-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EvTMfd8OHqcnXiPIsUxxhQY68bucIcpdMeZzF9XHGatfUihbN99tHX0ZeXrQskEp Mhk0GG5xARe1TrxGPz9Mfw== 0000795581-96-000009.txt : 19960816 0000795581-96-000009.hdr.sgml : 19960816 ACCESSION NUMBER: 0000795581-96-000009 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNUM CORP CENTRAL INDEX KEY: 0000795581 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 010405657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09254 FILM NUMBER: 96614375 BUSINESS ADDRESS: STREET 1: 2211 CONGRESS ST P612 CITY: PORTLAND STATE: ME ZIP: 04122 BUSINESS PHONE: 207-770-43 MAIL ADDRESS: STREET 1: 2211 CONGRESS STREET CITY: PORTLAND STATE: ME ZIP: 04122 10-Q/A 1 FORM 10-Q/A NO. 1, AMENDING FORM 10-Q FILED 8/12/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A No. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 1-9254 UNUM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 01-0405657 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2211 CONGRESS STREET, PORTLAND, MAINE 04122 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211 NONE (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT JUNE 30, 1996 COMMON STOCK, $0.10 PAR VALUE 73,270,408 SHARES UNUM CORPORATION AND SUBSIDIARIES FORM 10-Q/A No. 1 INDEX Page Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Part II.Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 UNUM Corporation and Subsidiaries Form 10-Q/A No. 1 June 30, 1996 Items 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements (Unaudited) and Notes to Consolidated Financial Statements (Unaudited) included elsewhere in the Form 10-Q. Revenues for UNUM for second quarter 1996 were $989.3 million as compared with $1,156.1 million for second quarter 1995. For the six months ended June 30, 1996, revenues were $1,991.9 million as compared with $2,111.2 million for the same period in 1995. The decrease in revenues was primarily attributable to decreased realized investment gains resulting from the sale of the common stock portfolio in the second quarter of 1995. Net income for the quarter ended June 30, 1996, was $73.9 million, or $1.01 per share, as compared with net income of $88.9 million, or $1.22 per share, for the same quarter in 1995. For the six months ended June 30, 1996, net income was $146.0 million, or $1.99 per share, as compared with net income of $152.3 million, or $2.10 per share, for the same period in 1995. PREMIUMS: - --------- Premiums for the three months and six months ended June 30, 1996, and 1995, are summarized by segment in the table below. For the three months ended June 30, 1996, and 1995, claim block acquisitions generated one-time premium in the Disability Insurance segment of $0.7 million and $10.0 million, respectively, for group long term disability ("group LTD"). For the six months ended June 30, 1996, and 1995, the Disability Insurance segment reported one-time block acquisition premium of $2.0 million and $23.2 million, respectively, for group LTD, and $4.3 million in 1995 for long term care insurance. Additionally, the non-disability reinsurance operations, included in the Special Risk Insurance segment, reported a block acquisition of $10.5 million for the six months ended June 30, 1996. Management intends to pursue additional claim block acquisitions in the future. Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- (Dollars in millions) 1996 1995 Change 1996 1995 Change - ------------------------------------------------------------------- Disability Insurance Group LTD $ 265.9 $ 264.4 0.6% $ 534.8 $ 530.1 0.9% UNUM Limited 33.9 32.7 3.7 66.2 58.7 12.8 Individual Disability 85.5 87.2 (1.9) 173.2 176.5 (1.9) Group Short Term Disability 38.6 33.0 17.0 75.2 64.8 16.0 Other Disability Insurance 34.6 35.4 (2.3) 72.4 73.6 (1.6) - -------------------------------------------------------------------------- Total 458.5 452.7 1.3 921.8 903.7 2.0 Special Risk Insurance Group Life 98.5 85.9 14.7 195.5 171.8 13.8 Other Special Risk Products 74.2 66.3 11.9 156.7 139.6 12.2 - --------------------------------------------------------------------------- Total 172.7 152.2 13.5 352.2 311.4 13.1 Colonial Products 124.6 118.6 5.1 246.0 234.8 4.8 Retirement Products 5.3 5.7 (7.0) 10.4 13.3 (21.8) - ---------------------------------------------------------------------- Total premiums $ 761.1 $ 729.2 4.4% $1,530.4$1,463.2 4.6% ===================================================================== RECONCILIATION OF INCOME (LOSS) BEFORE INCOME TAXES TO PRETAX OPERATING INCOME - ------------------------------------------------------------------------------ (LOSS): - ------- Pretax operating income (loss) consists of income (loss) before income taxes exclusive of realized investment gains (losses) and certain special items discussed below. Realized Investment Gains During the second quarter of 1995, UNUM sold virtually all of the common stock portfolio of its United States subsidiaries, primarily due to consideration of statutory capital requirements associated with investment in common stocks, and to increase future investment income. The sale of the common stock portfolio contributed to the total pretax realized investment gains of $208.1 million for the three months ended June 30, 1995. UNUM reinvested the proceeds from the sale of the common stock portfolio primarily in investment grade fixed income assets, which decreased the required amount of statutory capital for regulatory purposes and increased investment income. Dependent on capital considerations and market conditions, UNUM may invest in equity securities in the future. Special Items Reserves for certain disability products are discounted using an interest rate which is a composite yield of assets matched with each product. As a result of the sale of the common stock portfolio, which had partially supported these disability reserves, and the subsequent reinvestment of the proceeds primarily in investment grade fixed income assets at yields below the average portfolio yield, certain reserve discount rates were lowered during second quarter 1995. The effect of lowering these discount rates was an increase to the reserve liabilities and benefits to policyholders reported in the Disability Insurance segment of $128.6 million and a decrease in net income of $83.6 million, or $1.15 per share, for the three months and six months ended June 30, 1995. During the second quarter of 1995, UNUM increased the group LTD reserves for incurred but not reported ("IBNR") claims and benefits to policyholders reported in the Disability Insurance segment by $38.4 million, which decreased net income by $25.0 million, or $0.35 per share, for the three months and six months ended June 30, 1995. IBNR reserves, which are established to fund anticipated case reserves for claims which have been incurred but not reported to UNUM, are actuarially established based on various factors, including incidence levels and claims severity. The increased IBNR reserves were based on management's judgment that claims currently incurred but not yet reported would reflect increased levels of claims incidence and severity. It is not possible to predict whether future incidence levels or claims severity will be consistent with UNUM's assumptions, or will improve or deteriorate; however, as of June 30, 1996, management believes that the increased IBNR reserve levels continue to be adequate. During the second quarter of 1995, UNUM recorded an additional charge for costs associated with the previously announced decision to discontinue the individual disability non-cancellable product and organizational changes within UNUM Life Insurance Company of America which increased operating expenses in the Consolidated Statement of Income by $5.0 million and decreased net income by $3.2 million, or $0.04 per share, for the three months and six months ended June 30, 1995. Pretax operating income (loss) for the four business segments and Corporate for the three months and six months ended June 30, 1996, and 1995, were as follows:
Disability Special Risk Colonial Retirement Consolidated (Dollars in millions) Insurance Insurance Products Products Corporate UNUM - ------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, 1996: - --------------------------------- Income (loss) before income taxes $68.3 $19.3 $23.5 $ 2.6 $ (7.7) $106.0 Realized investment gains (losses) (1.7) -- (0.1) (1.7) 0.3 (3.2) - -------------------------------------------------------------------------------------------------------------------- PRETAX OPERATING INCOME (LOSS) $70.0 $19.3 $23.6 $ 4.3 $ (8.0) $109.2 ==================================================================================================================== Three Months Ended June 30, 1995: - --------------------------------- Income (loss) before income taxes $ 55.2 $15.9 $29.7 $26.3 $(6.5) $120.6 Realized investment gains (losses) 176.6 3.2 9.6 19.0 (0.3) 208.1 - ---------------------------------------------------------------------------------------------------------------- (121.4) 12.7 20.1 7.3 (6.2) (87.5) Add back special items: Disability reserve increases 128.6 -- -- -- -- 128.6 Group LTD IBNR increase 38.4 -- -- -- -- 38.4 Other charges 2.9 1.1 -- 1.0 -- 5.0 - ----------------------------------------------------------------------------------------------------------------- PRETAX OPERATING INCOME (LOSS) EXCLUDING SPECIAL ITEMS $ 48.5 $13.8 $20.1 $ 8.3 $(6.2) $ 84.5 ================================================================================================================= Six Months Ended June 30, 1996: - ------------------------------- Income (loss) before income taxes $132.6 $38.3 $42.2 $ 8.9 $(13.3) $208.7 Realized investment gains (losses) 0.1 0.4 0.2 (0.8) 0.4 0.3 - ----------------------------------------------------------------------------------------------------------------- PRETAX OPERATING INCOME (LOSS) $132.5 $37.9 $42.0 $ 9.7 $(13.7) $208.4 =================================================================================================================== Six Months Ended June 30, 1995: - ------------------------------- Income (loss) before income taxes $106.0 $32.9 $46.8 $33.0 $(12.7) $206.0 Realized investment gains (losses) 184.7 3.4 10.3 20.8 (0.2) 219.0 - ----------------------------------------------------------------------------------------------------------------- (78.7) 29.5 36.5 12.2 (12.5) (13.0) Add back special items: Disability reserve increases 128.6 -- -- -- -- 128.6 Group LTD IBNR increase 38.4 -- -- -- -- 38.4 Other charges 2.9 1.1 -- 1.0 -- 5.0 - ------------------------------------------------------------------------------------------------------------------ PRETAX OPERATING INCOME (LOSS) EXCLUDING SPECIAL ITEMS $91.2 $30.6 $36.5 $13.2 $(12.5) $159.0 ===================================================================================================================
PRETAX OPERATING INCOME: - ------------------------ Pretax operating income excludes realized investment gains (losses) and certain special items as previously defined. UNUM reported increased pretax operating income for the three months and six months ended June 30, 1996, as compared with the same periods in 1995. The increases were primarily attributable to positive results from management's continued focus on risk management programs and from improved claims experience, both of which lowered the benefit ratios for certain disability businesses reported in the Disability Insurance segment and the group life business reported in the Special Risk Insurance segment. Additionally, increased investment income caused by the reinvestment of the proceeds from the sale of the common stock portfolio in second quarter 1995, as previously discussed, favorably affected pretax operating income during both periods. Partially offsetting these increases were increased expenses and higher benefit ratios in certain other disability businesses. PRETAX OPERATING INCOME BY SEGMENT: - ----------------------------------- The following sections discuss the results of the four business segments and Corporate for the three months and six months ended June 30, 1996, and 1995. Within these business segment discussions, reference is made to pretax operating income (loss), which excludes realized investment gains (losses) and certain special items as previously defined. Disability Insurance Segment: The Disability Insurance segment reported increased pretax operating income for the three months ended June 30, 1996, as compared with the same period in 1995. The increase was primarily attributable to lower benefit ratios at UNUM Limited and in group LTD and increased investment income. Partially offsetting these increases were higher benefit ratios in certain other disability businesses including individual disability, association group disability and disability reinsurance. Increased operating expenses also negatively affected pretax operating income. For the six months ended June 30, 1996, the Disability Insurance segment reported increased pretax operating income, as compared with the same period in 1995. The increase was primarily attributable to increased investment income and lower benefit ratios at UNUM Limited and in group LTD. Partially offsetting these increases were increased operating expenses and higher benefit ratios in certain other disability businesses including individual disability, association group disability and disability reinsurance. Pretax operating income for group LTD was favorably affected by increased investment income and a lower benefit ratio for the three months and six months ended June 30, 1996, as compared with the same period in 1995. The lower benefit ratio was primarily the result of continued improvements in claims incidence and higher claim recoveries, which management primarily attributes to risk management programs, partially offset by an increased average claim size. Management continues to monitor claim trends in group LTD and responds by periodically adjusting prices on selected new and inforce business, refining underwriting guidelines and strengthening risk management programs. The level of future earnings of the group LTD product will be a function of various factors, including but not limited to, the effectiveness of these continuing actions over time. For the three months and six months ended June 30, 1996, UNUM Limited's pretax operating income was favorably affected by a lower benefit ratio in its group long term disability business, as compared with the corresponding periods in 1995. The lower benefit ratio was primarily attributable to a continued focus on strengthening risk management programs and improved new claims experience. Management believes the risk management actions contributed more favorably to earnings in the second quarter 1996, as compared with previous quarters, and that the level of future earnings for UNUM Limited will be a function of various factors, including but not limited to, the effectiveness of these continuing actions over time. Pretax operating income for individual disability was favorably affected by increased investment income partially offset by a higher benefit ratio for the three and six month periods ended June 30, 1996, as compared with the same period in 1995. The higher benefit ratio was primarily attributable to an increased level of claims incidence and decreased premium growth, resulting from the transition out of the non-cancellable individual disability product to the new guaranteed renewable Life Long Disability Protection product, which has now been approved in all 50 states. During 1994, UNUM increased individual disability reserves for existing claims by $83.3 million and strengthened reserves for estimated future losses by $109.1 million. These increased reserves reflected management's expectations of morbidity trends for the existing non-cancellable individual disability business. It is not possible to predict whether morbidity trends will be consistent with UNUM's assumptions; however, as of June 30, 1996, management believes that the strengthened reserve levels continue to be adequate. The pretax operating income for the association group disability business was adversely affected by the continuation of unfavorable claims experience for the three months and six months ended June 30, 1996. To address the current claims environment, management continues to evaluate underwriting standards and risk management programs. Management expects the reserve discount rate for certain disability products will further decline, since current cash flows are invested in high quality assets at current yields, which are below the composite yield of the existing assets purchased in prior years. UNUM periodically adjusts prices on both existing and new business in an effort to mitigate the impact of the current interest rate environment. Special Risk Insurance Segment: The Special Risk Insurance segment reported an increase in pretax operating income for the three months and six months ended June 30, 1996, as compared with the same periods in 1995. The increases were primarily due to favorable claims experience in the group life business, increased investment income, and premium growth primarily driven by higher sales levels. These increases were partially offset by a higher benefit ratio in certain reinsurance pools and reduced fee income from the reinsurance underwriting management operations. Due to the nature of the risks underwritten and the relative size of the blocks of businesses, several of the Special Risk Insurance segment's products can exhibit claims variability. Colonial Products Segment: The Colonial Products segment reported increased pretax operating income for the three months and six months ended June 30, 1996, as compared with the same periods in 1995. The increases were primarily attributable to increased investment income and favorable claims experience in the accident and sickness and life product lines, partially offset by unfavorable claims experience in the cancer line. In addition, continued premium growth, reflecting higher sales levels, contributed to increased operating income. Colonial continues to reinsure a majority of the mortality risk on new and inforce universal life business which negatively affects reported premium growth. Retirement Products Segment: Pretax operating income decreased for the three months and six months ended June 30, 1996, as compared with the same periods in 1995, primarily due to continued losses from the runoff of those products no longer actively marketed by UNUM and lower interest spread margins on tax sheltered annuities ("TSA") as assets are shifted to lower yielding, highly liquid, instruments in anticipation of the sale of the TSA business. Management expects this asset shift will further reduce interest spread margins on tax sheltered annuities through the effective date of the sale. A reduction in operating expenses partially offset these decreases. During the first quarter of 1996, UNUM Life Insurance Company of America and First UNUM Life Insurance Company entered into an agreement for the sale of their respective group TSA businesses to The Lincoln National Life Insurance Company ("Lincoln Life"), a part of Lincoln National Corporation, and to a new New York insurance subsidiary of Lincoln Life. It is anticipated that the necessary approvals will be obtained and closing of the sale will occur before the end of 1996; however, there is no guarantee that the sale will close. Including the expected purchase price of approximately $70 million, management expects to generate up to $160 million of statutory capital from this transaction, which would be available to repurchase UNUM common stock. The reduced asset base under management for guaranteed investment contracts ("GICs"), deposit administration contracts ("DAs") and 401(k) plans has resulted in lower revenues from investment income and reduced amounts of interest credited. Management expects continued decreases in the amounts of investment income and interest credited as the related GICs, DAs and 401(k) contracts mature or terminate. Management expects future earnings for these closed blocks of businesses to decline, reflecting their run-off nature. Corporate: Increased international development costs and higher interest expense, partially offset by increased investment income, were the primary drivers of the increased operating loss in Corporate for the three months ended June 30, 1996, as compared with the same period in 1995. Also included in operating expenses were certain costs incurred for the planned merger of Commercial Life Insurance Company into UNUM Life Insurance Company of America. The increased operating loss in Corporate for the six months ended June 30, 1996, as compared with the same period in 1995, was primarily the result of increased interest expense and international development costs partially offset by increased investment income. INVESTMENTS: - ------------ At June 30, 1996, the composition of UNUM's $11.4 billion of invested assets was 79.0% fixed maturities, 10.0% mortgage loans, 2.0% real estate, and 9.0% other invested assets. Fixed Maturities At June 30, 1996, and December 31, 1995, the fixed maturity portfolio included $143.1 million and $139.4 million of below investment grade bonds (below "Baa"), which represented 1.6% and 1.5% of the fixed maturity portfolio, respectively. These bonds had associated amortized cost values of $140.6 million and $133.8 million, respectively. Virtually all of the nonconvertible, below investment grade bonds were purchased at investment grade, but were subsequently downgraded. UNUM had no fixed maturities delinquent 60 days or more at June 30, 1996, or December 31, 1995. Mortgages The percentage of mortgage loans delinquent 60 days or more on a contract delinquency basis was 0.2% at June 30, 1996, and December 31, 1995. Management expects a modest level of additional delinquencies and impaired loans in the future. Management believes the allowance provided on mortgage loans as of June 30, 1996, is adequate to cover probable losses. Impaired mortgage loans as of June 30, 1996, are not expected to have a significant effect on UNUM's results of operations, liquidity, or capital resources. Real Estate At June 30, 1996, real estate held for sale amounted to $31.4 million compared with $35.5 million at December 31, 1995, and was included in other assets in the Consolidated Balance Sheets. Given the current real estate environment, additional foreclosures are anticipated, but at a reduced level from the early 1990s. Current and anticipated real estate acquired through foreclosure is not expected to have a significant effect on UNUM's results of operations, liquidity, or capital resources. LIQUIDITY AND CAPITAL RESOURCES: - ------------------------------- UNUM's businesses produce positive cash flows which are invested primarily in intermediate, fixed maturity investments intended to reflect the nature of anticipated cash obligations of insurance benefit payments and insurance contract maturities and to optimize investment returns at appropriate risk levels. Unexpected cash requirements and liquidity needs can be met through UNUM's investment portfolio of fixed maturities classified as available for sale, equity securities, cash, and short-term investments. To facilitate the expected sale of the TSA business later in 1996, management expects to liquidate certain assets, primarily fixed maturities, and accumulate cash and short-term investments. From time to time, dividend payments, which may be subject to approval by insurance regulatory authorities, are made from UNUM's affiliates and insurance subsidiaries to UNUM Corporation. These dividends, along with other funds, are used to service the needs of UNUM Corporation including: debt service, common stock dividends, stock repurchase, administrative costs and corporate development. Net statutory operating income, which excludes realized investment gains net of tax, is one of the major determinants of an insurance company's dividend capacity to its parent in the following fiscal year. Statutory accounting rules and practices, which differ in certain respects from generally accepted accounting principles, are mandated by regulators in an insurance company's state of domicile. In the first six months of 1996, UNUM's insurance subsidiaries domiciled in the United States reported net statutory operating income of approximately $88 million, as compared with approximately $67 million for the same period of 1995. Cash flow requirements are also supported by a committed revolving credit facility totaling $500 million, which expires on October 1, 1999. UNUM's commercial paper program is supported by the revolving credit facility and is available for general liquidity needs, capital expansion, acquisitions, and stock repurchase. The committed revolving credit facility contains certain covenants which, among other provisions, require maintenance of certain levels of stockholders' equity and limits on level of debt. On July 16, 1996, UNUM filed an omnibus shelf registration with the Securities and Exchange Commission, which became effective August 2, 1996, relating to $500 million of securities (including debt securities, preferred stock, common stock and other securities). UNUM plans to file a prospectus supplement to establish a $250 million medium-term note program under the shelf registration. At June 30, 1996, UNUM had short-term and long-term debt totaling $115.9 million and $442.6 million, respectively. At June 30, 1996, approximately $408 million was available for additional financing under the existing revolving credit facility. Upon its effective date, the new shelf registration provided UNUM with the availability of $500 million of investment grade debt instruments for additional financing. Contingent upon market conditions and corporate needs, management may refinance short-term notes payable for longer term securities. During the second quarter of 1996, UNUM acquired approximately 150,000 shares of its common stock in the open market at an aggregate cost of $8.8 million. At June 30, 1996, approximately 2.5 million shares of common stock remained authorized for stock repurchase. RATINGS: - -------- In August 1996, Moody's Investors Service ("Moody's") assigned the following prospective ratings to UNUM Corporation's July 16, 1996, shelf registration: senior debt at "(P)A1" (Upper-Medium Quality), subordinated debt at "(P)A2" (Upper-Medium Quality), cumulative preferred stock at "(P)"a1"" (Upper-Medium Quality), and non-cumulative preferred stock at "(P)"a2"" (Upper-Medium Quality). In August 1996, Standard & Poor's Corporation ("S&P") assigned a preliminary senior debt rating of "A+" (Strong) to the July 16, 1996, shelf registration. In addition, S&P affirmed UNUM Corporation's senior debt (medium-term notes program), monthly income debt securities, and commercial paper ratings at "A+" (Strong), "A" (Strong) and "A-1" (Strong), respectively. In June 1996, Moody's assigned a financial strength rating of "Aa2" (Excellent) to Commercial Life Insurance Company ("Commercial Life"), based on UNUM Corporation's plan to merge Commercial Life into UNUM Life Insurance Company of America ("UNUM America"), which has a financial strength rating of "Aa2". The merger will be effective December 31, 1996, subject to regulatory approvals. In April 1996, A.M. Best Company ("Best's") affirmed UNUM America's financial strength rating at "A++" (Superior), the highest rating assigned by Best's. Additionally, Best's affirmed First UNUM Life Insurance Company and Colonial Life & Accident Insurance Company at "A+" (Superior). Best's affirmed Commercial Life's at "A" (Excellent) in May 1995. In February 1996, S&P affirmed the claims paying ability ratings of UNUM America and First UNUM Life Insurance Company at "AA" (Excellent) and Colonial Life & Accident Insurance Company at "AA-" (Excellent). S&P assigned a claims paying ability rating of "AA" (Excellent) to Commercial Life based on UNUM Corporation's plan to merge Commercial Life into UNUM America, which has a claims paying ability rating of "AA". The merger will be effective December 31, 1996, subject to regulatory approvals. LITIGATION: - ---------- In the normal course of its business operations, UNUM is involved in litigation from time to time with claimants, beneficiaries and others, and a number of lawsuits were pending at June 30, 1996. In some instances, these proceedings include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from this litigation is not expected to have a material adverse effect on the consolidated financial position or the consolidated operating results of UNUM. On December 29, 1993, UNUM filed suit in the United States District Court for the District of Maine, seeking a federal income tax refund. The suit is based on a claim for a deduction in certain prior tax years, for $652 million in cash and stock distributed to policyholders in connection with the 1986 conversion of Union Mutual Life Insurance Company to a stock company. UNUM has fully paid, and provided for in prior years' financial statements, the tax at issue in this litigation. On May 23, 1996, the District Court issued its decision that the distribution in question was not a deductible expenditure. UNUM believes its claims are meritorious, and has appealed the decision to the Court of Appeals for the First Circuit. The ultimate recovery, if any, cannot be determined at this time. NEW ACCOUNTING PRONOUNCEMENT: - ----------------------------- In June 1996, the Financial Accounting Standards Board issued Financial Accounting Standard ("FAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The statement provides guidance for recognition or derecognition of assets and liabilities, focusing on the concepts of control and extinguishment. UNUM is required to adopt FAS 125 on January 1, 1997. UNUM has not yet determined what effect the adoption of FAS 125 will have on its results of operations or financial position. UNUM Corporporation and Subsidiaries Form 10-Q/A No. 1 June 30, 1996 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page (a) Exhibit Index 15.1 Letter re: Unaudited interim financial information 14 (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant with the Securities and Exchange Commission during the quarter ended June 30, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date August 14, 1996 /s/ ROBERT W. CRISPIN -------------------- ----------------------------- Robert W. Crispin Executive Vice President and Chief Financial Officer Date August 14, 1996 /s/ STEPHEN D. ROBERTS -------------------- ------------------------------ Stephen D. Roberts Vice President and Corporate Controller EX-15.1 2 EXHIBIT 15.1 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 We are aware that our report dated July 24, 1996, on our review of interim financial information of UNUM Corporation for the three-month and six-month periods ended June 30, 1996, and 1995, (the interim financial information) has been included in the Company's quarterly report on Form 10-Q. We are also aware that Item 2 of the interim financial information has been amended pursuant to Form 10-Q/A No. 1. /s/ COOPERS & LYBRAND L.L.P. August 14, 1996 -----END PRIVACY-ENHANCED MESSAGE-----