force
exclusive to the Company throughout the United States and Canada. With the
January 2, 1998, consummation of the acquisition of the SW Financial Controlling
Interest, the Company has integrated Union Bankers with the Career Sales
Division.
Policy Revenues. Total policy revenues for the three month period ended
March 31, 1998, decreased 5.4% to $54.0 million compared to $57.1 million for
the comparable period ended March 31, 1997. The decline was the result of Union
Bankers decision to limit underwriting certain accident and health insurance
products which resulted in a $1.7 million decline in earned premium. In
addition, policy revenues of Penn Life declined approximately $1.2 million as
the result of lower new business production.
Investment Income. Net investment income for the three month period
ended March 31, 1998, was $10.5 million compared to $9.4 million for the three
month period ended March 31, 1997. The increase was primarily derived by a
general increase in the invested asset base offset in part by the decline in
yield rates of approximately 40 basis points. The increase in the invested asset
base was primarily the result of an intercompany reinsurance agreement.
Other Income. Included in other income for the three month periods
ended March 31, 1998 and 1997, respectively, are revenues derived primarily from
a deferred gain associated with a medicare reinsurance contract. The increase in
other income is attributable to slightly higher lapse rates associated with the
block of reinsured business, thus accelerating the recognition of the gain.
Total Policyholder Benefits. Total policyholder benefits incurred for
the three month period ended March 31, 1998, increased 14.5% to $37.9 million
from $33.1 million for the three month period ended March 31, 1997. The increase
is attributable to $1.7 million of additional death benefits for Penn Life. In
addition, Penn Life policy benefits increase $3.3 million. Offsetting such
increases were moderately lower incurred losses for Union Bankers amounting to
$2.3 million for the three month period ended March 31, 1998 as compared with
the similar period ended March 31, 1997.
Insurance related expenses. For the three month period ended March 31,
1998 insurance related expenses (including commissions, amortization of deferred
acquisition costs and amortization of present value of insurance in force)
increased to $17.2 million from $13.8 million for the three month period ended
March 31, 1997. A portion of the increase was the result of increased commission
costs for Penn Life offset by declines in commission costs for Union Bankers.
The total increase in commissions amounted to $1.1 million. Such additional
commissions were derived from changes in compensation structures for the Penn
Life sales force which resulted in additional commission costs of $2.2 million.
The decline in Union Bankers commission costs was the result of lower new
business production for the comparable periods ended March 31, 1998 and 1997. In
addition, Union Bankers and Penn Life experienced higher amortization of
deferred acquisition costs and present value of insurance in force resulting
from declining persistency.
Other operating expenses. Other operating expenses (including general
operating, overhead and policy maintenance expenses) declined 7.1% to $11.7
million for the three month period ended March 31, 1998 from $12.6 million for
the three month period ended March 31, 1997. Such decline was the result of
modest improvements in the overhead expense structures of both Penn Life and
Union Bankers.
RETAINED BUSINESSES
Payroll Sales Division and Financial Services Division. The Payroll
Sales Division, which includes the operations of AA Life, Professional and OLIC,
markets and underwrites customized life insurance and accumulation products to
U.S. military personnel and federal employees through a general agency force.
Professional and OLIC provide individual fixed benefit and life products
utilizing a network of independent agents primarily in the southeastern United
States through employer-sponsored payroll deduction programs.
Financial Services Division is comprised of Integon Life and United
Life. Integon Life markets life insurance and, to a lesser extent annuity
products through independent general agents who sell directly to individuals
primarily in the southeastern United States. United Life principally markets
fixed and variable annuities through financial institutions and independent
general agents, primarily in the southern and western United States. Since its
acquisition on January 2, 1998, Southwestern Life has been integrated and
managed as part of the Financial Services Division.
20
<PAGE>
Total Policy Revenues. Total policy revenues for the three month
periods ended March 31, 1998 and 1997 were nearly unchanged at $69.5 million and
$70.1 million, respectively. The slight decline resulted from a $1.0 million
reduction in Payroll Sales Division policy revenues. Such decline was
anticipated due to the Company's decision to cease marketing products through
any "non-payroll" production sources. Offsetting the decline was an increase in
Financial Services Division policy revenues as a result of strong new business
production.
Net Investment Income. Net investment income for the three month period
ended March 31, 1998, was $85.7 million compared to $90.5 million for the three
month period ended March 31, 1997. The decline was primarily derived by the need
to liquidate invested assets for the Financial Services Division to cover cash
flow needed for accumulation product surrenders. Total invested assets declined
approximately $193.0 million from March 31, 1997, to March 31, 1998.
Other Income. For the three month periods ended March 31, 1998 and 1997
other income declined to $6.4 million from $6.9 million, primarily as a result
of lower commission income realized by Marketing One, the Company's third party
marketing organization.
Total Policy Benefits. Total policy benefits for the three month period
ended March 31, 1998 were $100.2 million as compared with $86.9 million for the
three month period ended March 31, 1997. The total increase in policy benefits
aggregating $13.3 million resulted from an increase of approximately $9.0
million and $4.0 million for the Financial Services Division and Payroll Sales
Divisions, respectively. Paid death benefits for the Financial Services Division
increased $8.4 million during the three month period ended March 31, 1998 as
compared with the three month period ended March 31, 1997. Death benefits
incurred by the Payroll Services Division were $2.3 million higher during 1998
over the comparable period ended 1997. The modest increases in total policy
benefits in addition to the increase in death benefits are the result of modest
growth in underlying life and health blocks of business.
Insurance Related Expenses. For the three month period ended March 31,
1998 insurance related expenses declined to $15.9 million from $22.2 million for
the three month period ended March 31, 1997. The Financial Services division
aggregated declines in amortization of deferred acquisition costs and present
value of insurance in force of $4.3 million. Approximately $2.7 million of such
decline was the result of unlocking future assumptions regarding the
profitability of certain interest sensitive life insurance products with the
remainder due to lower amortization of the present value of insurance in force
from aging blocks of purchase business. Additionally, the Company estimates that
$600,000 of the reduction in amortization of deferred acquisition costs and
present value of insurance in force due to increased mortality associated with
interest sensitive life products which resulted in lower profit margins for the
period, thus reducing amortization as compared to the prior period. Insurance
expenses for the Payroll Services division were nearly unchanged for the three
month period ended March 31, 1998 as compared with the three month period ended
March 31, 1997.
Other Operating Expenses. Other operating expenses increased to $24.9
million for the three month period ended March 31, 1998 from $18.9 million for
the three month period ended March 31, 1997. Increased operating expenses,
primarily as a result efforts associated with year 2000 compliance and growth in
corporate and overhead management of the Financial Services and Payroll Sales
divisions resulted in approximately $6.0 million of additional operating costs.
GENERAL CORPORATE
Interest and Amortization of Deferred Debt Issuance Costs. Interest and
amortization of deferred debt issuance costs increased for the three month
period ended March 31, 1998 to $9.7 million from $8.7 million for the three
month period ended March 31, 1997. The increase in interest costs was directly
related to additional weighted average borrowings outstanding during the three
month period ended March 31, 1998 when compared with the comparable period for
1997 as the Company's weighted average borrowing costs were nearly unchanged at
7.3 percent.
Income Taxes. For the three month period ended period ended March 31,
1998 the Company's effective tax rate was 40.8% compared with 40.0% for the
three month period ended March 31, 1997. In each of the periods, the effective
rate is greater than the statutory rate of 35% primarily as a result of the
non-deductibility of costs in excess of net assets acquired and foreign source
income that is taxed at higher rates. The significant decline in tax expense to
$5.5 million for the three month period ended March 31, 1998 as compared with
$17.0 million was the result of lower operating earnings.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Part I, Item 3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, for information regarding the Tozour Case and
Miller Complaint.
The Company is a party to various pending or threatened legal actions
arising in the ordinary course of business some of which include allegations of
insufficient policy illustration and agent misrepresentations. Although the
outcome of such actions is not presently determinable, management does not
believe that such matters, individually or in the aggregate, would have a
material adverse effect on the Company's financial position or results of
operations if resolved against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of earning per share
15.1 Independent Auditors' Report*
27.1 Financial Data Schedule for March 31, 1998
27.2 Restated Financial Data Schedule for September 30, 1997
27.3 Restated Financial Data Schedule for June 30, 1997
27.4 Restated Financial Data Schedule for March 31, 1997
27.5 Restated Financial Data Schedule for December 31, 1996
27.6 Restated Financial Data Schedule for September 30, 1996
27.7 Restated Financial Data Schedule for June 30, 1996
27.8 Restated Financial Data Schedule for March 31, 1996
27.9 Restated Financial Data Schedule for December 31, 1995
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1998.
* Such exhibit is incorporated by reference to page 13 of this Form 10-Q.
22
<PAGE>
SIGNATURE
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.
PENNCORP FINANCIAL GROUP, INC.
By:/s/Steven W. Fickes
-------------------
Steven W. Fickes
President and Chief Financial Officer
(Authorized officer and principal accounting and
financial officer of the Registrant)
Date: May 14, 1998
23
<PAGE>
INDEX TO EXHIBITS
Exhibit Numbers
11.1 Computation of earning per share
15.1 Independent Auditors' Report*
27.1 Financial Data Schedule for March 31, 1998
27.2 Restated Financial Data Schedule for September 30, 1997
27.3 Restated Financial Data Schedule for June 30, 1997
27.4 Restated Financial Data Schedule for March 31, 1997
27.5 Restated Financial Data Schedule for December 31, 1996
27.6 Restated Financial Data Schedule for September 30, 1996
27.7 Restated Financial Data Schedule for June 30, 1996
27.8 Restated Financial Data Schedule for March 31, 1996
27.9 Restated Financial Data Schedule for December 31, 1995
* Such exhibit is incorporated by reference to page 13 of this Form 10-Q.
24
<PAGE>
EXHIBIT 11.1
PENNCORP FINANCIAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Periods Ended
March 31
1998 1997
------------- -------------
<S> <C> <C>
Basic net income (loss) applicable to common stock:
Net income (loss) applicable to common stock................................. $ (3,686) $ 7,436
Redemption Premium on Series C Preferred Stock............................... (1,913) --
------------- -------------
$ (5,599) $ 7,436
============= =============
Diluted net income (loss) applicable to common stock:
Net income (loss) applicable to common stock................................. $ (3,686) $ 7,436
Redemption Premium on Series C Preferred Stock............................... (1,913) --
Common stock equivalents:
Convertible preferred stock dividend requirements........................ -- --
------------- -------------
$ (5,599) $ 7,436
============= =============
Three Month Periods Ended
March 31
1998 1997
------------- -------------
Basic:
Shares outstanding beginning of period....................................... 28,860 28,648
Incremental shares applicable to Stock Warrants/Stock Options................ 375 73
Acquisition of Fickes and Stone Knightsbridge Interests...................... 347 --
Treasury shares.............................................................. (1,010) (280)
------------- -------------
28,572 28,441
============= =============
Diluted:
Shares outstanding beginning of period....................................... 28,860 28,648
Incremental shares applicable to Stock Warrants/Stock Options................ 375 966
Acquisition of Fickes and Stone Knightsbridge Interests...................... 347 --
Treasury shares.............................................................. (1,010) (280)
Conversion of 2,300 shares of $3.375 Convertible Preferred
Stock at a rate of 2.213 common shares to 1 preferred share................ -- --
Conversion of 2,875 shares of $3.50 Series II Convertible Preferred
Stock at a rate of 1.4327 common shares to 1 preferred share............... -- --
------------- -------------
28,572 29,334
============= =============
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements as filed in Form 10-Q for the
quarter ended March 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 3,881,096
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 28,126
<MORTGAGE> 283,583
<REAL-ESTATE> 19,162
<TOTAL-INVEST> 4,590,638
<CASH> 7,232
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 177,991
<TOTAL-ASSETS> 6,882,385
<POLICY-LOSSES> 4,544,152
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 439,231
0
249,670
<COMMON> 302
<OTHER-SE> 638,801
<TOTAL-LIABILITY-AND-EQUITY> 6,882,385
123,592
<INVESTMENT-INCOME> 96,215
<INVESTMENT-GAINS> 1,523
<OTHER-INCOME> 11,321
<BENEFITS> 138,095
<UNDERWRITING-AMORTIZATION> 27,715
<UNDERWRITING-OTHER> 61,195
<INCOME-PRETAX> 5,646
<INCOME-TAX> 2,757
<INCOME-CONTINUING> 2,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,686)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended September 30, 1997. This information is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 3,022,894
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,268
<MORTGAGE> 245,175
<REAL-ESTATE> 17,839
<TOTAL-INVEST> 3,629,638
<CASH> 20,320
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 298,744
<TOTAL-ASSETS> 4,819,663
<POLICY-LOSSES> 3,333,754
<UNEARNED-PREMIUMS> 19,381
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 349,902
19,430
249,670
<COMMON> 288
<OTHER-SE> 620,809
<TOTAL-LIABILITY-AND-EQUITY> 4,819,663
263,356
<INVESTMENT-INCOME> 206,256
<INVESTMENT-GAINS> 14,767
<OTHER-INCOME> 20,313
<BENEFITS> 225,061
<UNDERWRITING-AMORTIZATION> 71,758
<UNDERWRITING-OTHER> 135,848
<INCOME-PRETAX> 72,025
<INCOME-TAX> 26,783
<INCOME-CONTINUING> 45,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,715
<EPS-PRIMARY> 0.93<F1>
<EPS-DILUTED> 0.80<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended June 30, 1997. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 3,065,548
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,398
<MORTGAGE> 258,344
<REAL-ESTATE> 19,820
<TOTAL-INVEST> 3,612,157
<CASH> 4,172
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 288,181
<TOTAL-ASSETS> 4,789,637
<POLICY-LOSSES> 3,445,349
<UNEARNED-PREMIUMS> 13,831
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 270,046
19,002
249,670
<COMMON> 288
<OTHER-SE> 574,945
<TOTAL-LIABILITY-AND-EQUITY> 4,789,637
174,996
<INVESTMENT-INCOME> 136,764
<INVESTMENT-GAINS> 8,533
<OTHER-INCOME> 11,431
<BENEFITS> 149,662
<UNDERWRITING-AMORTIZATION> 46,449
<UNDERWRITING-OTHER> 89,131
<INCOME-PRETAX> 46,482
<INCOME-TAX> 18,454
<INCOME-CONTINUING> 28,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,645
<EPS-PRIMARY> 0.47<F1>
<EPS-DILUTED> 0.45<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended March 31, 1997. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 2,924,941
<DEBT-CARRYING-VALUE> 49,384
<DEBT-MARKET-VALUE> 49,384
<EQUITIES> 22,647
<MORTGAGE> 269,106
<REAL-ESTATE> 24,049
<TOTAL-INVEST> 3,608,154
<CASH> 5,386
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 273,940
<TOTAL-ASSETS> 4,743,040
<POLICY-LOSSES> 3,496,795
<UNEARNED-PREMIUMS> 15,005
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 245,186
18,584
249,670
<COMMON> 288
<OTHER-SE> 526,625
<TOTAL-LIABILITY-AND-EQUITY> 4,743,040
89,703
<INVESTMENT-INCOME> 68,546
<INVESTMENT-GAINS> 3,827
<OTHER-INCOME> 6,040
<BENEFITS> 74,763
<UNDERWRITING-AMORTIZATION> 23,097
<UNDERWRITING-OTHER> 53,994
<INCOME-PRETAX> 16,262
<INCOME-TAX> 7,557
<INCOME-CONTINUING> 12,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,436
<EPS-PRIMARY> 0.26<F1>
<EPS-DILUTED> 0.25<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-K for
the year ended December 31, 1996. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,993,925
<DEBT-CARRYING-VALUE> 87,330
<DEBT-MARKET-VALUE> 89,759
<EQUITIES> 20,867
<MORTGAGE> 264,732
<REAL-ESTATE> 23,522
<TOTAL-INVEST> 3,655,145
<CASH> 39,464
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 252,428
<TOTAL-ASSETS> 4,809,323
<POLICY-LOSSES> 3,551,010
<UNEARNED-PREMIUMS> 15,445
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 210,325
32,864
249,670
<COMMON> 286
<OTHER-SE> 579,421
<TOTAL-LIABILITY-AND-EQUITY> 4,809,323
348,090
<INVESTMENT-INCOME> 210,734
<INVESTMENT-GAINS> 1,257
<OTHER-INCOME> 22,666
<BENEFITS> 271,911
<UNDERWRITING-AMORTIZATION> 65,118
<UNDERWRITING-OTHER> 135,139
<INCOME-PRETAX> 110,579
<INCOME-TAX> 40,957
<INCOME-CONTINUING> 69,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,641
<EPS-PRIMARY> 2.70<F1>
<EPS-DILUTED> 2.42<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended September 30, 1996. This information is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 2,848,179
<DEBT-CARRYING-VALUE> 92,850
<DEBT-MARKET-VALUE> 93,813
<EQUITIES> 17,047
<MORTGAGE> 254,291
<REAL-ESTATE> 34,771
<TOTAL-INVEST> 3,680,925
<CASH> 11,403
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 233,578
<TOTAL-ASSETS> 4,759,259
<POLICY-LOSSES> 3,592,075
<UNEARNED-PREMIUMS> 16,200
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 184,855
32,311
249,670
<COMMON> 286
<OTHER-SE> 533,589
<TOTAL-LIABILITY-AND-EQUITY> 4,759,259
257,169
<INVESTMENT-INCOME> 141,407
<INVESTMENT-GAINS> 84
<OTHER-INCOME> 16,793
<BENEFITS> 185,064
<UNDERWRITING-AMORTIZATION> 49,183
<UNDERWRITING-OTHER> 100,423
<INCOME-PRETAX> 80,703
<INCOME-TAX> 30,152
<INCOME-CONTINUING> 50,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,661
<EPS-PRIMARY> 1.96<F1>
<EPS-DILUTED> 1.76<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended June 30, 1996. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,756,966
<DEBT-CARRYING-VALUE> 38,371
<DEBT-MARKET-VALUE> 38,122
<EQUITIES> 16,263
<MORTGAGE> 20,267
<REAL-ESTATE> 25,838
<TOTAL-INVEST> 2,182,269
<CASH> 18,141
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 213,489
<TOTAL-ASSETS> 3,102,492
<POLICY-LOSSES> 2,156,258
<UNEARNED-PREMIUMS> 17,603
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 174,209
31,525
110,513
<COMMON> 281
<OTHER-SE> 496,960
<TOTAL-LIABILITY-AND-EQUITY> 3,102,492
172,524
<INVESTMENT-INCOME> 79,587
<INVESTMENT-GAINS> (572)
<OTHER-INCOME> 10,418
<BENEFITS> 112,495
<UNDERWRITING-AMORTIZATION> 31,229
<UNDERWRITING-OTHER> 67,612
<INCOME-PRETAX> 50,541
<INCOME-TAX> 18,789
<INCOME-CONTINUING> 31,752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,909
<EPS-PRIMARY> 1.30<F1>
<EPS-DILUTED> 1.16<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-Q for
the quarter ended March 31, 1996. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 1,672,242
<DEBT-CARRYING-VALUE> 42,090
<DEBT-MARKET-VALUE> 42,090
<EQUITIES> 16,262
<MORTGAGE> 17,723
<REAL-ESTATE> 20,078
<TOTAL-INVEST> 2,091,202
<CASH> 23,990
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 200,918
<TOTAL-ASSETS> 3,123,186
<POLICY-LOSSES> 2,180,263
<UNEARNED-PREMIUMS> 16,279
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 170,271
30,757
110,513
<COMMON> 280
<OTHER-SE> 503,356
<TOTAL-LIABILITY-AND-EQUITY> 3,123,186
87,090
<INVESTMENT-INCOME> 39,834
<INVESTMENT-GAINS> (527)
<OTHER-INCOME> 4,961
<BENEFITS> 57,695
<UNDERWRITING-AMORTIZATION> 16,076
<UNDERWRITING-OTHER> 34,411
<INCOME-PRETAX> 23,176
<INCOME-TAX> 8,846
<INCOME-CONTINUING> 14,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,157
<EPS-PRIMARY> 0.63<F1>
<EPS-DILUTED> 0.56<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This restated schedule contains summary financial information extracted
from the Company's consolidated financial statements as filed in Form 10-K for
the year ended December 31, 1995. This information is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,486,985
<DEBT-CARRYING-VALUE> 51,366
<DEBT-MARKET-VALUE> 51,354
<EQUITIES> 15,172
<MORTGAGE> 36,563
<REAL-ESTATE> 20,465
<TOTAL-INVEST> 2,248,654
<CASH> 40,325
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 185,570
<TOTAL-ASSETS> 3,142,918
<POLICY-LOSSES> 2,204,375
<UNEARNED-PREMIUMS> 16,786
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 307,271
30,007
110,513
<COMMON> 229
<OTHER-SE> 348,386
<TOTAL-LIABILITY-AND-EQUITY> 3,142,918
301,889
<INVESTMENT-INCOME> 102,291
<INVESTMENT-GAINS> 3,770
<OTHER-INCOME> 17,076
<BENEFITS> 161,923
<UNDERWRITING-AMORTIZATION> 58,021
<UNDERWRITING-OTHER> 125,625
<INCOME-PRETAX> 79,457
<INCOME-TAX> 27,829
<INCOME-CONTINUING> 51,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,806
<EPS-PRIMARY> 2.26<F1>
<EPS-DILUTED> 2.12<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Restated for Statement of Financial Accounting Standard No. 128, Earnings
Per Share.
</FN>
</TABLE>
