-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YySobrAW9r+bA6Qh4Ox9d3oytT0os5YrkyUKRINDYLgqetzaZC0g2df+VpQ5VLG1 jf1O3vbUA+Q1EUmIOaZTxg== 0000795581-94-000026.txt : 19941111 0000795581-94-000026.hdr.sgml : 19941111 ACCESSION NUMBER: 0000795581-94-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNUM CORP CENTRAL INDEX KEY: 0000795581 STANDARD INDUSTRIAL CLASSIFICATION: 6321 IRS NUMBER: 010405657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09254 FILM NUMBER: 94558808 BUSINESS ADDRESS: STREET 1: 2211 CONGRESS ST CITY: PORTLAND STATE: ME ZIP: 04122 BUSINESS PHONE: 2077702211 MAIL ADDRESS: STREET 1: 2211 CONGRESS STREET CITY: PORTLAND STATE: ME ZIP: 04122 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1994 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 September 30, 1994 Common stock, $0.10 par value 72,495,493 shares UNUM Corporation and Subsidiaries Form 10-Q INDEX Page Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income (Loss) - Three Months and Nine Months Ended September 30, 1994, and 1993 (Unaudited) 3 Consolidated Balance Sheets as of September 30, 1994, (Unaudited) and December 31, 1993 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1994, and 1993 (Unaudited) 6 Notes to Consolidated Financial Statements (Unaudited) 8 Independent Accountant's Review Report 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 UNUM Corporation and Subsidiaries Form 10-Q C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E (L O S S) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (Unaudited - Dollars in millions, except per common share data) Revenues Premiums $670.3 $622.9 $2,026.7 $1,826.4 Investment income 192.3 196.4 575.8 597.2 Net realized investment gains 11.6 10.6 36.0 40.9 Fees and other income 16.3 20.4 57.4 63.0 Total revenues 890.5 850.3 2,695.9 2,527.5 Benefits and expenses Benefits to policyholders 708.2 446.9 1,708.3 1,315.2 Interest credited 59.7 69.0 181.6 214.7 Operating expenses 169.9 166.2 509.8 499.0 Commissions 88.9 83.2 263.7 241.8 Increase in unamortized deferred policy acquisition costs (36.1) (32.7) (108.9) (92.2) Interest expense 5.0 3.0 12.5 9.1 Total benefits and expenses 995.6 735.6 2,567.0 2,187.6 Income (loss) before income taxes and cumulative effects of accounting changes (105.1) 114.7 128.9 339.9 Income taxes (benefit) Current (2.1) 6.2 30.1 61.3 Deferred (41.3) 36.4 (1.9) 49.7 Total income taxes (benefit) (43.4) 42.6 28.2 111.0 Income (loss) before cumulative effects of accounting changes (61.7) 72.1 100.7 228.9 Cumulative effects of accounting changes Income taxes -- -- -- 20.0 Postretirement benefits other than pensions, net of tax -- -- -- (32.1) Net income (loss) $(61.7) $ 72.1 $ 100.7 $ 216.8 Per common share Income (loss) before cumulative effects of accounting changes $(0.84) $ 0.91 $ 1.35 $ 2.88 Cumulative effects of accounting changes Income taxes -- -- -- 0.25 Postretirement benefits other than pensions, net of tax -- -- -- (0.40) Net income (loss) $(0.84) $ 0.91 $ 1.35 $ 2.73 See notes to consolidated financial statements. 3 UNUM Corporation and Subsidiaries Form 10-Q C O N S O L I D A T E D B A L A N C E S H E E T S September 30, 1994 December 31, (Dollars in millions) (Unaudited) 1993 Assets Investments Fixed maturities: Held to maturity-principally at amortized cost (fair value: 1994-$6,444.4, 1993-$7,149.9) $ 6,383.9 $ 6,560.7 Available for sale-at fair value (amortized cost: $1,556.3) 1,524.0 -- Available for sale-principally at amortized cost (fair value: $929.9) -- 872.0 Equity securities available for sale- at fair value (cost: 1994-$509.1, 1993-$508.3) 669.3 730.0 Mortgage loans 1,225.0 1,423.2 Real estate, net 194.6 193.5 Policy loans 198.1 187.9 Other long-term investments 49.4 59.0 Short-term investments 80.9 69.6 Total investments 10,325.2 10,095.9 Cash 31.3 20.8 Accrued investment income 189.9 184.0 Premiums due 184.8 165.5 Unamortized deferred policy acquisition costs 988.8 879.1 Property and equipment, net 145.5 143.5 Other assets 717.4 681.8 Separate account assets 327.2 266.7 Total assets $12,910.1 $12,437.3 (Continued on next page) 4 UNUM Corporation and Subsidiaries Form 10-Q C O N S O L I D A T E D B A L A N C E S H E E T S September 30, 1994 December 31, (Dollars in millions) (Unaudited) 1993 Liabilities and Stockholders' Equity Liabilities Future policy benefits $ 4,544.0 $ 4,009.6 Unpaid claims and claim expenses 745.5 676.3 Other policyholder funds 4,082.6 4,268.8 Federal income taxes Current 22.6 31.5 Deferred 342.9 376.7 Notes payable 381.9 238.6 Other liabilities 543.3 466.4 Separate account liabilities 327.2 266.7 Total liabilities 10,990.0 10,334.6 Stockholders' Equity Preferred stock, par value $0.10 per share, authorized 10,000,000 shares, none issued Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 99,987,958 shares 10.0 10.0 Additional paid-in capital 1,081.1 1,078.4 Unrealized gains on available for sale securities, net of deferred taxes 83.1 149.1 Unrealized foreign currency translation adjustment (20.8) (24.1) Retained earnings 1,470.6 1,420.8 2,624.0 2,634.2 Less: Treasury stock, at cost (1994-27,492,465 shares; 1993-24,006,816 shares) 702.0 529.8 Restricted stock deferred compensation 1.9 1.7 Total stockholders' equity 1,920.1 2,102.7 Total liabilities and stockholders' equity $12,910.1 $12,437.3 See notes to consolidated financial statements. 5 UNUM Corporation and Subsidiaries Form 10-Q C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S Nine Months Ended September 30, (Unaudited - Dollars in millions) 1994 1993 Operating activities: Net income $ 100.7 $ 216.8 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effects of accounting changes, net of tax -- 12.1 Increase in future policy benefits and unpaid claims and claim expenses 577.8 306.4 Increase in amounts receivable under reinsurance agreements (16.1) (111.2) (Decrease) increase in federal income tax liability (13.0) 78.4 Increase in unamortized deferred policy acquisition costs (108.9) (83.6) Other 18.0 (16.4) Net cash provided by operating activities 558.5 402.5 Investing activities: Maturities of fixed maturities -- 695.5 Maturities of fixed maturities held to maturity 404.2 -- Maturities of fixed maturities available for sale 27.0 -- Sales of fixed maturities held to maturity -- 45.7 Sales of fixed maturities available for sale 273.5 154.7 Sales of equity securities available for sale 217.3 -- Sales and maturities of other investments 242.9 376.6 Purchases of investments -- (1,352.5) Purchases of fixed maturities held to maturity (548.7) -- Purchases of fixed maturities available for sale (640.8) -- Purchases of equity securities available for sale (166.3) -- Purchases of other investments (57.9) -- Net (increase) decrease in short-term investments (10.8) 41.5 Net additions to property and equipment (16.0) (29.3) Net cash used in investing activities (275.6) (67.8) Financing activities: Deposits and interest credited to investment contracts 460.3 581.3 Maturities and withdrawals from investment contracts (646.5) (782.5) Dividends to stockholders (51.0) (45.7) Treasury stock acquired (177.6) (30.5) Proceeds from notes payable 54.6 -- Repayment of notes payable (1.2) -- Net increase (decrease) in short-term debt 89.9 (32.9) Other (1.0) 8.8 Net cash used in financing activities $(272.5) $ (301.5) (Continued on next page) 6 UNUM Corporation and Subsidiaries Form 10-Q C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S Nine Months Ended September 30, (Unaudited - Dollars in millions) 1994 1993 Effect of exchange rate changes on cash $ 0.1 $ 1.3 Net increase in cash 10.5 34.5 Cash at beginning of year 20.8 20.4 Cash at end of period $ 31.3 $ 54.9 Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 44.3 $ 58.9 Interest $ 9.4 $ 7.2 See notes to consolidated financial statements. 7 UNUM Corporation and Subsidiaries Form 10-Q Notes to Consolidated Financial Statements (Unaudited) September 30, 1994 Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to stock life insurance companies for interim financial information and with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles applicable to stock life insurance companies for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim results for the three month and nine month periods ended September 30, 1994, are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. For further information, refer to the audited consolidated financial statements and footnotes included in the 1993 annual report to stockholders of UNUM Corporation and subsidiaries ("UNUM"). Note 2. Change in Accounting Estimate In the third quarter of 1994, UNUM increased reserves for existing claims by $83.3 million and established a reserve for estimated future losses of $109.1 million. These increased reserves reflect management's current expectations of morbidity trends for the existing individual disability business, as reported in the Individual Disability segment. This change in accounting estimate resulted in an increase to benefits to policyholders in the Consolidated Statement of Income (Loss) of $192.4 million, and a decrease to net income of $125.1 million, or $1.70 per share, and $1.67 per share, for the three months and nine months ended September 30, 1994, respectively. Note 3. Accounting Changes Effective January 1, 1994, UNUM adopted Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which specified the accounting and reporting for certain investments in equity securities and for all investments in debt securities. UNUM adopted the provisions of FAS 115 for these investments held as of or acquired after January 1, 1994, which are classified and accounted for as follows: - Fixed maturities that UNUM has the positive intent and ability to hold to maturity are classified as "held to maturity" and are reported at amortized cost, less an allowance for probable losses. - Fixed maturities and equity securities classified as "available for sale" are reported at fair value. Related unrealized holding gains and losses, net of deferred taxes, are reported in a separate component of stockholders' equity. 8 UNUM Corporation and Subsidiaries Note 3. Accounting Changes (Continued) Upon the adoption of FAS 115, UNUM increased unrealized gains on available for sale securities included in stockholders' equity on January 1, 1994, by $41.8 million (net of deferred taxes of $22.5 million) to reflect the unrealized holding gains on fixed maturities classified as available for sale which were previously carried at amortized cost. In accordance with FAS 115, prior year consolidated financial statements have not been restated to reflect the change in accounting principle. UNUM reclassified certain fixed maturities from held to maturity to available for sale on January 1, 1994, in connection with the adoption of FAS 115. Effective January 1, 1993, UNUM adopted FAS No. 109, "Accounting for Income Taxes," which changed the method for calculating and reporting deferred income taxes in the financial statements from the deferred method to the liability method. The cumulative effect of this accounting change as of January 1, 1993, amounted to a $20.0 million increase in net income, or $0.25 per share, for the nine months ended September 30, 1993. Effective January 1, 1993, UNUM adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," which changed the method for recognition of the cost of these benefits from a cash basis to an accrual basis over the years in which employees render the related services. UNUM elected to recognize the FAS 106 liability at January 1, 1993, of $48.8 million as a cumulative effect of an accounting change. This charge decreased net income by $32.1 million, or $0.40 per share, for the nine months ended September 30, 1993. Note 4. Income Taxes On August 10, 1993, legislation was enacted to increase the federal income tax rate of 34% to 35%, retroactive to January 1, 1993. The tax rate increase resulted in a charge to third quarter net income totaling $9.7 million or $0.12 per share, which included $1.9 million or $0.02 per share for first and second quarter 1993 net income and a $7.8 million or $0.10 per share adjustment to the deferred income tax liability. Excluding the adjustment to income tax expense for the enacted tax rate change in the third quarter of 1993, the effective tax rates were lower than the federal income tax rate of 35% in 1994 and 1993, primarily due to UNUM's investments in tax-exempt securities. Note 5. Earnings Per Share The weighted average number of shares outstanding used to calculate earnings per share was 73,829,538 and 79,560,408 for third quarter 1994 and 1993, respectively. Weighted average shares outstanding for the nine months ended September 30, 1994, and 1993, were 74,750,688 and 79,391,538, respectively. The assumed exercise of outstanding stock options would not result in a material dilution of earnings per share. 9 UNUM Corporation and Subsidiaries Note 6. Dividends to Stockholders On October 13, 1994, UNUM's Board of Directors declared a twenty-four cents per share cash dividend. The dividend is payable on November 18, 1994, to common stockholders of record at the close of business on October 31, 1994. During the first nine months of 1994, cash dividends of twenty-four cents per share were paid on August 19, 1994, and May 20, 1994, and a twenty cents per share cash dividend was paid on February 18, 1994. Note 7. 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 September 30, 1994. In the opinion of management, the ultimate liability, if any, arising from this litigation is not expected to have a material adverse effect on the consolidated financial position or the consolidated operating results of UNUM. Note 8. New Accounting Pronouncements In October 1994, the Financial Accounting Standards Board ("FASB") issued FAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," which amends FAS No. 114 "Accounting by Creditors for Impairment of a Loan" to allow a creditor to use existing methods for recognizing, measuring and displaying interest income on an impaired loan. Adoption of FAS 118 is not expected to have a material effect on UNUM's results of operations or financial position. UNUM is required to adopt FAS 118 by January 1, 1995. Also in October 1994, the FASB issued FAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires specific disclosures to distinguish derivative instruments held or issued for trading purposes from those held or issued for purposes other than trading. UNUM is required to adopt this standard effective December 31, 1994. UNUM periodically uses common derivative financial instruments such as options, futures and forward contracts to hedge interest rate risk on future investments and certain payments denominated in foreign currencies. These derivative financial instruments are used to protect UNUM from the impact of market fluctuations in interest and exchange rates. UNUM does not intend to hold or issue derivative financial instruments for the purpose of trading activities. UNUM's exposure to derivative financial instruments was not significant to the consolidated financial statements at September 30, 1994. 10 UNUM Corporation and Subsidiaries Note 9. Capital Stock In September 1993, UNUM announced the resumption of a program to repurchase its common stock pursuant to an existing Board of Directors' resolution. On February 11, 1994, UNUM's Board of Directors voted to expand UNUM's authorization to repurchase an additional 5.0 million shares. Since the resumption of the stock repurchase program, UNUM has acquired approximately 7.4 million shares of its common stock through September 30, 1994, in the open market at an aggregate cost of $370.1 million. Note 10. Segment Information UNUM reports its operations principally in six business segments: Employee Benefits, Related Businesses, Colonial Companies, Individual Disability, Retirement Security and Other Operations. The Employee Benefits segment includes group long term disability, group life and other employee benefits products, including short term disability, accidental death and dismemberment, and dental insurance. The Related Businesses segment includes UNUM Limited in the United Kingdom, Commercial Life Insurance Company, and reinsurance operations including Duncanson & Holt, Inc. The Colonial Companies segment includes Colonial Companies, Inc. and subsidiaries ("Colonial"), which offer payroll-deducted, voluntary employee benefits to employees at their worksites. The Individual Disability segment includes disability income products. The Retirement Security segment includes tax sheltered annuities, long term care insurance and lifestyle security protection products. The Other Operations segment includes individual life insurance business of UNUM Life Insurance Company of America, group medical operations, guaranteed investment contracts, deposit administration accounts, and 401(k) plans, all of which are no longer actively marketed by UNUM. Corporate includes transactions which are generally non-insurance related and expenses incurred to effect the March 26, 1993, merger of UNUM and Colonial. 11 UNUM Corporation and Subsidiaries Note 10. Segment Information (continued) Summarized financial information for the six business segments and Corporate is as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 1994 1993 1994 1993 Revenues Employee Benefits $ 430.5 $ 403.0 $1,269.1 $1,185.5 Related Businesses 132.4 122.5 420.9 360.2 Colonial Companies 116.2 108.6 350.6 336.4 Individual Disability 111.1 102.9 325.1 299.6 Retirement Security 67.7 67.2 220.4 204.9 Other Operations 29.5 44.0 103.2 137.9 Corporate 3.1 2.1 6.6 3.0 Total revenues $ 890.5 $ 850.3 $2,695.9 $2,527.5 Income (loss) before income taxes and cumulative effects of accounting changes Employee Benefits $ 64.5 $ 57.6 $ 193.9 $ 175.7 Related Businesses 16.2 14.4 51.4 41.3 Colonial Companies 13.6 14.8 45.7 53.7 Individual Disability (199.4) 19.0 (180.5) 49.7 Retirement Security 4.3 5.0 21.9 17.2 Other Operations 1.6 5.7 8.7 18.2 Corporate (5.9) (1.8) (12.2) (15.9) Total income (loss) before income taxes and cumulative effects of accounting changes (105.1) 114.7 128.9 339.9 Income taxes (benefit) (43.4) 42.6 28.2 111.0 Income (loss) before cumulative effects of accounting changes (61.7) 72.1 100.7 228.9 Cumulative effects of accounting changes -- -- -- (12.1) Net income (loss) $ (61.7) $ 72.1 $ 100.7 $ 216.8 September 30, December 31, (Dollars in millions) 1994 1993 Identifiable Assets Employee Benefits $ 3,578.5 $ 3,294.5 Related Businesses 1,419.7 1,269.0 Colonial Companies 844.7 819.2 Individual Disability 1,629.3 1,516.3 Retirement Security 3,355.1 3,249.3 Other Operations 1,245.8 1,493.9 Corporate 487.8 452.3 Individual Participating Life and Annuity 349.2 342.8 Total assets $12,910.1 $12,437.3 12 INDEPENDENT ACCOUNTANT'S REVIEW REPORT To the Board of Directors and Stockholders UNUM Corporation We have reviewed the accompanying consolidated balance sheet of UNUM Corporation and subsidiaries as of September 30, 1994, and the related consolidated statements of income (loss) for the three-month and nine-month periods then ended and the consolidated statement of cash flows for the nine-month period then ended. 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 consolidated financial statements of UNUM Corporation and subsidiaries as of September 30, 1994, and for the three-month and nine-month periods then ended for them to be in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Portland, Maine November 7, 1994 13 UNUM Corporation and Subsidiaries Form 10-Q September 30, 1994 Item 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 third quarter 1994 were $890.5 million as compared with $850.3 million for third quarter 1993. Net loss for the quarter ended September 30, 1994, was $(61.7) million or $(0.84) per share as compared with net income of $72.1 million or $0.91 per share for the same quarter in 1993. Revenues for the nine months ended September 30, 1994, were $2,695.9 million as compared with $2,527.5 million for the same period in 1993. Net income for the nine months ended September 30, 1994, was $100.7 million or $1.35 per share as compared with $216.8 million or $2.73 per share for the same period in 1993. As further described in the Individual Disability segment, throughout 1994 UNUM's individual disability business in the United States has experienced a higher incidence of new claims and a disproportionate number of large claims that management has attributed to certain geographic and occupational segments, particularly physicians. As a result, in third quarter 1994, UNUM increased reserves for existing claims by $83.3 million and established a reserve for estimated future losses of $109.1 million. These increased reserves reflect management's current expectations of morbidity trends for the existing individual disability business. This reserve strengthening resulted in an increase to benefits to policyholders in the Consolidated Statement of Income (Loss) of $192.4 million and a decrease to net income of $125.1 million, or $1.70 per share, and $1.67 per share, for the three months and nine months ended September 30, 1994, respectively. It is not possible to predict with any certainty whether morbidity trends will be consistent with UNUM's current assumptions, or will improve or deteriorate. The current assumptions represent management's best estimates in light of present circumstances. Net income for the three months and nine months ended September 30, 1993, reflects the increase in the federal income tax rate from 34% to 35% retroactive to January 1, 1993, which resulted in a third quarter 1993 charge of $9.7 million or $0.12 per share. For the nine months ended September 30, 1993, net income reflects one time net charges totaling $12.1 million or $0.15 per share for the cumulative effects of the adoption of Financial Accounting Standards ("FAS") No. 106 and No. 109 relating to postretirement benefits other than pensions and income taxes, respectively, as described in Note 3. Also included in net income for the nine months ended September 30, 1993, is a one time charge of $9.5 million or $0.12 per share for expenses associated with the March 26, 1993, merger of UNUM and Colonial Companies, Inc. 14 UNUM Corporation and Subsidiaries During the first three quarters of 1994, UNUM's North American group long term disability results, as reported in the Employee Benefits segment, have been adversely affected through a combination of increased incidence of new claims, an increased number of large claims and low interest rates. If the level of increased claims continues, management believes that the rate of growth of earnings for the group long term disability business and the Employee Benefits segment could be negatively affected. To address the current claims environment, management is taking remedial actions which include implementing new risk management programs and underwriting guidelines, as well as selective price increases on new and existing business. Management periodically reviews and updates reserve estimates and assumptions with any resulting adjustments reflected in current operating results. The interest rate environment during the past two years has reduced investment yields on new fixed income purchases, decreased the average rate used to discount claim reserve liabilities and decreased levels of investment income, despite a continued growth in invested assets. UNUM proactively reviews and adjusts investment strategies to mitigate the potential impact of increasing reserve requirements due to a declining discount rate. Management anticipates that the average investment portfolio yield will further decline, since UNUM invests its cash flows in high quality assets that currently have yields below the existing average portfolio yields. Premiums: Premiums for the three months and nine months ended September 30, 1994, and 1993, are summarized by segment in the table below. For the nine months ended September 30, 1994, claim block acquisitions generated one-time premium of $25.8 million for UNUM Limited, included in the Related Businesses segment, and $15.0 million for long term care included in the Retirement Security segment. For the three months and nine months ended September 30, 1993, group long term disability ("group LTD"), included in the Employee Benefits segment, acquired closed blocks of claims which generated one-time premium totaling $12.8 million and $45.4 million, respectively. Management may pursue additional claim block acquisitions in the future. Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 1994 1993 Change 1994 1993 Change Employee Benefits Group LTD $242.2 $234.9 3.1 % $ 713.9 $ 694.4 2.8% Group life 78.1 69.7 12.1 231.6 198.6 16.6 Other 41.5 36.7 13.1 120.4 109.0 10.5 Total 361.8 341.3 6.0 1,065.9 1,002.0 6.4 Related Businesse 100.3 90.6 10.7 322.6 259.5 24.3 Colonial Companies 107.9 99.7 8.2 325.6 300.8 8.2 Individual Disability 87.5 79.7 9.8 254.3 229.1 11.0 Retirement Security 10.2 7.7 32.5 44.9 23.1 94.4 Other Operations 2.6 3.9 (33.3) 13.4 11.9 12.6 Total premiums $670.3 $622.9 7.6 % $2,026.7 $1,826.4 11.0% 15 UNUM Corporation and Subsidiaries Income (Loss) Before Income Taxes and Cumulative Effects of Accounting Changes: Income (loss) before income taxes and cumulative effects of accounting changes for the six business segments and Corporate for the three months and nine months ended September 30, 1994, and 1993, was as follows: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 1994 1993 Change 1994 1993 Change Employee Benefits $ 64.5 $ 57.6 $ 6.9 $ 193.9 $175.7 $ 18.2 Related Businesses 16.2 14.4 1.8 51.4 41.3 10.1 Colonial Companies 13.6 14.8 (1.2) 45.7 53.7 (8.0) Individual Disability (199.4) 19.0 (218.4) (180.5) 49.7 (230.2) Retirement Security 4.3 5.0 (0.7) 21.9 17.2 4.7 Other Operations 1.6 5.7 (4.1) 8.7 18.2 (9.5) Corporate (5.9) (1.8) (4.1) (12.2) (15.9) 3.7 Total $(105.1) $114.7 $(219.8) $ 128.9 $339.9 $(211.0) Employee Benefits Segment: The Employee Benefits segment reported increased income before income taxes for the three months and nine months ended September 30, 1994, as compared with the same periods in 1993. The increases were attributable to continued premium growth and expense control, coupled with favorable claims experience in the short term disability business. Partially offsetting these increases were adverse claims experience in the group LTD business. The group LTD business has experienced a higher incidence of new claims in each of the quarters of 1994, which resulted in increased benefits to policyholders. If the level of increased claims continues, management believes that the rate of growth of earnings for the group long term disability business and the Employee Benefits segment could be negatively affected. Management has identified certain geographical and occupational segments of the group LTD business which are experiencing higher than expected claims. Management continues to pursue these segments of the business for underwriting and pricing actions and is addressing the increased incidence rates and more subjective nature of the types of disability claims by implementing new and enhancing existing risk management programs. Compounding this unfavorable claims experience for the nine months ended September 30, 1994, was a decrease in the discount rate used to determine group LTD reserves, which resulted in an increase to claim reserves. Although the group life business reported more favorable claims experience in 1994, certain portions of the business continue to experience unfavorable claims results, which management attributes to antiselection and adverse mortality. Management continues to address the antiselection that developed during 1993 by imposing more stringent underwriting requirements and by targeting specific portions of the business to pursue risk and pricing actions. 16 UNUM Corporation and Subsidiaries Related Businesses Segment: The increase in income before income taxes for the three months ended September 30, 1994, as compared with the same period in 1993, was primarily attributable to favorable claims experience in Commercial Life's specialty group accident product line, continued premium growth at UNUM Limited and increased earnings from UNUM's participation in reinsurance pools managed by Duncanson & Holt, Inc. For the nine months ended September 30, 1994, income before income taxes increased as compared with the same period in 1993, primarily due to favorable claims experience and premium growth at UNUM Limited and favorable claims experience in Commercial Life's specialty group accident product line. Due to the nature of the risks underwritten, the specialty group accident product line can exhibit claims variability. For the three months and nine months ended September 30, 1994, the effect of the exchange rate has had a negligible effect on UNUM Limited's earnings as reported in U.S. dollars. Colonial Companies Segment: The Colonial Companies segment reported a decrease in income before income taxes for the three months and nine months ended September 30, 1994, as compared with the same periods in 1993, which is primarily attributable to decreased realized investment gains and increased expenses, partially offset by favorable claims experience. During 1993, Colonial's investment portfolio was realigned to reflect UNUM's investment philosophy. As a result, Colonial sold higher yielding but callable investments, which resulted in more than $8.5 million in realized investment gains for the nine months ended September 30, 1993. For the three months and nine months ended September 30, 1994, Colonial reported favorable claims experience and improved incidence rates, especially in the cancer product line. Colonial continues to shift its product mix toward products that are designed to have higher benefit ratios, lower expense ratios and better policyholder retention. Premium growth in 1994 has continued to benefit from improved persistency through enhanced customer conservation programs that have offset the impact of the weaker level of sales for the past two years. 17 UNUM Corporation and Subsidiaries Individual Disability Segment: The loss before income taxes for the Individual Disability segment for the three and nine months ended September 30, 1994, is primarily due to the $192.4 million reserve strengthening recorded in the third quarter of 1994. Excluding this reserve strengthening, for the three months and nine months ended September 30, 1994, the segment reported a loss before income taxes of $(7.0) million and income before income taxes of $11.9 million, respectively. This compares with income before income taxes of $19.0 million and $49.7 million for the same periods in 1993. During 1994, the Individual Disability segment has experienced a higher incidence of new claims and a disproportionate number of large claims that management has attributed to certain geographic and occupational segments of the business, particularly physicians. Claims experience continued to deteriorate in third quarter 1994. Management believes that changes in and consolidation of the health care delivery system in the United States and the increased prevalence of emerging and often subjective types of disabilities have contributed to increased benefit costs. During the third quarter of 1994, management concluded that the deterioration of claims experience was not a temporary fluctuation in certain segments of the business, but was indicative of expected claim trends for the future. Unlike the group long term disability product, management has limited ability to manage the claims risk associated with non-cancelable individual disability business since UNUM is contractually unable to reprice or cancel inforce policies that have become unprofitable because of changes in claims experience that were unforeseen when the policies were sold. The combination of these factors prompted UNUM to assess the adequacy of future premiums to provide for future benefits and expenses and the assumptions used in the existing claim reserves for the Individual Disability segment. As a result, in third quarter 1994, UNUM increased the reserves for existing claims by $83.3 million and established a reserve for estimated future losses of $109.1 million. These increased reserves reflect management's current expectations of morbidity trends for the existing individual disability business, as reported in the Individual Disability segment. It is not possible to predict with any certainty whether future morbidity trends will be consistent with UNUM's current assumptions, or will improve or deteriorate. The current assumptions represent management's best estimates in light of present circumstances. In November 1994, UNUM signed a letter of intent with a major reinsurer to reinsure virtually all of the risk on the non-cancelable block of individual disability business in the United States. The terms of this reinsurance are being negotiated and could involve a fee. Additionally, UNUM purchased excess-of-loss reinsurance to protect UNUM from the exposure of actual claims experience exceeding levels assumed in the strengthened reserves. 18 UNUM Corporation and Subsidiaries Individual Disability Segment: (continued) Coincident with the third quarter 1994 reserve assessment, management completed its evaluation of the structure of the individual disability products to determine if changes could be made to improve future product performance. As a result of the structural review, UNUM has announced that it will discontinue sales of the traditional, fixed price, non-cancelable product in the United States upon introduction of new individual disability products in each state. Subject to state regulatory approval, UNUM expects to introduce the new disability products to most states by early 1995. Until the new products are introduced, UNUM will further tighten underwriting rules and practices, and make other product design limitations, for sales of the existing product. As a result of these changes, management expects that sales of the Individual Disability segment will decrease significantly in 1995 from levels in 1994. In connection with these product changes, management expects to incur costs during the fourth quarter 1994 and in 1995 to develop and market the new individual disability products. These costs could result in losses for the Individual Disability segment. Additionally, UNUM expects to record a pretax restructuring charge of approximately $10 million in the fourth quarter of 1994, which will include the severance cost of certain individual disability home office and marketing operations employees and the exit costs of certain leased facilities and equipment. Retirement Security Segment: Favorable interest spread margins on tax sheltered annuities have contributed to the level of income before income taxes for the three months and nine months ended September 30, 1994, and 1993. Management does not expect interest spread margins on tax sheltered annuities to continue at the same level, which may reduce future earnings for the Retirement Security segment. During 1994, UNUM implemented an investment strategy to increase investments in tax-exempt securities which has reduced income before income taxes for this segment. Although investments in tax-exempt securities resulted in increased consolidated net income, this investment strategy reduced the Retirement Security segment's income before income taxes by approximately $1.8 million and $4.6 million for the three months and nine months ended September 30, 1994, respectively. The level of income before income taxes for the three months and nine months ended September 30, 1994, as compared with the same periods in 1993, reflects continued premium growth and expense reductions in the long term care insurance products partially offset by unfavorable claims experience. Management is implementing new underwriting guidelines to address the increased incidence of new claims in the long term care insurance products. 19 UNUM Corporation and Subsidiaries Other Operations Segment: The reduced invested asset base under management for guaranteed investment contracts ("GICs"), deposit administration contracts ("DAs") and 401(k) plans resulted in lower revenues from investment and fee income and reduced amounts of interest credited. Management expects continued decreases in the amounts of investment income and interest credited as the related GIC, DA and 401(k) contracts mature or terminate. Management expects future earnings in the Other Operations segment to decline, reflecting the run-off nature of these closed blocks of businesses. Also contributing to the decrease in income before income taxes was lower realized investment gains for the three months and nine months ended September 30, 1994, as compared with the same periods in 1993. Corporate: Increased operating and interest expenses for the three months ended September 30, 1994, as compared with the same quarter in 1993, contributed to the increased loss before income taxes in Corporate. For the nine months ended September 30, 1994, the decreased loss before income taxes is primarily due to decreased operating expenses partially offset by increased interest expense. Included in expenses for the nine months ended September 30, 1993, were the expenses incurred in connection with the March 26, 1993, merger of UNUM Corporation and Colonial Companies, Inc. Income Taxes: On August 10, 1993, legislation was enacted to increase the federal income tax rate of 34% to 35%, retroactive to January 1, 1993. FAS 109 required that deferred tax balances be adjusted for the effect of a change in tax laws or rates, and that the effect of such adjustment be recognized in income from continuing operations in the period the new legislation is enacted. The cumulative effect of this change was an increase to income tax expense in the third quarter 1993 of $9.7 million or $0.12 per share, which included $1.9 million, or $0.02 per share, for first and second quarter 1993 net income and $7.8 million, or $0.10 per share, adjustment to the deferred income tax liability. Excluding the adjustment to income tax expense for the enacted tax rate change in the third quarter of 1993, the effective tax rates were lower than the federal income tax rate of 35% in 1994 and 1993, primarily due to UNUM's investments in tax-exempt securities. 20 UNUM Corporation and Subsidiaries Investments: UNUM's investment philosophy is to optimize "risk adjusted total return," which evaluates total expected return after consideration of all associated expenses and losses, within criteria established for each product line. Product line investment strategies are developed to complement the business risks by meeting the liquidity and solvency requirements of each product. UNUM purchases assets whose maturities, expected cash flows and prepayment conditions are consistent with these strategies. The nature and quality of the types of investments complies with policies established by management, which are more stringent overall than the statutes and regulations imposed by the jurisdictions in which UNUM's insurance subsidiaries are licensed. UNUM's investments are reported in the consolidated financial statements net of any allowances for probable losses. Allowances are established based on a review of specific assets as well as the overall portfolio, considering the carrying value of the underlying assets. If a decline in market value is considered to be other than temporary, the investment is reduced to estimated net realizable value and the reduction is recorded as a realized investment loss. UNUM discontinues the accrual of investment income on invested assets when it is determined that collectibility is doubtful. Management monitors the risk associated with the invested asset portfolio and regularly reviews and adjusts the allowance for probable losses. At September 30, 1994, the composition of UNUM's $10,325.2 million of invested assets was 76.6% fixed maturities, 11.8% mortgage loans, 1.9% real estate, 6.5% equity securities and 3.2% other invested assets. 21 UNUM Corporation and Subsidiaries Fixed Maturities: Effective January 1, 1994, UNUM adopted Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which specified the accounting and reporting for certain investments in equity securities and for all investments in debt securities. UNUM adopted the provisions of FAS 115 for these investments held as of or acquired after January 1, 1994, which are classified and accounted for as follows: - Fixed maturities that UNUM has the positive intent and ability to hold to maturity are classified as "held to maturity" and are reported at amortized cost, less an allowance for probable losses. Sales of such assets are infrequent and are generally in response to significant deterioration in the issuers' credit worthiness. The majority of UNUM's insurance reserve liabilities are generally longer term in nature and not subject to withdrawal. Since UNUM purchases assets whose maturities, expected cash flows and prepayment conditions will complement the business risks by meeting the liquidity and solvency requirements of each product, the majority of UNUM's fixed maturities have been classified as "held to maturity" to match the longer term nature of UNUM's products. - Fixed maturities and equity securities classified as "available for sale" are reported at fair value. Related unrealized holding gains and losses, net of deferred taxes, are reported in a separate component of stockholders' equity. Fair values of fixed maturities are generally obtained by external quoted market sources, and if not externally quoted, are determined by UNUM primarily by using discounted cash flow models. Upon the adoption of FAS 115, UNUM increased unrealized gains on available for sale securities included in stockholders' equity on January 1, 1994, by $41.8 million (net of deferred taxes of $22.5 million) to reflect the unrealized holding gains on fixed maturities classified as available for sale which were previously carried at amortized cost. In accordance with FAS 115, prior year consolidated financial statements have not been restated to reflect the change in accounting principle. UNUM reclassified certain fixed maturities from held to maturity to available for sale on January 1, 1994, in connection with the adoption of FAS 115. 22 UNUM Corporation and Subsidiaries Fixed Maturities: (continued) At September 30, 1994, and December 31, 1993, the fixed maturity portfolio included $265.4 million and $263.3 million of below investment grade bonds (below "Baa"), which represented 3.4% and 3.5% of the fixed maturity portfolio, respectively. These bonds had associated market values of $262.9 million and $279.1 million, respectively. Virtually all of the nonconvertible, below investment grade bonds were purchased at investment grade, but were subsequently downgraded. UNUM's investment policy is to invest in fixed maturities of investment grade quality. Selected purchases of convertible subordinated debentures, which UNUM considers to be part of its investment strategy for equity securities, have contributed to the amount of below investment grade bonds. Fixed maturity ratings are obtained from external rating agencies, and if not externally rated, are rated by UNUM internally using similar methods. Management does not expect any risks or uncertainties associated with below investment grade bonds to have a significant impact on UNUM's consolidated financial position or results of operations. The percentage of fixed maturities delinquent sixty days or more compared to total fixed maturities was 0.27% at September 30, 1994, and 0.24% at December 31, 1993. Mortgages: At September 30, 1994, and December 31, 1993, UNUM's mortgage loans were $1,225.0 million and $1,423.2 million, respectively. The mortgage loan portfolio, as a percentage of invested assets, has decreased to 11.8% as of September 30, 1994, from 14.1% as of December 31, 1993. This trend is anticipated to continue since prepayments and scheduled maturities for mortgages are expected to exceed the amount of new investments. Management establishes allowances for mortgage loans based upon a review of individual loans and the overall loan portfolio, considering the value of the underlying collateral. UNUM uses a comprehensive rating system to evaluate the investment and credit risk of each mortgage loan and to target specific properties for inspection and reevaluation. The percentage of mortgage loans delinquent sixty days or more on a contract delinquency basis was 2.3% and 1.8% at September 30, 1994 and December 31, 1993, respectively. Overall, management believes that its mortgage loan portfolio is well diversified geographically and among property types. UNUM's incidence of new problem mortgage loans has recently declined as overall economic activity has improved modestly, and many of the real estate markets in which UNUM has mortgage loans stabilized. Foreclosure activity and new reserve additions declined in 1993 and have continued to decline in 1994 from the higher levels of recent years; however, management continues to expect additional delinquencies and problem loans in the future. Management believes the allowance provided on mortgage loans is adequate to cover probable losses as of September 30, 1994. 23 UNUM Corporation and Subsidiaries Mortgages: (continued) During the first nine months of 1994, UNUM realized investment losses related to delinquent, restructured and problem mortgage loans of $9.0 million, as compared with $1.2 million for the same period in 1993. Delinquent and problem mortgage loans as of September 30, 1994, are not expected to have a significant impact on UNUM's liquidity and capital resources. Real Estate: At September 30, 1994, investment real estate and real estate held for sale amounted to $194.6 million and $28.8 million, respectively. This compares with $193.5 million of investment real estate and $24.7 million of real estate held for sale at December 31, 1993. UNUM continues to limit its real estate exposure as a percentage of invested assets through an active sales program. Real estate which meets certain investment criteria and is intended to be held long term is carried at cost less accumulated depreciation. Real estate that has been acquired through foreclosure is valued at fair value at the date of foreclosure. Real estate held for sale is included in other assets in the Consolidated Balance Sheets and is valued net of an allowance which reduces the carrying value to the lower of fair value less estimated costs to sell, or cost. Occasionally, investment real estate is reclassified and revalued as real estate held for sale when it no longer meets UNUM's investment criteria. Additions to the allowance for probable losses related to real estate held for sale resulted in realized investment losses of $1.8 million and $17.8 million for the nine months ended September 30, 1994, and 1993, respectively. 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 impact on UNUM's investment income, liquidity and 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. To meet unexpected cash requirements and liquidity needs, UNUM maintains part of its investment portfolio in fixed maturities classified as available for sale, equity securities, cash and short-term investments. 24 UNUM Corporation and Subsidiaries Liquidity and Capital Resources: (continued) Cash flow requirements are also supported by committed revolving credit facilities of $100 million and $200 million, which expire on February 17, 1995, and June 1, 1996, respectively. The commercial paper program is supported by the revolving credit facilities and is available for general liquidity needs, capital expansion, acquisitions and stock repurchase. The committed revolving credit facilities contain certain covenants which, among other provisions, require maintenance of certain levels of stockholders' equity and limits on level of debt. At September 30, 1994, UNUM had short-term and long-term debt totaling $199.9 million and $182.0 million, respectively, and had $130.5 million available for additional financing under existing revolving credit facilities. Management may decide to refinance the short-term notes payable in the future. In September 1993, UNUM announced the filing of an omnibus shelf registration statement with the Securities and Exchange Commission which became effective on October 8, 1993, relating to $450 million of securities (including debt securities, preferred stock, common stock and other securities). UNUM has no current intention of issuing equity securities pursuant to this registration statement. On October 8, 1993, UNUM filed a prospectus supplement to establish a $250 million medium-term note program under the shelf registration. The medium-term note program and the unsold portion of the shelf registration carry ratings of "Aa3" (Excellent) and "(P)Aa3" (Excellent), respectively, from Moody's Investors Service, and "AA" (Excellent) from Standard & Poor's. In September 1993, UNUM announced the resumption of a program to repurchase its common stock pursuant to an existing Board of Directors' resolution. On February 11, 1994, UNUM's Board of Directors voted to expand UNUM's authorization to repurchase an additional 5.0 million shares. Since the resumption of the stock repurchase program, UNUM has acquired approximately 7.4 million shares of its common stock through September 30, 1994, in the open market at an aggregate cost of $370.1 million that was primarily funded through additional borrowings. Ratings: On November 7, 1994, Standard & Poor's Corporation announced that it had placed the senior debt and commercial paper ratings of UNUM Corporation and the claims-paying ability ratings for certain subsidiaries of UNUM Corporation on CreditWatch with negative implications, pending further review with UNUM management. In June 1994, A.M. Best Company ("Best's") affirmed UNUM Life Insurance Company of America's financial strength rating at "A++" (Superior), the highest rating assigned by Best's. Additionally, Best's affirmed First UNUM Life Insurance Company at "A+" (Superior); Colonial Life & Accident Insurance Company at "A+" (Superior) and upgraded Commercial Life & Accident Insurance Company at "A" (Excellent) from "A-" (Excellent). 25 UNUM Corporation and Subsidiaries Ratings: (continued) In March 1994, Standard & Poor's Corporation assigned Colonial Life & Accident Insurance Company's claims-paying ability rating as "AA-" (Excellent). UNUM Japan: On June 20, 1994, the Japanese Ministry of Finance granted UNUM a provisional operating license which allows UNUM to establish a nonlife insurance company, UNUM Japan Accident Insurance Company Limited ("UNUM Japan"), to market disability products in Japan. UNUM Japan has subsequently received an official license and will be marketing long term disability products in the fourth quarter of 1994. UNUM Japan anticipates receiving licenses to sell a variety of existing short term disability, personal accident and disability-type coverages. UNUM Japan has formed a cooperative relationship with Japan's leading short term disability insurer, Yasuda Fire & Marine Insurance Co., Ltd., to introduce UNUM Japan's long term disability products in Japan. The two companies plan to continue to work together on market and product development and will also market their own separate long term disability products. New Accounting Pronouncements: In October 1994, the Financial Accounting Standards Board ("FASB") issued FAS No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," which amends FAS No. 114 "Accounting by Creditors for Impairment of a Loan" to allow a creditor to use existing methods for recognizing, measuring and displaying interest income on an impaired loan. Adoption of FAS 118 is not expected to have a material effect on UNUM's results of operations or financial position. UNUM is required to adopt FAS 118 by January 1, 1995. Also in October 1994, the FASB issued FAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires specific disclosures to distinguish derivative instruments held or issued for trading purposes from those held or issued for purposes other than trading. UNUM is required to adopt this standard effective December 31, 1994. UNUM periodically uses common derivative financial instruments such as options, futures and forward contracts to hedge interest rate risk on future investments and certain payments denominated in foreign currencies. These derivative financial instruments are used to protect UNUM from the effect of market fluctuations in interest and exchange rates. UNUM does not intend to hold or issue derivative financial instruments for the purpose of trading activities. UNUM's exposure to derivative financial instruments was not significant to the consolidated financial statements at September 30, 1994. 26 UNUM Corporation and Subsidiaries Form 10-Q September 30, 1994 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K Page (a) Exhibit Index 12. Statement re: Computation of ratio of earnings to fixed charges. 29 15. Letter re: Unaudited interim financial information. 30 27. Financial Data Schedules (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 September 30, 1994. 27 UNUM Corporation and Subsidiaries Form 10-Q September 30, 1994 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 November 10, 1994 /s/ RODNEY N. HOOK Rodney N. Hook Senior Vice President and Chief Financial Officer Date November 10, 1994 /s/ STEPHEN D. ROBERTS Stephen D. Roberts Vice President and Corporate Controller 28 EX-12 2 UNUM Corporation and Subsidiaries Form 10-Q September 30, 1994 Exhibit 12 Computation of Ratio of Earnings to Fixed Charges Three Months Ended Nine Months Ended September 30, September 30, (Unaudited - Dollars in millions) 1994 1993 1994 1993 Earnings: Income (loss) from continuing operations before income taxes $(105.1) $114.7 $128.9 $339.9 Add: Fixed charges 7.8 5.7 20.7 17.1 Earnings as adjusted $ (97.3) $120.4 $149.6 $357.0 Fixed charges: Interest expense $ 5.0 $ 3.0 $ 12.5 $ 9.1 Interest portion of rent expense 2.8 2.7 8.2 8.0 Total fixed charges $ 7.8 $ 5.7 $ 20.7 $ 17.1 Ratio of earnings to fixed charges (12.5) 21.1 7.2 20.9 For purposes of computing the ratio of earnings to fixed charges, earnings as adjusted consist of net income (loss) plus income taxes and fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. 29 EX-15 3 Exhibit 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 We are aware that our report dated November 7, 1994, on our review of interim financial information of UNUM Corporation for the three-month and nine-month periods ended September 30, 1994, and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in the following Registration Statements: - Form S-8 No. 33-31270 pertaining to the UNUM Employees Retirement Savings Plan and Trust - Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock Option Plan - Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock Incentive Plan - Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock Incentive Plan - Form S-3 No. 33-36873 - Form S-3 No. 33-69132 - Form S-8 No. 33-60124 pertaining to the Colonial Companies, Inc. Security Saver Plan - Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 No. 33-55870 Pursuant to Rule 436 (c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by accountants within the meaning of Sections 7 and 11 of that Act. /s/ COOPERS & LYBRAND L.L.P. 30 EX-27 4
7 This schedule contains summary financial information extracted from the quarterly consolidated financial statements of UNUM Corporation and Subsidiaries and is qualified in its entirety by reference to such contained in UNUM Corporation's SEC Form 10-Q dated September 30, 1994. 1000 9-MOS DEC-31-1994 SEP-30-1994 1524000 6383900 6444400 669300 1225000 194600 10325200 31300 0 988800 12910100 5289500 0 0 4082600 381900 10000 0 0 1910100 12910100 2026700 575800 36000 57400 1708300 (108900) 0 128900 28200 100700 0 0 0 100700 1.35 1.35 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented.
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