-----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, SHhQRP+y2xrykTur0TWBWJU7CiZMZ0UF/2GAbLOyADrvYUTKlaR8WoikwIn/7vzl 9KdGjpe8CcMQELSCT25rXQ== 0000950131-97-001385.txt : 19970228 0000950131-97-001385.hdr.sgml : 19970228 ACCESSION NUMBER: 0000950131-97-001385 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITRIN INC CENTRAL INDEX KEY: 0000860748 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 954255452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18298 FILM NUMBER: 97545689 BUSINESS ADDRESS: STREET 1: ONE EAST WACKER DR CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3126614600 MAIL ADDRESS: STREET 1: ONE EAST WACKER DR CITY: CHICAGO STATE: IL ZIP: 60601 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K --------- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 Commission File No. 0-18298 --------- UNITRIN, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 95-4255452 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) One East Wacker Drive Chicago, Illinois 60601 (Address of Principal Executive Offices) (Zip Code) (312) 661-4600 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.10 par Value Preferred Share Purchase Rights Pursuant to Rights Agreement (Title of Class) 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Based on the closing market price of Registrant's common stock on December 31, 1996, the aggregate market value of such stock held by non-affiliates of Registrant is approximately $1.46 billion. Solely for purposes of this calculation, all executive officers and directors of Registrant are considered affiliates. Registrant had 37,340,894 shares of common stock outstanding as of December 31, 1996. Documents Incorporated by Reference Part of the Form 10-K into which incorporated Document Portions of 1996 Annual Report to Shareholders Parts I, II and IV Portions of Proxy Statement for 1997 Annual Meeting Part III ================================================================================ PART I ITEM 1. Business Unitrin, Inc. ("Unitrin" or the "Company") serves the basic financial needs of individuals, families and small businesses. Through its subsidiaries, Unitrin provides property and casualty insurance, life and health insurance, and consumer finance services. (a) General development of business ------------------------------- During 1996, Unitrin repurchased and retired 1,277,175 shares of its common stock in open market transactions at a total cost of $61.1 million, bringing the total number of shares that have been repurchased since August 1994 to approximately 14.8 million at a total cost of $722 million. Unitrin's board of directors has authorized a total of 18 million shares to be repurchased. Effective May 31, 1996, United Insurance Company of America ("United"), one of the Company's subsidiaries, entered into an agreement to cede certain life insurance policies to a third party. Life insurance reserves related to this block were approximately $112 million at December 31, 1996. At such date, United had not been relieved of its primary obligation to these policyholders and, under applicable accounting requirements, the Company therefore continues to include the life insurance reserves related to this block of business on its balance sheet, along with a corresponding amount classified as "Other Receivables." As a result of this transaction, premiums in the Company's Life and Health Insurance segment decreased by $7.3 million in 1996 and will decrease by an additional $6 million in 1997. The effect of this transaction on the segment's operating profit is not material. Effective as of January 1, 1997, Unitrin acquired Union Automobile Indemnity Company ("Union") of Bloomington, Illinois, a property and casualty insurance company with annual direct written premiums of approximately $35 million. (b) Business segment financial data ------------------------------- Financial information about the Company's business segments for the years ended December 31, 1996, 1995 and 1994 is contained in the following portions of Unitrin's 1996 Annual Report and incorporated herein by reference: (i) Note 16 to the Company's Consolidated Financial Statements, which Financial Statements are further described in Item 14(a)1 hereto and filed as Exhibit 13.1 hereto (the "Financial Statements"), and (ii) "Management's Discussion and Analysis of Results of Operations and Financial Condition," which is filed as Exhibit 13.2 hereto (the "MD&A"). (c) Description of business ----------------------- Unitrin conducts its operations in three segments: Property and Casualty Insurance, Life and Health Insurance and Consumer Finance. Unitrin and its subsidiaries have approximately 7,400 full-time employees of which approximately 5,000 are employed in the Life and Health Insurance segment, 1,700 in the Property and Casualty Insurance segment and 600 in the Consumer Finance segment. 1 Property and Casualty Insurance ------------------------------- Trinity Universal Insurance Company ("Trinity"), together with its subsidiaries, affiliates and Union (collectively, the "Property and Casualty Group") comprise a network of regional insurers operating in the southern, midwestern and western United States. The Property and Casualty Group provides insurance coverage to over 775,000 policyholders in thirty-two states. Taking the acquisition of Union into account, the five states providing the largest amount of premium revenues are: Texas (27%), California (13%), Wisconsin (9%), Illinois (8%), and Louisiana (6%). Property insurance indemnifies an insured with an interest in physical property for loss of such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. Products and Distribution The Property and Casualty Group provides automobile, homeowners, commercial multi-peril, motorcycle, boat and watercraft, fire, casualty, workers compensation and other types of property and casualty insurance to individuals and businesses. Automobile insurance accounted for 37%, 33% and 32% of Unitrin's consolidated insurance premiums for the years ended December 31, 1996, 1995 and 1994 respectively. Preferred and Standard Risk Insurance Products. Preferred and standard risk insurance products are marketed exclusively by over 2,600 independent agents. These personal and commercial products are designed and priced for those individuals and businesses that have demonstrated favorable risk characteristics and loss history. Typical customers include "main street" businesses and middle income families. Products are marketed primarily in suburban and rural communities. Trinity and its subsidiaries (Milwaukee Guardian Insurance, Inc., Milwaukee Safeguard Insurance Company, Security National Insurance Company, and Trinity Universal Insurance Company of Kansas, Inc.) and its affiliates (Milwaukee Mutual Insurance Company and Trinity Lloyd's Insurance Company) principally provide the Property and Casualty Group's preferred and standard products in Texas, Wisconsin, Illinois, Louisiana, Minnesota and other southern, midwestern and northwestern states. In addition, Unitrin's most recent acquisition, Union, will market the Group's products in Illinois and adjacent states beginning in 1997. Specialty Products. Specialty products are principally provided by Financial Indemnity Company and Alpha Property & Casualty Insurance Company and include nonstandard automobile, motorcycle, and specialty watercraft insurance. Nonstandard automobile insurance is provided for individuals and companies that have had difficulty obtaining standard or preferred risk insurance, usually because of their driving record. Nonstandard automobile insurance products are marketed through over 4,600 agents in California and twenty other states. Storm Losses/Seasonality. Geographic location can have an impact on a property insurer's exposure to losses from hazards such as hurricanes, tornadoes, windstorms and hail. Moreover, these storms add an element 2 of seasonality to property insurance claims, since windstorms and tornadoes tend to occur in the spring of the year, while hurricanes generally occur in the summer and fall. Historically, the Property and Casualty Group wrote a sizable portion of its business in Texas, the plains states and certain coastal areas that are storm-prone. In recent years, the Property and Casualty Group has endeavored to reduce its vulnerability to storm losses through a combination of geographic expansion outside of these areas and reduced concentration of business in storm-prone areas. Pricing Pricing levels for property and casualty insurance are influenced by many factors, including the frequency and severity of claims, state regulation and legislation, competition, general business conditions, inflation, expense levels and judicial decisions. In addition, many state regulators are requiring consideration of investment income when approving or setting rates, which has led to reduced underwriting margins. Reinsurance In accordance with the practice of the insurance industry, the Company cedes insurance to other insurers. These reinsurance arrangements limit the Company's exposure arising from large risks or from hazards of a catastrophic nature. Although such reinsurance does not discharge the Company from its obligations on risks insured, so long as reinsurers meet their obligations, the Company's net liability is limited to the amount of risk it retains. Competition Based on the most recent data published by A.M. Best Company ("A.M. Best"), at the end of 1995 there were approximately 1,200 property and casualty insurance organizations in the United States, made up of more than 2,400 companies. Unitrin's Property and Casualty Group ranked among the 100 largest property and casualty insurance company organizations in the United States, measured by admitted assets (73rd), net premiums written (62nd) and policyholders' surplus (52nd). In 1995, the industry's estimated net premiums written were $260 billion, 72% of which were accounted for by 50 groups of companies. Unitrin's property and casualty insurance companies together wrote less than 1% of the industry's estimated 1995 premium volume. Profitability of the property and casualty insurance industry is cyclical, particularly with respect to commercial lines. Periods of severe price competition and excess capacity to write new business tend to be followed by periods of premium increases and diminished capacity to provide coverage. Life and Health Insurance ------------------------- Unitrin conducts its life and health insurance business through United and United's subsidiaries, Union National Life Insurance Company and The Pyramid Life Insurance Company (collectively, the "Life and Health Group"). The leading product of the Life and Health Group is traditional life insurance, including permanent and term insurance. This product accounted for 28%, 32% and 32% of Unitrin's consolidated insurance premiums for the years ended December 31, 1996, 3 1995 and 1994, respectively. Permanent policies are offered primarily on a non- participating, guaranteed-cost basis. Home Service Insurance Products United, together with its subsidiary, Union National Life Insurance Company, is one of the largest home service insurance operations in the United States (see: "Competition," below). In the "home service" market, agents who are full-time employees of the insurer call on customers in their homes to sell insurance products, provide services related to policies in force and collect premiums, typically monthly. The Life and Health Group's home service operations generated 81% of the Group's premiums in 1996. The major market for home service business generally consists of middle and lower income families. Approximately 3,700 of the Life and Health Group's 5,000 employees are full-time sales representatives and sales management personnel engaged in the home service business. The Life and Health Group also distributes property and casualty insurance products to its home service customers through United Casualty Insurance Company of America and Union National Fire Insurance Company Group Life and Health Insurance Products United's Group Division specializes in fully insured and stop loss group life and health insurance, as well as administrative services for medium-sized businesses and organizations. Its nearly 250 brokers and independent agents are concentrated in the western states. Worksite Insurance Products United's Worksite Products Division specializes in employer-paid and voluntary group and individual life insurance products and Section 125 administration programs. It provides such products on behalf of employers, financial institutions, credit unions, and banks to their employees, members, and customers. Medicare Supplement and Other Health Insurance Products United's subsidiary, The Pyramid Life Insurance Company, focuses primarily on selling insurance to the senior market. Its products include Medicare supplement, long-term care, home health care, major medical, and supplemental health insurance. Products are marketed in 22 states through over 3,000 independent agents and agencies. Medicare supplement insurance is also marketed through hospital networks. Pricing Premiums for life and health insurance products are based on assumptions with respect to mortality, morbidity, investment yields, expenses and lapses and are also affected by state laws and regulations, as well as competition. Pricing assumptions are based on the experience of the Life and Health Group, as well as the industry in general, depending upon the factor being considered. 4 The actual profit or loss produced by a product will vary from the anticipated profit if the actual experience differs from the assumptions used in pricing the product. Premiums for policies sold through the Life and Health Group's home service operations are set at levels designed to cover the relatively high cost of distribution in the home service market. As a result of such higher expenses, incurred claims as a percentage of premium income tend to be lower for home service companies than the insurance industry average. Premiums for Medicare supplement and other accident and health policies must take into account the rising costs of medical care. The annual rate of medical cost inflation has historically been higher than the general rate of inflation, necessitating frequent rate increases, most of which are subject to approval by state regulatory agencies. The rate of medical care inflation has moderated in the recent past, though there can be no assurances that such moderation will continue. Reinsurance As is customary among life and health insurance companies, the Life and Health Group cedes insurance above certain Company-determined retention limits to other insurance companies to limit losses on risks. The Life and Health Group's maximum retention for individual life insurance policies is $250,000, plus an additional $100,000 for policies with accidental death or dismemberment benefits. Retention limits for group policies vary depending on the type of policy. Under any reinsurance arrangement, should the reinsurer be unable to meet the obligations it assumes, the ceding insurance company remains contingently liable with respect to the ceded insurance. Lapse Ratio The lapse ratio is a measure reflecting a life insurer's loss of existing business. For a given year, this ratio is commonly computed as the total face amount of individual life insurance policies lapsed, surrendered, expired and decreased during such year, less policies increased and revived during such year, divided by the total face amount of policies at the beginning of the year plus the face amount of policies issued and reinsurance assumed in the prior year. The Life and Health Group's lapse ratios for individual life insurance were 19%, 18% and 20% for the years 1996, 1995 and 1994, respectively. The lapse ratios of companies in the home service market tend to be higher than the lapse ratios of other life insurance companies. Thus, to maintain or increase the level of its home service business, the Life and Health Group's home service operations must continue to write a high volume of new policies. Competition Based on the most recent data published by A.M. Best, in 1995, there were approximately 660 life and health insurance company groups in the United States, made up of about 1,200 companies. Unitrin's Life and Health Group ranked among the 100 largest life and health insurance company groups, as measured by admitted assets (89th), net premiums written (94th) and capital and surplus (40th). 5 Approximately 70 life insurance companies participate in the home service life insurance market in the United States. In 1995, the Life and Health Group's home service operations ranked among the top three home service groups of companies, based on net premiums written in home service life insurance. Consumer Finance ---------------- Unitrin is engaged in the consumer finance business through its subsidiary, Fireside Thrift Co. ("Fireside Thrift"), which has 38 branches in California and Arizona. Fireside Thrift is organized under California law as an industrial loan company and is a member of the Federal Deposit Insurance Corporation ("FDIC"). Industrial loan companies are sometimes also referred to as thrift and loan companies, and are distinct from both savings and loan associations and banks. (See also, "Regulation," below.) Fireside Thrift's principal business is the financing of used automobiles through the purchase of conditional sales contracts from automobile dealers. Fireside Thrift also makes personal loans, mostly secured by automobiles. The borrowers under these contracts and loans typically have marginal credit histories. Fireside Thrift competes for loans primarily on the basis of timely service to its customers and by offering flexible loan terms. Principal competitors include banks, finance companies, "captive" credit subsidiaries of automobile manufacturers and other industrial loan companies. Fireside Thrift's financing activities are funded primarily by thrift investment certificates (i.e., interest-bearing instruments that may be redeemed by the owner or repurchased by Fireside Thrift under certain circumstances) ranging from thirty-one days to five years in maturity, money market accounts and Individual Retirement Accounts ("IRAs"). It competes for funds primarily with banks, savings and loan associations and other industrial loan companies. Investments ----------- The quality, nature and amount of various types of investments which can be made by insurance companies are regulated by state laws. These laws permit investments in qualified assets, including municipal, state and federal government obligations, corporate bonds, real estate, preferred and common stocks, and mortgages where the value of the underlying real estate exceeds the amount of the loan. Unitrin's investment strategy is based on current market conditions and other factors that it reviews from time to time. Unitrin's consolidated investment portfolio consists primarily of United States Government obligations and investment-grade fixed maturities. The Company's investment in non- investment grade, fixed maturity investments is insignificant. Regulation ---------- Unitrin is subject to the insurance holding company laws of several states. Certain dividends and distributions by an insurance subsidiary to its holding company are subject to approval by the 6 insurance regulators of the state of incorporation of such subsidiary. Other significant transactions between an insurance subsidiary and its holding company or other subsidiaries of the holding company may require approval by insurance regulators in the state(s) of incorporation of one or more of the insurance subsidiaries participating in such transactions. Unitrin's insurance subsidiaries are subject to regulation in the states in which they do business. Such regulation pertains to matters such as approving policy forms and various premium rates, setting minimum reserve and loss ratio requirements, the type and amount of permissible investments, minimum capital and surplus requirements, licensing agents, granting and revoking licenses to transact business and regulating trade practices. The majority of Unitrin's insurance operations are in states requiring prior approval by regulators before proposed rates for property, casualty or health insurance policies may be implemented. However, rates proposed for life insurance generally become effective immediately upon filing with a state, even though the same state may require prior rate approval for other forms of insurance. Insurance regulatory authorities also prescribe the form and content of required financial statements and perform periodic examinations of an insurer's affairs. In addition, the Company's insurance subsidiaries are required under the guaranty fund laws of most states in which they transact business to pay assessments up to prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies. The Company also is required to participate in various involuntary pools, principally involving workers compensation and windstorms. The Company's involuntary pool participation in most states is generally in proportion to its voluntary writings of related lines of business in such states. Fireside Thrift is chartered by the California Department of Corporations and is subject to the provisions of the California Industrial Loan Law, which imposes minimum capitalization requirements, limits dividends, regulates loan terms, collection practices and remedies and mandates disclosure of certain contract terms. In addition, since Fireside Thrift is a member of the FDIC, it is subject to regulations imposed by the FDIC on member institutions, including federal consumer credit regulations. Fireside Thrift is also governed by Federal Reserve Board regulations applicable to non-member state banks. ITEM 2. Properties Owned Properties. Unitrin's subsidiary, United, owns the 41-story office building at One East Wacker Drive, Chicago, Illinois, that houses the executive offices of Unitrin and United. Unitrin and United occupy approximately 172,000 square feet of the 527,000 rentable square feet in the building. Unitrin's subsidiary, Milwaukee Insurance Group, Inc., owns a two-story office building in downtown Milwaukee, Wisconsin, consisting of approximately 132,000 square feet, which houses the Property and Casualty Group's northern regional office. In addition, the Life and Health Group occupies approximately 227,000 square feet in 33 Company-owned buildings located in 15 states. 7 Leased Facilities. The Life and Health Group leases facilities at 204 locations in 28 states and the District of Columbia with aggregate square footage of approximately 526,000. The terms of these leases range from monthly tenancies to 5 years. The Property and Casualty Group leases facilities at 28 locations in 12 states with an aggregate of approximately 328,000 square feet. The expiration date of the longest current lease is September 2006. Fireside Thrift occupies 40 leased facilities with an aggregate of approximately 130,000 square feet. The longest term of the current leases expires in August 2001. The properties described are in good condition and suitable for all presently anticipated requirements of the Company. ITEM 3. Legal Proceedings Unitrin and its subsidiaries are parties to various legal actions incidental to their businesses. Some of these actions seek substantial punitive damages that bear no apparent relationship to the actual damages alleged. Although no assurances can be given and no determination can be made as of the date hereof as to the outcome of any particular action, the Company and its subsidiaries believe there are meritorious defenses to these legal actions and are defending them vigorously. Unitrin believes that resolution of these actions will not have a material adverse effect on Unitrin's financial position. In connection with one action, Ronnie Dale Bleeker v. Trinity Universal Insurance Company et al., the District Court of Hildalgo County, Texas, on February 9, 1995 entered a judgment in the amount of $77.0 million, including attorney's fees of $38.5 million, against Trinity. The case involves Trinity's alleged improper handling of a claim made under a $40 thousand automobile insurance policy. Trinity has strongly denied any wrongdoing and intends to pursue vigorously all avenues for relief from the judgment. The matter is presently on appeal to the Thirteenth Court of Appeals in Corpus Christi, Texas. The ultimate outcome of this litigation cannot presently be predicted. However, the Company believes that Trinity has a number of meritorious grounds for appeal, and, accordingly, the judgment has not been accrued in the Company's financial statements. ITEM 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 1996, no matters were submitted to a vote of shareholders. 8 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters Unitrin's common stock is traded on the National Market Tier of the Nasdaq Stock Market. The high and low prices for Unitrin's common stock during each quarterly period in 1995 and 1996 are incorporated herein by reference to Note 19 to the Financial Statements, captioned "Quarterly Financial Information (Unaudited)." Information as to the amount and frequency of cash dividends declared by Unitrin on its common stock during 1995 and 1996 is incorporated herein by reference to the following portions of the Financial Statements: (a) Consolidated Statements of Shareholders' Equity, and (b) Dividends Paid to Common Shareholders (Per Share) included in Note 19 under the caption "Quarterly Financial Information (Unaudited)." Information as to restrictions on the ability of Unitrin's subsidiaries to transfer funds to Unitrin in the form of cash dividends, loans or advances is incorporated herein by reference to the following items: (a) Note 9 to the Financial Statements, captioned "Shareholders' Equity," and (b) The "Liquidity and Capital Resources" section of the MD&A. As of December 31, 1996, the approximate number of record holders of Unitrin's common stock was 10,000. ITEM 6. Selected Financial Data Selected consolidated financial data for the five years ended December 31, 1996 is incorporated herein by reference to the data captioned "Financial Highlights" on page 1 of Unitrin's 1996 Annual Report, which data are filed as Exhibit 13.3 hereto. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A is incorporated herein by reference to Exhibit 13.2 hereto. Effective January 1, 1997, United entered into an agreement to cede all in- force life, health, property and casualty insurance policies written by the Life and Health Group's home service operations in the states of Arkansas and Missouri to a third party. As a result of this transaction, annual premium income will decrease by approximately $10.8 million in the Company's Life and 9 Health segment and by $3.2 million in the Property and Casualty segment. The effect of this transaction on operating profit is not material. ITEM 8. Financial Statements and Supplementary Data The Financial Statements (including their related notes and the report thereon of KPMG Peat Marwick LLP), are incorporated herein by reference to Exhibit 13.1 hereto. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There was no change in, or disagreement with, the Company's accountants during or relating to the year ended December 31, 1996. PART III ITEM 10. Directors and Executive Officers of the Registrant Information regarding directors and executive officers, including, to the extent applicable, information required by Item 405 of Regulation S-K, is incorporated herein by reference to Unitrin's definitive proxy statement, which will be filed within 120 days after the end of Unitrin's fiscal year. ITEM 11. Executive Compensation Information regarding compensation of executive officers is incorporated herein by reference to Unitrin's definitive proxy statement, which will be filed within 120 days after the end of Unitrin's fiscal year. Neither the joint report by the Compensation and Stock Option Committees of Unitrin's Board of Directors nor the Unitrin stock performance graph to be included in such proxy statement shall be deemed to be incorporated herein by this reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management This information is incorporated herein by reference to Unitrin's definitive proxy statement, which will be filed within 120 days after the end of Unitrin's fiscal year. ITEM 13. Certain Relationships and Related Transactions This information is incorporated herein by reference to Unitrin's definitive proxy statement, which will be filed within 120 days after the end of Unitrin's fiscal year. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this Report: 10 1. Financial Statements. The following financial statements, in response to Item 8 of this Report on Form 10-K, have been incorporated herein by reference to pages 19 through 39 of Unitrin's 1996 Annual Report and are filed as Exhibit 13.1 hereto: The consolidated balance sheets of Unitrin, Inc. and subsidiaries as of December 31, 1996 and 1995, and the consolidated statements of income, cash flows and shareholders' equity for the years ended December 31, 1996, 1995 and 1994, together with the notes thereto and the report of KPMG Peat Marwick LLP thereon, which is dated January 7, 1997. 2. Financial Statement Schedules. ------------------------------ Schedule I: Investments - Other Than Investments in Related Parties Schedule II: Parent Company Financial Statements Schedule III: Supplementary Insurance Information Schedule IV: Reinsurance Schedule Schedules not listed here have been omitted because they are not applicable, not material or the required information is included in the Financial Statements, including the notes thereto. 3. Exhibits. The following exhibits are either filed as a part hereto or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K. Exhibits 10.1 through 10.5 relate to compensatory plans filed or incorporated by reference as exhibits hereto pursuant to Item 14(c) of Form 10-K. 3.1 Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to Unitrin's Registration Statement on Form 10 dated February 15, 1990) 3.2 Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 to the Company's 1994 Annual Report on Form 10-K) 4 Rights Agreement between Unitrin, Inc. and First Chicago Trust Company of New York, as rights agent, dated as of August 3, 1994 (incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A dated August 3, 1994) 10.1 Unitrin, Inc. 1990 Stock Option Plan, as amended and restated (incorporated herein by reference to Exhibit 10.1 to the Company's 1995 Annual Report on Form 10-K) 10.2 Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 10.3 Unitrin, Inc. Pension Equalization Plan (incorporated herein by reference to Exhibit 10.4 to the Company's 1994 Annual Report on Form 10-K) 11 10.4 Unitrin is a party to individual severance agreements (the form of which is incorporated herein by reference to Exhibit 10.5 to the Company's 1994 Annual Report on Form 10-K), with the following executive officers: Jerrold V. Jerome (Chairman) Richard C. Vie (President and Chief Executive Officer) David F. Bengston (Vice President) James W. Burkett (Vice President) Thomas H. Maloney (Vice President & General Counsel) Eric J. Draut (Chief Financial Officer and Treasurer) Scott Renwick (Secretary) (Note: Each of the foregoing agreements is identical except that the severance compensation multiple is 2.99 for Messrs. Jerome and Vie and 2.0 for the other executive officers. The term of these agreements has been extended by action of Unitrin's board of directors through December 31, 1997.) 10.5 Severance Compensation Plan After Change of Control (incorporated herein by reference to Exhibit 10.6 to the Company's 1994 Annual Report on Form 10-K; the term of this plan has been extended by action of Unitrin's board of directors through December 31, 1997) 10.6 Credit Agreement, dated January 24, 1995 among Unitrin, Inc., NationsBank, N.A. (Carolinas), The First National Bank of Chicago and First Interstate Bank of California (incorporated herein by reference to Exhibit 10.7 to the Company's 1994 Annual Report on Form 10-K) 10.7 First Amendment to Credit Agreement among Unitrin, Inc., NationsBank, N.A. (Carolinas), The First National Bank of Chicago, First Interstate Bank of California, The Fuji Bank, Limited, Union Bank and The Long-Term Credit Bank of Japan, Ltd., Chicago Branch (incorporated herein by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 10.8 Tax Allocation Agreement by and among Unitrin, Inc. and its Subsidiaries and Teledyne, Inc. (incorporated herein by reference to Amendment No. One, dated April 5, 1990, on Form 8 to Unitrin's Registration Statement on Form 10) 13.1 Financial Statements (pages 19 through 39 of Unitrin's 1996 Annual Report) 13.2 MD&A (pages 14 through 18 of Unitrin's 1996 Annual Report 13.3 Financial Highlights (page 1 of Unitrin's 1996 Annual Report) 21 Subsidiaries of Unitrin, Inc. 12 23.1 Report of Independent Public Accountants 23.2 Consent of Independent Public Accountants 27 Financial Data Schedule (b) Reports on Form 8-K. None (c) Exhibits. Included in Item 14(a)3 above. (d) Financial Statement Schedules. Included in Item 14(a)2 above. 13 SCHEDULE I UNITRIN, INC. AND SUBSIDIARES INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31,1996 (Dollars in Millions)
Amount Amortized Fair Carried in Cost Value Balance Sheet --------- -------- ------------- Fixed Maturities: Bonds and Notes: United States Government and Government Agencies and Authorities $1,930.3 $1,957.0 $1,957.0 States, Municipalities and Political Subdivisions 133.4 136.7 136.7 Corporate Securities: Other Bonds and Notes 58.5 58.9 58.9 Redemptive Preferred Stocks 54.2 54.8 54.8 -------- -------- -------- Total Investments in Fixed Maturities 2,176.4 2,207.4 2,207.4 -------- -------- -------- Equity Securities: Common Stocks 20.0 57.9 57.9 Non-redemptive Preferred Stocks 152.0 201.8 201.8 -------- -------- -------- Total Investments in Equity Securities 172.0 259.7 259.7 -------- -------- -------- Investees (A) Litton Industries, Inc. 245.9 602.8 245.9 Western Atlas Inc. 349.3 897.1 349.3 Curtiss-Wright Corporation 74.9 110.4 74.9 -------- -------- -------- Total Investees 670.1 1,610.3 670.1 -------- -------- -------- Loans, Real Estate and Short-term Investments 154.2 XXX.X 154.2 -------- -------- Total Investments $3,172.7 $3,291.4 ======== ========
(A) - Amortized Cost = Cost Plus Cumulative Undistributed Earnings.
SCHEDULE II UNITRIN, INC. PARENT COMPANY BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (Dollars in Millions) December 31, ------------------------ ASSETS 1996 1995 ------ -------- -------- Investment in Subsidiaries and Investees $1,663.9 $1,623.1 Equity Securities at Fair Value (Cost: 1996 and 1995 - $50.0) 53.6 51.5 Other Assets 7.1 2.6 -------- -------- Total Assets $1,724.6 $1,677.2 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Notes Payable $ 53.0 $ 93.0 Accrued Expenses and Other Liabilities 191.3 59.7 -------- -------- Total Liabilities 244.3 152.7 -------- -------- Shareholders' Equity: Common Stock 3.7 3.8 Additional Paid-in Capital 133.0 126.2 Retained Earnings 1,265.8 1,281.1 Net Unrealized Appreciation on Equity Securities 2.4 1.0 Net Unrealized Appreciation in Subsidiaries' Securities 75.4 112.4 -------- -------- Total Shareholders' Equity 1,480.3 1,524.5 -------- -------- Total Liabilities and Shareholders' Equity $1,724.6 $1,677.2 ======== ========
SCHEDULE II UNITRIN, INC. PARENT COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Millions)
Years Ended December 31, -------------------------- 1996 1995 1994 ------ ------ ------ Revenues: Net Investment Income $ 7.1 $ 1.9 $ 10.1 Net Gains (Losses) on Sales of Investments -- -- (4.5) ------ ------ ------ Total Revenues 7.1 1.9 5.6 ------ ------ ------ Interest Expense 9.8 10.5 -- Other Operating Expenses 1.6 6.0 10.4 ------ ------ ------ Total Operating Expenses 11.4 16.5 10.4 ------ ------ ------ Income (Loss) Before Income Taxes and Equity in Net Income of Subsidiaries and Investees (4.3) (14.6) (4.8) Income Tax (Benefit) Expense (3.2) (5.4) (1.6) ------ ------ ------ Income (Loss) Before Equity in Net Income of Subsidiaries and Investees (1.1) (9.2) (3.2) Equity in Net Income of Subsidiaries and Investees 133.6 159.8 151.6 ------ ------ ------ Net Income $132.5 $150.6 $148.4 ====== ====== ======
SCHEDULE II UNITRIN, INC. PARENT COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Millions)
Years Ended December 31, ------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Operating Activities: Net Income $132.5 $150.6 $148.4 Adjustment Required to Reconcile Net Income to Net Cash Provided by Operations: Equity in Net Income of Subsidiaries and Investees (133.6) (159.8) (151.6) Cash Dividends from Subsidiaries 149.8 441.1 150.3 Cash Dividends from Investee 1.4 - - Other, Net 128.4 52.4 14.4 ------ ------ ------ Net Cash Provided by Operating Activities 278.5 484.3 161.5 ------ ------ ------ Investing Activities: Sales and Maturities of Fixed Maturities - - 245.6 Purchases of Fixed Maturities - - (47.3) Purchase of Securities from Subsidiaries: Curtiss-Wright Common Stock (95.4) - - Navistar Series G Preferred Stock - (50.0) - Litton Industries, Inc. Common Stock - (77.0) - Change in Short-term Investments - 41.0 (41.0) Purchases of Property (3.7) - - ------ ------ ------ Net Cash Provided (Used) by Investing Activities (99.1) (86.0) 157.3 ------ ------ ------ Financing Activities: Notes Payable Proceeds 170.0 401.0 - Notes Payable Payments (210.0) (308.0) - Cash Dividends Paid (83.0) (80.7) (75.8) Common Stock Repurchases (61.1) (416.0) (245.3) Issuance of Unitrin Common Stock 4.7 4.6 0.9 ------ ------ ------ Net Cash Used by Financing Activities (179.4) (399.1) (320.2) ------ ------ ------ Increase (Decrease) in Cash - (0.8) (1.4) Cash, Beginning of Year - 0.8 2.2 ------ ------ ------ Cash, End of Year $ - $ - $ 0.8 ====== ====== ======
SCHEDULE III UNITRIN, INC. AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION (Dollars in Millions)
Insurance Amortization Claims Of Deferred Net and Policy Premiums Investment Policyholders' Acquisition Premiums Written Income Benefits Costs -------- -------- ---------- -------------- ----------- Year Ended December 31, 1996: Life and Health $ 489.1 $ N/A $123.0 $289.7 $ 59.8 Property and Casualty 731.2 741.3 50.0 510.0 110.3 Other - N/A 6.0 - - -------- ------ ------ ------ ------ Total $1,220.3 $ N/A $179.0 $799.7 $170.1 ======== ====== ====== ====== ====== Year Ended December 31, 1995: Life and Health $ 511.8 $ N/A $137.9 $302.3 $ 64.5 Property and Casualty 587.3 575.0 44.2 415.2 93.0 Other - N/A 4.5 - - -------- ------ ------ ------ ------ Total $1,099.1 $ N/A $186.6 $717.5 $157.5 ======== ====== ====== ====== ====== Year Ended December 31, 1994: Life and Health $ 518.7 $ N/A $148.9 $296.1 $ 66.0 Property and Casualty 530.1 532.1 45.5 358.3 82.4 Other - N/A 12.8 - - -------- ------ ------ ------ ------ Total $1,048.8 $ N/A $207.2 $654.4 $148.4 ======== ====== ====== ====== ======
Deferred Other Policy Insurance Acquisition Insurance Unearned Expenses Costs Reserves Premiums --------- ---------- --------- -------- Year Ended December 31, 1996: Life and Health $222.3 $225.9 $1,599.0 $ 6.7 Property and Casualty 97.7 39.4 454.8 253.8 Other (3.9) - - - ------ ------ -------- ------ Total $316.1 $265.3 $2,053.8 $260.5 ====== ====== ======== ====== Year Ended December 31, 1995: Life and Health $230.1 $252.0 $1,569.5 $ 6.8 Property and Casualty 73.1 36.5 437.8 246.1 Other (2.3) - - - ------ ------ -------- ------ Total $300.9 $288.5 $2,007.3 $252.9 ====== ====== ======== ====== Year Ended December 31, 1994: Life and Health $236.8 Property and Casualty 69.5 Other (2.2) ------ Total $304.1 ======
SCHEDULE IV UNITRIN, INC. REINSURANCE SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (Dollars in Millions)
Percentage Ceded to Assumed of Amount Gross Other from Other Net Assumed Amount Companies Companies Amount to Net --------- --------- --------- --------- ---------- Year Ended December 31, 1996: - ----------------------- Life Insurance in Force $18,747.2 $2,120.2 $ - $16,627.0 - Premiums Life Insurance $ 368.8 $ 9.4 - $ 359.4 - Accident and Health Insurance 130.6 0.9 - 129.7 - Property and Liability Insurance 643.4 21.8 109.6 731.2 15.0% --------- --------- --------- --------- ---------- Total Premiums $ 1,142.8 $ 32.1 $109.6 $ 1,220.3 9.0% ========== ========= ========= ========= ========== Year Ended December 31, 1995: - ----------------------- Life Insurance in Force $20,082.9 $ 565.7 $ - $19,517.2 - Premiums Life Insurance $ 370.5 $ 1.9 - $ 368.6 - Accident and Health Insurance 144.4 1.2 - 143.2 - Property and Liability Insurance 566.1 15.7 36.9 587.3 6.3% --------- --------- --------- --------- ---------- Total Premiums $ 1,081.0 $ 18.8 $ 36.9 $ 1,099.1 3.4% ========== ========= ========= ========= ========== Year Ended December 31, 1994: - ----------------------- Life Insurance in Force $20,242.0 $ 535.1 $ - $19,706.9 - Premiums Life Insurance $ 362.1 $ 2.7 - $ 359.4 - Accident and Health Insurance 161.0 1.7 - 159.3 - Property and Liability Insurance 538.0 16.8 8.9 530.1 1.7% --------- --------- --------- --------- ---------- Total Premiums $ 1,061.1 $ 21.2 $ 8.9 $ 1,048.8 0.8% ========== ========= ========= ========= ==========
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITRIN, INC. (Registrant) By: /s/ Richard C. Vie --------------------------------------- DATE: February 24, 1997 Richard C. Vie President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. DATE: February 24, 1997 By: /s/ Jerrold V. Jerome --------------------------------------- Jerrold V. Jerome Chairman of the Board of Directors DATE: February 24, 1997 By: /s/ Richard C. Vie --------------------------------------- Richard C. Vie Director, President and Chief Executive Officer (Principal Executive Officer) DATE: February 24, 1997 By: /s/ Henry E. Singleton --------------------------------------- Henry E. Singleton Director DATE: February 24, 1997 By: /s/ George A. Roberts --------------------------------------- George A. Roberts Director DATE: February 24, 1997 By: /s/ Fayez S. Sarofim --------------------------------------- Fayez S. Sarofim Director DATE: February 24, 1997 By: /s/ James E. Annable --------------------------------------- James E. Annable Director SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated. DATE: February 24, 1997 By: /s/ Reuben L. Hedlund -------------------------------------------- Reuben L. Hedlund Director DATE: February 24, 1997 By: /s/ Eric J. Draut -------------------------------------------- Eric J. Draut Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) EX-13.1 2 FINANCIAL STATEMENTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - ------------------------------------------------------------------------------- To the Shareholders and Board of Directors of Unitrin, Inc.: We have audited the accompanying consolidated balance sheets of Unitrin, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, cash flows and shareholders' equity for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the investee companies (Notes 2 and 5). The Company's investment in the investee companies at December 31, 1996 and 1995 was $670.1 million and $595.2 million, respectively, and its equity in net income of the investee companies was $50.6 million, $45.1 million and $33.8 million for the years 1996, 1995 and 1994, respectively. The financial statements of the investee companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the investee companies, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unitrin, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Chicago, Illinois January 7, 1997 - ------------------------------------------------------------------------------- Unitrin, Inc, and Subsidiaries | 19 CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------- [Dollars in Millions] December 31, - ---------------------------------------------------------------------------------------------------- 1996 1995 ASSETS Investments: Fixed Maturities at Fair Value (Amortized Cost: 1996--$2,176.4; 1995--$2,365.1) $2,207.4 $2,457.1 Equity Securities at Fair Value (Cost: 1996--$172.0; 1995--$97.7) 259.7 179.3 Investees at Cost Plus Cumulative Undistributed Earnings (Fair Value: 1996--$1,610.3; 1995--$1,320.3) 670.1 595.2 Other 154.2 178.1 -------- -------- Total Investments 3,291.4 3,409.7 -------- -------- Cash 17.0 9.1 Consumer Finance Receivables 608.6 547.1 Other Receivables 376.1 250.4 Deferred Policy Acquisition Costs 265.3 288.5 Cost in Excess of Net Assets of Purchased Businesses 228.2 230.1 Other Assets 84.5 83.8 -------- -------- Total Assets $4,871.1 $4,818.7 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Insurance Reserves: Life and Health $1,599.0 $1,569.5 Property and Casualty 454.8 437.8 -------- -------- Total Insurance Reserves 2,053.8 2,007.3 -------- -------- Investment Certificates 589.9 519.0 Unearned Premiums 260.5 252.9 Accrued and Deferred Income Taxes 166.4 171.3 Notes Payable 59.9 100.2 Accrued Expenses and Other Liabilities 260.3 243.5 -------- -------- Total Liabilities 3,390.8 3,294.2 -------- -------- Shareholders' Equity: Common Stock, $0.10 par value, 100 Million Shares Authorized, 37,340,894 and 38,490,287 Shares Issued and Outstanding at December 31, 1996 and 1995 3.7 3.8 Additional Paid-in Capital 133.0 126.2 Retained Earnings 1,265.8 1,281.1 Net Unrealized Appreciation on Securities 77.8 113.4 -------- -------- Total Shareholders' Equity 1,480.3 1,524.5 -------- -------- Total Liabilities and Shareholders' Equity $4,871.1 $4,818.7 ======== ======== - ----------------------------------------------------------------------------------------------------
The Notes to the Consolidated Financial Statements are an integral part of these financial statements. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 20 CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------- [Dollars in Millions, Except Per Share Amounts] For the Years Ended December 31, - ---------------------------------------------------------------------------------------------- 1996 1995 1994 REVENUES Premiums $1,220.3 $1,099.1 $1,048.8 Consumer Finance Revenues 120.4 106.5 91.4 Net Investment Income 179.0 186.6 207.2 Net Gains on Sales of Investments 3.4 55.2 18.1 -------- -------- -------- Total Revenues 1,523.1 1,447.4 1,365.5 -------- -------- -------- EXPENSES Insurance Claims and Policyholders' Benefits 799.7 717.5 654.4 Insurance Expenses 486.2 458.4 452.5 Consumer Finance Expenses 99.6 84.9 63.8 Interest and Other Expenses 15.5 25.8 17.3 -------- -------- -------- Total Expenses 1,401.0 1,286.6 1,188.0 -------- -------- -------- Income before Income Taxes and Equity in Net Income of Investees 122.1 160.8 177.5 Income Tax Expense 40.2 55.3 62.9 -------- -------- -------- Income before Equity in Net Income of Investees 81.9 105.5 114.6 Equity in Net Income of Investees (Note 5) 50.6 45.1 33.8 -------- -------- -------- NET INCOME $ 132.5 $ 150.6 $ 148.4 ======== ======== ======== NET INCOME PER SHARE $ 3.51 $ 3.73 $ 2.96 ======== ======== ======== - ----------------------------------------------------------------------------------------------
The Notes to the Consolidated Financial Statements are an integral part of these financial statements. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 21 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------- [Dollars in Millions] For the Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------- 1996 1995 1994 OPERATING ACTIVITIES Net Income $ 132.5 $ 150.6 $ 148.4 Adjustments to Reconcile Net Income to Net Cash Provided by Operations: Policy Acquisition Costs Deferred (149.1) (148.5) (139.2) Amortization of Deferred Policy Acquisition Costs 170.1 157.5 148.4 Equity in Net Income of Investees before Taxes (77.1) (68.8) (51.3) Cash Dividends from Investee 2.2 2.2 2.2 Amortization of Fixed Maturities 24.6 22.5 30.5 Provisions for Losses on Consumer Finance Receivables 27.4 22.4 16.1 Increase in Insurance Reserves and Unearned Premiums 27.8 42.8 9.1 Increase (Decrease) in Accrued Expenses and Other Liabilities (6.0) (20.1) 16.5 Increase in Accrued and Deferred Income Taxes 17.6 28.1 4.6 Net Gains on Sales of Investments (3.4) (55.2) (18.1) Other, Net 4.0 12.7 6.3 ------- ------- ------- Net Cash Provided by Operating Activities 170.6 146.2 173.5 ------- ------- ------- INVESTING ACTIVITIES Sales and Maturities of Fixed Maturities 279.6 623.1 504.7 Purchases of Fixed Maturities (111.6) (322.3) (293.2) Sales of Equity Securities 10.0 85.0 24.2 Purchases of Equity Securities (84.1) (57.0) (17.0) Repayments of Consumer Finance Receivables 329.0 297.9 243.3 Acquisitions of Consumer Finance Receivables (417.9) (402.5) (326.4) Change in Short-term Investments 21.7 27.7 (35.6) Acquisition of Milwaukee Insurance Group, Inc. -- (92.6) -- Other, Net (17.5) (17.1) (20.8) ------- ------- ------- Net Cash Provided by Investing Activities 9.2 142.2 79.2 ------- ------- ------- FINANCING ACTIVITIES Investment Certificate Deposits 229.7 247.4 209.0 Investment Certificate Withdrawals (158.8) (166.0) (163.5) Universal Life and Annuity Receipts from Policyholders 21.0 30.7 31.5 Universal Life and Annuity Payments to Policyholders (7.6) (11.5) (11.4) Universal Life and Annuity Payments to Reinsurer (76.1) -- -- Notes Payable Proceeds 170.0 401.0 -- Notes Payable Payments (210.0) (308.0) -- Cash Dividends Paid (83.0) (80.7) (75.8) Common Stock Repurchases (61.1) (416.0) (245.3) Other, Net 4.0 0.5 0.9 ------- ------- ------- Net Cash Used by Financing Activities (171.9) (302.6) (254.6) ------- ------- ------- Increase (Decrease) in Cash 7.9 (14.2) (1.9) Cash, Beginning of Year 9.1 23.3 25.2 ------- ------- ------- Cash, End of Year $ 17.0 $ 9.1 $ 23.3 ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------------------
The Notes to the Consolidated Financial Statements are an integral part of these financial statements. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 22 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------- [Dollars in Millions] For the Years Ended December 31, 1996, 1995 and 1994 - ------------------------------------------------------------------------------------------------------------------------------- Net Additional Unrealized Total Number of Common Paid-in Retained Appreciation Shareholders' Shares Stock Capital Earnings on Securities Equity BALANCE, DECEMBER 31, 1993 51,833,545 $5.2 $163.6 $1,755.6 $174.1 $2,098.5 Net Income -- -- -- 148.4 -- 148.4 Dividends to Common Shareholders ($1.50 per share) -- -- -- (75.8) -- (75.8) Change in Net Unrealized Appreciation on Securities -- -- -- -- (161.6) (161.6) Repurchases of Unitrin Common Stock (4,804,750) (0.5) (15.2) (229.6) -- (245.3) Exercise of Employee Stock Options 24,025 -- 0.9 -- -- 0.9 ---------- ---- ------ -------- ----- -------- BALANCE, DECEMBER 31, 1994 47,052,820 $4.7 $149.3 $1,598.6 $12.5 $1,765.1 Net Income -- -- -- 150.6 -- 150.6 Dividends to Common Shareholders ($2.00 per share) -- -- -- (80.7) -- (80.7) Change in Net Unrealized Appreciation on Securities -- -- -- -- 100.9 100.9 Repurchases of Unitrin Common Stock (8,681,708) (0.9) (27.7) (387.4) -- (416.0) Exercise of Employee Stock Options 119,175 -- 4.6 -- -- 4.6 ---------- ---- ------ -------- ----- -------- BALANCE, DECEMBER 31, 1995 38,490,287 $3.8 $126.2 $1,281.1 $113.4 $1,524.5 Net Income -- -- -- 132.5 -- 132.5 Dividends to Common Shareholders ($2.20 per share) -- -- -- (83.0) -- (83.0) Change in Net Unrealized Appreciation on Securities -- -- -- -- (35.6) (35.6) Repurchases of Unitrin Common Stock (1,277,175) (0.1) (4.2) (56.8) -- (61.1) Exercise of Employee Stock Options, Net of Shares Exchanged (Note 10) 127,782 -- 11.0 (8.0) -- 3.0 ---------- ---- ------ -------- ----- -------- BALANCE, DECEMBER 31, 1996 37,340,894 $3.7 $133.0 $1,265.8 $77.8 $1,480.3 ========== ==== ====== ======== ===== ======== - -------------------------------------------------------------------------------------------------------------------------------
The Notes to the Consolidated Financial Statements are an integral part of these financial statements. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION - -------------------------------------------------------------------------------- The Consolidated Financial Statements included herein have been prepared on the basis of generally accepted accounting principles, which differ from statutory insurance accounting practices, and include the accounts of Unitrin, Inc. and its subsidiaries ("Unitrin" or the "Company"). All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. NOTE 2. SUMMARY OF ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Investments Other Than Investees Investments in Fixed Maturities include bonds, notes and redemptive preferred stocks at fair value and are classified as Available for Sale. Investments in Equity Securities include common and nonredemptive preferred stocks at fair value and are classified as Available for Sale. Unrealized appreciation or depreciation, net of applicable deferred income taxes, on Fixed Maturities and Equity Securities is included in Shareholders' Equity. Other Investments include fixed maturities which mature within one year from the date of purchase, loans to policyholders, real estate, and mortgage loans and are carried at cost or unpaid principal balance. Gains and losses on sales of investments are computed on the specific identification method and are reflected in Net Income. Investments in Investees Investments in Investees are accounted for by the equity method in the accompanying financial statements. The Company's voting percentage and share of earnings or losses of each investee company are determined using the most recent publicly available audited financial statements, subsequent unaudited interim reports and other publicly available information. As a result, the amounts included in the Company's financial statements represent amounts reported by the investee companies for periods ending two to three months earlier. The Company recognizes into income its equity share of changes in an investee's reported net assets resulting from an investee's issuance of stock that is not part of a broader corporate reorganization. Consumer Finance Receivables Consumer Finance Receivables consists primarily of loans, secured by automobiles, to California residents and is stated net of unearned discount, loan fees and reserve for losses. Unearned discount arises when the loan amount includes unearned precomputed interest. The reserve for losses on Consumer Finance Receivables is maintained at a level which exceeds minimum regulatory requirements and considers other factors, including actual loan loss experience and economic conditions to provide for estimated losses on Consumer Finance Receivables. Deferred Policy Acquisition Costs Certain costs directly associated with the acquisition of new business, principally commissions, are deferred. Deferred Policy Acquisition Costs also include the costs of acquiring insurance in force from other companies. Interest accreted on the cost of acquired insurance in force is not material. The deferred policy acquisition costs on traditional life and health insurance products are amortized over the anticipated premium-paying period of the related policies in proportion to the ratio of the annual premiums to the total premiums anticipated, which is estimated using the same assumptions used in calculating policy reserves. Costs deferred on property and casualty insurance products are amortized over the term of the related policies. Cost in Excess of Net Assets of Purchased Businesses Cost in Excess of Net Assets of Purchased Businesses of $143.2 million at December 31, 1996, relating to acquisitions prior to November 1970, is not being amortized. Amounts applicable to subsequent acquisitions are being amortized ratably over 40 years. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF ACCOUNTING POLICIES [CONTINUED] - -------------------------------------------------------------------------------- Insurance Reserves Reserves for losses and loss adjustment expenses on property and casualty coverage represent the estimated claim cost and loss adjustment expense necessary to cover the ultimate net cost of investigating and settling all losses incurred and unpaid and include provisions for adverse deviation. Such estimates are based on individual case estimates for reported claims and estimates for incurred but not reported losses. These estimates are adjusted in the aggregate for ultimate loss expectations based on historical experience patterns and current economic trends, with any change in the probable ultimate liabilities being reflected in Net Income. For traditional life products, the reserves for future life policy benefits are primarily estimated on the net level premium method based on expected mortality, interest and withdrawal rates, including provisions for adverse mortality. These assumptions vary by such characteristics as plan, age at issue and policy duration. Mortality assumptions reflect the Company's historical experience and industry standards. Interest rate assumptions principally range from 3.0 percent to 7.0 percent. Withdrawal assumptions are based on actual and industry experience. Benefit reserves for universal life-type products represent policy account balances before applicable surrender charges. Recognition of Premium Revenues and Related Expenses Property and casualty insurance and health insurance premiums are recognized ratably over the periods to which the premiums relate. Insurance Claims and Policyholders' Benefits include provisions for reported claims, claims incurred but not reported and loss adjustment expenses. Traditional life insurance premiums are recognized as revenue when due. Insurance Claims and Policyholders' Benefits are associated with related premiums to result in recognition of profits over the periods that the benefits are provided. Premium revenues for universal life-type products consist of charges for the cost of insurance, policy administration and policy surrenders that have been assessed against policy account balances during the period. Benefit payments in excess of policy account balances are expensed. Reinsurance In the normal course of business, the Company's insurance subsidiaries reinsure certain risks above certain retention levels with other insurance enterprises. Amounts recoverable from reinsurers for benefits and losses for which the Company has not been relieved of its legal obligation to the policyholder are included in Other Receivables. Gains related to long-duration reinsurance contracts are deferred and amortized over the life of the underlying reinsured policies. Losses related to long-duration reinsurance contracts are recognized immediately. Any gain or loss associated with reinsurance agreements for which the Company has been legally relieved of its obligation to the policyholder is recognized in the current period. Consumer Finance Revenues and Expenses Consumer Finance Revenues include interest on Consumer Finance Receivables and Net Investment Income on Investments in Fixed Maturities made by the Company's Consumer Finance Operations. Interest income on Consumer Finance Receivables is recorded as interest is earned, using the effective yield method. Net Investment Income included in Consumer Finance Revenues was $2.7 million, $2.1 million and $2.0 million in 1996, 1995 and 1994, respectively. Consumer Finance Expenses include interest expense on Investment Certificates, Provisions for Losses on Consumer Finance Receivables, and general and administrative expenses. Interest expense on Investment Certificates is recorded using the effective yield method. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the change is enacted. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF ACCOUNTING POLICIES [CONTINUED] - -------------------------------------------------------------------------------- Stock-Based Compensation The Company accounts for its stock option plans in accordance with APB Opinion 25 "Accounting for Stock Issued to Employees." The Company has not issued stock options where the exercise price is less than the market value of the Company's common stock on the date of grant and, accordingly, no compensation expense has been recognized. Net Income Per Share The Weighted Average Shares of Common Stock used in the computation of Net Income Per Share were 37,720,806, 40,403,366 and 50,112,781 in 1996, 1995 and 1994, respectively. Common stock equivalents resulting from the Company's stock option plans, which were excluded from the computation of earnings per share because dilution was not material, are as follows:
[Number of Equivalent Shares in Thousands] 1996 1995 1994 Primary Net Income Per Share 235 283 216 Fully Diluted Net Income Per Share 388 289 219
Accounting Changes The Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" for the year ended December 31, 1996. The adoption of SFAS 121 did not have a material effect on Net Income. The Company adopted the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation" for the year ended December 31, 1996. The adoption of SFAS 123 had no effect on the Company's financial position or on its results of operations. Fair Value of Financial Instruments The Company has no derivative financial instruments subject to the provisions of SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." The carrying values and fair values of the Company's financial instruments are disclosed in Note 4 -- Investments Other Than Investees, Note 5 -- Investments in Investees, Note 6 -- Consumer Finance Receivables and Investment Certificates and Note 8 -- Notes Payable. Supplemental Cash Flow Information Assets acquired and liabilities assumed in connection with the acquisition of Milwaukee Insurance Group, Inc. in 1995 were:
[Dollars in Millions] 1995 Investments $(181.5) Receivables (66.6) Deferred Policy Acquisition Costs (6.9) Cost in Excess of Net Assets of Purchased Businesses (23.0) Accrued and Deferred Income Taxes (11.0) Other Assets (8.9) Insurance Reserves 129.8 Unearned Premiums 49.6 Accrued Expenses and Other Liabilities 25.9 ------- Cash Used by Acquisition of Milwaukee Insurance Group, Inc. $ (92.6)
======= - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 3. ACQUISITIONS - -------------------------------------------------------------------------------- On October 2, 1995, Trinity Universal Insurance Company ("Trinity"), one of the Company's subsidiaries, acquired Milwaukee Insurance Group, Inc. ("MIG") for $92.6 million in cash. As part of the transaction, MIG and its affiliated company, Milwaukee Mutual Insurance Company ("Mutual"), entered into arrangements with Trinity under which Trinity reinsures certain business of Mutual and MIG. In connection with the reinsurance agreement, Mutual paid $17.4 million in cash to Trinity, which represented the difference between the unearned premium reserves assumed by Trinity and a ceding commission owed to Mutual. The acquisition is accounted for by the purchase method and, accordingly, the operations of MIG are included in the Company's financial statements from the date of acquisition. In 1996, the Company completed the allocation of the purchase price to the assets and liabilities acquired. On January 7, 1997, the Company completed the acquisition of Union Automobile Indemnity Company ("Union") for approximately $18.6 million in Unitrin, Inc. common stock valued in accordance with EITF No. 95-19, "Determination of the Measurement Date for the Market Price of Securities Issued In a Purchased Business Combination." The acquisition will be accounted for by the purchase method and, accordingly, the operations of Union will be included in the Company's financial statements from the date of acquisition. NOTE 4. INVESTMENTS OTHER THAN INVESTEES - -------------------------------------------------------------------------------- The amortized cost and estimated fair values of the Company's investments in Fixed Maturities at December 31, 1996 were: - --------------------------------------------------------------------------------
Gross Unrealized Amortized ---------------- Fair [Dollars in Millions] Cost Gains Losses Value U.S. Government and Government Agencies and Authorities $1,930.3 $30.1 $(3.4) $1,957.0 States, Municipalities and Political Subdivisions 133.4 3.5 (0.2) 136.7 Corporate Securities: Bonds and Notes 58.5 0.6 (0.2) 58.9 Redemptive Preferred Stocks 54.2 0.8 (0.2) 54.8 -------- ----- ----- -------- Investments in Fixed Maturities $2,176.4 $35.0 $(4.0) $2,207.4 ======== ===== ===== ========
- -------------------------------------------------------------------------------- The amortized cost and estimated fair values of the Company's investments in Fixed Maturities at December 31, 1995 were: - --------------------------------------------------------------------------------
Gross Unrealized Amortized ---------------- Fair [Dollars in Millions] Cost Gains Losses Value U.S. Government and Government Agencies and Authorities $2,097.9 $85.3 $(0.7) $2,182.5 States, Municipalities and Political Subdivisions 178.3 4.9 (0.2) 183.0 Corporate Securities: Bonds and Notes 62.7 2.2 -- 64.9 Redemptive Preferred Stocks 26.2 0.6 (0.1) 26.7 -------- ----- ----- -------- Investments in Fixed Maturities $2,365.1 $93.0 $(1.0) $2,457.1 ======== ===== ===== ========
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4. INVESTMENTS OTHER THAN INVESTEES [CONTINUED] - -------------------------------------------------------------------------------- The amortized cost and estimated fair values of the Company's investments in Fixed Maturities at December 31, 1996 by contractual maturity were: - --------------------------------------------------------------------------------
Amortized Fair [Dollars in Millions] Cost Value Due in One Year or Less $ 265.7 $ 268.8 Due After One Year to Five Years 1,635.8 1,653.8 Due After Five Years to Fifteen Years 197.5 203.8 Due After Fifteen Years 77.4 81.0 -------- -------- Total Investments in Fixed Maturities $2,176.4 $2,207.4 ======== ========
The expected maturities may differ from the contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. The change in Net Unrealized Appreciation on Fixed Maturities included in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Increase (Decrease) in Unrealized Appreciation on Fixed Maturities $(61.0) $174.8 $(236.6) Effect of Income Taxes 21.5 (61.4) 83.5 ------ ------ ------- Increase (Decrease) in Net Unrealized Appreciation on Fixed Maturities $(39.5) $113.4 $(153.1) ====== ====== =======
- -------------------------------------------------------------------------------- At December 31, 1996, gross unrealized gains and gross unrealized losses on Equity Securities were: - --------------------------------------------------------------------------------
Gross Unrealized ---------------- Fair [Dollars in Millions] Cost Gains Losses Value Common Stocks $ 20.0 $38.0 $(0.1) $ 57.9 Preferred Stocks 152.0 51.7 (1.9) 201.8 ------ ----- ----- ------ Total $172.0 $89.7 $(2.0) $259.7 ====== ===== ===== ======
- -------------------------------------------------------------------------------- At December 31, 1995, gross unrealized gains and gross unrealized losses on Equity Securities were: - --------------------------------------------------------------------------------
Gross Unrealized ---------------- Fair [Dollars in Millions] Cost Gains Losses Value Common Stocks $20.0 $33.8 $ - $ 53.8 Preferred Stocks 77.7 48.9 (1.1) 125.5 ----- ----- ----- ------ Total $97.7 $82.7 $(1.1) $179.3 ===== ===== ===== ======
- -------------------------------------------------------------------------------- The change in Net Unrealized Appreciation on Equity Securities included in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Increase (Decrease) in Unrealized Appreciation on Equity Securities $ 6.1 $(18.9) $(12.8) Effect of Income Taxes (2.2) 6.4 4.3 ----- ------ ------ Increase (Decrease) in Net Unrealized Appreciation on Equity Securities $ 3.9 $(12.5) $ (8.5) ===== ====== ======
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 5. INVESTMENTS IN INVESTEES - -------------------------------------------------------------------------------- The Company's Investments in Investees and approximate voting percentages, based on the most recent publicly available data at December 31, 1996 were: - --------------------------------------------------------------------------------
Curtiss-Wright Litton Western [Dollars in Millions] Corporation Industries, Inc. Atlas Inc. Total Carrying Value $ 74.9 $245.9 $349.3 $ 670.1 Fair Value $110.4 $602.8 $897.1 $1,610.3 Approximate Voting Percentage 43.1% 27.2% 23.6%
- -------------------------------------------------------------------------------- The Company's Investments in Investees and approximate voting percentages, based on the most recent publicly available data at December 31, 1995 were: - --------------------------------------------------------------------------------
Curtiss-Wright Litton Western [Dollars in Millions] Corporation Industries, Inc. Atlas Inc. Total Carrying Value $ 69.4 $204.1 $321.7 $ 595.2 Fair Value $117.8 $563.3 $639.2 $1,320.3 Approximate Voting Percentage 43.3% 27.4% 23.8%
- -------------------------------------------------------------------------------- The Company's equity in the reported net assets of its investees exceeded the carrying value of its investment by approximately $2.4 million at December 31, 1996. This difference is not being amortized. The Company's investments in Litton and Western Atlas exceeded 10% of the Company's Shareholders' Equity at December 31, 1996 and 1995. Equity in Net Income of Investees was $50.6 million in 1996, $45.1 million in 1995 and $33.8 million in 1994. Equity in Net Income of Investees for 1994 includes: an after-tax loss of $3.8 million for Unitrin's share of Curtiss- Wright Corporation's charges for the settlement of certain litigation, certain restructuring and environmental costs and for certain tax adjustments; an after-tax loss of $5.6 million for Unitrin's share of Litton Industries, Inc.'s extraordinary charge on redemption of debt; and an after-tax loss of $9.7 million for Unitrin's share of Litton's charges for settlement of certain litigation. Equity in Net Income of Investees for 1994 includes an after-tax gain of $22.3 million reflecting the increase in Unitrin's share of Western Atlas Inc.'s reported net assets as a result of Western Atlas' issuance of common stock. Unitrin accounts for its Investments in Investees under the equity method of accounting using the most recent publicly-available financial reports. The amounts included in Unitrin's financial statements represent amounts reported by investee companies for periods ending two to three months earlier. In 1994, Western Atlas changed its fiscal year end from July 31 to December 31. As a result of this change Unitrin's share of Western Atlas' results are reported on a three-month-delay basis rather than on a two-month-delay basis. Unitrin's financial results for the second quarter of 1994 reflect its share of two months of Western Atlas' results rather than three months. Unitrin's financial results for the third quarter of 1994 and all subsequent quarters reflect its share of three months of Western Atlas' results. - -------------------------------------------------------------------------------- NOTE 6. CONSUMER FINANCE RECEIVABLES AND INVESTMENT CERTIFICATES - -------------------------------------------------------------------------------- The fair value of Consumer Finance Receivables has been estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. The difference between the carrying value and the estimated fair value of Consumer Finance Receivables at December 31, 1996 and 1995 was not material. The reserve for losses on Consumer Finance Receivables was $36.4 million and $31.1 million at December 31, 1996 and 1995, respectively. Investment Certificates are generally fixed in maturity. The fair value of Investment Certificates has been estimated using the rates currently offered for deposits of similar remaining maturities. The difference between the carrying value and the estimated fair value of Investment Certificates at December 31, 1996 and 1995 was not material. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 7. PROPERTY AND CASUALTY INSURANCE RESERVES - -------------------------------------------------------------------------------- Property and Casualty Insurance Reserve activity for the years ended December 31, 1996, 1995 and 1994 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Property and Casualty Insurance Reserves, Net of Reinsurance--Beginning of Year $395.0 $296.7 $303.5 Acquired, Net of Reinsurance of $36.4 in 1995 -- 93.4 -- Incurred related to: Current Year 550.4 444.8 387.5 Prior Years (40.4) (29.6) (28.5) ------ ------ ------ Total Incurred 510.0 415.2 359.0 ------ ------ ------ Paid related to: Current Year 314.6 263.1 220.6 Prior Years 172.5 147.2 145.2 ------ ------ ------ Total Paid 487.1 410.3 365.8 ------ ------ ------ Property and Casualty Insurance Reserves, Net of Reinsurance--End of Year $417.9 $395.0 $296.7 ====== ====== ======
- -------------------------------------------------------------------------------- Reinsurance Recoverables were $36.9 million, $42.8 million and $6.0 million at December 31, 1996, 1995 and 1994, respectively. - -------------------------------------------------------------------------------- NOTE 8. NOTES PAYABLE - -------------------------------------------------------------------------------- In January 1995, the Company entered into a $350 million unsecured revolving credit agreement with a group of banks which expires in January 1998 and provides for fixed and floating rate advances for periods up to 180 days at various interest rates. The agreement contains various financial covenants, including limits on total debt to total capitalization and minimum risk-based capital ratios for the Company's direct insurance subsidiaries. The proceeds from advances under the agreement may be used for general corporate purposes, including repurchases of the Company's common stock. At December 31, 1996 and 1995, the Company had outstanding borrowings under the revolving credit agreement, classified as Notes Payable in the Consolidated Balance Sheet, of $53.0 million and $93.0 million at weighted average interest rates of 5.97% and 6.09%, respectively. Other borrowings, principally a mortgage note payable on a property occupied by the Company, were $6.9 million and $7.2 million at December 31, 1996 and 1995, respectively. The Company paid interest of $6.8 million and $9.0 million in 1996 and 1995, respectively. The difference between the carrying value and the estimated fair value of Notes Payable at December 31, 1996 and 1995 was not material. - -------------------------------------------------------------------------------- NOTE 9. SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- The Company is authorized to issue 20 million shares of $0.10 par value preferred stock and 100 million shares of $0.10 par value common stock. No preferred shares were issued or outstanding at December 31, 1996. On August 3, 1994, the Board of Directors declared a dividend distribution of one preferred share purchase right for each outstanding share of common stock of the Company, pursuant to a Shareholder Rights Plan. The description and terms of the rights are set forth in a Rights Agreement between the Company and First Chicago Trust Company of New York, as Rights Agent, dated as of August 3, 1994. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9. SHAREHOLDERS' EQUITY [CONTINUED] - -------------------------------------------------------------------------------- On August 11, 1994, the Company's Board of Directors authorized the repurchase of up to ten million shares of the Company's outstanding common stock, including approximately 1.4 million shares remaining under its August 8, 1990 repurchase authorization, in open market or privately negotiated transactions from time to time subject to market conditions and other factors. On February 17, 1995 and July 31, 1996, the Company's Board of Directors authorized the repurchase of an additional five million and three million shares of the Company's outstanding common stock, respectively, for an aggregate authorization of eighteen million common shares. During 1996, the Company repurchased and retired 1,277,175 shares of its common stock in open market transactions at an aggregate cost of $61.1 million. During 1995, the Company repurchased and retired 8,681,708 shares of its common stock in open market transactions at an aggregate cost of $416.0 million. During 1994, the Company repurchased and retired 4,804,750 shares of its common stock in open market transactions at an aggregate cost of $245.3 million. Common Stock, Additional Paid-in Capital and Retained Earnings have been reduced on a pro rata basis for the cost of the repurchased shares. Various state insurance laws restrict the amount that an insurance subsidiary may pay in the form of dividends, loans or advances without the prior approval of regulatory authorities. Also, that portion of an insurance subsidiary's net equity which results from differences between statutory insurance accounting practices and generally accepted accounting principles would not be available for cash dividends, loans or advances. Retained Earnings at December 31, 1996 also includes $374.9 million representing the undistributed earnings of investees. The Company's insurance subsidiaries are required to file financial statements prepared on the basis of statutory insurance accounting practices. Statutory Capital and Surplus for the Company's Life and Health Insurance subsidiaries was approximately $760 million and $730 million at December 31, 1996 and 1995, respectively. Statutory Capital and Surplus for the Company's Property and Casualty Insurance subsidiaries was approximately $990 million and $890 million at December 31, 1996 and 1995, respectively. Statutory Net Income for the Company's Life and Health Insurance subsidiaries was approximately $34 million, $60 million and $53 million for the years ended December 31, 1996, 1995 and 1994, respectively. Statutory Net Income for the Company's Property and Casualty Insurance subsidiaries was approximately $67 million, $95 million and $45 million for the years ended December 31, 1996, 1995 and 1994, respectively. Statutory Capital and Surplus and Statutory Net Income exclude the Company's Consumer Finance and Parent Company operations. The Company's subsidiaries paid dividends of $167.7 million to the Company in 1996. In 1997, the Company's subsidiaries would be able to pay approximately $211 million in dividends to the Company without prior regulatory approval. - -------------------------------------------------------------------------------- NOTE 10. STOCK OPTION PLANS - -------------------------------------------------------------------------------- On May 1, 1996, the Company's shareholders approved the Unitrin, Inc. 1995 Non- Employee Director Stock Option Plan (the "Director Plan") covering an aggregate of 200,000 shares of Unitrin common stock. Under the Director Plan, directors of the Company who are not employees and who first became directors after November 1, 1993 will be granted an initial option to purchase 2,000 shares of the Company's common stock and thereafter, on the date of each of the Company's annual meetings of shareholders, will automatically receive annual grants of options to purchase the same number of shares for so long as they remain eligible directors. Options granted under the Director Plan are exercisable one year from the date of grant at an exercise price equal to the fair market value of the Company's common stock on the date of grant and expire 10 years from the date of grant. In addition, each eligible director may elect to convert his annual director's fees into stock options upon six month's prior notice to the Company. As of December 31, 1996 options for 192,000 common shares were available for future grant under the Director Plan. In February 1990, the Company's Board of Directors adopted the 1990 Stock Option Plan (the "1990 Option Plan") covering an aggregate of 2,500,000 shares of Unitrin common stock. Under the 1990 Option Plan, options to purchase shares of Unitrin common stock may be granted to executives and other key employees of the Company. The Board of Directors, at its discretion, may grant either incentive stock options, non-qualified stock options, or stock appreciation rights. Under the terms of the 1990 Option Plan, the exercise price of incentive stock options is the fair market value of the shares on the date of the grant. Non-qualified stock options may be granted with an exercise price below the fair market value of the shares on the date of the grant. Options are nontransferable and are exercisable in installments. Only non-qualified stock options have been granted under the 1990 Option Plan. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10. STOCK OPTION PLANS [CONTINUED] - -------------------------------------------------------------------------------- The options are exercisable in installments beginning 2 years from the date of grant and expiring 10 years from the date of grant. As of December 31, 1996, options for 400,300 common shares were available for future grant under the 1990 Option Plan. To encourage stock ownership by the Company's key employees, the 1990 Option Plan includes a provision to automatically grant restorative stock options (Restorative Options) to replace shares of previously-owned Unitrin common stock that an exercising employee surrenders, either actually or constructively, in order to satisfy the exercise price and/or tax withholding obligations relating to the exercise. Restorative Options are subject to the same terms and conditions as the original options, including the expiration date, except that the option price of a Restorative Option is equal to the fair market value of Unitrin common stock on the date of its grant. Restorative Options cannot be exercised until six months after the date of grant. The grant of a Restorative Option does not result in an increase in the total number of shares and options held by an employee. Had the Company accounted for stock options granted in 1996 and 1995 under the provisions of SFAS 123, "Accounting for Stock-Based Compensation", pro forma net income would have been $130.8 million and $149.9 million for the years ended December 31, 1996 and 1995, respectively, and pro forma net income per share would have been $3.47 and $3.71 for the years ended December 31, 1996 and 1995, respectively. These pro forma amounts may not be representative of the effects of SFAS 123 on pro forma net income for future years because options vest over several years and additional awards may be granted in future years. The Black-Scholes option pricing model was used to estimate the fair value of each option on the date granted. The assumptions used in the pricing model were as follows. For options granted in 1996, 1995 and 1994, the expected dividend yield used was 3.46%, 3.28% and 3.0%, respectively. The weighted average expected volatility used was 20% for options granted in all three years. The weighted average risk free interest rate used was the yield on U.S. Treasury securities with a maturity comparable to the term of the option. The weighted average expected lives of the options ranged between one-half of the contractual term to 7 years. In the case of options issued pursuant to the Director Plan, the expected lives equaled the full contractual term of 10 years. A summary of the status of the Company's two stock option plans as of December 31, 1996, 1995 and 1994, and stock option activity for the years then ended is presented below: - --------------------------------------------------------------------------------
Estimated Weighted Average Fair Value of Number Weighted-Average Options Exercisable Options Granted of Shares Exercise Price at Year End during the Year Outstanding at December 31, 1993 1,093,000 $ 35.77 188,100 Granted 359,500 38.85 $10.49 Exercised (24,025) 33.32 Forfeited (31,800) 38.77 --------- ------- Outstanding at December 31, 1994 1,396,675 $ 36.54 347,275 Granted 395,500 46.08 $12.14 Exercised (119,175) 33.91 Forfeited (139,000) 39.96 --------- ------- Outstanding at December 31, 1995 1,534,000 $ 38.91 440,500 Granted 640,472 50.80 $10.08 Exercised (290,754) 33.73 Forfeited (76,000) 47.20 --------- ------- Outstanding at December 31, 1996 1,807,718 $ 43.58 403,818 ========= =======
- -------------------------------------------------------------------------------- Options granted in 1996 include 162,972 Restorative Options. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10. STOCK OPTION PLANS [CONTINUED] - -------------------------------------------------------------------------------- The following table summarizes information about stock options outstanding at December 31, 1996: - --------------------------------------------------------------------------------
Options Outstanding Options Exercisable ---------------------------------------------------------- ----------------------------------- Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at Year End Contractual Life Exercise Price at Year End Exercise Price $31.75--$47.00 1,212,887 6.3 years $39.99 397,746 $35.98 $47.50--$56.25 594,831 7.9 years $50.91 6,072 $47.99
- -------------------------------------------------------------------------------- NOTE 11. INCOME FROM INVESTMENTS - -------------------------------------------------------------------------------- Net Investment Income for the years ended December 31, 1996, 1995 and 1994 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Interest and Dividends on Fixed Maturities $150.4 $164.0 $186.8 Dividends on Equity Securities 16.1 8.7 10.0 Other 24.6 25.6 22.1 ------ ------ ------ Investment Income 191.1 198.3 218.9 Investment Expenses 12.1 11.7 11.7 ------ ------ ------ Net Investment Income $179.0 $186.6 $207.2 ====== ====== ======
- ------------------------------------------------------------------------------ The components of Net Gains on Sales of Investments for the years ended December 31, 1996, 1995 and 1994 were: - ------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Fixed Maturities: Gains $ 1.6 $ 2.2 $ 5.2 Losses (0.9) (0.8) (6.2) Equity Securities: Gains 1.5 54.1 18.4 Losses - (1.1) - Other Investments: Gains 1.2 0.8 0.7 Losses - - - ----- ----- ----- Net Gains on Sales of Investments $ 3.4 $55.2 $18.1 ===== ===== =====
- ------------------------------------------------------------------------------ NOTE 12. INSURANCE EXPENSES - ------------------------------------------------------------------------------ Insurance Expenses for the years ended December 31, 1996, 1995 and 1994 were: - ------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Commissions $233.7 $239.4 $238.1 General Expenses 203.9 184.4 178.9 Taxes, Licenses and Fees 27.6 25.6 26.3 ------ ------ ------ Total Costs Incurred 465.2 449.4 443.3 ------ ------ ------ Policy Acquisition Costs: Deferred (149.1) (148.5) (139.2) Amortized 170.1 157.5 148.4 ------ ------ ------ Net Policy Acquisition Costs Amortized 21.0 9.0 9.2 ------ ------ ------ Insurance Expenses $486.2 $458.4 $452.5 ====== ====== ======
- -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13. INCOME TAXES - -------------------------------------------------------------------------------- The tax effects of temporary differences that give rise to significant portions of the Company's Net Deferred Tax Liability at December 31, 1996 and 1995 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 Deferred Tax Assets: Insurance Reserves $ 66.7 $ 69.7 Unearned Premium Reserves 20.2 18.2 Tax Capitalization of Policy Acquisition Costs 42.4 40.1 Reserve for Losses on Consumer Finance Receivables 11.1 13.0 Postretirement Benefits Other Than Pensions 25.4 25.4 Other 20.8 16.2 ------ ------ Total Deferred Tax Assets 186.6 182.6 ------ ------ Deferred Tax Liabilities: Deferred Policy Acquisition Costs 91.3 98.5 Fixed Maturities 15.3 36.9 Equity Securities 23.4 21.3 Investments in Investees 179.6 153.4 Pension Asset 12.7 11.3 Other 1.5 4.7 ------ ------ Total Deferred Tax Liability 323.8 326.1 ------ ------ Net Deferred Tax Liability 137.2 143.5 Current Tax Liability 29.2 27.8 ------ ------ Accrued and Deferred Income Taxes $166.4 $171.3 ====== ======
- -------------------------------------------------------------------------------- A deferred tax asset valuation allowance was not required at December 31, 1996 and 1995. Income taxes paid were $47.2 million, $49.6 million and $75.8 million in 1996, 1995 and 1994, respectively. The Company has not provided Federal income taxes on a portion of the Company's life insurance subsidiaries' income earned prior to 1984 which is not subject to Federal income taxes under certain circumstances. Federal income taxes would be paid on the amount of such income, approximately $170 million, if it is distributed to shareholders in the future or if it does not continue to meet certain limitations. Comprehensive Income Tax Expense (Benefit) included in the Consolidated Financial Statements for the years ended December 31, 1996, 1995 and 1994 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Income Tax Expense $ 40.2 $ 55.3 $ 62.9 Equity in Net Income of Investees 26.5 23.7 17.5 Unrealized Appreciation (Depreciation) on Securities (19.3) 55.0 (87.8) Effect on Paid-in Capital from Exercise of Stock Options (1.8) (0.6) -- ------ ------ ------ Comprehensive Income Tax Expense (Benefit) $ 45.6 $133.4 $ (7.4) ====== ====== ======
- -------------------------------------------------------------------------------- The components of Income Tax Expense for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Current Tax Expense $ 50.0 $ 57.9 $ 69.0 Deferred Tax Benefit (9.8) (2.6) (6.1) ----- ----- ----- Income Tax Expense $ 40.2 $ 55.3 $ 62.9 ====== ====== ======
- -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13. INCOME TAXES [CONTINUED] - -------------------------------------------------------------------------------- Components of the effective income tax rate on pre-tax income for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
1996 1995 1994 Statutory Federal Income Tax Rate 35.0% 35.0% 35.0% Tax-exempt Income (5.0) (2.7) (2.5) State Income Taxes 1.6 1.4 1.5 Amortization of Cost in Excess of Net Assets of Purchased Businesses 0.9 0.5 0.4 Other, Net 0.4 0.2 1.0 ---- ---- ---- Effective Income Tax Rate 32.9% 34.4% 35.4% ==== ==== ====
- -------------------------------------------------------------------------------- Beginning with the year ended December 31, 1995 the Company filed a consolidated Federal income tax return with all of its subsidiaries. For the years ended December 31, 1994, 1993, 1992 and 1991 and the nine months ended December 31, 1990, the Company filed a consolidated Federal income tax return with all of its subsidiaries except for Union National Life Insurance Company and Union National Fire Insurance Company. Prior to April 1, 1990, all of the Company's subsidiaries, except for Union National Life Insurance Company and Union National Fire Insurance Company, filed a consolidated Federal income tax return with Teledyne, Inc. - -------------------------------------------------------------------------------- NOTE 14. PENSION BENEFITS - -------------------------------------------------------------------------------- The Company sponsors several defined benefit pension plans covering most of its employees. Participation in certain plans requires employee contributions of 3 percent of pay, as defined, per year. Benefits for contributory plans are based on compensation during plan participation and the number of years of participation. Benefits for non-contributory plans are based on years of service and final average pay, as defined. The Company funds the pension plans in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended. The components of Pension Expense (Income) for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 Service Cost Benefits Earned During the Year $ 4.1 $ 3.9 $ 4.0 Interest Cost on Projected Benefit Obligation 7.0 6.6 5.9 Actual (Gain) Loss on Plan Assets (8.4) (8.0) 4.2 Net Amortization and Deferral (3.1) (3.4) (15.4) ----- ----- ------ Pension Expense (Income) $(0.4) $(0.9) $ (1.3) ===== ===== ======
- -------------------------------------------------------------------------------- The actuarial assumptions used to develop the components of Pension Expense (Income) for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
1996 1995 1994 Discount Rate 7.00% 7.50% 6.75% Rate of Increase in Future Compensation Levels 4.00% 4.50% 4.50% Expected Long-term Rate of Return on Plan Assets 6.00% 6.00% 6.00%
- -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14. PENSION BENEFITS [CONTINUED] - -------------------------------------------------------------------------------- Plan Assets in Excess of Projected Benefit Obligations at December 31, 1996 and 1995 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 Plan Assets at Fair Value, Primarily U.S. Government Obligations $163.3 $159.3 ------ ------ Present Value of Projected Benefit Obligations: Vested Benefit Obligation 88.4 79.1 Non-vested Benefit Obligation 2.0 5.1 ------ ------ Accumulated Benefit Obligation 90.4 84.2 Additional Benefits Related to Future Compensation Levels 17.3 17.5 ------ ------ Projected Benefit Obligations 107.7 101.7 ------ ------ Plan Assets in Excess of Projected Benefit Obligations $ 55.6 $ 57.6 ====== ====== Plan Assets in Excess of Projected Benefit Obligations: Included in Balance Sheet: Prepaid Pension Cost $ 36.2 $ 32.1 Accrued Pension Liability (4.3) (3.7) Not Included in Balance Sheet: Unrecognized Net Asset at Adoption of SFAS No. 87, Net of Amortization 7.3 9.3 Unrecognized Net Gain Due to Past Experience Different from that Assumed and Changes in the Assumptions 16.4 19.9 ------ ------ Plan Assets in Excess of Projected Benefit Obligations $ 55.6 $ 57.6 ====== ======
- -------------------------------------------------------------------------------- At both December 31, 1996 and 1995 a discount rate of 7.00 percent and a rate of increase in future compensation levels of 4.00 percent were assumed for the valuation of pension obligations. - -------------------------------------------------------------------------------- NOTE 15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - -------------------------------------------------------------------------------- The Company sponsors several postretirement benefit plans that provide medical and life insurance benefits to approximately 1,000 retired and 2,000 active employees. The Company is self-insured and the plans are not funded. The medical plans generally provide for a limited number of years of medical insurance benefits at retirement based upon the participant's attained age at retirement and number of years of service until specified dates and are generally contributory, with most contributions adjusted annually. Postretirement life insurance benefits are generally contributory and generally limited to $10,000 per participant. Postretirement medical and life insurance expense was $4.7 million in 1996, $5.4 million in 1995 and $4.4 million in 1994. This expense primarily represents interest on the accumulated postretirement benefit obligation. Service cost was not material. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS [CONTINUED] - -------------------------------------------------------------------------------- The plans' combined Accumulated Postretirement Benefit Obligation at December 31, 1996 and 1995 was: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 Retirees $42.9 $47.3 Fully Eligible Active Participants 7.9 8.4 Other Active Plan Participants 17.3 19.2 ----- ----- Accumulated Postretirement Benefit Obligation 68.1 74.9 Unrecognized Net Gain (Loss) Due to Experience Different from that Assumed 5.8 (0.9) ----- ----- Net Postretirement Liability Recognized in the Balance Sheet $73.9 $74.0 ===== =====
- -------------------------------------------------------------------------------- The assumed health care cost trend rate used in measuring the Accumulated Postretirement Benefit Obligation at December 31, 1996 was 8.5 percent in 1996, gradually declining to 5.0 percent in the year 2006 and remaining at that level thereafter. The assumed health care cost trend rate used in measuring the Accumulated Postretirement Benefit Obligation at December 31, 1995 was 9.0 percent in 1995, gradually declining to 5.0 percent in the year 2006 and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate for each year would increase the Accumulated Postretirement Benefit Obligation at December 31, 1996 by approximately $7.1 million and 1996 postretirement expense by $0.5 million. The assumed discount rate used in determining the Accumulated Postretirement Benefit Obligation was 7.00 percent at both December 31, 1996 and 1995. - -------------------------------------------------------------------------------- NOTE 16. BUSINESS SEGMENTS - -------------------------------------------------------------------------------- The Company is engaged in the property and casualty insurance, life and health insurance and consumer finance businesses. Insurance provided in the Property and Casualty Insurance Segment consists of automobile, homeowners, motorcycle, watercraft, fire, casualty, workers compensation and other related lines. The Life and Health Insurance Segment includes both individual and group life, accident, health and hospitalization insurance. The Consumer Finance Segment makes consumer loans primarily for the purchase of automobiles and offers savings accounts in the form of investment certificates and money market accounts. Segment Revenues for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 SEGMENT REVENUES Property and Casualty Insurance $ 781.2 $ 631.5 $ 575.6 Life and Health Insurance 612.1 649.7 667.6 Consumer Finance 120.4 106.5 91.4 -------- -------- ------- Total Segment Revenues 1,513.7 1,387.7 1,334.6 -------- -------- ------- Net Gains on Sales of Investments 3.4 55.2 18.1 Other 6.0 4.5 12.8 -------- -------- ------- Total Revenues $1,523.1 $1,447.4 $1,365.5 ======== ======== ========
- -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 16. BUSINESS SEGMENTS [CONTINUED] - -------------------------------------------------------------------------------- Segment Operating Profit and Segment Assets for the years ended December 31, 1996, 1995 and 1994 were: - --------------------------------------------------------------------------------
[Dollars in Millions] 1996 1995 1994 SEGMENT OPERATING PROFIT Property and Casualty Insurance $ 63.2 $ 50.2 $ 65.5 Life and Health Insurance 40.3 52.8 68.7 Consumer Finance 26.4 25.7 31.0 -------- -------- -------- Total Segment Operating Profit 129.9 128.7 165.2 -------- -------- -------- Net Gains on Sales of Investments 3.4 55.2 18.1 Other (11.2) (23.1) (5.8) -------- -------- -------- Income before Income Taxes and Equity in Net Income of Investees $ 122.1 $ 160.8 $ 177.5 ======== ======== ======== SEGMENT ASSETS Property and Casualty Insurance $1,109.0 $1,051.3 $ 788.1 Life and Health Insurance 2,505.1 2,543.1 2,700.3 Consumer Finance 676.8 598.7 508.2 Investees and Other 580.2 625.6 573.2 -------- -------- -------- Total Assets $4,871.1 $4,818.7 $4,569.8 ======== ======== ========
- -------------------------------------------------------------------------------- NOTE 17. REINSURANCE - -------------------------------------------------------------------------------- Effective May 31, 1996, one of the Company's Life and Health Insurance subsidiaries entered into an agreement to cede its entire obligation for certain life insurance policies to a third party. Life insurance reserves related to this block were approximately $112 million at December 31, 1996. At December 31, 1996, the Company had not been relieved of its legal obligation to its policyholders under the agreement and, accordingly, the Company continues to include the life insurance reserves related to this block of business on its balance sheet along with a corresponding amount classified as other receivables. Premiums on business assumed were $109.6 million for the year ended December 31, 1996. Premiums on business assumed were not material in 1995 and 1994. Premiums ceded for the years ended December 31, 1996, 1995 and 1994 were not material. - -------------------------------------------------------------------------------- NOTE 18. CONTINGENCIES - -------------------------------------------------------------------------------- The Company and its subsidiaries are defendants in various legal actions incidental to their businesses. Some of these actions seek substantial punitive damages that bear no apparent relationship to the actual damages alleged. Although no assurances can be given and no determination can be made at this time as to the outcome of any particular legal action, the Company and its subsidiaries believe there are meritorious defenses to these legal actions and are defending them vigorously. The Company believes that resolution of these matters will not have a material adverse effect on the Company's financial position. In connection with one action, Ronnie Dale Bleeker v. Trinity Universal Insurance Company ("Trinity"), et al., the District Court of Hildalgo County, Texas, on February 9, 1995 entered a judgment in the amount of $77.0 million, including attorney's fees of $38.5 million, against Trinity, one of the Company's subsidiaries. The case involves Trinity's alleged improper handling of a claim made under a $40 thousand automobile insurance policy. Trinity has strongly denied any wrongdoing and intends to pursue vigorously all avenues for relief from the judgment. The matter is presently on appeal to the Thirteenth Court of Appeals in Corpus Christi, Texas. The ultimate outcome of this litigation cannot presently be predicted. However, the Company believes that Trinity has a number of meritorious grounds for appeal and, accordingly, the judgment has not been accrued in the financial statements. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - --------------------------------------------------------------------------------
[Dollars in Millions, Except Per Share Amounts] Three Months Ended - -------------------------------------------------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, Total 1996 Premiums and Consumer Finance Revenues $334.4 $337.6 $334.4 $334.3 $1,340.7 Net Investment Income 45.1 44.4 44.0 45.5 179.0 Net Gains on Sales of Investments 1.1 0.1 0.4 1.8 3.4 ------ ------ ------ ------ -------- Total Revenues $380.6 $382.1 $378.8 $381.6 $1,523.1 ====== ====== ====== ====== ======== Net Income: From Operations $ 13.3 $ 18.0 $ 24.2 $ 24.2 $ 79.7 From Investees 11.4 11.4 13.7 14.1 50.6 From Sales of Investments 0.7 0.1 0.2 1.2 2.2 ------ ------ ------ ------ -------- Total Net Income $ 25.4 $ 29.5 $ 38.1 $ 39.5 $ 132.5 ====== ====== ====== ====== ======== Net Income Per Share (A) $ 0.66 $ 0.78 $ 1.02 $ 1.06 $ 3.51 ====== ====== ====== ====== ======== Dividends Paid to Common Shareholders (Per Share) $ 0.55 $ 0.55 $ 0.55 $ 0.55 $ 2.20 ====== ====== ====== ====== ======== Common Stock Market Prices: High 50 13/16 48 7/8 50 56 1/4 56 1/4 Low 45 5/8 46 44 1/4 50 1/16 44 1/4 Close 46 47 49 1/4 55 3/4 55 3/4 - -------------------------------------------------------------------------------------------------------------------- 1995 Premiums and Consumer Finance Revenues $289.5 $292.0 $290.5 $333.6 $1,205.6 Net Investment Income 48.9 48.1 43.6 46.0 186.6 Net Gains on Sales of Investments 0.5 33.2 20.6 0.9 55.2 ------ ------ ------ ------ -------- Total Revenues $338.9 $373.3 $354.7 $380.5 $1,447.4 ====== ====== ====== ====== ======== Net Income: From Operations $ 20.7 $ 9.4 $ 14.7 $ 24.6 $ 69.4 From Investees 10.2 10.4 11.9 12.6 45.1 From Sales of Investments 0.3 21.8 13.4 0.6 36.1 ------ ------ ------ ------ -------- Total Net Income $ 31.2 $41.6 $ 40.0 $ 37.8 $ 150.6 ====== ====== ====== ====== ======== Net Income Per Share (A) $ 0.73 $1.03 $ 1.01 $ 0.97 $ 3.73 ====== ====== ====== ====== ======== Dividends Paid to Common Shareholders (Per Share) $ 0.50 $0.50 $ 0.50 $ 0.50 $ 2.00 ====== ====== ====== ====== ======== Common Stock Market Prices: High 50 1/2 50 49 1/4 49 50 1/2 Low 43 46 1/4 44 1/2 45 43 Close 48 1/2 47 1/2 47 48 48 - --------------------------------------------------------------------------------------------------------------------
(A) The cumulative sum of quarterly Net Income Per Share amounts does not equal Total Net Income Per Share for the year due to differences in weighted average shares outstanding for each of the periods presented. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 39 EX-13.2 3 MD&A MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- -------------------------------------------------------------------------------- PROPERTY AND CASUALTY INSURANCE - -------------------------------------------------------------------------------- [Dollars in Millions] 1996 1995 1994 Premiums $731.2 $587.3 $530.1 Net Investment Income 50.0 44.2 45.5 ------ ------ ------ Total Revenues $781.2 $631.5 $575.6 Operating Profit $ 63.2 $ 50.2 $ 65.5
- -------------------------------------------------------------------------------- Premiums in the Property and Casualty Insurance segment increased by $143.9 million in 1996. Premiums increased by $135.3 million in 1996 as a result of the October 2, 1995 acquisition of Milwaukee Insurance Group, Inc. ("Milwaukee Insurance"). Automobile insurance premiums unrelated to the acquisition increased by $14.2 million primarily due to higher prices, partially offset by the comparative effect of $5.7 million of favorable premium adjustments related to Proposition 103 in 1995. On January 7, 1997 the Company completed the acquisition of Union Automobile Indemnity Company ("Union"). As a result of the Union acquisition, premiums are expected to increase by approximately $35 million in 1997. Net Investment Income in the Property and Casualty Insurance segment increased by $5.8 million in 1996. Net Investment Income increased by $10.5 million due to the inclusion of Milwaukee Insurance net investment income for a full year in 1996, partially offset by a $4.7 million decrease in other investment income due primarily to a lower level of investments. Operating Profit increased by $13.0 million in 1996. Losses directly attributed to storms decreased by $20.2 million in 1996 partially resulting from the Company's efforts to reduce its concentration of business in storm prone areas. Operating Profit in 1995 included the favorable effect of $7.1 million of premium and other accrual adjustments related to Proposition 103. Premiums in the Property and Casualty Insurance segment increased by $57.2 million in 1995. Premiums increased by $43.2 million as a result of the acquisition of Milwaukee Insurance. Premiums also increased by $14.0 million due primarily to higher prices for automobile insurance and the premium adjustments related to Proposition 103. Net Investment Income in the Property and Casualty Insurance segment decreased by $1.3 million in 1995. Net Investment Income decreased by $4.4 million due primarily to a lower level of investments in fixed maturities, partially offset by $3.1 million of Milwaukee Insurance net investment income. Operating Profit decreased by $15.3 million in 1995 due to higher automobile insurance claims and higher losses directly attributable to storms, partially offset by the premium and other accrual adjustments related to Proposition 103. Losses directly attributable to storms increased by $12.4 million in 1995. - -------------------------------------------------------------------------------- Unitrin, Inc. and Subsidiaries | 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- ------------------------------------------------------------------------------- LIFE AND HEALTH INSURANCE - ------------------------------------------------------------------------------- [Dollars in Millions] 1996 1995 1994 Life Insurance Premiums $ 359.4 $ 368.6 $ 359.4 Accident and Health Insurance Premiums 129.7 143.2 159.3 ------- ------- ------- Total Premiums 489.1 511.8 518.7 Net Investment Income 123.0 137.9 148.9 ------- ------- ------- Total Revenues $ 612.1 $ 649.7 $ 667.6 Operating Profit $ 40.3 $ 52.8 $ 68.7 - -------------------------------------------------------------------------------
Life Insurance Premiums decreased by $9.2 million in 1996 due primarily to the ceding of certain life insurance policies to a third party (see below). Accident and Health Insurance Premiums decreased by $13.5 million in 1996 due primarily to lower volume. Net Investment Income in the Life and Health Insurance segment decreased by $14.9 million in 1996 due to a lower level of investments primarily the result of certain intercompany transactions (see "Liquidity and Capital Resources") and the ceding of certain life insurance policies to a third party. Operating Profit in the Life and Health Insurance segment decreased by $12.5 million in 1996 due primarily to the lower net investment income. Effective May 31, 1996, United Insurance Company of America ("United"), one of the Company's Life and Health Insurance subsidiaries, entered into an agreement to cede certain life insurance policies to a third party. Life insurance reserves related to this block were approximately $112 million at December 31, 1996. At December 31, 1996 the Company had not been relieved of its primary obligation to these policyholders. In accordance with the provisions of SFAS Statement 113, "Accounting and Reporting for Reinsurance of Short Duration and Long Duration Contracts," the Company therefore continues to include the life insurance reserves related to this block of business on its balance sheet along with a corresponding amount classified as Other Receivables. As a result of this transaction, premiums in the Life and Health Insurance segment decreased by $7.3 million in 1996 and will decrease by an additional $6 million in 1997. The effect of this transaction on Operating Profit is not material. Premiums in the Life and Health Insurance segment decreased by $6.9 million in 1995. Life Insurance Premiums increased by $9.2 million due to higher volume. Accident and Health Insurance premiums decreased by $16.1 million due primarily to lower volume. Net Investment Income in the Life and Health Insurance segment decreased by $11.0 million in 1995 due to a lower level of investments as a result of the intercompany transactions and due to lower yields on investments. Operating Profit decreased by $15.9 million in 1995 due primarily to the lower Net Investment Income and also due to higher claims as a percentage of premium in Accident and Health Insurance.
CONSUMER FINANCE - ------------------------------------------------------------------------------- [Dollars in Millions] 1996 1995 1994 Revenues $ 120.4 $ 106.5 $ 91.4 Operating Profit $ 26.4 $ 25.7 $ 31.0 - -------------------------------------------------------------------------------
Consumer Finance Revenues increased by $13.9 million and $15.1 million in 1996 and 1995, respectively, primarily as a result of a higher level of loans outstanding. Operating Profit increased by $0.7 million in 1996 due primarily to the higher level of loans outstanding. Operating Profit decreased by $5.3 million in 1995 due to higher cost of funds and higher provisions for loan losses. - ------------------------------------------------------------------------------- Unitrin, Inc. And Subsidiaries | 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------------- INVESTEES - ------------------------------------------------------------------------------- Equity in Net Income of Investees was income of $50.6 million, $45.1 million and $33.8 million in 1996, 1995 and 1994, respectively. Equity in Net Income of Investees for 1994 includes: an after-tax loss of $3.8 million for Unitrin's share of Curtiss-Wright Corporation's charges for the settlement of certain litigation, certain restructuring and environmental costs and for certain tax adjustments; an after-tax loss of $5.6 million for Unitrin's share of Litton Industries, Inc.'s extraordinary charge on redemption of debt; and an after-tax loss of $9.7 million for Unitrin's share of Litton's charges for settlement of certain litigation. Equity in Net Income of Investees for 1994 includes an after-tax gain of $22.3 million reflecting the increase in Unitrin's share of Western Atlas Inc.'s reported net assets as a result of Western Atlas' issuance of common stock. Unitrin accounts for its Investments in Investees under the equity method of accounting using the most recent publicly-available financial reports. The amounts included in Unitrin's financial statements represent amounts reported by investee companies for periods ending two to three months earlier. In 1994, Western Atlas changed its fiscal year end from July 31 to December 31. As a result of this change Unitrin's share of Western Atlas' results are reported on a three-month-delay basis rather than on a two-month-delay basis. Unitrin's financial results for the second quarter of 1994 reflect its share of two months of Western Atlas' results rather than three months. Unitrin's financial results for the third quarter of 1994 and all subsequent quarters reflect its share of three months of Western Atlas' results. INVESTMENT RESULTS - ------------------------------------------------------------------------------- Net Investment Income decreased by $7.6 million in 1996 due primarily to the funding of the Company's common stock repurchase program, partially offset by the inclusion of Milwaukee Insurance net investment income for a full year in 1996. Net Investment Income decreased by $20.6 million in 1995 due to the funding of the Company's common stock repurchase program and due to lower yields on investments. Net Investment Income from the Company's investment in Navistar's $6.00 Cumulative Convertible Preferred Stock, Series G was $7.1 million in 1996, $4.3 million in 1995 and $5.7 million in 1994. It is the Company's policy to record dividend income on its preferred and common stock investments on the ex-dividend date. Net Investment Income from the Company's investment in Navistar increased by $2.8 million in 1996 and decreased by $1.4 million in 1995 due to the timing of the Navistar Preferred Stock ex-dividend date. Net Investment Income on this investment was recorded in the Company's Life and Health Insurance segment until the third quarter of 1995 when United Insurance Company of America ("United"), a subsidiary of the Company, sold the investment to the Unitrin, Inc. parent company. Net Gains on Sales of Investments was $3.4 million in 1996, $55.2 million in 1995 and $18.1 million in 1994. Net Gains on Sales of Investments in 1995 and 1994 resulted primarily from sales of certain equity securities. The Company cannot anticipate when or if investment gains or losses may occur in the future. The Company's investment strategy is based on current market conditions and other factors which it reviews from time to time. The Company's consolidated investment portfolio is concentrated in United States Government obligations and investment-grade fixed maturities. The Company's investment in non-investment- grade fixed maturity investments is insignificant. - ------------------------------------------------------------------------------- Unitrin, Inc, and Subsidiaries | 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------------- PROPOSITION 103 - ------------------------------------------------------------------------------- On November 8, 1988, California voters passed Proposition 103, an insurance initiative which required a 20 percent rollback in insurance rates for policies written or renewed during the twelve-month period beginning November 8, 1988 (the "rollback period") and provided that changes in insurance premiums after November 8, 1989 must be submitted for the approval of the California Insurance Commissioner prior to implementation. While Proposition 103 had the most significant impact on automobile insurance, its provisions also applied to other property and casualty insurance. In June 1995, the Company reached an agreement with the State of California Department of Insurance to settle its obligation under Proposition 103 by refunding $15.3 million to its policyholders. The Company had previously estimated and accrued for its obligation under Proposition 103. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------------------------------------------------------- In August 1994, the Company's Board of Directors authorized the repurchase of up to ten million shares of the Company's outstanding common stock, including approximately 1.4 million shares remaining under its August 8, 1990 repurchase authorization, in open market or privately negotiated transactions from time to time subject to market conditions and other factors. On February 17, 1995 and July 31, 1996, the Company's Board of Directors authorized the repurchase of an additional five million and three million shares of the Company's outstanding common stock, respectively, for an aggregate authorization of eighteen million common shares. During 1996, the Company repurchased and retired 1,277,175 shares of its common stock in open market transactions at an aggregate cost of $61.1 million. The Company has repurchased and retired 14,763,633 shares of its common stock in open market transactions at an aggregate cost of $722.4 million since August, 1994. On January 31, 1996, the Company's Board of Directors increased the Company's quarterly dividend from $0.50 per common share to $0.55 per common share. United, one of the Company's Life and Health Insurance segment subsidiaries, paid a $300 million extraordinary dividend to the Company during the third quarter of 1995. The proceeds of this dividend were used primarily to reduce the Company's borrowings under its revolving credit agreement, to fund the Company's common stock repurchase program and to purchase approximately $50 million of Navistar International Corporation $6.00 Cumulative Convertible Preferred Stock, Series G from United. The Company entered into a three-year $350 million unsecured revolving credit agreement with a group of banks in January 1995. Proceeds from advances under the agreement may be used for general corporate purposes, including repurchases of the Company's common stock. The weighted average interest rate on the $53 million in advances outstanding under the agreement on December 31, 1996 was 5.97%. At December 31, 1996, the unused commitment under the Company's revolving credit agreement was $297 million. In addition, the Company's subsidiaries in 1997 would be able to pay approximately $211 million in dividends to the Company without prior regulatory approval. The Company has no significant commitments for capital expenditures. The Company's subsidiaries maintain levels of cash and liquid assets sufficient to meet ongoing obligations to policyholders and claimants, as well as ordinary operating expenses. The Company's reserves are set at levels expected to meet contractual liabilities and provide a margin for adverse deviation. The Company maintains adequate levels of liquidity and surplus capacity to manage the risks inherent with any differences between the duration of its liabilities and invested assets. At December 31, 1996, the Company had capacity to write additional premiums relative to statutory capital and surplus requirements. - ------------------------------------------------------------------------------- Unitrin, Inc, and Subsidiaries | 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ------------------------------------------------------------------------------- INTEREST AND OTHER EXPENSES - ------------------------------------------------------------------------------- Interest and Other Expenses was $15.5 million in 1996, $25.8 million in 1995 and $17.3 million in 1994. Expenses attributed to an unsolicited business combination proposal were $8.0 million in 1995 and $10.1 million in 1994. Interest Expense was $6.3 million and $10.5 million in 1996 and 1995, respectively, resulting primarily from funding the Company's common stock repurchase program. Interest Expense in 1994 was not significant. Other corporate expenses were $9.2 million in 1996, $7.3 million in 1995 and $7.2 million in 1994. ACCOUNTING CHANGES - ------------------------------------------------------------------------------- The Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" for the year ended December 31, 1996. Adoption of SFAS 121 did not have a material effect on Net Income. The Company has no mortgage servicing rights subject to the provisions of SFAS 122, "Accounting for Mortgage Servicing Rights." The Company adopted the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation" for the year ended December 31, 1996. The adoption of SFAS 123 had no effect on the Company's financial position or on its results of operations. The Company has no significant transactions subject to the provisions of SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." - ------------------------------------------------------------------------------- Unitrin, Inc, and Subsidiaries | 18 EX-13.3 4 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------- [Dollars in Millions, Except Per Share Amounts] 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------- FOR THE YEAR Premiums and Consumer Finance Revenues $1,341 $1,205 $1,140 $1,138 $1,101 Net Investment Income 179 187 207 216 221 Net Gains on Sales of Investments 3 55 18 9 41 ----- ----- ----- ----- ----- Total Revenues 1,523 1,447 1,365 1,363 1,363 Net Income: From Operations $ 80 $ 70 $ 103 $ 106 $ 94 From Investees 51 45 34 (16) 42 From Sales of Investments 2 36 11 5 27 From Unitrin's Accounting Change -- -- -- -- (40) ----- ----- ----- ----- ----- Total Net Income 133 151 148 95 123 Net Income Per Share: From Operations $ 2.11 $ 1.72 $ 2.05 $ 2.04 $ 1.81 From Investees 1.34 1.12 0.67 (0.31) 0.82 From Sales of Investments 0.06 0.89 0.24 0.10 0.52 From Unitrin's Accounting Change -- -- -- -- (0.77) ----- ----- ----- ----- ----- Total Net Income Per Share 3.51 3.73 2.96 1.83 2.38 Repurchases of Unitrin Common Stock $ 61 $ 416 $ 245 $ -- $ -- Dividends Paid to Common Shareholders $ 83 $ 81 $ 76 $ 67 $ 57 Dividends Paid to Common Shareholders (Per Share) $ 2.20 $ 2.00 $ 1.50 $ 1.30 $ 1.10 AT YEAR END Number of Employees 7,401 7,629 7,289 7,501 7,924 Investments $3,291 $3,410 $3,321 $3,707 $3,467 Total Assets 4,871 4,819 4,570 4,895 4,621 Insurance Reserves 2,054 2,007 1,828 1,802 1,740 Shareholders' Equity 1,480 1,525 1,765 2,099 1,954 Shares of Unitrin Common Stock Outstanding (In Millions of Shares) 37.3 38.5 47.1 51.8 51.8 Book Value Per Share $39.64 $39.61 $37.51 $40.49 $37.70 Fair Value Per Share of Investments in Investees in Excess of Carrying Value 16.35 12.23 6.84 5.20 1.70 ----- ----- ----- ----- ----- Adjusted Book Value Per Share 55.99 51.84 44.35 45.69 39.40 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
Unitrin, Inc. and Subsidiaries | 1 EX-21 5 SUBSIDIARIES OF UNITRIN, INC Exhibit 21 -- Subsidiaries of Registrant ---------------------------------------- Subsidiaries of Registrant, with their state of incorporation in parentheses, are as follows: 1. Alpha Property & Casualty Insurance Company (Wisconsin) 2. Financial Indemnity Company (California) 3. Fireside Mortgage Loans (California) 4. Fireside Securities Corporation (California) 5. Fireside Thrift Co. (California) 6. Guardian Insurance Management Services, Inc. (Wisconsin) 7. Milwaukee Guardian Insurance, Inc. (Wisconsin) 8. Milwaukee Insurance Group, Inc. (Wisconsin) 9. Milwaukee Safeguard Insurance Company (Wisconsin) 10. The Pyramid Life Insurance Company (Kansas) 11. Security National Insurance Company (Texas) 12. Southern States Finance Corporation (Louisiana) 13. Southern States General Agency, Inc. (Louisiana) 14. Trinity Lloyd's Corporation (Texas) 15. Trinity Universal Insurance Company (Texas) 16. Trinity Universal Insurance Company of Kansas, Inc. (Kansas) 17. Union Automobile Indemnity Company (Illinois) 18. Union National Fire Insurance Company (Louisiana) 19. Union National Life Insurance Company (Louisiana) 20. United Casualty Insurance Company of America (Pennsylvania) 21. United Insurance Company of America (Illinois) 22. United Lloyd's Corporation (Texas) 23. Unitrin Services Company (Illinois) EX-23.1 6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Unitrin, Inc.: Under date of January 7, 1997, we reported on the consolidated balance sheets of Unitrin, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, cash flows and shareholders' equity for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements and our report thereon are incorporated by reference in the December 31, 1996 Annual Report on Form 10-K of Unitrin, Inc. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related supplementary financial statement schedules as listed in Item 14 of such Annual Report on Form 10-K. These supplementary financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplementary financial statement schedules based on our audits. In our opinion, such supplementary financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Chicago, Illinois January 7, 1997 EX-23.2 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Unitrin, Inc.: We consent to incorporation by reference in Registration Statements 33-58300, 33-47530 and 333-4530 of Unitrin, Inc., on Form S-8, of our reports dated January 7, 1997, relating to the consolidated balance sheets of Unitrin, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, cash flows and shareholders' equity and related financial statement schedules for each of the years in the three-year period ended December 31, 1996, which reports appear in the December 31, 1996 Annual Report on Form 10-K of Unitrin, Inc. /s/ KPMG Peat Marwick LLP Chicago, Illinois February 24, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from Consolidated Financial Statements and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,207,400 0 0 259,700 0 0 3,291,400 17,000 0 265,300 4,871,100 2,053,800 260,500 0 0 59,900 3,700 0 0 1,476,600 4,871,100 1,220,300 179,000 3,400 120,400 799,700 170,100 431,200 122,100 40,200 132,500 0 0 0 132,500 3.51 0 0 0 0 0 0 0 0 Includes Consumer Finance Expenses of $99,200 and Interest and Other Expenses of $15,500. Includes Equity in Net Income of Investees of $50,600.
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