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 and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]
Number of shares of Common Stock, $1.00 par value, outstanding as of August 10, 2001: 5,000,000 shares.
We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of June 30, 2001, and the related consolidated condensed statements of income for each of the three-months and six-months ended June 30, 2001 and 2000, and the consolidated condensed statements of cash flows for the six-month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of income, share-owner’s equity, and cash flows for the year then ended (not presented herein), and in our report dated March 1, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2000 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Premiums and policy fees ........................... $ 423,077 $ 391,476 $ 839,486 $ 740,237
Reinsurance ceded .................................. (193,884) (215,061) (361,765) (385,664)
-------- -------- -------- --------
Premiums and policy fees, net of reinsurance ceded 229,193 176,415 477,721 354,573
Net investment income .............................. 205,749 172,845 401,897 336,666
Realized investment gains (losses)
Fixed maturities and equity securities ........... (2,081) (3,272) 966 (911)
Derivative financial instruments ................. (3,133) (584) 503 (499)
Other income ....................................... 12,121 15,118 26,599 26,103
-------- -------- -------- --------
441,849 360,522 907,686 715,932
-------- -------- -------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses
(net of reinsurance ceded:
three months: 2001 - $61,656; 2000 - $142,496
six months: 2001 - $192,213; 2000 - $239,250) .... 295,285 224,093 603,974 458,512
Amortization of deferred policy acquisition costs .. 39,016 31,446 68,399 68,964
Amortization of goodwill ........................... 2,074 492 4,149 867
Other operating expenses (net of reinsurance ceded:
three months: 2001 - $53,643; 2000 - $34,145
six months: 2001 - $85,463; 2000 - $82,807) ...... 63,825 49,443 124,059 93,532
-------- -------- -------- --------
400,200 305,474 800,581 621,875
-------- -------- -------- --------
INCOME BEFORE INCOME TAX ............................... 41,649 55,048 107,105 94,057
Income tax expense ..................................... 15,423 20,097 37,370 33,230
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ..................... 26,226 34,951 69,735 60,827
Cumulative effect of change in accounting principle .... (8,341)
-------- -------- -------- --------
NET INCOME ............................................. $ 26,226 $ 34,951 $ 61,394 $ 60,827
======== ======== ======== ========
See notes to consolidated condensed financial statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31
2001 2000
------------- ------------
(UNAUDITED)
ASSETS
Investments:
Fixed maturities, at market ............................... $ 8,639,231 $ 7,390,110
Equity securities, at market .............................. 62,680 41,792
Mortgage loans on real estate ............................. 2,455,115 2,268,224
Investment in real estate, net of accumulated depreciation 12,262 12,566
Policy loans .............................................. 329,051 230,527
Other long-term investments ............................... 175,270 66,646
Short-term investments .................................... 162,901 172,699
----------- -----------
Total investments ....................................... 11,836,510 10,182,564
Cash ........................................................ 53,000 33,517
Accrued investment income ................................... 140,272 121,996
Accounts and premiums receivable, net of allowance for
uncollectible amounts ..................................... 109,864 72,189
Reinsurance receivables ..................................... 1,084,620 1,099,574
Deferred policy acquisition costs ........................... 1,315,902 1,189,380
Goodwill, net ............................................... 237,651 241,831
Property and equipment, net ................................. 51,588 51,166
Other assets ................................................ 235,720 120,874
Receivable from related parties ............................. 4,768
Assets related to separate accounts
Variable Annuity .......................................... 1,758,589 1,841,439
Variable Universal Life ................................... 71,009 63,504
Other ..................................................... 3,865 3,746
----------- -----------
$ 16,898,590 $ 15,026,548
=========== ===========
LIABILITIES
Policy liabilities and accruals ............................. $ 6,782,185 $ 5,969,002
Stable value investment contract deposits ................... 3,480,935 3,177,863
Annuity deposits ............................................ 2,227,731 1,916,894
Other policyholders' funds .................................. 150,553 125,336
Other liabilities ........................................... 480,297 324,901
Accrued income taxes ........................................ 42,356 (10,932)
Deferred income taxes ....................................... 90,943 72,065
Debt:
Securities sold under repurchase agreements ............... 58,300
Notes payable ............................................. 2,303 2,315
Indebtedness to related parties ............................. 8,000 10,000
Liabilities related to separate accounts
Variable Annuity .......................................... 1,758,589 1,841,439
Variable Universal Life ................................... 71,009 63,504
Other ..................................................... 3,865 3,746
----------- -----------
15,157,066 13,496,133
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares authorized and
issued: 2,000, liquidation preference $2,000 ............. 2 2
Common Stock, $1.00 par value, shares authorized and
issued: 5,000,000 ......................................... 5,000 5,000
Additional paid-in capital .................................. 742,419 632,805
Note receivable from PLC Employee Stock Ownership Plan ...... (4,498) (4,841)
Retained earnings ........................................... 999,993 948,819
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments (net of income
tax: 2001 - $(749); 2000 - $(27,661)) .................. (1,392) (51,370)
----------- -----------
1,741,524 1,530,415
----------- -----------
$ 16,898,590 $ 15,026,548
=========== ===========
See notes to consolidated condensed financial statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................... $ 61,394 $ 60,827
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment gains ..................................................... (1,469) 1,410
Amortization of deferred policy acquisition costs ............................. 68,399 71,720
Capitalization of deferred policy acquisition costs ........................... (126,277) (182,247)
Depreciation expense .......................................................... 5,952 4,861
Deferred income tax ........................................................... (19,445) 13,235
Accrued income tax ............................................................ 53,289 6,950
Amortization of goodwill ...................................................... 4,149 867
Interest credited to universal life and investment products ................... 421,869 437,081
Policy fees assessed on universal life and investment products ................ (101,607) (97,882)
Change in accrued investment income and other receivables ..................... (16,698) (13,531)
Change in policy liabilities and other policyholders' funds
of traditional life and health products ..................................... 14,472 217,254
Change in other liabilities ................................................... 152,835 (29,830)
Other (net) ................................................................... (15,461) 24,289
----------- -----------
Net cash provided by operating activities ....................................... 501,402 515,004
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale ................................................ 9,402,613 5,722,521
Other ......................................................................... 140,734 24,918
Sale of investments
Investments available for sale ................................................ 938,665 331,438
Other ......................................................................... 1,363 36,246
Cost of investments acquired
Investments available for sale ................................................ (11,298,667) (6,584,526)
Corporate owned life insurance ................................................ (100,000)
Other ......................................................................... (170,818) (138,427)
Acquisitions and bulk reinsurance assumptions ................................... 137,754 (150,903)
Purchase of property and equipment .............................................. (6,119) (4,282)
----------- -----------
Net cash used in investing activities ........................................... (954,475) (763,015)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and debt ............. 512,600 1,182,700
Principal payments on line of credit arrangements and debt ...................... (454,300) (1,182,700)
Capital contribution from PLC ................................................... 91,000 59,000
Principal payment on surplus notes to PLC ....................................... (2,000) (2,000)
Investment product deposits and change in universal life deposits ............... 929,479 1,079,674
Investment product withdrawals .................................................. (604,223) (877,310)
----------- -----------
Net cash provided by financing activities ....................................... 472,556 259,364
----------- -----------
INCREASE IN CASH ................................................................... 19,483 11,353
CASH AT BEGINNING OF PERIOD ........................................................ 33,517 0
----------- -----------
CASH AT END OF PERIOD .............................................................. $ 53,000 $ 11,353
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on debt .............................................................. $ 631 $ 1,722
Income taxes .................................................................. $ 252 $ 11,954
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reduction of principal on note from ESOP ........................................ $ 342 $ 307
Acquisitions and bulk reinsurance assumptions
Assets acquired, net of cash .................................................. $ 658,200 $ 496,221
Liabilities assumed ........................................................... (795,954) (345,318)
Equity from subsidiary transfer ............................................... (7,772)
----------- -----------
Net ........................................................................... $ (145,526) $ 150,903
=========== ===========
See notes to consolidated condensed financial statements
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries (“Protective Life”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in the Protective Life’s annual report on Form 10-K for the year ended December 31, 2000.
Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").
NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES
Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective Life does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.
A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive damages. In some states, including Alabama (where Protective Life maintains its headquarters), juries have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments in any given lawsuit. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective Life.
NOTE C - OPERATING SEGMENTS
Protective Life operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. The following table sets forth operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses) and the recognition of income tax expense and the cumulative effect of change in accounting principle. There are no asset adjustments.
OPERATING SEGMENT INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------
(IN THOUSANDS)
SPECIALTY INSURANCE
LIFE INSURANCE PRODUCTS
INDIVIDUAL DENTAL FINANCIAL
LIFE WEST COAST ACQUISITIONS BENEFITS INSTITUTIONS
---------- ---------- ------------ -------- ------------
Premiums and policy fees ......... $185,617 $ 61,018 $102,355 $181,741 $248,277
Reinsurance ceded ................ (126,416) (33,539) (20,348) (26,783) (134,237)
------- ------ ------- ------- -------
Net of reinsurance ceded ...... 59,201 27,479 82,007 154,958 114,040
Net investment income ............ 34,900 49,271 85,565 4,719 23,543
Realized investment gains (losses)
Other income ..................... 425 (52) 8,947 14,780
------- ------ ------- ------- -------
Total revenues ............ 94,526 76,750 167,520 168,624 152,363
------- ------ ------- ------- -------
Benefits and settlement expenses . 56,814 51,725 113,371 102,776 73,604
Amortization of deferred policy
acquisition costs ............. 15,124 7,144 7,341 3,512 22,502
Amortization of goodwill ......... 2,736 1,413
Other operating expenses ......... 892 (3,437) 14,605 43,546 37,191
------- ------ ------- ------- -------
Total benefits and expenses 72,830 55,432 135,317 152,570 134,710
------- ------ ------- ------- -------
Income before income tax ......... 21,696 21,318 32,203 16,054 17,653
RETIREMENT SAVINGS AND
INVESTMENT PRODUCTS
STABLE CORPORATE
VALUE INVESTMENT AND TOTAL
PRODUCTS PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- ---------- --------- ----------- ------------
Premiums and policy fees ......... $ 14,472 $ 46,006 $ 839,486
Reinsurance ceded ................ (20,442) (361,765)
------ -------- -------
Net of reinsurance ceded ...... 14,472 25,564 477,721
Net investment income ............ $ 129,744 77,859 (3,704) 401,897
Realized investment gains (losses) 2,695 24 $ (1,250) 1,469
Other income ..................... 1,724 775 26,599
------- ------ ------ ------- -------
Total revenues ............ 132,439 94,079 22,635 (1,250) 907,686
------- ------ ------ ------- -------
Benefits and settlement expenses . 110,500 63,536 31,648 603,974
Amortization of deferred policy
acquisition costs ............. 608 11,318 850 68,399
Amortization of goodwill ......... 4,149
Other operating expenses ......... 1,981 11,853 17,428 124,059
------- ------ ------ -------
Total benefits and expenses 113,089 86,707 49,926 800,581
------- ------ ------ -------
Income before income tax ......... 19,350 7,372 (27,291) 107,105
Income tax expense ............... 37,370 37,370
Cumulative effect of change in
accounting principle .......... (8,341)
-------
Net income ................ $ 61,394
=======
OPERATING SEGMENT INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------
(IN THOUSANDS)
SPECIALTY INSURANCE
LIFE INSURANCE PRODUCTS
INDIVIDUAL DENTAL FINANCIAL
LIFE WEST COAST ACQUISITIONS BENEFITS INSTITUTIONS
---------- ---------- ------------ -------- ------------
Premiums and policy fees ......... $ 166,396 $ 68,961 $ 68,758 $ 128,373 $ 234,536
Reinsurance ceded ................ (116,634) (54,249) (14,911) (36,962) (130,831)
------- ------ ------- ------- -------
Net of reinsurance ceded ...... 49,762 14,712 53,847 91,411 103,705
Net investment income ............ 29,336 44,212 58,915 4,764 22,302
Realized investment gains (losses)
Other income ..................... (1,567) 6,737 15,028
------- ------ ------- ------- -------
Total revenues ............ 77,531 58,924 112,762 102,912 141,035
------- ------ ------- ------- -------
Benefits and settlement expenses . 46,010 43,418 64,550 67,673 64,949
Amortization of deferred policy
acquisition costs ............. 14,534 5,915 8,927 3,039 22,773
Amortization of goodwill ......... 867
Other operating expenses ......... (2,701) (7,294) 12,706 23,734 36,028
------- ------ ------- ------- -------
Total benefits and expenses 57,843 42,039 86,183 94,446 124,617
------- ------ ------- ------- -------
Income before income tax ......... 19,688 16,885 26,579 8,466 16,418
RETIREMENT SAVINGS AND
INVESTMENT PRODUCTS
STABLE CORPORATE
VALUE INVESTMENT AND TOTAL
PRODUCTS PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- ---------- --------- ----------- ------------
Premiums and policy fees ......... $ 15,009 $ 58,204 $ 740,237
Reinsurance ceded ................ (32,077) (385,664)
------ ------ -------
Net of reinsurance ceded ...... 15,009 26,127 354,573
Net investment income ............ $ 117,433 60,672 (968) 336,666
Realized investment gains (losses) (89) 420 $ (1,741) (1,410)
Other income ..................... 1,390 4,515 26,103
------- ------ ------ ----- -------
Total revenues ............ 117,344 77,491 29,674 (1,741) 715,932
------- ------ ------ ----- -------
Benefits and settlement expenses . 99,029 49,874 23,009 458,512
Amortization of deferred policy
acquisition costs ............. 429 12,068 1,279 68,964
Amortization of goodwill ......... 867
Other operating expenses ......... 2,028 8,662 20,369 93,532
------- ------ ------ ------ -------
Total benefits and expenses 101,486 70,604 44,657 621,875
------- ------ ------ ------ -------
Income before income tax ......... 15,858 6,887 (14,983) 94,057
Income tax expense ............... 33,230 33,230
-------
Net income ................ $ 60,827
=======
OPERATING SEGMENT ASSETS
JUNE 30, 2001
---------------------------------------------------------------
(IN THOUSANDS)
SPECIALTY INSURANCE
LIFE INSURANCE PRODUCTS
INDIVIDUAL DENTAL FINANCIAL
LIFE WEST COAST ACQUISITIONS BENEFITS INSTITUTIONS
---------- ---------- ------------ -------- ------------
Investments and other assets .... $1,261,714 $1,674,695 $2,385,798 $ 201,928 $1,225,917
Deferred policy acquisition costs
and goodwill ................. 363,349 300,064 296,832 213,747 156,531
--------- --------- --------- ------- ---------
Total assets ............. $1,625,063 $1,974,759 $2,682,630 $ 415,675 $1,382,448
========= ========= ========= ======= =========
RETIREMENT SAVINGS AND
INVESTMENT PRODUCTS
STABLE CORPORATE
VALUE INVESTMENT AND TOTAL
PRODUCTS PRODUCTS OTHER CONSOLIDATED
--------- --------- ---------- ------------
Investments and other assets .... $ 3,639,789 $ 4,038,995 $ 916,201 $15,345,037
Deferred policy acquisition costs
and goodwill ................. 5,158 137,148 80,724 1,553,553
--------- --------- ------- ----------
Total assets ............. $ 3,644,947 $ 4,176,143 $ 996,925 $16,898,590
========= ========= ======= ==========
OPERATING SEGMENT ASSETS
DECEMBER 31, 2000
-----------------------------------------------------------------
(IN THOUSANDS)
SPECIALTY INSURANCE
LIFE INSURANCE PRODUCTS
INDIVIDUAL DENTAL FINANCIAL
LIFE WEST COAST ACQUISITIONS BENEFITS INSTITUTIONS
---------- ---------- ------------ -------- ------------
Investments and other assets .... $1,237,867 $1,576,577 $1,604,854 $ 192,906 $1,369,915
Deferred policy acquisition costs
and goodwill ................. 354,320 276,518 223,430 214,770 150,984
--------- --------- --------- ------- ---------
Total assets ............. $1,592,187 $1,853,095 $1,828,284 $ 407,676 $1,520,899
========= ========= ========= ======= =========
RETIREMENT SAVINGS AND
INVESTMENT PRODUCTS
STABLE CORPORATE
VALUE INVESTMENT AND TOTAL
PRODUCTS PRODUCTS OTHER CONSOLIDATED
--------- ---------- --------- ------------
Investments and other assets .... $ 3,340,099 $ 3,844,168 $ 428,951 $13,595,337
Deferred policy acquisition costs
and goodwill ................. 2,144 127,334 81,711 1,431,211
--------- --------- ------- ----------
Total assets ............. $ 3,342,243 $ 3,971,502 $ 510,662 $15,026,548
========= ========= ======= ==========
NOTE D - STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with accounting principles generally accepted in the United States of America (i.e., GAAP) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At June 30, 2001, and for the six months then ended, Protective Life and its life insurance subsidiaries had consolidated share-owner’s equity and net loss prepared in conformity with statutory reporting practices of $637.1 million and $70.4 million, respectively.
The National Association of Insurance Commissioners (“NAIC”) has adopted the Codification of Statutory Accounting Principles (“Codification”). Codification changes current statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification resulted in an increase in Protective Life’s statutory capital of approximately $39 million on January 1, 2001.
NOTE E - INVESTMENTS
As prescribed by Statement of Financial Accounting Standard (“SFAS”) No. 115, certain investments are recorded at their market values with the resulting net unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, recorded as a component of share-owner’s equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect Protective Life’s operations, its reported share-owner’s equity will fluctuate significantly as interest rates change.
Protective Life’s balance sheets at June 30, 2001 and December 31, 2000, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
JUNE 30 DECEMBER 31
------- -----------
(IN THOUSANDS)
Total investments ............... $11,824,844 $10,258,809
Deferred policy acquisition costs 1,329,710 1,192,696
All other assets ................ 3,746,178 3,654,604
---------- ----------
$16,900,732 $15,106,109
========== ==========
Deferred income taxes ........... $ 91,693 $ 100,256
All other liabilities ........... 15,066,123 13,424,068
---------- ----------
15,157,816 13,524,324
Share-owner's equity ............ 1,742,916 1,581,785
---------- ----------
$16,900,732 $15,106,109
========== ==========
NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 2001, Protective Life adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS No. 137 and 138, will require Protective Life to record derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income of $8.3 million and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into Protective Life’s reported net income and other comprehensive income depending on future market conditions and Protective Life’s hedging activities.
In September 2000 the Financial Accounting Standards Board (“FASB”) issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This Statement is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on Protective Life’s financial position or results of operations.
In June 2001, the FASB issued SFAS Nos. 141, “Business Combinations”, and 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. This statement is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. Protective Life does not expect the adoption of SFAS No. 142 to have a material effect on Protective Life’s financial position or results of operations.
NOTE G - DERIVATIVES AND HEDGING ACTIVITIES
Protective Life utilizes a risk management strategy that incorporates the use of derivative instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.
Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. Protective Life uses interest rate swap contracts, caps, and floors to modify the interest characteristics of certain investments. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective Life uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.
Derivative instruments expose Protective Life to credit and market risk. Protective Life minimizes its credit risk by entering into transactions with highly rated counterparties. Protective Life manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.
Protective Life monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective Life’s asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into Protective Life’s overall interest rate and currency exchange risk management strategies.
All derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, Protective Life designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge), or (3) as an other derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item (“other” derivative). Changes in the fair value of a derivative that is highly effective as – and that is designated and qualifies as – a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as – and that is designated and qualified as – a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.
Protective Life formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Protective Life also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, Protective Life discontinues hedge accounting prospectively, as discussed below.
Protective Life discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.
Fair-Value Hedges
Protective Life has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective Life excludes the embedded call option’s time value component from each derivative’s total gain or loss. For the six months ended June 30, 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of $1.0 million. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.
Cash-Flow Hedges
Protective Life has not designated any hedging relationships as a cash flow hedge.
Other Derivatives
Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the six months ended June 30, 2001, Protective Life recognized total pre-tax losses of $0.9 million representing the change in fair value of these derivative instruments.
On its foreign currency swaps, Protective Life recognized an $18.8 million pre-tax loss for the first six months of fiscal 2001 while recognizing a $22.9 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net gain primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net gain is reflected in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.
Protective Life has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for a interest rate swap that converts the remaining host bond to a variable rate instrument. For the six months ended June 30, 2001, Protective Life recognized a $3.3 million pre-tax loss for the change in the asset swaps’ fair value and recognized a $0.4 million pre-tax loss to separately record the embedded equity options at fair value.
NOTE H - COMPREHENSIVE INCOME
The following table sets forth Protective Life’s comprehensive income (loss) for the periods shown:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net income ....................................... $ 26,226 $ 34,951 $ 61,394 $ 60,827
Increase (decrease) in net unrealized gains
on investments (net of income tax:
three months: 2001 - $(20,668); 2000 - $(6,864)
six months: 2001 - $27,249; 2000 - $(6,940)) .. (38,383) (12,748) 50,606 (12,888)
Reclassification adjustment for amounts
included in net income (net of income tax:
three months: 2001 - $728; 2000 -$1,145
six months: 2001 - $(338); 2000 - $319) ....... 1,353 2,127 (628) 592
Transition adjustment on derivative financial
instruments (net of income tax:
six months: 2001 - $2,127) .................... 3,951
------ ------ ------- ------
Comprehensive income (loss) ...................... $ (10,804) $ 24,330 $ 115,323 $ 48,531
====== ====== ======= ======
NOTE I - ACQUISITION
On June 22, 2001, PLC announced that Protective Life has agreed to acquire the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The transaction is subject to regulatory approval and certain customary closing conditions. The purchase price is approximately $250 million. The companies’ business primarily consists of universal life insurance products and fixed and variable annuities, representing approximately 170,000 policies, $160 million of annual premiums, and $1.6 billion of reserves.
NOTE J - RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owner’s equity.
NOTE K - SUBSEQUENT EVENT
On July 10, 2001, PLC announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. for approximately $300 million. Substantially all of the Dental Benefits Division is owned by Protective Life. Protective Life anticipates that the transaction will close in the fourth quarter of 2001, and will be accounted for as discontinued operations. The transaction is subject to regulatory approval and certain customary closing conditions. Protective Life will realize a pretax gain on the sale, but will incur income tax expense and exit costs that will result in a loss after income tax of approximately $23.9 million. Protective Life will also discontinue other health insurance lines that are operated by the Dental Benefits Division, but are currently reported in the Corporate and Other segment. These other health insurance lines reported a loss in the second quarter of 2001 of approximately $16.0 million due to reserve strengthening that Protective Life believes is sufficient to cover net operating losses expected during the run-off of the business.
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Protective Life Insurance Company (“Protective Life”) is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol “PL”. Founded in 1907, Protective Life provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires “Protective Life” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.
In accordance with General Instruction H(2)(a), Protective Life includes the following analysis with the reduced disclosure format.
Protective Life operates seven divisions whose principal strategic focuses can be grouped into three general categories: life insurance, specialty insurance products, and retirement savings and investment products. Protective Life’s Divisions are: Individual Life, West Coast, Acquisitions, Dental Benefits, Financial Institutions, Stable Value Products, and Investment Products. Protective Life also has an additional business segment which is Corporate and Other.
This report includes “forward-looking statements” which express expectations of future events and/or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and Protective Life cannot give assurance that such statements will prove to be correct. Please refer to Exhibit 99 herein for more information about factors which could affect future results.
The following discussion and analysis primarily relates to the six months ended June 30, 2001, as it compares to the same period last year. Unless otherwise noted, the general factors discussed also apply to the quarter ended June 30, 2001, as it compares to the same quarter last year. Where needed for a more complete understanding of Protective Life’s operating results, information related to the quarters ended June 30, 2001 and 2000 have been provided. It is management’s opinion that quarterly operating results for insurance enterprises are not necessarily indicative of results to be achieved in succeeding quarters, and that a review of operating results over a longer period yields a better understanding of Protective Life’s performance.
Revenues
The following table sets forth revenues by source for the period shown, and the percentage change from the prior period:
SIX MONTHS PERCENTAGE
ENDED INCREASE/
JUNE 30 (DECREASE)
---------------------- ----------
(IN THOUSANDS)
2001 2000
---- ----
Premiums and policy fees ......... $ 477,721 $ 354,573 34.7%
Net investment income ............ 401,897 336,666 19.4
Realized investment gains (losses) 1,469 (1,410) 204.18
Other income ..................... 26,599 26,103 1.9
------- -------
$ 907,686 $ 715,932
======= =======
Premiums and policy fees, net of reinsurance ceded, increased $123.1 million or 34.7% in the first six months of 2001 over the six months of 2000. Premiums and policy fees in the Individual Life Division increased $9.4 million in the first six months of 2001 as compared to the same period in 2000. Premiums and policy fees in the West Coast Division increased $12.8 million in the first six months of 2001 as compared to the same period in 2000. Premiums and policy fees in the Acquisitions Division are expected to decline with time unless new acquisitions are made. In the first quarter of 2001 Protective Life coinsured a block of individual life policies from Standard Insurance Company. This coinsurance arrangement resulted in a $32.9 million increase in premium and policy fees. Premiums and policy fees from older acquired blocks decreased $4.7 million in the first six months of 2001 as compared to the same period last year. In October 2000, PLC transferred ownership of twenty companies (that provide prepaid dental products) to Protective Life. In May 2001, PLC transferred ownership of five additional companies (that provide prepaid dental products) to Protective Life. The operations of these companies are included in Protective Life’s Dental Benefits Division and resulted in a $58.9 million increase in premium and policy fees in the Division in the first six months of 2001. Premiums and policy fees related to the Dental Benefits Division’s other businesses increased $4.6 million in the first six months of 2001 as compared to the same period in 2000. Premiums and policy fees from the Financial Institutions Division increased $10.3 million in the first six months of 2001 as compared to the first six months of 2000. Premiums and policy fees from the Investment Products Division decreased $0.5 million in the first six months of 2001 as compared to the same period last year. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment decreased $0.6 million in the first six months of 2001 as compared to the same period in 2000.
Net investment income in the first six months of 2001 increased by $65.2 million over the corresponding period of the preceding year primarily due to an increase in the average amount of invested assets. The January 2001 acquisition of a block of individual life policies resulted in an increase in investment income of $26.8 million.
Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. However, Protective Life may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective Life has classified its fixed maturities and certain other securities as “available for sale.” The sales of investment that have occurred have resulted principally from portfolio management decisions to maintain approximate matching of assets and liabilities.
Realized investment gains for the first six months of 2001 were $1.5 million as compared to realized investment losses of $1.4 million in the corresponding period of 2000.
Other income consists primarily of revenues from Protective Life’s direct response business, service contract business, non-insurance subsidiaries and rental of space in its administrative building to PLC. In the first six months of 2001 as compared to the same period of 2000, revenues from Protective Life’s direct response business and service contract business increased $1.6 million and decreased $0.5 million, respectively. Income from other sources decreased $0.6 million.
Income Before Income Tax
The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:
OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE INCOME TAX
SIX MONTHS ENDED JUNE 30
(IN THOUSANDS)
2001 2000
Operating Income (Loss)(1) ---- ----
Life Insurance
Individual Life .................................... $ 21,696 $ 19,688
West Coast ......................................... 21,318 16,885
Acquisitions ....................................... 32,203 26,579
Specialty Insurance Products
Dental Benefits .................................... 16,054 8,466
Financial Institutions ............................. 17,653 16,418
Retirement Savings and Investment Products
Stable Value Products .............................. 16,655 15,947
Investment Products ................................ 7,372 6,887
Corporate and Other ..................................... (27,291) (14,983)
------- ------
Total operating income ....................... 105,660 95,887
------- ------
Realized Investment Gains (Losses)
Stable Value Products .............................. 2,695 (89)
Investment Products ................................ 24 420
Unallocated Realized Investment Gains (Losses) ..... (1,250) (1,741)
Related Amortization of Deferred Policy Acquisition Costs
Investment Products ................................ (24) (420)
------- ------
Total net .................................... 1,445 (1,830)
------- ------
Income (Loss) Before Income Tax
Life Insurance
Individual Life .................................... 21,696 19,688
West Coast ......................................... 21,318 16,885
Acquisitions ....................................... 32,203 26,579
Specialty Insurance Products
Dental Benefits .................................... 16,054 8,466
Financial Institutions ............................. 17,653 16,418
Retirement Savings and Investment Products
Stable Value Products .............................. 19,350 15,858
Investment Products ................................ 7,372 6,887
Corporate and Other ..................................... (27,291) (14,983)
Unallocated Realized Investment Gains (Losses) .......... (1,250) (1,741)
------- -------
Total income before income tax ............... $ 107,105 $ 94,057
======= =======
(1) Income before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition
costs.
The Individual Life Division’s pretax operating income was $21.7 million in the first six months of 2001 compared to $19.7 million in the same period of 2000. During the first six months of 2001 as compared to the same first period of 2000, the division experienced increased net investment income from an internal interest rate swap with the Company’s Stable Value Products Division. This increase was partially offset by a change in mortality experience. The Division’s mortality experience was $0.3 million less favorable than expected in the first six months of 2001 as compared to being $1.2 better than expected in the first six months of 2000.
West Coast had pretax operating income of $21.3 million for the first six months of 2001 compared to $16.9 million for the same period last year. The increase reflects the Division’s growth through sales.
Pretax operating income from the Acquisitions Division was $32.2 million in the first six months of 2001 as compared to $26.6 million in the same period of 2000. The coinsurance of a block of life insurance policies from Standard Life Insurance Company resulted in $5.9 million of the increase in earnings in the first six months of 2001 as compared to the same period last year. Additionally, the Division received $0.7 million additional investment income in the first six months of 2001 from an internal rate swap with the Company’s Stable Value Products Division. These increases were partially offset by a change in mortality experience. The Division’s mortality experience was $0.3 million less favorable than expected in the first six months of 2001 as compared to $1.8 million better than expected in the first six months of 2000. Earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made.
The Dental Benefits Division’s pretax operating income was $16.1 million in the first six months of 2001 compared to $8.5 million in the same period last year. The aforementioned transfer of companies from PLC resulted in a $2.0 million increase in pretax operating income. The remainder of the increase reflects a reduction of operating expense and improved claims experience.
Pretax operating income of the Financial Institutions Division was $17.6 million in the first six months of 2001 as compared to $16.4 million in the same period of 2000. The Division’s results in the first six months of 2001 include approximately $1.3 million of unusual income resulting from the release of liabilities associated with certain lapsed service contract business. Service contract loss ratios improved in the first six months of 2001 as compared to the same period last year. Also, credit life and disability claims improved in the first half of 2001, but this benefit was partially offset by higher lapses due to refinancings and a weaker economy.
The Stable Value Products Division had pretax operating income of $16.6 million in the first six months of 2001 and $15.9 million in the corresponding period of 2000. This increase is due primarily to higher account balances. Realized investments gains associated with this Division in the first six months of 2001 were $2.7 million as compared to losses of $0.1 million in the same period last year. As a result, total pretax earnings were $19.3 million in the first six months of 2001 compared to $15.9 million for the same period last year.
The Investment Products Division’s pretax operating income was $7.4 million in the first six months of 2001 compared to $6.9 million in the same period of 2000. The Division had no realized investment gains (net of related amortization of deferred policy acquisition costs) in the first six months of 2001 or 2000.
The Corporate and Other segment consists primarily of net investment income on unallocated capital and other operating expenses not identified with the preceding operating divisions (including management fees paid to PLC and interest on substantially all debt), several lines of business which Protective Life is not actively marketing (mostly health insurance), and the operations of a small noninsurance subsidiary. The pretax loss for this segment was $27.3 million in the first six months of 2001 compared to a loss of $15.0 million in the first six months of 2000. The second quarter of 2001 included a loss of $16.0 million related to reserve strengthening in the health insurance lines that will be discontinued when the sale of the Dental Benefits Division is completed. (See section entitled "Other matters" included herein). The segment experienced $3.7 million of other decreases in earnings in the first six months of 2001 as compared to the same period in 2000.
Income Taxes
The following table sets forth the effective tax rates for the periods shown:
SIX MONTHS
ENDED ESTIMATED EFFECTIVE
JUNE 30 INCOME TAX RATES
---------- --------------------
2000 35.3%
2001 34.9
The effective income tax rate for the full year of 2000 was 35.3%. Management’s estimate of the effective income tax rate for 2001 is approximately 35.0%.
Net Income
The following table sets forth net income for the periods shown, and the percentage change from the prior period:
NET INCOME
--------------------------------------
SIX MONTHS PERCENTAGE
ENDED TOTAL INCREASE/
JUNE 30 (IN THOUSANDS) (DECREASE)
---------- -------------- ----------
2000 $60,827 (7.2)%
2001 61,394 0.9
Compared to the same period in 2000, net income in the first six months of 2001 increased $0.6 million, reflecting improved operating earnings in all Divisions and higher realized investment gains (net of related amortization of deferred policy acquisition costs) which were offset by lower operating results in the Corporate and Other segment and a charge to earnings resulting from the cumulative effect of a change in accounting principle.
Other Matters
On July 10, 2001, PLC announced that it had entered into an agreement to sell substantially all of its Dental Benefits Division to Fortis, Inc. for approximately $300 million. Substantially all of the Dental Benefits Division is owned by Protective Life. Protective Life anticipates that the transaction will close in the fourth quarter of 2001, and will be accounted for as discontinued operations. The transaction is subject to regulatory approval and certain customary closing conditions. Protective Life will realize a pretax gain on the sale, but will incur income tax expense and exit costs that will result in a loss after income tax of approximately $23.9 million. Protective Life will also discontinue other health insurance lines that are operated by the Dental Benefits Division, but are currently reported in the Corporate and Other segment. These other health insurance lines reported a loss in the second quarter of 2001 of approximately $16.0 million due to reserve strengthening that Protective Life believes is sufficient to cover net operating losses expected during the run-off of the business.
On June 22, 2001, PLC announced that Protective Life had agreed to acquire the stock of Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The transaction is subject to regulatory approval and certain customary closing conditions. The purchase price is approximately $250 million. The companies’ business primarily consists of universal life insurance products and fixed and variable annuities, representing approximately 170,000 policies, $160 million of annual premiums, and $1.6 billion of reserves.
Recently Issued Accounting Standards
In September 2000 the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This Statement is effective for transfers and servicing of financial assets and extinquishments of liabilities occurring after March 31, 2001.
In June 2001, the FASB issued SFAS Nos. 141, “Business Combinations”, and 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. This statement is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. Protective Life does not expect the adoption of SFAS No. 142 to have a material effect on Protective Life’s financial position or results of operations.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99 - Safe Harbor for Forward-Looking Statements
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Date: | August 14, 2001 | /s/ Jerry W. Defoor |
| | Jerry W. DeFoor |
| | Vice President and Controller |
| | and Chief Accounting Officer |
| | (Duly authrorized officer) |
