-----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, HKWJ6sAXXvgdBvSS9XNtY++2EHXeJkbNOYGMpHxXoExaQ5Qfg8yABMb/qpGbjSfl dXdaOTKSOkkOYrAFvAR/jA== 0000795581-98-000003.txt : 19980511 0000795581-98-000003.hdr.sgml : 19980511 ACCESSION NUMBER: 0000795581-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 SROS: NYSE 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 SEC ACT: SEC FILE NUMBER: 001-09254 FILM NUMBER: 98614097 BUSINESS ADDRESS: STREET 1: 2211 CONGRESS ST P612 CITY: PORTLAND STATE: ME ZIP: 04122 BUSINESS PHONE: 2077704363 MAIL ADDRESS: STREET 1: 2211 CONGRESS STREET CITY: PORTLAND STATE: ME ZIP: 04122 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9254 UNUM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 01-0405657 (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.) 2211 CONGRESS STREET, PORTLAND, MAINE 04122 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211 NONE (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MARCH 31, 1998 COMMON STOCK, $0.10 PAR VALUE 138,265,956 SHARES UNUM CORPORATION AND SUBSIDIARIES FORM 10-Q INDEX Page Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income - Three Months Ended March 31, 1998, and 1997 (Unaudited) 3 Consolidated Balance Sheets as of March 31, 1998, 4 (Unaudited) and December 31, 1997 Consolidated Statements of Cash Flows - Three Months 5 Ended March 31, 1998, and 1997 (Unaudited) Consolidated Statements of Comprehensive Income - Three 6 Months Ended March 31, 1998, and 1997 (Unaudited) Notes to Consolidated Financial Statements (Unaudited) 7 Independent Accountant's Review Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 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 Three Months Ended March 31, ------------------- (Unaudited - Dollars in millions, except per common share data) 1998 1997 - ----------------------------------------------------------------------------- REVENUES Premiums $ 918.4 $ 782.7 Investment income 163.3 165.5 Net realized investment gains (losses) 3.1 (2.2) Fees and other income 36.7 113.1 - ----------------------------------------------------------------------------- Total revenues 1,121.5 1,059.1 BENEFITS AND EXPENSES Benefits to policyholders 679.1 588.5 Interest credited 12.1 33.4 Operating expenses 221.4 185.4 Commissions 142.7 111.9 Increase in deferred policy acquisition costs (79.9) (42.0) Interest expense 11.7 10.2 - ----------------------------------------------------------------------------- Total benefits and expenses 987.1 887.4 - ----------------------------------------------------------------------------- Income before income taxes 134.4 171.7 INCOME TAXES Current 12.5 18.6 Deferred 28.4 38.1 - ----------------------------------------------------------------------------- Total income taxes 40.9 56.7 - ----------------------------------------------------------------------------- NET INCOME $ 93.5 $ 115.0 ============================================================================= NET INCOME PER COMMON SHARE: Basic $ 0.68 $ 0.81 Diluted $ 0.66 $ 0.79 ============================================================================= See notes to consolidated financial statements. UNUM CORPORATION AND SUBSIDIARIES FORM 10-Q C O N S O L I D A T E D B A L A N C E S H E E T S March 31, 1998 December 31, (Dollars in millions) (Unaudited) 1998 - ----------------------------------------------------------------------------- ASSETS Investments Fixed maturities available for sale-at fair value (amortized cost: 1998-$7,045.2; 1997-$6,893.0) $ 7,465.6 $ 7,310.9 Equity securities available for sale-at fair value (cost: 1998-$21.4; 1997-$21.1) 34.2 30.7 Mortgage loans 1,117.0 1,131.0 Real estate, net 223.6 231.5 Policy loans 127.8 128.5 Other long-term investments 1.8 1.8 Short-term investments 137.4 124.5 - ----------------------------------------------------------------------------- Total investments 9,107.4 8,958.9 Cash 56.0 56.8 Accrued investment income 147.9 160.3 Premiums due 501.4 390.9 Deferred policy acquisition costs 1,112.4 1,031.7 Property and equipment, net 213.7 196.2 Reinsurance receivables 1,493.1 1,441.2 Deposit assets 676.8 688.3 Other assets 481.8 486.2 Separate account assets 30.7 29.6 - ----------------------------------------------------------------------------- Total assets $13,821.2 $13,440.1 ============================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Future policy benefits $ 2,421.8 $12,108.4 Unpaid claims and claim expenses 5,939.8 5,944.4 Other policyholder funds 963.7 1,004.9 Income taxes Current 36.0 20.7 Deferred 511.6 496.2 Notes payable 691.3 635.8 Other liabilities 747.8 765.3 Separate account liabilities 30.7 29.6 - ----------------------------------------------------------------------------- Total liabilities 11,342.7 11,005.3 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 240,000,000 shares, issued 199,975,916 shares) 20.0 20.0 Additional paid-in capital 1,135.1 1,123.0 Unrealized gains, net 193.4 211.4 Unrealized foreign currency translation adjustment (12.2) (16.0) Retained earnings 2,236.3 2,162.5 - ----------------------------------------------------------------------------- 3,572.6 3,500.9 Less: Treasury stock, at cost (1998-61,709,960 shares; 1997-61,703,924 shares) 1,074.3 1,050.3 Restricted stock deferred compensation 19.8 15.8 - ----------------------------------------------------------------------------- Total stockholders' equity 2,478.5 2,434.8 - ----------------------------------------------------------------------------- Total liabilities and stockholders' equity $13,821.2 $13,440.1 ============================================================================= See notes to consolidated financial statements. UNUM CORPORATION AND SUBSIDIARIES FORM 10-Q C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S Three Months Ended March 31, --------------- (Unaudited - Dollars in millions) 1998 1997 - --------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 93.5 $115.0 Adjustments to reconcile net income to net cash provided by operating activities: Increase in future policy benefits and unpaid claims and claim expenses 263.9 177.1 Increase in amounts receivable under reinsurance agreements (51.0) (27.0) Increase in income tax liability 38.5 51.9 Increase in deferred policy acquisition costs (80.1) (41.1) Decrease in deposit assets 2.0 45.0 Recognition of deferred gain on sale of tax-sheltered annuities (0.9) (58.0) Other (85.5) (36.2) - --------------------------------------------------------------------------- Net cash provided by operating activities 180.4 226.7 - --------------------------------------------------------------------------- INVESTING ACTIVITIES: Maturities of fixed maturities available for sale 133.5 100.1 Sales of fixed maturities available for sale 118.8 341.3 Sales and maturities of other investments 28.3 38.7 Purchases of fixed maturities available for sale (383.8) (286.3) Purchases of other investments (16.8) (44.9) Net increase in short-term investments (12.5) (190.4) Net additions to property and equipment (25.7) (14.5) - --------------------------------------------------------------------------- Net cash used in investing activities (158.2) (56.0) - --------------------------------------------------------------------------- FINANCING ACTIVITIES: Deposits and interest credited to investment contracts 39.4 83.7 Maturities and withdrawals from investment contracts (72.1) (156.7) Dividends to stockholders (19.7) (19.7) Treasury stock acquired (36.7) (184.9) Proceeds from notes payable 49.7 -- Net increase in short-term debt 5.8 84.4 Other 10.7 9.7 - --------------------------------------------------------------------------- Net cash used in financing activities (22.9) (183.5) - --------------------------------------------------------------------------- Effect of exchange rate changes on cash (0.1) (0.7) - --------------------------------------------------------------------------- Net decrease in cash (0.8) (13.5) Cash at beginning of year 56.8 77.9 - --------------------------------------------------------------------------- Cash at end of period $ 56.0 $ 64.4 =========================================================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Income taxes $ (11.2) $ 2.6 Interest $ 12.1 $ 5.3 SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: During first quarter 1997, in connection with contractholder and participant consents for assumption reinsurance related to the tax-sheltered annuity business UNUM sold in 1996, UNUM reduced its deposit assets by $1,791.7 million, policy loan assets by $85.5 million, other policyholder fund liabilities by $1,923.4 million, and separate account assets and liabilities by $401.7 million. ============================================================================ See notes to consolidated financial statements. 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 O M P R E H E N S I V E I N C O M E Three Months Ended March 31, ---------------- (Unaudited - Dollars in millions) 1998 1997 - --------------------------------------------------------------------------- Net income $ 93.5 $ 115.0 Other comprehensive income: Unrealized holding losses arising during the period (net of income taxes: 1998-$8.4; 1997-$24.3) (16.2) (50.5) Reclassification adjustment for realized gains included in net income (net of income taxes: 1998-$1.0; 1997-$0.2) (1.8) (0.4) - ---------------------------------------------------------------------------- Changes in unrealized gains, net (18.0) (50.9) Foreign currency translation adjustments 3.8 (10.7) - ---------------------------------------------------------------------------- Total other comprehensive income (loss) (14.2) (61.6) - ---------------------------------------------------------------------------- Comprehensive income $ 79.3 $ 53.4 ============================================================================ See notes to consolidated financial statements. UNUM Corporation and Subsidiaries Form 10-Q Notes to Consolidated Financial Statements (Unaudited) March 31, 1998 NOTE 1. BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included in the financial statements. Interim results for the three month period ended March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. This report should be read in conjunction with the 1997 Form 10-K included in the 1997 Annual Report to stockholders of UNUM Corporation and subsidiaries ("UNUM"). To better reflect the business of Duncanson & Holt Underwriters Ltd., as reported in the Special Risk Insurance segment, the results have been reflected on separate lines in UNUM's statements of income and balance sheets. Previously, the operating results and financial position were reported as a net amount in fees and other income and other assets, respectively. Prior year amounts have been reclassified for comparative purposes. NOTE 2. EARNINGS PER SHARE - --------------------------- The weighted average number of shares outstanding used to calculate basic earnings per share ("EPS") was approximately 138,113,000 and 142,387,000 for first quarter 1998 and 1997, respectively. The weighted average number of shares outstanding, giving effect to dilutive potential common shares outstanding, used to calculate diluted EPS was approximately 141,363,000 and 145,115,000 for first quarter 1998 and 1997, respectively. Outstanding options to purchase approximately 1,649,000 shares were not dilutive because the options' exercise prices were greater than the average market price and were, therefore, excluded from the diluted EPS calculation for first quarter 1998. No shares were excluded from the first quarter 1997 diluted EPS calculation. NOTE 3. STOCKHOLDERS' EQUITY - ----------------------------- On March 13, 1998, UNUM's Board of Directors declared a fourteen and three quarters cents per share cash dividend. The dividend is payable on May 15, 1998, to common stockholders of record at the close of business on April 27, 1998. During the first three months of 1998, a fourteen and one quarter cents per share cash dividend was paid on February 20, 1998. Effective February 13, 1998, UNUM's Board of Directors approved an expansion of the Company's stock repurchase program by authorizing an additional 4.6 million shares. At March 31, 1998, approximately 5.8 million shares of common stock remained authorized for repurchase. Through the first three months of 1998, UNUM acquired approximately 0.7 million shares of its common stock in the open market at an aggregate cost of $36.7 million. NOTE 4. LITIGATION - ------------------- In the normal course of its business operations, UNUM is involved in litigation from time to time with claimants, beneficiaries and others, and a number of lawsuits were pending at March 31, 1998. 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 a suit in the United States District Court for the District of Maine, seeking a federal income tax refund. The suit was 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. On December 2, 1997, the United States Court of Appeals affirmed the decision of the District Court denying UNUM's claim for refund. UNUM has filed a petition requesting that the United States Supreme Court review the decision of the United States Court of Appeals. NOTE 5. SEGMENT INFORMATION - ---------------------------- Summarized financial information for the four business segments and Corporate is as follows: Three Months Ended March 31, ------------------ (Dollars in millions) 1998 1997 - ---------------------------------------------------------------------- REVENUES Disability Insurance $ 639.8 $ 563.7 Special Risk Insurance 308.2 248.2 Colonial Products 154.8 142.6 Retirement Products 17.9 102.8 Corporate 0.8 1.8 - ---------------------------------------------------------------------- Total revenues $1,121.5 $ 1,059.1 ====================================================================== INCOME (LOSS) BEFORE INCOME TAXES Disability Insurance $ 88.1 $ 75.6 Special Risk Insurance 36.2 27.4 Colonial Products 24.4 21.9 Retirement Products (0.1) 59.7 Corporate (14.2) (12.9) - ---------------------------------------------------------------------- Total income before income taxes 134.4 171.7 Income taxes 40.9 56.7 - ---------------------------------------------------------------------- Net income $ 93.5 $ 115.0 ====================================================================== March 31, December 31, (Dollars in millions) 1998 1997 - ---------------------------------------------------------------------- IDENTIFIABLE ASSETS Disability Insurance $8,751.0 $ 8,546.6 Special Risk Insurance 1,996.3 1,821.6 Colonial Products 1,367.6 1,334.7 Retirement Products 1,060.5 1,115.9 Corporate 278.3 254.0 Individual Participating Life and Annuity 367.5 367.3 - ---------------------------------------------------------------------- Total assets $13,821.2 $13,440.1 ====================================================================== INDEPENDENT ACCOUNTANT'S REVIEW REPORT -------------------------------------- To the Board of Directors and Stockholders UNUM Corporation We have reviewed the accompanying consolidated balance sheet of UNUM Corporation and subsidiaries as of March 31, 1998, and the related consolidated statements of income, comprehensive income and cash flows for the three-month periods ended March 31, 1998, and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Portland, Maine April 22, 1998 UNUM Corporation and Subsidiaries Form 10-Q March 31, 1998 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 and the 1997 Form 10-K included in the 1997 Annual Report to stockholders of UNUM Corporation and subsidiaries ("UNUM"). CONSOLIDATED OVERVIEW Net income for the quarter ended March 31, 1998, was $93.5 million, as compared with net income of $115.0 million for the same quarter in 1997. Diluted earnings per share were $0.66 for first quarter 1998 versus $0.79 in first quarter 1997. Revenues for UNUM were $1,121.5 million for first quarter 1998 and $1,059.1 million for first quarter 1997. A comparison of net income is impacted by the inclusion of realized investment gains or losses and a special item that occurred in first quarter 1997. This management's discussion and analysis discusses the results of operations on a pretax operating income basis, which is defined as income (loss) before income taxes exclusive of realized investment gains (losses) and special items. Special items are excluded from pretax operating income as management considers them to be unusual, and also believes a discussion of the results on a pretax operating income basis provides a better understanding of the results of operations. The following table summarizes pretax operating income (loss) for the four business segments and Corporate for the three months ended March 31, 1998, and 1997, and is followed by a discussion of the first quarter 1997 special item and a reconciliation of income (loss) before income tax to pretax operating income (loss). Three Months Ended March 31, -------------------------- (Dollars in millions) 1998 1997 Change - ----------------------------------------------------------------------------- SUMMARY OF PRETAX OPERATING INCOME (LOSS) Disability Insurance Segment $ 84.9 $ 76.8 10.6% Special Risk Insurance Segment 36.1 27.0 33.7 Colonial Products Segment 24.0 22.3 7.6 Retirement Products Segment 0.5 2.0 (75.0) Corporate (14.2) (12.2) 16.4 - ----------------------------------------------------------------------------- Total pretax operating income $131.3 $115.9 13.3% ============================================================================= UNUM reported increased pretax operating income for the three months ended March 31, 1998, as compared with the same period in 1997. The increase was primarily attributable to improvements in pretax operating income for the Special Risk Insurance and Disability Insurance segments. Premium growth, primarily from strong sales, was the key driver for both segments' improved first quarter operating results, as compared with one year ago. See the segment discussions that follow for a more detailed analysis of operating results. SPECIAL ITEM IN FIRST QUARTER 1997 - ---------------------------------- UNUM Life Insurance Company of America and First UNUM Life Insurance Company closed the sale of their respective tax-sheltered annuity businesses to The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York, both subsidiaries of Lincoln National Corporation on October 1, 1996. The sale resulted in a deferred pretax gain, of which $58.0 million was recognized in income in the first quarter 1997. The $58.0 million gain was reflected as fees and other income in the Retirement Products segment for first quarter 1997. RECONCILIATION OF INCOME (LOSS) BEFORE INCOME TAXES TO PRETAX OPERATING INCOME (LOSS) - ------------------------------------------------------------------------------ The following table reconciles income (loss) before income taxes to pretax operating income (loss) for the four business segments and Corporate for the three months ended March 31, 1998, and 1997: Disability Special Risk Colonial Retirement Consolidated (Dollars in millions) Insurance Insurance Products Products Corporate UNUM - --------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1998: - ---------------------------------- Income (loss) before income taxes $88.1 $36.2 $24.4 $(0.1) $(14.2) $134.4 Exclude realized investment (gains) losses (3.2) (0.1) (0.4) 0.6 -- (3.1) - --------------------------------------------------------------------------------------------------- PRETAX OPERATING INCOME (LOSS) $84.9 $36.1 $24.0 $ 0.5 $(14.2) $131.3 =================================================================================================== Three Months Ended March 31, 1997: - ---------------------------------- Income (loss) before income taxes $75.6 $27.4 $21.9 $59.7 $(12.9) $171.7 Exclude realized investment (gains) losses 1.2 (0.4) 0.4 0.3 0.7 2.2 - --------------------------------------------------------------------------------------------------- 76.8 27.0 22.3 60.0 (12.2) 173.9 Special item: TSA deferred gain recognition -- -- -- (58.0) -- (58.0) - --------------------------------------------------------------------------------------------------- PRETAX OPERATING INCOME (LOSS) $76.8 $27.0 $22.3 $ 2.0 $(12.2) $115.9 ===================================================================================================
PREMIUMS: - --------- Premiums for the three months ended March 31, 1998, and 1997, are summarized by segment in the following table. Claim block acquisitions, which generated one- time premium in the Disability Insurance segment for the three months ended March 31, 1998, and 1997, were $12.8 million and $0.9 million, respectively, for group long term disability ("group LTD") and $0.2 million and $0.9 million, respectively, for UNUM Limited. Management intends to pursue additional claim block acquisitions in the future. Three Months Ended March 31, ----------------------- (Dollars in millions) 1998 1997 Change - ------------------------------------------------------------------------ Disability Insurance Group LTD $342.4 $291.4 17.5% Group Short Term Disability 63.0 47.4 32.9 UNUM Limited 38.9 36.7 6.0 Individual Disability 34.4 35.2 (2.3) Other Disability Insurance 28.0 22.6 23.9 - ------------------------------------------------------------------------ Total 506.7 433.3 16.9 Special Risk Insurance Group Life 154.4 125.7 22.8 Other Special Risk Products 118.8 92.0 29.1 - ------------------------------------------------------------------------ Total 273.2 217.7 25.5 Colonial Products 137.5 128.7 6.8 Retirement Products 1.0 3.0 (66.7) - ------------------------------------------------------------------------ Total premiums $918.4 $782.7 17.3% ======================================================================== PRETAX OPERATING INCOME (LOSS) BY SEGMENT: - ------------------------------------------ The following sections discuss the results of the four business segments and Corporate for the three months ended March 31, 1998, and 1997. Within these business segment discussions, reference is made to pretax operating income (loss), which excludes realized investment gains (losses) and the special item previously defined. DISABILITY INSURANCE SEGMENT The Disability Insurance segment reported increased pretax operating income for the three months ended March 31, 1998, as compared with the same period in 1997. The increase was primarily attributable to improved premium growth in group LTD and group short term disability ("group STD") partially offset by reduced fees and other income in the individual disability product line, and unfavorable expense growth and higher benefit ratios in certain lines of business. Pretax operating income for group LTD increased for the three months ended March 31, 1998, as compared with the same period in 1997, primarily resulting from improved premium growth and increased investment income. Strong sales and favorable persistency trends, reflecting positive results from customer service actions and a lower level of price increases during first quarter 1998, continue to be the primary drivers of the improved premium growth, as compared with first quarter 1997. Partially offsetting the increase was a slightly higher benefit ratio, largely the result of an increase in the average size of claims. Management continues to monitor claim trends in group LTD and responds to changes by periodically adjusting prices, refining underwriting guidelines, changing product features and strengthening risk management policies and procedures. For the three months ended March 31, 1998, pretax operating income for group STD increased as compared with the same period in 1997. The increase was primarily attributable to additional premium growth resulting from strong sales and improved persistency. These strong sales levels reflect management's continuing efforts to cross-sell group STD products with other group products sold by UNUM. UNUM Limited's pretax operating income was adversely affected by unfavorable claims experience primarily from an increase in the average size of claims coupled with a longer duration of claims for the three months ended March 31, 1998, as compared with the corresponding period in 1997. Pretax operating income for the individual disability product line decreased for the three month period ended March 31, 1998, compared with the same period in 1997. The reduction in operating income was primarily due to reduced investment income largely from a lower asset base, a decline in the operating results of the reinsured non-cancellable individual disability business reported in fees and other income and unfavorable expense growth. The decrease was partially offset by a lower benefit ratio. The results of the individual disability product line continue to be affected by UNUM's exit from the traditional, fixed price, non-cancellable product in the United States, which was reinsured in 1996. The guaranteed renewable Lifelong Disability Protection product, which replaced the non-cancellable product, continued the sales momentum and premium growth of 1997 into first quarter 1998. SPECIAL RISK INSURANCE SEGMENT The Special Risk Insurance segment reported increased pretax operating income for the quarter ended March 31, 1998, as compared with the same period in 1997. The increase was due primarily to premium growth driven by strong sales across all major product lines. Also contributing to the positive results were improved benefit ratios in certain product lines, increased investment income for the segment and additional fee income from the reinsurance underwriting management operations. Favorable results were partially offset by a slightly increased benefit ratio in group life. COLONIAL PRODUCTS SEGMENT Pretax operating income increased in the Colonial Products segment in first quarter 1998, as compared with first quarter of 1997. The increase was due primarily to an increase in investment income across all lines and lower benefit ratios in most lines, partially offset by a higher benefit ratio in the cancer product line and an increase in interest credited. In the first quarter of 1998, sales declined in comparison with 1997, which may affect future premium growth. Management continues its efforts to increase sales and premium by realigning the sales organization and enhancing collaborative sales across UNUM. RETIREMENT PRODUCTS SEGMENT The Retirement Products segment includes products no longer actively marketed by UNUM. For the three months ended March 31, 1998, the Retirement Products segment reported decreased pretax operating income as compared with the same period in 1997. UNUM expects these blocks of business to continue to decline in size over several years and experience earnings volatility, reflecting their run-off nature. CORPORATE For the three months ended March 31, 1998, as compared with the same period in 1997, the increased pretax operating loss was due primarily to decreased net investment income. LIQUIDITY AND CAPITAL RESOURCES UNUM's businesses produce positive cash flows which are invested primarily in intermediate term, fixed maturity investments intended to reflect the 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. At March 31, 1998, UNUM had short-term and long-term debt totaling $132.4 million and $558.9 million, respectively. At March 31, 1998, approximately $443 million was available for additional financing under the existing revolving credit facility and $450 million of investment grade debt instruments was available for issuance under the shelf registration. Contingent upon market conditions and corporate needs, management may refinance short-term notes payable for longer term securities. In the normal course of business, UNUM enters into letters of credit, primarily to satisfy capital requirements related to certain subsidiary transactions. UNUM had outstanding letters of credit of $150.7 million at March 31, 1998. Effective February 13, 1998, UNUM's Board of Directors approved an expansion of the Company's stock repurchase program by authorizing an additional 4.6 million shares. At March 31, 1998, approximately 5.8 million shares of common stock remained authorized for repurchase. Through the first three months of 1998, UNUM acquired approximately 0.7 million shares of its common stock in the open market at an aggregate cost of $36.7 million. YEAR 2000 ISSUE The year 2000 issue relates to whether computer systems will properly recognize date-sensitive information when the year changes to 2000. UNUM has determined that it is required to modify or replace significant portions of its software so its computer systems will properly function using dates beyond December 31, 1999. Management is utilizing both internal and external resources to reprogram, or replace, and test the software for year 2000 modifications and believes it will have its computer systems compliant by year 2000. The financial impact of rectifying UNUM's internal computer systems has not had, and is not anticipated to have, a material adverse impact on UNUM's results of operations, liquidity or capital resources. The costs of the project and the date on which UNUM plans to complete year 2000 modifications are based on management's best estimates, derived using numerous assumptions about future events. In addition, UNUM is assessing its critical external dependencies, including suppliers, business partners and customers to determine the extent to which it is vulnerable to the possibility of third parties' failing to remediate their own year 2000 issues. There can be no guarantee that the computer systems of third parties will be year 2000 compliant. Risk avoidance and contingency plans are therefore being developed in order to attempt to mitigate the extent of this potential impact. Failure by third parties to successfully address year 2000 issues could have a material adverse effect on UNUM's results of operations, liquidity or capital resources; however, the potential impact and related costs, if any, are not known at this time. LITIGATION Refer to Note 3 "Litigation" for information. UNUM Corporation and Subsidiaries Form 10-Q March 31, 1998 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page (a) Exhibit Index 12. Statement re: Computation of ratio of earnings to fixed charges. 19 15. Letter re: Unaudited interim financial information. 20 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 March 31, 1998. UNUM Corporation and Subsidiaries Form 10-Q March 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date May 8, 1998 /s/ ROBERT E. BROATCH -------------------- ----------------------------- Robert E. Broatch Senior Vice President and Chief Financial Officer Date May 8, 1998 /s/ JOHN M. LANG, JR -------------------- ------------------------------ John M. Lang, Jr. Vice President and Corporate Controller EX-12 2 UNUM Corporation and Subsidiaries Form 10-Q March 31, 1998 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Three Months Ended March 31, ------------------ (Unaudited - Dollars in millions) 1998 1997 - ------------------------------------------------------------------------- Earnings: Income from continuing operations before income taxes $ 134.4 $ 171.7 Add: Fixed charges 14.2 12.7 - -------------------------------------------------------------------------- Earnings as adjusted $ 148.6 $ 184.4 ========================================================================== Fixed charges: Interest expense $ 11.7 $ 10.2 Interest portion of rent expense 2.5 2.5 - -------------------------------------------------------------------------- Total fixed charges $ 14.2 $ 12.7 ========================================================================== Ratio of earnings to fixed charges 10.5 14.5 ========================================================================== For purposes of computing the ratio of earnings to fixed charges, earnings as adjusted consist of income from continuing operations before income taxes and fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. EX-15 3 UNUM Corporation and Subsidiaries Form 10-Q March 31, 1998 EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 We are aware that our report dated April 22, 1998, on our review of interim financial information of UNUM Corporation for the three month period ended March 31, 1998, and 1997, and included in the Company's quarterly report on Form 10-Q for the quarters then ended is incorporated by reference in the following Registration Statements: o Form S-8 No. 33-31270 pertaining to the UNUM Employees 401(k) Plan (formerly the UNUM Employees Retirement Savings Plan and Trust) o Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock Option Plan o Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock Incentive Plan o Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock Incentive Plan (additional shares) o Form S-3 No. 33-36873 pertaining to the 1990 Debt Securities o Form S-3 No. 33-69132 pertaining to the 1993 Debt Securities, Preferred Stock, Common Stock and Warrants o Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4 No. 33-55870 pertaining to the issuance of UNUM Corporation shares upon the exercise of stock options granted under the Colonial plans as defined therein o Form S-3 No. 333-08187 pertaining to the 1996 Debt Securities, Preferred Stock, Common Stock and Warrants o Form S-8 No. 333-41917 pertaining to the 1998 Goals Stock Option Plan o Form S-8 No. 333-41897 pertaining to the 1996 Long-Term Stock Incentive Plan 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. 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 for the period ended March 31, 1998. 1,000 3-MOS DEC-31-1998 MAR-31-1998 7,465,600 0 0 34,200 1,117,000 223,600 9,107,400 56,000 1,493,100 1,112,400 13,821,200 8,361,600 0 0 963,700 691,300 0 0 20,000 2,458,500 13,821,200 918,400 163,300 3,100 36,700 679,100 (79,900) 0 134,400 40,900 93,500 0 0 0 93,500 0.68 0.66 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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7 This schedule contains summary financial information extracted from the annual consolidated financial statements of UNUM Corporation and subsidiaries and is qualified in its entirety by reference to such contained in UNUM Corporation's SEC Form 10-K for the year ended December 31, 1997. 0000795581 FORM 10-K 1,000 12-MOS DEC-31-1997 DEC-31-1997 7,310,900 0 0 30,700 1,131,000 231,500 8,958,900 56,800 1,441,200 1,031,700 13,440,100 8,052,800 0 0 1,004,900 635,800 0 0 20,000 2,414,800 13,440,100 3,263,700 661,000 (3,600) 227,300 2,438,800 (116,900) 0 536,400 166,100 370,300 0 0 0 370,300 2.65 2.59 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated to reflect the reclassification of certain amounts in the income statement and balance sheet. Restated to report diluted EPS.
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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 for the period ended September 30, 1997. 1000 9-MOS DEC-31-1997 SEP-30-1997 7,126,800 0 0 36,200 1,143,100 231,100 8,871,000 51,200 1,354,600 980,400 13,302,900 7,844,700 0 0 1,204,600 632,000 0 0 20,000 2,326,400 13,302,900 2,403,200 495,500 (2,500) 200,500 1,803,100 (115,700) 0 429,500 135,400 294,100 0 0 0 294,100 2.10 2.05 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated to reflect the reclassification of certain amounts in the income statement and balance sheet. Restated to report diluted EPS.
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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 for the period ended June 30, 1997. 1,000 6-MOS DEC-31-1997 JUN-30-1997 6,916,200 0 0 32,500 1,120,900 231,200 8,665,900 41,400 1,243,400 949,900 12,901,400 7,604,500 0 0 1,275,000 544,400 0 0 20,000 2,220,300 12,901,400 1,569,400 331,200 (5,200) 156,100 1,173,500 (82,000) 0 298,100 95,500 202,600 0 0 0 202,600 1.44 1.41 0 0 0 0 0 0 0 Previously restated for two-for-one common stock split completed June 2, 1997. This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated for the reclassification of certain amounts in the income statement and balance sheet. Restated to report diluted EPS.
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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 for the period ended March 31, 1997. 0000795581 FORM 10-Q 1,000 3-MOS DEC-31-1997 MAR-31-1997 6,628,500 0 0 27,900 1,142,600 239,500 8,524,100 64,300 1,172,400 909,000 12,992,800 7,370,600 0 0 1,537,200 611,400 0 0 10,000 2,118,400 12,992,800 782,700 165,500 (2,200) 113,100 588,500 (42,000) 0 171,700 56,700 115,000 0 0 0 115,000 0.81 0.79 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated to reflect the reclassification of certain amounts in the income statement and balance sheet. Previously restated to reflect two-for-one common stock split completed June 2, 1997. Restated to report diluted EPS.
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7 This schedule contains summary financial information extracted from the annual consolidated financial statements of UNUM Corporation and subsidiaries and is qualified in its entirety by reference to such contained in UNUM Corporation's SEC Form 10-K for the year ended December 31, 1996. 0000795581 FORM 10-K 1,000 12-MOS DEC-31-1996 DEC-31-1996 6,942,700 0 0 31,300 1,132,100 248,100 8,736,700 77,900 1,148,300 869,100 15,580,400 7,283,300 0 0 3,533,600 526,900 0 0 10,000 2,253,100 15,580,400 3,151,500 803,300 3,400 113,500 2,342,200 (109,300) 0 341,600 103,600 238,000 0 0 0 238,000 1.63 1.61 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Previously restated to reflect two-for-one common stock split completed June 2, 1997. (F3>Restated to reflect the reclassification of certain amounts in the income statement and balance sheet. Restated to report diluted EPS.
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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 for the period ended September 30, 1996. 0000795581 FORM 10-Q 1,000 9-MOS DEC-31-1996 SEP-30-1996 7,469,800 0 0 27,300 1,118,900 233,600 11,641,000 43,200 0 1,225,300 15,257,100 7,042,200 0 0 3,622,600 564,100 0 0 10,000 2,276,300 15,257,100 2,349,000 630,400 2,000 55,600 1,765,300 (77,700) 0 272,000 82,000 190,000 0 0 0 190,000 1.30 1.28 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated to reflect the reclassification of certain amounts in the income statement and balance sheet. Previously restated to reflect two-for-one common stock split completed June 2, 1997. Restated to report diluted EPS.
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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 for the period ended June 30, 1996. 0000795581 FORM 10-Q 1,000 6-MOS DEC-31-1996 JUN-30-1996 8,993,500 0 0 27,200 1,140,300 227,800 11,389,700 46,500 0 1,211,200 14,992,700 6,823,900 0 0 3,650,000 558,500 0 0 10,000 2,282,500 14,992,700 1,544,100 422,400 400 39,000 1,155,300 (63,800) 0 208,700 62,700 146,000 0 0 0 146,000 1.00 0.98 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated for the reclassification of certain amounts in the income statement and balance sheet. Previously restated to reflect two-for-one common stock split completed June 2, 1997. Restated to report diluted EPS.
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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 for the period ended March 31, 1996. 0000795581 FORM 10-Q 1,000 3-MOS DEC-31-1996 MAR-31-1996 9,301,400 0 0 25,000 1,149,900 225,900 11,544,800 43,500 0 1,178,500 14,848,700 6,707,700 0 0 3,722,200 601,300 0 0 10,000 2,241,500 14,848,700 774,600 209,900 3,500 20,000 587,000 (31,600) 0 102,700 30,600 72,100 0 0 0 72,100 0.49 0.49 0 0 0 0 0 0 0 This item contains the amounts of deferred and amortized policy acquisition costs for the period presented. Restated to reflect the reclassification of certain items in the income statement and balance sheet. Previously restated to reflect two-for-one common stock split completed June 2, 1997. Restated to report diluted EPS.
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