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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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(Commission File No. 1-7255)
AMERICAN HERITAGE LIFE INVESTMENT
CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-1219710
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
AMERICAN HERITAGE LIFE BUILDING
1776 AMERICAN HERITAGE LIFE DRIVE
JACKSONVILLE, FLORIDA 32224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number - Area Code 904-992-1776
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of Exchange)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 the registrant'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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on February 28, 1999 was approximately $295,656,042.
As of February 28, 1999, there were 27,906,217 shares of Common Stock, par
value $1.00 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
PROXY STATEMENT DATED MARCH 23, 1999 PART III
(Document) (Where Incorporated)
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TABLE OF CONTENTS
ITEM PAGE
NO. DESCRIPTION NO.
- ---- ----------- ----
1. BUSINESS ...................................................................................... 3
2. PROPERTIES .................................................................................... 14
3. LEGAL PROCEEDINGS ............................................................................. 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................................... 15
5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS ........................................................................... 15
6. SELECTED FINANCIAL DATA ....................................................................... 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................................................... 17
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................................... 22
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................... 23
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ........................................................... 47
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............................................ 47
11. EXECUTIVE COMPENSATION ........................................................................ 49
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ................................................................................ 49
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................................ 49
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ................................................................................... 50
SIGNATURES .................................................................................... 52
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ITEM 1. BUSINESS
American Heritage Life Investment Corporation is a holding company
whose principal subsidiaries are American Heritage Life Insurance Company
("AHL") and Columbia Universal Life Insurance Company ("CUL"). (Collectively,
American Heritage Life Investment Corporation and its subsidiaries are the
"Company".) AHL was organized on September 11, 1956 and is presently authorized
to do business as a life insurance company in all states, other than New York,
and in the District of Columbia, U.S. Virgin Islands and Puerto Rico. AHL is
engaged in the business of underwriting life and accident and health insurance
on an individual, group and credit basis. AHL is a leading marketer of life and
supplemental health insurance products sold through workplace marketing, a
specialized distribution method on which it has focused since its inception.
Workplace marketing is an efficient way to distribute most products to employees
on the job by conveniently deducting the premium from their paychecks. CUL, a
subsidiary of AHL, markets annuity and individual life insurance products and is
currently licensed in 41 states, the District of Columbia and Puerto Rico.
The Company has reported increased operating earnings for 23
consecutive years and has increased dividends to shareholders for 29 consecutive
years. The following chart presents the Company's consolidated operating
earnings for the last ten years. Operating earnings are defined as net earnings
excluding realized investment gains and losses, net of income taxes, and
non-recurring gains related to the sale of home office property.
OPERATING EARNINGS HISTORY
YEAR ENDED % INCREASE
DECEMBER 31 OPERATING EARNINGS FROM PRIOR YEAR
----------- ------------------ ---------------
(IN THOUSANDS)
1989.............................................. $11,920 11.9%
1990.............................................. 13,409 12.5
1991.............................................. 15,019 12.0
1992.............................................. 16,739 11.5
1993.............................................. 18,945 13.2
1994.............................................. 22,334 17.9
1995.............................................. 24,174 8.2
1996.............................................. 26,759 10.7
1997.............................................. 31,058 16.1
1998.............................................. 36,388 17.2
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The Company's principal subsidiary, AHL, is rated "A+ (Superior)" by
A.M. Best, an independent nationally recognized insurance publishing and rating
service and has an insurer claims paying ability rating of "AA" from Standard &
Poor's Insurance Rating Services. A.M. Best ratings for solvent insurance
companies range from "A++ (Superior)" to "D (Very Vulnerable)". An A.M. Best
rating is intended to provide an independent opinion of an insurer's ability to
meet its obligations to policyholders and should not be considered an investment
recommendation. A Standard & Poor's insurance claims paying ability rating is an
assessment of an operating insurance company's financial capacity to meet
obligations under an insurance policy in accordance with its terms. Standard &
Poor's ratings range from "AAA (Extremely strong capacity to meet contractual
policy obligations)" to "D (Default, terms of the obligation will not be met)."
AHL's AA rating, the second highest major rating category, indicates a very
strong capacity to meet contractual policy obligations. At December 31, 1998,
the Company had $2.1 billion of total assets, $278.1 million of stockholders'
equity, and $27.6 billion of gross life insurance volume in force. Also,
approximately 96% of the $984.3 million of debt securities held by the company
had an investment grade ratings.
The executive offices of the Company are located at the American
Heritage Life Building, 1776 American Heritage Life Drive, Jacksonville, Florida
32224, and the Company's telephone number is (904) 992-1776.
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BUSINESS STRATEGIES
The Company's objective is to continue its record of increased
operating earnings by following the strategies set forth below:
COMMITMENT TO CORE BUSINESS. The Company's primary focus will
continue to be on its core businesses. Additionally, the Company will
continue to evaluate opportunities to grow from expansion through
strategic alliances and acquisitions of blocks of business and/or
companies that are compatible with the Company's core businesses.
CONCENTRATION ON MARKET NICHE. The Company believes it has a
competitive advantage in workplace marketing based upon its commitment
to provide quality service, its offering of an expanding portfolio of
products, and its development of processes and technology that are
unique to servicing and administering that marketplace.
SYNERGISTIC MARKETING AND STRATEGIC ALLIANCES. The Company's
three marketing areas -- ordinary, group and credit -- and acquisition
companies provide opportunities for cross-selling the Company's
products, particularly to provide the Company's ordinary operations
access to sell workplace marketing products. The Company also has and
is continuing to develop strategic alliances with other insurers to
cross-sell such entities' products and to allow each entity access to
the other's distribution channels.
FOCUS ON EXPENSE CONTROL. The Company believes that its record
of profitable growth has resulted from a combination of revenue growth
and focus on expense control. The Company's ratio of general insurance
expenses to total revenue (defined for this purpose as including
premiums, premium equivalents and investment income and excluding
realized investment gains and losses) has been recognized as being low
as compared to industry norms. General insurance expenses as a
percentage of total revenues for the years ended December 31, 1988
through 1998, ranged from a high of 6.2% to a low of 4.9% with a
current level of 6.0% for the year ended December 31, 1998.
ACQUISITIONS
The Company acquired Columbia Universal Life Insurance Company
effective January 1, 1997. Effective December 31, 1996, the Company acquired a
block of business from Kentucky Home Mutual Life Insurance Company with
approximately $1.8 million of premiums and premium equivalents and $3.3 million
of assets. On June 30, 1997, the Company closed on the acquisition of Concord
General Life Insurance Company, now Concord Heritage Life Insurance Company
(Concord). Effective July 31, 1997, AHLIC acquired ERJ Insurance Group, Inc., a
credit insurance marketing organization. Effective September 30, 1997, the
Company acquired a block of business from Security Life of Denver, a member of
the ING Group, with approximately $14.0 million of premiums. On June 30, 1998,
the Company closed on the acquisition of Keystone State Life Insurance Company
(Keystone) of Philadelphia, Pennsylvania. Each of these acquisitions has been
accounted for as a purchase and the operating results from the respective
acquisition effective dates are included in the consolidated statement of
earnings.
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MARKETING AREAS
The Company has three primary marketing areas: ordinary, group and
credit. The following table sets forth the insurance revenues and pre-tax
operating earnings of the three marketing areas for each of the years in the
five year period ended December 31, 1998.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
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($ IN THOUSANDS)
INSURANCE REVENUES (1):
Ordinary
Life $ 73,456 $ 60,957 $ 42,998 $ 40,173 $ 38,405
Accident and health 123,979 107,261 94,423 83,545 75,588
-------- -------- -------- -------- --------
Total ordinary $197,435 $168,218 $137,421 $123,718 $113,993
-------- -------- -------- -------- --------
Group
Life $ 14,249 $ 9,906 $ 10,482 $ 8,604 $ 7,719
Accident and health 25,715 21,128 24,998 31,321 35,503
-------- -------- -------- -------- --------
Total group $ 39,964 $ 31,034 $ 35,480 $ 39,925 $ 43,222
-------- -------- -------- -------- --------
Credit
Life $ 28,373 $ 32,753 $ 36,650 $ 35,380 $ 29,516
Accident and health 43,085 47,826 48,968 48,228 43,858
-------- -------- -------- -------- --------
Total credit $ 71,458 $ 80,579 $ 85,618 $ 83,608 $ 73,374
-------- -------- -------- -------- --------
Total $308,857 $279,831 $258,519 $247,251 $230,589
======== ======== ======== ======== ========
INSURANCE REVENUES AND PREMIUM EQUIVALENTS (1):
Ordinary $285,219 $241,080 $181,469 $167,325 $161,612
Group 221,787 223,596 214,933 206,354 167,520
Credit 144,582 173,784 171,209 138,134 116,318
-------- -------- -------- -------- --------
Total $651,588 $638,460 $567,611 $511,816 $445,450
======== ======== ======== ======== ========
PRE-TAX OPERATING EARNINGS (2):
Ordinary $ 49,768 $ 40,314 $ 35,070 $ 28,935 $ 26,049
Group 4,882 4,608 4,513 7,470 7,323
Credit 6,678 5,604 3,750 2,739 1,754
-------- -------- -------- -------- --------
Total $ 61,328 $ 50,526 $ 43,333 $ 39,144 $ 35,126
======== ======== ======== ======== ========
(1) Pursuant to generally accepted accounting principles insurance revenues
include only the fees charged for interest-sensitive and administrative
services only business and do not include group and credit premium
equivalents and reinsured premiums, and cash deposits from
interest-sensitive products. Thus it is necessary to evaluate insurance
revenues including premium equivalents. Ordinary insurance revenues for
reporting purposes pursuant to generally accepted accounting principles
include only the cost of insurance, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include cash
deposits from interest-sensitive products. Group and credit insurance
revenues for GAAP reporting purposes do not include premium equivalents
for the periods presented. Group premium equivalents represent the
claim costs paid for split funded or self funded plans which are paid
with policyholder funds as opposed to being paid by the Company. Under
indemnity type plans offered by the Company, claims are considered in
determining the premiums to be paid by the policyholder. Credit premium
equivalents represent reinsured premiums and earned premium equivalents
related to administrative services only business.
(2) Pre-tax operating earnings represent the pre-tax operating earnings of
the respective marketing areas excluding non-insurance related income
and expense and realized investment gains and losses.
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ORDINARY DEPARTMENT
GENERAL. Ordinary operations provide interest-sensitive products
(universal life, single and flexible premium deferred annuities, single premium
immediate annuities), level and decreasing term products and supplemental
accident and health insurance products to individuals. The largest portion (86%
for the year ended December 31, 1998) of new annualized sales was produced
through workplace marketing with the remainder produced by a variety of direct
billing methods through individual agents. The Company's strategy in its
ordinary operations is to offer a broader product mix than its competitors
through workplace marketing and to solicit all of the employee base by targeting
direct sales of insurance products to higher income employees in addition to
payroll deduction sales. Recent life insurance studies published by LIMRA
International, a prominent industry market research organization, indicate that
AHL is one of only four life insurance companies that sell in excess of $40
million of voluntary payroll life and payroll health insurance premiums per
year. To describe the Company's differentiation in the marketplace, the Company
has coined the following descriptive phrase: "AHL -- The Workplace Marketer(R)--
the company that serves the life and supplemental health insurance needs of the
American worker -- from the lunchroom to the board room."
Sales opportunities through workplace marketing continue to be very
promising. Employers are receptive to the concept of offering voluntary employee
payroll insurance products because it is seen as one of the solutions to contain
the cost of employee benefits. In 1998, AHL introduced WorkplaceChoice, a core
benefit electronic enrollment system. WorkplaceChoice integrates AHL products
with other employee benefits an employer might provide. It is one of the most
sophisticated electronic enrollment systems available in the industry today. It
enhances sales within a case, because for it to be beneficial to the employer,
all employees must be seen individually. Business owners endorse this approach
because, without Human Resource Department intervention, it creates an awareness
among employees of some of the non-salaried benefits the employer provides, it
documents employer communication of benefits to employees for Human Resources
audits, and it can also help an employer update personnel records.
The Ordinary Department has been a key component of the strategy and
profit-making ability of the Company since its founding. For the year ended
December 31, 1998, the Ordinary Department accounted for approximately 81% of
the Company's pre-tax operating earnings, which excludes non-operating items not
allocated to the marketing areas.
MARKETS. Many ordinary life insurance companies focus on the upscale
market consisting of those individuals earning $80,000 or more. However, this
target market constitutes a small percentage of the buyer population. By
targeting the entire workplace, including the lower income worker earning under
$40,000 per year and the middle income worker earning $40,000-$80,000 per year,
the Company has increased its market to a majority of the buyer population.
Furthermore, the Company offers a multiple product line of life and supplemental
health products, rather than the more narrow product mix offered by some other
companies, thereby increasing its marketing opportunities.
The Company believes that by targeting a much larger market and
offering the workplace market a full range of life and supplemental health
products results in a stronger marketing strategy.
PRODUCTS. The Company's strategy is to price its products at levels
competitive with those of comparable products in the market, so long as they
will provide an acceptable profit margin. Set forth below are the primary
products offered:
COMPREHENSIVE PRODUCT PORTFOLIO
Universal Life Group Voluntary Term
Term Life Group Voluntary Disability
Annuities Limited Benefit Medical Plan
Cancer Heart/Stroke
Accident Long Term Care
Disability Income Home Health Care
Hospital Indemnity
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New product development is underway to add to the payroll portfolio. A
group voluntary disability income product, a group voluntary term product and a
sickness rider attached to the Company's accident product were introduced. In
1999, the Company is introducing a Limited Benefit Medical Plan which is
marketed through Group and Ordinary agents. This innovative approach to
satisfying employer needs provides access to medical benefits for part-time or
otherwise under- benefitted employees.
It is the general policy of the Company to declare the interest rate to
be credited on funds received from interest-sensitive products monthly with such
rates being guaranteed for one year for both first year and renewal funds during
a particular month. All interest-sensitive products are subject to surrender
charge provisions which vary depending upon the particular type of policy. For
universal life-type policies, the surrender charges generally range over a
period of 5-20 years at varying rates, depending upon the plan of insurance.
For annuities, the surrender charges generally range over a period of 7-10 years
with charges varying from 1% to 10% of the accumulated fund value over the
surrender charge period.
All ordinary accident and health products are guaranteed renewable,
with periodic rate increases permitted due to adverse claims experience with the
approval of the respective state insurance department. Major health products
include cancer, accident, disability income, long-term care, home health care,
heart/stroke and hospital income. Premiums on ordinary policies are payable on a
monthly, quarterly, semi-annual, annual, single or flexible premium basis.
The Company's current practice dictates that unless the need for a
medical examination is indicated by the age and amount applied for or by an
investigation, the majority of ordinary life insurance is written without
requiring a medical examination in amounts up to $250,000 on applicants aged
0-35; up to $150,000 on applicants aged 36-40; up to $99,999 on applicants aged
41-50; up to $49,999 on applicants up to age 60. Somewhat higher limits are
permitted for certain agents with home office approval. A blood chemistry
profile is generally required for insurance amounts of $100,000 and greater.
DISTRIBUTION SYSTEM/STRATEGIC ALLIANCES. The Company's products are
marketed through the personal producing general agent ("PPGA") system in 49
states. The Company has found the PPGA system to be an efficient distribution
system. These agents are not exclusively AHL producers but may write business
for several insurance companies. Each PPGA's compensation is based only upon
production. Additionally, AHL's strategic alliance initiative targets life
insurance companies to offer AHL's workplace marketing products through their
existing distribution systems. The interest level expressed by the targeted
companies is high due to several factors, including the promising potential of
workplace marketing, the targeted companies' lack of one or more of the major
components necessary for success in workplace marketing, and the targeted
companies' recognition of AHL as a successful, quality company dedicated and
committed to workplace marketing. The Company presently has strategic alliance
partnerships in place with several life insurance companies which are expected
to provide access to additional untapped distribution systems.
The Ordinary Department's distribution system operates with efficiency
and effectiveness that are consistent with the Company's philosophy as a service
oriented, results driven organization. In addition to the Home Office, the
Company maintains 16 regional offices located throughout the United States. The
Company expanded its national presence in 1998 by establishing additional
regional offices in Philadelphia, Pennsylvania and Salt Lake City, Utah. In
1999, new regional offices have been opened in San Antonio, Texas and Overland
Park, Kansas. The decision to expand the number of regional offices was
influenced by the Company's desire to fully support the evolving opportunities
developing with strategic alliances and national accounts. To further support
our sales commitment, a Sales Technology Services Department was formed. In
addition to providing sales support service and training on AHL's
WorkplaceChoice electronic enrollment system, the department is responsible for
researching, evaluating and implementing a variety of technically supported
sales opportunities.
SUBSIDIARIES. The acquisition of CUL, Concord and Keystone have
provided the company with enhanced distribution and product packaging
opportunities. During 1998, a foundation was laid to facilitate trans-marketing
opportunities between AHL's ordinary PPGA distribution system and the
distribution of these subsidiary companies.
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Complementary products were developed to increase the breadth of the combined
product line. A simple and easy to use application for insurance was developed
that could accept applications for multiple products underwritten by two or more
of the affiliated companies. In 1999, a marketing strategy will be implemented
to maximize this favorable combination of payroll products available at the
workplace. Expanded marketing services capabilities and continuing commitment to
efficiencies created by technology and economies of scale will further support
this implementation.
In addition to new products under development for the AHL Ordinary
Division, subsidiary product introductions throughout the year will include a
tax sheltered annuity and an interest sensitive whole life plan.
GROUP DEPARTMENT
GENERAL. Group operations distribute insurance products and related
services to employers for their employee benefit plans. The Company provides
life, disability, medical and dental insurance programs, which are the
foundation of any employer's package of group benefits. The Company furnishes
all components necessary to effectively manage program costs for the client
companies including a provider network, managed care program and benefits
determination. Group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental and
major medical coverage. In offering these product lines, the Company provides a
wide range of funding vehicles from fully insured to employer funded products,
which the Company tailors to the particular needs of its employer clients.
MARKETS. Although the Company's Group Department focuses its efforts in
the southeastern United States, it has clients of national scope. The Company
markets group life and health insurance to corporate employers who have 51 or
more employees located in the southeast. The Company has focused on an
integrated approach to manage benefits. With health care being a locally
delivered product, it is important to establish close relations with providers
and client companies.
The Company's target market will continue to be corporate employers
with 100 or more lives. Particular emphasis has been placed on direct marketing
to those employers having a home office or regional presence within the
southeastern United States employing between 500 and 5,000 employees. With
many multi-thousand life groups, AHL is proficient in the management of large
groups. The products offered by the Company's Group Department complement the
individual life and health products sold through workplace marketing and provide
the Company's agents and brokers and the Company's client companies with a
complete portfolio of products and services.
PRODUCTS. The Company's group products include group term life
insurance, accidental death and dismemberment, short-term disability, long-term
disability, dental, and major medical coverage. A wide range of funding
vehicles, including fully insured, split funding and self-funded products, are
sold within these product lines. For the years ended December 31, 1998 and 1997,
approximately 82% and 86%, respectively, of group business (based on premiums
and premiums equivalents) was written on a self-funded or split funded basis.
The Company has developed innovative new products and approaches to
controlling and reducing health care costs for its client companies.
Specifically, two areas that continue to enhance the products and services
offered by the Group Department are the AHL Select Provider Network and its
managed care activities. Through the AHL Select Provider Network, the Company's
customers receive preferential pricing from hospitals, physicians, and other
providers of medical services and supplies. At year end 1998, there were 2,196
hospitals and 141,385 physicians included in the AHL Select Provider Network.
The Company's managed care activities, which utilize a professional staff with
diverse medical and clinical backgrounds to assist the Company's insureds in
obtaining quality medical care, include preadmission certification, prenatal,
cancer, psychiatric, substance abuse, and large case management programs.
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The Company will continue to develop products and services to meet
employer/employee needs. As managed care has gained growing acceptance within
the Company's market, the Company has complemented its product line with the
introduction of health maintenance organizations ("HMO") products. The HMO
product offering is limited to the North Florida area to capitalize on the
strong relationships the Company enjoys with the provider community in the
region. During 1998, the Group Department developed medical products to address
the needs of employers and their part-time employees by developing a limited
medical benefit plan. Early market reaction has been very favorable.
DISTRIBUTION SYSTEM. The Company's group life and health products are
distributed through its regional group managers working with agents,
consultants, brokers and directly with policyholders.
The Company's strategy of focusing its marketing efforts on the
brokerage and consulting community has resulted in a significant portion of
sales coming from this important business segment. The Company has been
successful in demonstrating the value of its products and services to leading
brokerage firms.
CREDIT DEPARTMENT
GENERAL. Credit operations consist of life and accident and health and
property coverages offered to consumer debtors, primarily through banks,
automobiles dealers, finance companies, credit unions and retailers. The Company
currently offers credit insurance products in 44 states and ranks among the top
10 credit life providers in the country, according to 1997 information compiled
by the NAIC. Typically, credit insurance will pay outstanding loan obligations
in the event of an insured loss. This coverage is issued on either the
single-premium or outstanding loan balance basis.
MARKETS AND PRODUCTS. The AHL Credit Department is a full service
credit insurance operation (credit life, credit accident and health insurance)
providing direct and reinsured programs to a broad spectrum of the marketplace
including the bank, automobile dealer, finance company, credit union and retail
markets. The Company also offers credit property insurance through its
wholly-owned subsidiary, First Colonial Insurance Company. In addition, the
Company provides training and additional products that generate fee income
through ERJ Insurance Group, Inc. ("ERJ") its wholly-owned subsidiary based in
Miami Springs, Florida.
The distribution channels used by AHL to market credit insurance
products include direct marketing by regional sales managers, home office based
marketing staff, ERJ-based marketing, and the general agency system. As
a result, the opportunity for growth is excellent and the Company anticipates
continuing to grow and expand its credit operations.
TECHNOLOGY. The Credit Division's operations are enhanced by
state-of-the art technology. The XYCOR system is an on-line system that allows
all areas of the Credit Department to interact in the administration of the
Credit insurance business. The system allows for simultaneous processing of new
premiums and refunds, agent commissions, reinsurance reporting, account
experience reporting and claims. The system creates processing efficiencies by
minimizing input redundancy, improving access to data and the generation of
error and control reports. It provides marketing support by generating
information that can be used for profitability, trend and exposure analysis. The
system has greatly assisted the Credit Department in attracting and maintaining
accounts and assisting others to manage their blocks of business.
COMPETITION. The credit industry is well established, and is closely
controlled by state regulation. Competition and consolidation activity were very
strong in recent years. Several companies have restricted their marketing and
several competitors have withdrawn completely from the market place. These
changes have created opportunities for both new account sales and the
administration of run-off business for companies that have ceased writing credit
insurance. The Company has successfully administered the run-off business for
companies that had terminated their credit operations. The Company also has
increased its sales of reinsured business which currently accounts for 64% of
its total credit insurance business. The Company currently administers 169
reinsurance companies compared to 10 in 1990 which, along with its tight expense
controls, allows it to be very competitive in this market.
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FUTURE PLANS. New credit sales continue to increase as a result of
opening new accounts, expansion of existing accounts and expansion into new
markets. Also, the Company will continue to increase the sale of reinsured
business, which generally provides less risk at an acceptable profit margin. The
Company has been successful in achieving a balance in its sources of business
from banks, credit unions, automobile dealers, consumer finance companies and
retailers. The Credit Department and ERJ will focus on increasing the Company's
market share through geographic expansion, increased product offerings and
services in existing accounts and new product development.
INVESTMENTS
The Company's investment objective is to earn a favorable return on
invested assets in excess of contractual obligations through a diversified
portfolio of high-quality, income-producing assets including primarily bonds,
preferred stocks, common stocks and mortgages (residential and commercial). The
Company carefully matches the investment portfolio's assets with its policy
liabilities. A positive investment spread has been attained for all products.
The maturity of the investment portfolio is monitored so that the Company will
be able to fund its future expected cash obligations.
At December 31, 1998 and 1997, the Company had consolidated invested
assets of $1,598.0 million and $1,471.4 million, respectively. The following
tabulation sets forth the categories, amounts and percentages of these
investments.
DECEMBER 31, DECEMBER 31,
1998 % OF TOTAL 1997 % OF TOTAL
----------- ---------- ------------ ----------
($ IN THOUSANDS)
Debt securities available-for-sale $ 984,333 61.6% $ 923,287 62.8%
Equity securities available-for-sale 35,795 2.2 36,817 2.5
Mortgage loans on real estate 88,922 5.6 70,697 4.8
Investment real estate 532 -- -- 482
Policy loans 481,970 30.2 407,482 27.7
Short term investments 6,420 .4 32,635 2.2
---------- ----- ---------- -----
Total $1,597,972 100.0% $1,471,400 100.0%
========== ===== ========== =====
At December 31, 1998, the Company had consolidated debt securities
available-for-sale at an amortized cost of $945.7 million and a fair value of
$984.3 million. The following tabulation sets forth these investments by
Standard and Poor's rating categories.
DECEMBER 31, 1998
----------------------------
RATING AMORTIZED COST FAIR VALUE
- ------ -------------- ----------
($ IN THOUSANDS)
AAA $222,047 $229,403
AA 58,729 61,969
A,A- 238,322 253,358
BBB+, BBB, BBB- 318,600 331,080
BB+ and lower 42,411 41,022
Private placements 14,288 16,650
-------- --------
Total bonds 894,397 933,482
Redeemable preferred stocks 51,278 50,851
-------- --------
Total debt securities available-for-sale $945,675 $984,333
======== ========
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The amortized cost and estimated fair value of debt securities at
December 31, 1998, by contractual maturity, were as follows.
DECEMBER 31, 1998
---------------------------
AMORTIZED COST FAIR VALUE
-------------- ----------
($ IN THOUSANDS)
Due in one year or less $ 16,088 $ 16,278
Due after one year through five years 129,144 136,814
Due after five years through ten years 114,519 119,372
Due after ten years 479,930 500,879
Mortgage backed securities 154,716 160,139
Redeemable preferred stocks 51,278 50,851
-------- --------
Total $945,675 $984,333
======== ========
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without
penalties.The following tabulation provides information with respect to the
investment results of the Company for the years ended December 31, 1998, 1997
and 1996:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
---------- ---------- ---------
($ IN THOUSANDS)
Average invested assets, weighted(1) $1,536,366 $1,395,566 $ 997,599
Net investment income 110,897 105,392 77,035
Realized investment gains 552 466 420
Change in unrealized investment gains (losses)
on equity and debt securities(2) 902 13,454 (4,614)
Ratio of net investment income to weighted
average invested assets(3) 7.22% 7.55% 7.72%
- ------------------
(1) Average invested assets are calculated using fair values for all
securities as required by Financial Accounting Standard No. 115 (FAS
115), "Accounting for Certain Investments in Debt and Equity
Securities."
(2) Unrealized gains and losses are calculated on both equity and debt
securities as prescribed by FAS 115. Amounts are net of tax effect and
adjustment to deferred acquisition costs.
(3) Since all securities are carried at fair values for all years
presented, all increases (decreases) in fair value result in a
reduction (increase) of the ratio calculated above.
The amortized cost of non-investment grade bonds (rated below BBB- by
Standard & Poor's Corporation and excluding private placements and non-rated
securities) at December 31, 1998 was $42.4 million with a fair value of $41.0
million. At fair value, these investments represented 2.0% of total consolidated
assets, or 2.6% of invested assets. The Company's holdings of non-investment
grade securities has been limited and will continue to be minimal in the future.
The Company's mortgage loan portfolio aggregated $88.9 million at
December 31, 1998. There were no non-performing mortgage loans at December 31,
1998.
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ADDITIONAL INFORMATION REGARDING INSURANCE OPERATIONS
The following table sets forth the cash premiums and deposits received
by geographic region in the United States for the Company's insurance
subsidiaries for the three years ended December 31, 1998:
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
-------- -------- --------
($ IN THOUSANDS)
Southeast $262,457 $261,610 $265,784
Southwest 98,839 85,952 45,307
Midwest 27,201 22,440 16,204
Northeast 24,266 19,303 12,920
Northwest 16,153 15,596 14,699
-------- -------- --------
Total $428,916 $404,901 $354,914
======== ======== ========
The following tabulation sets forth the amount of gross life insurance
volume in force by industry segment at December 31, 1998, 1997, and 1996:
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
------- ------- -------
($ IN THOUSANDS)
Type of Insurance:
Ordinary $15,594 $13,973 $ 9,759
Group 7,719 7,163 6,174
Credit 4,293 4,549 4,590
------- ------- -------
Total $27,606 $25,685 $20,523
======= ======= =======
REINSURANCE
It is the general practice of the life insurance industry to reinsure
portions of life and accident and health insurance risks with other companies.
The maximum amount of ordinary insurance which AHL generally retains on any one
life currently insured under ordinary policies ranges from $100,000 to $200,000.
The major portion of reinsurance ceded on a GAAP basis is under agreements with
American United Life Insurance Company, NationsBanc Insurance Co. Inc., Cigna
Re, General Financial Life Insurance Company, Life Reassurance Corporation of
America, Lincoln National Life Insurance Company, The Phoenix Home Life Mutual
Insurance Company, Reinsurance Group of America, Inc., Southwestern Dealers
Insurance Company, Swiss Re Life & Health America, Inc. and Transamerica
Occidental Life Insurance Company. At December 31, 1998, the aggregate amount of
life insurance volume in force ceded under reinsurance agreements totaled $5.1
billion (18.4% of the total in force at that date). For the year ended December
31, 1998, $39.2 million, or 17.1% of the total accident and health insurance
premiums written, were reinsured.
Pursuant to GAAP and the terms and conditions of the reinsurance
agreements with the reinsurers, the Company has reflected reinsurance
receivables in its consolidated financial statements for the portion ceded to
the respective reinsurer.
Management reviews the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. All receivables due
from the reinsurers have been settled in a timely manner.
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GOVERNMENT REGULATION
The Company and its insurance subsidiaries are subject to regulation
and supervision by the states in which the insurance subsidiaries transact
business. The laws of the various states establish regulatory agencies with
broad administrative powers to grant and revoke licenses to transact business,
regulate rates on certain business prior to use, establish reserve requirements,
determine the form and content of required statutory financial statements,
determine the reasonableness and adequacy of statutory capital and surplus and
prescribe the types of permitted investments and the maximum concentrations of
certain classes of investments. As part of their routine regulatory oversight
process, approximately once every three years state insurance departments
conduct periodic detailed examinations of the books, records and accounts of
insurance companies domiciled in their states. Further, insurance companies are
subject to market conduct examinations by state insurance regulators. Such
examinations are not conducted according to any fixed schedule.
Insurance companies are required to file detailed annual and quarterly
statements with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to examination by
such agencies at any time. State insurance receivership laws, rather than
federal bankruptcy laws, govern the liquidation or rehabilitation of insurance
companies.
This insurance regulation and supervision is designed primarily to
ensure the financial stability of insurance companies and to protect
policyholders rather than shareholders or general creditors.
FINANCIAL REGULATION
Risk-Based Capital is a tool for insurance regulators to evaluate the
capital of insurers with respect to the risks assumed by them and determine
whether there is a need for possible corrective action.
Regulators require the computation of a risk-based capital amount which
is then compared to a carrier's actual total adjusted capital. The computation
involves applying factors to various financial factors to address four primary
risks: asset risk, insurance underwriting risk, credit risk and off-balance
sheet risk. These standards provide for regulatory intervention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels.
Based on calculations using the appropriate formulas as of December 31,
1998, all of the Company's insurance subsidiaries exceeded the required level
for RBC.
DIVIDEND REGULATION
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company with no other significant business
operations, its primary sources of cash to meet its obligations are borrowings,
dividends and other payments from its insurance subsidiaries.
The Company's insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including dividends and other
distributions, that they may make to the Company without obtaining prior
regulatory approval. As a Florida domiciled insurance company, AHL is subject to
Florida law, to the effect that life and health insurance company dividends may
be made without prior approval of the Florida Insurance Commissioner if the
dividend is equal to or less than the greater of: (a) 10% of AHL's surplus as to
policyholders derived from realized net operating profits on its business and
net realized capital gains; or (b) AHL's entire net operating profits and
realized net capital gains derived during the immediately preceding calendar
year, if AHL will have surplus as to policyholders equal to or exceeding 115% of
the minimum required statutory surplus as to policyholders after the dividend is
paid.
If insurance regulators determine that payment of a dividend or any
other payment to an affiliate (such as a payment under a tax allocation
agreement or for employee or other services or pursuant to a surplus debenture)
would,
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because of the financial condition of the paying insurance company or otherwise,
be hazardous to such insurance company's policyholders or creditors or to
certain other parties, the regulators may block payment of such dividends or
such other payment to the affiliates that would otherwise be permitted without
prior approval.
CHANGE OF CONTROL REGULATION
The states in which the Company's insurance subsidiaries are domiciled
have enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. Most states require
administrative approval of the acquisition of control of an insurance company
incorporated in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Florida, the
acquisition of 5% of such shares is generally deemed to be the acquisition of
"control" for the purpose of the holding company statutes and requires not only
filing of detailed information concerning the acquiring parties and the plan of
acquisition, but also administrative approval prior to the acquisition.
COMPETITION
The life insurance industry is highly competitive. The competitors of
the Company consist of both stock and mutual companies, and in many instances
they have been in business for longer periods of time and may have greater
financial resources than the Company. However, management of the Company
believes that its policies are generally competitive with similar types of
policies being offered by other insurers doing business in the jurisdictions in
which they operate.
OTHER BUSINESS
The non-life insurance operations, excluding AHL, CUL, Concord,
Keystone and FCIC, consisted primarily of intercompany operations which are
eliminated in consolidation and accordingly did not contribute materially to
consolidated operating earnings.
ITEM 2. PROPERTIES
AHL and its subsidiaries own 29.77 acres in a suburban area of
Jacksonville, Florida, upon which it completed construction in August, 1994 of
an eight story home office building containing approximately 140,000 square feet
and a two story annex building of approximately 20,000 square feet.
AHL also owns a 92 space parking lot in downtown Jacksonville, Florida
and one parcel of vacant land located in suburban Jacksonville, consisting of
approximately 32 acres.
ITEM 3. LEGAL PROCEEDINGS
The Company's insurance subsidiaries, like other insurance companies,
are currently defendants in lawsuits that involve claims for punitive, exemplary
or other extracontractual damages, which are for amounts substantially in excess
of the actual damages sought. Management considers such litigation regrettably
to be of the type to which insurance companies are usually and customarily
subjected in the ordinary course of business and to date the settlements of such
claims of this nature have not been material to the financial position of the
Company. In the opinion of management, based on the currently ascertained facts
of the pending litigation, which the Company intends to vigorously defend, the
ultimate resolution of such litigation should not be material to the financial
position of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The high and low sales prices of the Common Stock of the Company, as
reported on the NYSE Composite Tape (ticker symbol: "AHL"), and the cash
dividends paid on the Common Stock during the fiscal years ended December 31,
1997 and 1998 are set out below:
CASH DIVIDENDS
HIGH LOW PAID PER SHARE
------ ------ --------------
1997:
First Quarter $13.75 $11.75 $.0950
Second Quarter 16.50 11.94 .0950
Third Quarter 20.25 16.50 .1000
Fourth Quarter 20.00 17.31 .1000
1998:
First Quarter $21.94 $17.06 $.1000
Second Quarter 25.00 20.38 .1050
Third Quarter 26.06 18.63 .1050
Fourth Quarter 26.69 19.00 .1050
As of February 28, 1999, the approximate number of holders of record of
Common Stock was 9,200.
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ITEM 6. SELECTED FINANCIAL DATA
(In thousands except per share amounts)
Years Ended December 31 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Operating earnings $ 36,388 31,058 26,759 24,174 22,334
Net earnings 36,746 31,360 27,032 28,075 23,641
- ----------------------------------------------------------------------------------------------------------------------
Diluted operating earnings per share
of common stock $ 1.28 1.12 .97 .87 .80
Diluted net earnings per share of common stock 1.29 1.13 .98 1.01 .85
- ----------------------------------------------------------------------------------------------------------------------
Diluted weighted average number
of shares outstanding 28,500 27,831 27,711 27,819 27,749
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends paid per share $ .42 .39 .37 .35 .32
- ----------------------------------------------------------------------------------------------------------------------
Insurance revenues $ 308,857 279,831 258,519 247,251 230,589
Premium equivalents 342,731 358,629 309,092 264,565 214,861
Insurance revenues including
premium equivalents 651,588 638,460 567,611 511,816 445,450
- ----------------------------------------------------------------------------------------------------------------------
At December 31:
Total assets $ 2,055,687 1,915,259 1,370,117 1,317,896 1,179,257
AHLIC-obligated mandatorily redeemable
preferred securities 103,500 103,500 - - -
Stockholders' equity 278,058 252,223 228,943 219,329 173,360
Life insurance volume in force 27,606,322 25,685,297 20,523,032 18,384,006 16,815,666
Year-end closing stock price 24.44 18.00 13.13 11.44 9.56
Operating return on equity 15.29% 14.05% 12.83% 12.43% 12.63%
Debt to total debt and capital ratio 15.19 10.61 28.27 31.93 31.37
Price to operating earnings ratio 19.09 16.07 13.53 13.15 11.95
- ----------------------------------------------------------------------------------------------------------------------
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
American Heritage Life Investment Corporation (AHLIC) and subsidiaries
(the "Company") are engaged primarily in the life insurance business. The
Company's consolidated earnings are primarily attributable to its principal
subsidiaries, American Heritage Life Insurance Company (AHL) and Columbia
Universal Life Insurance Company (CUL). Following is a discussion of the
significant components of the consolidated results of operations for the years
ended December 31, 1998, 1997 and 1996.
INSURANCE OPERATIONS
Insurance revenues pursuant to generally accepted accounting principles
(GAAP) include only the mortality, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include group and credit
premium equivalents and cash deposits from interest-sensitive products.
Because increasing amounts of the ordinary life business are
interest-sensitive, the group business being sold predominately on a self-funded
or split-funded basis and the credit business being written on a reinsured or an
administrative services only basis, in which only the fees charged are included
in insurance revenues for GAAP purposes, it is important to evaluate insurance
revenues including premium equivalents. As demonstrated in the table on page 1,
for 1998, 1997 and 1996, insurance revenues were $308.9 million, $279.8 million
and $258.5 million, respectively, while total insurance revenues including
premium equivalents were $651.6 million, $638.5 million and $567.6 million,
respectively. Since so much of the Company's business is interest-sensitive and
administrative services only, insurance revenues including premium equivalents
are a better measure of growth in revenues.
INSURANCE OPERATIONS-ORDINARY
ORDINARY PRE-TAX OPERATING EARNINGS WERE $49.8 MILLION, $40.3 MILLION
AND $35.1 MILLION IN 1998, 1997 AND 1996, RESPECTIVELY. The increase each year
was primarily due to growth in insurance revenues and investment income, less
normal growth in benefits and claims, and expenses and for 1998 and 1997 CUL's
pre-tax operating earnings of $3.9 million and $2.4 million, respectively, with
no comparable amount in 1996.
Ordinary insurance revenues amounted to $197.4 million, $168.2 million
and $137.4 million in 1998, 1997 and 1996, respectively. Premiums including
equivalents were $285.2 million, $241.1 million and $181.5 million for the years
ended December 31, 1998, 1997 and 1996, respectively. The increases in insurance
revenues and premiums and premium equivalents in 1998 over 1997 and 1997 over
1996 were due primarily to increased sales of interest-sensitive products
resulting in increased policy charges and increased sales of individual accident
and health and cancer plans. Also, 1998 and 1997 included $14.6 million and
$14.1 million of insurance revenues and $48.6 million and $31.5 million of
premium equivalents for CUL, respectively, without a corresponding amount in
1996.
Ordinary benefits and claims in 1998, 1997 and 1996 were $158.9
million, $144.3 million and $111.0 million, respectively. 1998 and 1997 included
$25.6 million and $25.4 million, respectively, of benefits and claims from CUL
operations. The increase each year was also the result of growth in first year
and renewal business, and increased interest credited to policyholder account
balances.
Ordinary taxes, commissions and general expenses were $49.5 million,
$45.4 million and $33.1 million for 1998, 1997 and 1996, respectively. The
increase in 1997 was primarily due to CUL expenses of $7.9 million with no
comparable amount in 1996. The increase each year was also the result of growth
in ordinary business and expansion of regional offices.
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Amortization of deferred acquisition costs and cost of business
acquired was $38.9 million in 1998, $32.4 million in 1997 and $25.6 million in
1996. These increases were primarily due to CUL amortization of $4.5 million and
$4.1 million in 1998 and 1997, respectively, with no comparable amount in 1996,
growth in blocks of business acquired and in business in force, and an increase
in lapses of individual health business resulting from the implementation of
rate increases, which increased the write-off of the policies' deferred
acquisition costs.
INSURANCE OPERATIONS-GROUP
GROUP PRE-TAX EARNINGS WERE $4.9 MILLION, $4.6 MILLION AND $4.5 MILLION
IN 1998, 1997 AND 1996, RESPECTIVELY. Group pre-tax operating earnings have
remained stable in a competitive and volatile marketplace.
Group insurance revenues in 1998, 1997 and 1996 totaled $40.0 million,
$31.0 million and $35.5 million, respectively. Premiums and premium equivalents
were $221.8 million, $223.6 million and $214.9 million for 1998, 1997 and 1996,
respectively. The increase in insurance revenues from 1997 to 1998 was due
primarily to additional sales of insured business. The decrease in premiums and
premium equivalents from 1997 to 1998 was due to reduced claim costs as a result
of managed care activities. The decrease in insurance revenues from 1996 to 1997
was due to reduced sales of insured business in 1997. The increase in premiums
and premium equivalents from 1996 to 1997 was due to increased sales on a
self-funded or split-funded basis.
Group benefits and claims in 1998, 1997 and 1996 totaled $26.5 million,
$18.3 million and $24.0 million, respectively. Group benefits increased in 1998
as a result of growth in the insured business. Group benefits were reduced in
1997, compared to 1996, as a result of the managed care program, the AHL Select
Provider Network and new cases written on a self-funded or split-funded basis
where claims are not included in the Company's benefits and claims expenses for
financial statement purposes.
Group taxes, commissions and general expenses in 1998, 1997 and 1996
were $14.3 million, $13.6 million and $12.3 million, respectively. These
expenses have remained relatively flat due to a decrease in taxes and
commissions offset by an increase in general expenses. The increases in group
general expenses in 1998 and 1997 were due to growth in business, administration
of larger group cases and the implementation of a new local area network group
claims processing system.
INSURANCE OPERATIONS-CREDIT
CREDIT PRE-TAX OPERATING EARNINGS WERE $6.7 MILLION, $5.6 MILLION AND
$3.8 MILLION IN 1998, 1997 AND 1996, RESPECTIVELY. The increase in credit
pre-tax operating earnings in 1998 over 1997 and 1997 over 1996 was primarily
the result of terminating certain unprofitable accounts and reducing the
commissions paid on accounts with unsatisfactory margins.
Credit insurance revenues for 1998, 1997 and 1996 were $71.5 million,
$80.6 million and $85.6 million, respectively. Credit premiums and premium
equivalents amounted to $144.6 million, $173.8 million and $171.2 million for
the years ended December 31, 1998, 1997 and 1996, respectively. The decrease in
insurance revenues and credit premiums and premium equivalents in 1998 was a
result of a reduction in reinsured and administrative services only business and
the termination of certain unprofitable accounts. The increase in credit
premiums and premium equivalents in 1997 was a result of geographic expansion,
increased sales of reinsured business and additional premium equivalents
generated from administering the run-off of a block of credit life and health
insurance for another insurance company, effective in June 1996. The decrease in
credit insurance revenues from 1996 to 1997 was due to a reduction in sales of
retained insured business.
Credit benefits and claims amounted to $9.7 million, $12.6 million and
$13.9 million in 1998, 1997 and 1996, respectively. These decreases were due, in
part, to a reduction in the change in unearned premiums which is included in
credit benefits and claims. These reductions were also the result of terminating
unprofitable accounts and certain previously fully insured accounts converting
to reinsured accounts. As a result of these actions, the Company reduced the
combined commission and loss ratio by 6% in 1998 versus 1997.
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Credit taxes, commissions and general expenses were $60.9 million,
$67.5 million and $72.3 million in 1998, 1997 and 1996, respectively. The
decreases were primarily attributable to a decrease in earned commissions due to
decreased insurance revenues.
CONSOLIDATED OPERATIONS
NET INVESTMENT INCOME
Net investment income was $110.9 million, $105.4 million and $77.0
million for the years ended December 31, 1998, 1997 and 1996, respectively.
These increases were due primarily to CUL net investment income of $27.6 million
and $25.6 million in 1998 and 1997, respectively, without a comparable amount in
1996 and an increase in invested assets and changes made in the investment
portfolio to enhance the yield. The effective yield on invested assets for the
years ended December 31, 1998, 1997 and 1996 were 7.22%, 7.55% and 7.72%,
respectively. The decrease in yield from 1997 to 1998 and 1996 to 1997 was due
primarily to market conditions offset partially by changes made to the
investment portfolio to improve the yield.
OPERATING EXPENSES
The Company's major operating costs consist of commissions, payroll,
premium taxes and administrative-related expenditures. General insurance
expenses as a percentage of total income, excluding realized investment gains
(losses) and including premium equivalents, was 6.0% for the year ended December
31, 1998, 5.4% for the year ended December 31, 1997 and 4.9% for the year ended
December 31, 1996. The increase each year was due to recent acquisitions where
the acquired company had higher expense levels than the Company and additional
expenses associated with new production, regional expansion, and technology.
Other operating expenses in 1998, 1997 and 1996 were $12.8 million,
$9.5 million and $4.2 million, respectively. These expenses primarily relate to
non-life insurance operations, including interest expense. Interest expense is a
function of the average debt outstanding and interest rate charged. Interest
expense included in non-segmented operating expenses was $10.0 million, $7.7
million and $3.7 million for 1998, 1997 and 1996, respectively. These increases
were due primarily to bank debt outstanding and the inclusion of interest on the
FELINE PRIDES in 1998 and 1997.
OTHER ITEMS
Prescribed or permitted Statutory Accounting Principles (SAP) may vary
between states and between companies. The National Association of Insurance
Commissioners (NAIC) is in the process of codifying SAP to promote
standardization of methods, which may result in changes in statutory accounting
practices for the Company's insurance subsidiaries. Such changes are not
expected to significantly impact the Company's statutory financial statements.
Management is not aware of any other additional pending regulation from the
various state insurance departments that would have a significant impact on the
Company's operations.
The Company's legal department includes a compliance area headed by an
officer who is a lawyer with regulatory experience. The compliance area reviews
and approves marketing material, policy filings and other areas that are the
subject of market conduct compliance requirements of the various state insurance
departments.
LIQUIDITY AND CAPITAL RESOURCES
The Company is engaged primarily in the life insurance business. The
principal subsidiaries, AHL and CUL, generate major sources of cash flow from
premiums collected for traditional insurance products, deposits and policy
charges for interest-sensitive products, and investment income attributable to
its life insurance operations and associated investment portfolio. This results
in a significant portion of the Company's assets being liquid.
As an insurer, the Company is required to maintain substantial
liabilities for future policy benefits and policyholders' account balances.
Since premiums and deposits received in anticipation of such benefits are
investable funds, it is expected that the Company will continue to increase its
investment portfolio using cash flow from operations.
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20
OPERATING ACTIVITIES
The net cash provided by operating activities for the years ended
December 31, 1998, 1997 and 1996 aggregated $88.7 million, $96.7 million and
$66.5 million, respectively. The decrease in 1998 from 1997 was due primarily to
the funding of surrenders of certain ordinary life policies. The increase in
1997 from 1996 was due primarily to an increase in policyholder account balances
as a result of a reduction in surrenders in 1997.
The Company's policy loans are a higher percentage of invested and
total assets than industry norm as a result of a significant block of Management
Security Plan (MSP) business. The MSP product is an interest-sensitive, deferred
compensation/executive benefit-type product with the policy loan feature being
an integral part of the product. A market rate of interest is charged on the
policy loans and a predetermined built-in spread is achieved between the
interest rate charged on the policy loans and the interest rate credited on the
loaned funds. Accordingly, all MSP policy loans are completely collateralized by
the underlying policyholders' account balances. Policy loans are generally
funded out of cash provided by operating activities and do not represent a
significant restriction on the Company's liquidity.
Investments
The Company's balance sheet contains a high ratio of liquid assets.
Such assets are made up of cash, short-term investments and readily marketable
securities.
The amortized cost of high yield bonds at December 31, 1998 aggregated
$42.4 million with a market value of $41.0 million. At December 31, 1998 these
investments represented only 2.0% of total assets or 2.6% of invested assets.
Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," requires that securities classified
as available-for-sale be reported at fair value and the related unrealized gain
or loss net of deferred income taxes be reported as a separate component of
stockholders' equity. Additionally, pursuant to GAAP, deferred acquisition costs
for interest-sensitive products decreased $10.5 million at December 31, 1998 and
decreased $9.4 million at December 31, 1997 for the effect that would have been
recognized had the unrealized gain at December 31, 1998 and 1997 on debt
securities actually been realized.
The mortgage loan portfolio at December 31, 1998, which aggregated
$88.9 million, consisted of residential mortgages of $1.5 million and commercial
mortgages of $87.4 million , all of which were first mortgages on properties
(with no concentration in any particular industry). There were no non-performing
mortgage loans in the portfolio at December 31, 1998.
Policy loans totaled $482.0 million at December 31, 1998. The
significant amount of policy loans was attributable to the policy loans
associated with the MSP executive deferred compensation plan offered by the
Company which aggregated $431.2 million at December 31,1998. As discussed
earlier, the policy loan feature is an integral part of the product. MSP policy
loans increased by $73.6 million in 1998 over 1997.
The Company's investment strategy is to earn a favorable return on its
investments in excess of rates for which the Company is contractually obligated
to its policyholders. To achieve this strategy, the Company maintains an
asset/liability matching program, monitoring the investment spread achieved on
each product. Targeted investment spreads have been maintained for all products
despite fluctuations in interest rates and an overall compression of market
rates.
The Company employs various methodologies to manage its exposure to
interest rate risks. Investments are maintained in accordance with the Company's
investment policy which is designed to match policyholder obligations to
relative maturities of the related investment assets. The Company is exposed to
interest rate risk on these investments. The following data shows the estimated
effect of changes in interest rates in basis points ("bp") on the fair values of
the Company's debt security investments (in millions of dollars): -100bp =
+$50.9 million; -50bp = +$26.1 million; +50bp = -$25.0 million and +100bp =
- -$52.2 million. Since the Company has the ability to modify crediting rates, the
effect on net earnings of these changes in market rates should not be material.
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21
SOURCES OF FINANCING
Notes payable to banks at December 31, 1998 were $63.6 million compared
to a balance of $39.2 million at December 31, 1997. The increase in bank debt at
December 31, 1998 compared to the amount at December 31, 1997 reflected the
funding of interest payments, dividends and Federal income taxes. The 1998
balance also included $16 million of AHL debt, used to fund policy loans, which
was subsequently paid off out of cash flow in the first quarter of 1999. The
weighted average interest rate on the bank debt at December 31, 1998 was 5.54%.
The Company completed a FELINES PRIDES convertible security offering in
June 1997, resulting in net proceeds of $98.4 million which was used to retire
bank debt of the Company.
YEAR 2000
The Company has in place a Year 2000 compliance plan that includes
updates and revisions to existing software, as well as the installation of new
or replacement software. The Company's Year 2000 compliance plan began with a
detailed assessment of systems starting in the fall of 1996. It followed with a
disciplined plan of remediation, replacement and upgrading that will result in
Year 2000 compliant software being in place in all areas of the business
enterprise by the end of the second quarter of 1999, and full Year 2000
compliance well before the end of the year. Included in the plan are several
system projects not specifically undertaken to remediate Year 2000 issues, but
which, as a result, will ensure Year 2000 compliance in those areas. As of the
first quarter of 1999, the Company has installed or upgraded Year 2000 compliant
systems supporting approximately 90% of the Company's business.
The plan also called for a complete and ongoing assessment of the
status and progress of customers, vendors and corporate service partners in
achieving Year 2000 compliance. For the most part, failure of any one or a group
of customers or vendors to be Year 2000 compliant will have little or no effect
on the ability of the Company to process business and serve its customers. In
the unlikely event the Company fails to complete those portions of its Year 2000
compliance plan not already substantially done, its ability to electronically
adjudicate claims would be negatively impacted. However, the Company has in
place a proven manual claims adjudication system that would be utilized in such
an unlikely event, and the incremental cost incurred would not be material.
The direct and indirect cost of achieving Year 2000 compliance,
including all remediation, replacement and upgrading of non-compliant systems
over the three years preceeding the turn of the century is expected to be
approximately $8.3 million. Most of such cost will be capitalized and amortized
over the reasonable useful lives of the new software systems put in place, as
they relate primarily to upgrading or replacing systems for business reasons
other than year 2000 remediation. Costs expensed in 1997, 1998 and to be
expensed in 1999 are immaterial to the overall financial statements of the
Company.
OTHER
American Heritage Life Investment Corporation is a holding company; and
its liquidity is largely dependent on the ability of its subsidiaries, primarily
AHL, to pay dividends and on external financing. In addition, AHLIC charges its
subsidiaries a management fee to cover its basic operating expenses.
The amount of dividends that AHL can pay to AHLIC is limited by
regulatory restriction to an annual amount equal to the greater of 10% of AHL's
statutory surplus, or its prior year's statutory gain from operations plus net
realized capital gains on a noncumulative basis, provided AHL will have surplus
as to policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. The amount of dividends
that CUL can pay to AHL is limited to the greater of the statutory net gain from
operations for the preceding year or 10% of net surplus at the end of the
preceding year and is further restricted by the balance of unassigned surplus
from which dividends are paid. A dividend of $13.0 million, related to AHL's
earnings in 1997, was paid to AHLIC in 1998. AHL chose not to pay any dividends
to AHLIC during 1997 and 1996. None of the other subsidiaries paid any ordinary
dividends to AHLIC or AHL during 1998, 1997 or 1996. Approximately $26.0
million, related to AHL's 1998 earnings, is available to dividend to the Company
during 1999 without regulatory approval. The
21
22
outstanding bank debt of the Company is serviced through either dividends from
AHL in excess of the amount required to pay stockholder dividends or by
replacement borrowing.
Risk-Based Capital is a tool for insurance regulators to evaluate the
capital of insurers. Based on calculations using the appropriate NAIC formula,
AHL, CUL, Concord Heritage, Keystone State and First Colonial exceeded the
Risk-Based Capital requirements at December 31, 1998 and 1997.
FORWARD - LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their businesses without fear of
litigation so long as those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying factors that could
cause actual results to differ materially from those projected in such
statements. The Company desires to take advantage of the "safe Harbor"
provisions of the Act.
The Annual Report on Form 10-K contains forward-looking statements,
together with related data and projections, about the Company's projected
financial results and it s future plans and strategies. However, actual results
and needs of the Company may vary materially from forward-looking statements and
projections made from time to time by the Company on the basis of management's
then-current expectations, The Business in which the Company is engaged involves
changing and competitive markets, which may involve a high degree of risk, and
there can be no assurance that forward-looking statements and projections will
prove accurate.
Factors that may cause the Company's actual results to differ
materially from those contemplated or projected, forecast, estimated or budgeted
in such forward-looking statements include among others, the following
possibilities: (i) heightened competition, including the intensification of
price competition, the entry of new competitors, and the introduction of new
products by new and existing competitors;(ii) adverse state and federal
legislation or regulation, including decreases in rates, limitations on premium
levels, increases in minimum capital and reserve requirements, benefit mandates,
limitation on the ability to manage care and utilization, and tax treatment of
insurance products;(iii) fluctuations in the interest rates causing a reduction
of investment income or increase in interest expense and in the market value of
interest rate sensitive investments;(iv) failure to obtain new customers, retain
existing customers or reduction in policies in force by existing customers; (v)
higher service, administrative, or general expense due to the need for
additional advertising, marketing, administrative or management information
systems expenditures; (vi) loss or retirement of key executives; (vii)
termination of provider contracts or renegotiation at less cost-effective rates
or terms of payment; (ix) changes in the Company's liquidity due to changes in
asset and liability matching; (x) restrictions on insurance underwriting based
on genetic testing and other criteria; (xi) adverse changes in the ratings
obtained from independent rating agencies; (xii) failure to maintain adequate
reinsurance; (xiii) possible claims relating to sales practices for insurance
products and claim denials and (xiv) adverse trends in mortality and morbidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Investments" which is incorporated herein by reference.
22
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
NUMBER
------
(1) FINANCIAL STATEMENTS
Independent Accountants' Reports, Years ended December 31, 1998, 1997 and 1996 ......................... 24
Consolidated Statements of Earnings, Years ended December 31, 1998, 1997, and 1996 ..................... 25
Consolidated Balance Sheets, December 31, 1998 and 1997................................................. 26
Consolidated Statements of Stockholders' Equity, Years ended December 31, 1998, 1997,
and 1996............................................................................................. 27
Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996..................... 28
Notes to Consolidated Financial Statements, Years ended December 31, 1998, 1997 and 1996................ 29
Quarterly Financial Data................................................................................ 39
(2) FINANCIAL STATEMENT SCHEDULES:
I.- Summary of Investments - Other than Investments in Related Parties, December 31, 1998.................. 40
II.- Condensed Financial Information of Registrant, December 31, 1998 and 1997 and
Years ended December 31, 1998, 1997 and 1996 .......................................................... 41
III.- Supplementary Insurance Information, Years ended December 31, 1998, 1997 and 1996...................... 45
IV.- Reinsurance, Years ended December 31, 1998, 1997 and 1996.............................................. 46
All other schedules are omitted as the required information is
inapplicable or presented in the consolidated financial statements or related
notes.
23
24
INDEPENDENT ACCOUNTANTS' REPORTS
The Stockholders and Board of Directors
American Heritage Life Investment Corporation
We have audited the 1998 and 1997 consolidated financial statements of
American Heritage Life Investment Corporation and subsidiaries as listed in the
accompanying index under Item 8. In connection with our audits of the
consolidated financial statements, we have also audited the 1998 and 1997
financial statement schedules as listed in the accompanying index under Item 8.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statements
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the 1998 and 1997 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of American Heritage Life Investment Corporation and subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flow for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related 1998
and 1997 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.
Ernst & Young LLP
February 4, 1999
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
American Heritage Life Investment Corporation
We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of American Heritage Life Investment
Corporation and subsidiaries for the year ended December 31, 1996. In
connection with our audit of the consolidated financial statements, we have
also audited the amounts included in financial statement schedules II, III and
IV for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
the cash flows of American Heritage Life Investment Corporation and
subsidiaries for the year ended December 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the financial statement
schedules referred to above, when considered in conjunction with the basic
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG LLP
January 29, 1997
24
25
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
YEARS ENDED DECEMBER 31 1998 1997 1996
------ ------ ------
Income:
Insurance revenues $308,857 279,831 258,519
Net investment income 110,897 105,392 77,035
Other income 2,325 1,098 -
Realized investment gains, net 552 466 420
- ------------------------------------------------------------------------------------------------------
Total income 422,631 386,787 335,974
- ------------------------------------------------------------------------------------------------------
Benefits, claims and expenses:
Benefits and claims 195,033 175,170 148,887
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 121,193 123,008 117,414
Amortization of deferred acquisition costs
and cost of business acquired 38,929 32,425 25,628
Other operating expenses 12,830 9,454 4,186
- ------------------------------------------------------------------------------------------------------
Total benefits, claims and expenses 367,985 340,057 296,115
- ------------------------------------------------------------------------------------------------------
Earnings before income taxes 54,646 46,730 39,859
Income taxes 17,900 15,370 12,827
- ------------------------------------------------------------------------------------------------------
Net earnings $ 36,746 31,360 27,032
- ------------------------------------------------------------------------------------------------------
Basic net earnings per share of common stock $ 1.33 1.14 .98
Diluted net earnings per share of common stock $ 1.29 1.13 .98
- ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
26
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
DECEMBER 31 1998 1997
------ ------
ASSETS
Investments:
Debt securities, available-for-sale, at fair value
(amortized cost of $945,675 in 1998 and $889,811 in 1997) $ 984,333 923,287
Equity securities, available-for-sale, at fair value (cost of
$21,473 in 1998 and $20,329 in 1997) 35,795 36,817
Mortgage loans on real estate 88,922 70,697
Investment real estate, at cost 532 482
Policy loans 481,970 407,482
Short-term investments 6,420 32,635
- ----------------------------------------------------------------------------------------------------------------------
Total investments 1,597,972 1,471,400
- ----------------------------------------------------------------------------------------------------------------------
Cash 10,351 23,261
Agents' balances and prepaid commissions 33,337 35,268
Premiums receivable 44,091 43,196
Accrued investment income 33,889 30,519
Deferred acquisition costs and cost of business acquired 240,554 223,651
Property and equipment, at cost, less accumulated
depreciation of $17,516 in 1998 and $15,308 in 1997 36,345 31,898
Reinsurance receivables 11,210 11,004
Other assets 47,938 45,062
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 2,055,687 1,915,259
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 315,866 289,765
Policyholders' account balances 1,097,066 1,013,602
Unearned premiums 45,054 52,666
Policy and contract claims 65,057 58,484
- ----------------------------------------------------------------------------------------------------------------------
Total policy liabilities 1,523,043 1,414,517
- ----------------------------------------------------------------------------------------------------------------------
Notes payable to banks 63,571 39,192
Deferred income taxes 47,855 46,820
Other liabilities 39,660 59,007
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,674,129 1,559,536
- ----------------------------------------------------------------------------------------------------------------------
AHLIC-obligated mandatorily redeemable preferred securities of subsidiaries
holding solely subordinated debentures of AHLIC 103,500 103,500
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock of $1.00 par value:
Authorized 75,000,000 shares in 1998 and 35,000,000 in 1997;
issued 28,138,886 in 1998 and 14,020,861 in 1997 28,139 14,021
Preferred stock:
Convertible of $10.00 par value: Authorized 500,000 shares; none issued - -
Non-convertible of $10.00 par value: Authorized 500,000 shares; none issued - -
Additional paid-in capital 42,161 42,528
Retained earnings 194,854 183,852
Yield enhancement, contract and issuance costs of mandatorily
redeemable preferred securities (9,561) (9,561)
Net unrealized investment gains 26,514 25,612
- ----------------------------------------------------------------------------------------------------------------------
282,107 256,452
Less cost of 272,715 in 1998 and 142,589 in 1997 common shares in treasury 4,049 4,229
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 278,058 252,223
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,055,687 1,915,259
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
27
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share and per share amounts)
YEARS ENDED DECEMBER 31 1998 1997 1996
------ ------ ------
Common stock:
Balance at beginning of year $ 14,021 13,967 13,933
Add par value of shares issued pursuant to stock split
in the form of stock dividends 14,056 - -
Add shares issued on exercise of stock options 45 32 20
Other shares issued (surrendered), net 17 22 14
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 28,139 14,021 13,967
- ---------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 42,528 42,644 42,215
Addition (deduction) related to exercise of stock options (982) (658) 112
Excess over par value on other shares issued 615 542 317
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 42,161 42,528 42,644
- ---------------------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 183,852 163,460 148,454
Add net earnings 36,746 31,360 27,032
Deduct cash dividends declared on common stock ($.42 per share in 1998, $.40
per share in 1997
and $.44 per share in 1996) (11,686) (10,968) (12,026)
Deduct par value of shares, issued pursuant to stock
split in the form of stock dividends (14,056) - -
Deduct cash dividend in lieu of issuance of fractional
shares related to stock split (2) - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 194,854 183,852 163,460
- ---------------------------------------------------------------------------------------------------------------------------------
Yield enhancement, contract and issuance costs of mandatorily redeemable
preferred securities:
Balance at beginning of year (9,561) - -
Issuance of mandatorily redeemable preferred securities - (9,561) -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (9,561) (9,561) -
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income:
Net unrealized investment gains (losses):
Balance at beginning of year 25,612 12,158 16,772
Change during the year 902 13,454 (4,614)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 26,514 25,612 12,158
- ---------------------------------------------------------------------------------------------------------------------------------
Treasury stock:
Balance at beginning of year 4,229 3,286 2,045
Add treasury shares purchased (3,207 shares in 1998,
93,213 shares in 1997 and 56,451 shares in 1996) 54 3,228 1,241
Less treasury shares issued (15,668 shares in 1998 and
104,352 shares in 1997) (234) (2,285) -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 4,049 4,229 3,286
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 278,058 252,223 228,943
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
28
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31 1998 1997 1996
------ ------ ------
Operating activities:
Net earnings $ 36,746 31,360 27,032
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for depreciation and amortization 3,379 2,375 2,613
Amortization of deferred acquisition costs
and cost of business acquired 38,929 32,425 25,628
Acquisition costs deferred (53,783) (43,114) (36,018)
Change in agents' balances and prepaid commissions 1,985 462 3,346
Change in premiums receivable (895) (1,963) 878
Change in accrued investment income (2,893) (115) (683)
Change in reinsurance receivables (152) 4,366 (4,192)
Change in future policy benefits 23,909 14,039 (4,833)
Change in policyholders' account balances 53,753 64,037 45,410
Change in unearned premiums (7,612) 72 (1,039)
Change in policy and contract claims liability 5,523 3,922 885
Change in income taxes (337) 2,416 5,846
Change in unearned investment income (294) 221 (301)
Other, net (9,572) (13,817) 1,974
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 88,686 96,686 66,546
- -------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Sales of debt securities 14,169 49,655 14,718
Maturities of debt securities 127,240 62,718 46,109
Sales of equity securities 5,398 3,572 5,968
Maturities of mortgage loans on real estate 5,262 3,927 3,479
Policy loans paid 31,132 78,669 25,372
Sales of property and equipment and investment real estate 103 90 17
Acquisitions, net of cash acquired 1,957 (45,791) 1,561
Purchases of debt securities (172,309) (174,674) (80,010)
Purchases of equity securities (6,569) (537) (5,239)
Origination of mortgage loans on real estate (23,469) (18,534) (27,709)
Sales (purchases) of short-term investments, net 26,316 (27,931) 21,669
Policy loans made (104,545) (67,323) (48,129)
Purchases of property and equipment and investment real estate (6,873) (4,431) (2,789)
Other, net (12,107) 12,057 (26)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (114,295) (128,533) (45,009)
- -------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds (paydowns) on borrowings 24,379 (53,237) (9,535)
Net proceeds from securities offering - 98,478 -
Dividends to stockholders (11,686) (10,968) (12,026)
Purchase of treasury stock (54) (3,228) (1,241)
Other, net 60 2,391 2,255
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 12,699 33,436 (20,547)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (12,910) 1,589 990
Cash at beginning of year 23,261 21,672 20,682
- -------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 10,351 23,261 21,672
- -------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,594 8,292 6,325
Federal income taxes 14,492 9,806 6,550
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
28
29
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts
of American Heritage Life Investment Corporation (AHLIC) and its subsidiaries.
All significant intercompany accounts have been eliminated in consolidation. The
term "Company" as used herein includes AHLIC and its subsidiaries.
AHLIC is a holding company whose principal subsidiaries are American
Heritage Life Insurance Company (AHL) and Columbia Universal Life Insurance
Company (Columbia). AHL is licensed to do business as a life insurance company
in 49 states, Puerto Rico, the District of Columbia and the U.S. Virgin Islands.
It markets life and accident and health insurance on an individual, group and
credit basis through licensed agents and brokers. Columbia, a subsidiary of AHL,
markets annuity and individual life insurance products and is currently licensed
in 41 states, the District of Columbia and Puerto Rico. First Colonial Insurance
Company, a subsidiary of AHL, markets credit property insurance and is currently
licensed in 18 states. Concord Heritage Life Insurance Company, a subsidiary of
AHL, markets supplemental life and health products through worksite marketing
and is licensed in 15 states. Keystone State Life Insurance Company, a
subsidiary of AHL, markets individual life products and is currently licensed in
12 states, the District of Columbia and the U.S. Virgin Islands. ERJ Insurance
Group, Inc., a subsidiary of AHLIC, is an insurance agency that markets a broad
portfolio of credit insurance products.
(b) BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented on the
basis of generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Such principles differ in some respects from those followed in
preparing statutory reports filed with various insurance departments. Under
GAAP:
(1) Insurance Revenue and Expense Recognition: For traditional
insurance products, premiums, benefits and expenses are reported in a
manner which results in the recognition of profits over the life of the
policies in proportion to gross premiums. For interest-sensitive
products, premiums received are recognized as deposits; revenues
consist of surrender, mortality and expense charges; and profits are
recognized in relation to the incidence of expected gross profits.
(2) Investments: Bonds and redeemable preferred stocks, which are
classified as debt securities available-for-sale, are stated at fair
value.
(3) Deferred Acquisition Costs: The costs (principally commissions) of
acquiring traditional life, interest-sensitive products and accident
and health contracts, certain expenses of the policy issue and
underwriting department, and certain agency expenses, all of which vary
with and are primarily related to the production of new business, have
been deferred. Deferred acquisition costs of traditional life and
accident and health contracts are amortized over the premium payment
period of the related policies using the same assumptions as were used
for computing liabilities for future policy benefits, together with
appropriate expense assumptions. For interest-sensitive life products,
deferred acquisition costs are amortized over the lives of the policies
in relation to the present value of estimated gross profits from
surrender charges and investment, mortality and expense margins.
Assumptions used for estimating the related gross profits are evaluated
regularly (at least annually) and amortization is modified as
necessary.
(4) Cost of Business Acquired: The value assigned to the insurance in
force of acquired insurance companies at the date of acquisition is
amortized using methods similar to those used for deferred acquisition
costs.
(5) Insurance Liabilities: The liabilities for future policy benefits
for traditional life and accident and health contracts (which represent
the excess of the present value of future benefits to be paid on behalf
of or to policyholders over the present value of future net premiums)
are computed by a net level premium method using assumptions deemed
appropriate at the date of issue (or as of the date of acquisition for
acquired blocks of business). Estimated future investment yield
assumptions range from 3.75% to 8.00%; withdrawals are based on Company
experience; mortality and morbidity from recognized morbidity and
mortality tables are modified for anticipated company experience, with
reasonable provisions for
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
possible future adverse experience deviations. Policyholders' account
balances for interest-sensitive products represent premiums received
plus interest credited during the contract accumulation period, less
contract charges for mortality and expenses. For the years ended
December 31, 1998 and 1997, the weighted average interest rates
credited to the policyholders' account balances were 5.08% and 5.46%,
respectively; and the related interest credited to the policyholders'
account balances was $54.0 million and $52.3 million. The surrender
charge provisions for interest-sensitive policies vary depending upon
the type of policy. For universal life-type policies, the surrender
charges generally range over a period of 5-20 years at varying rates
depending upon the plan of insurance. For annuities, the surrender
charges generally range over a period of 7-10 years with charges
varying from 1% to 10% of the accumulated fund value over the surrender
charge period.
(c) VALUATION OF CERTAIN INVESTMENTS
Debt securities are investments which mature at a specified future date
more than one year after they were issued. Equity securities include common
stocks and non-redeemable preferred stocks. Investments are categorized as (1)
held to maturity, (2) available-for-sale, or (3) trading. All debt and equity
securities have been classified by the Company as available-for-sale and are
stated at fair value. Unrealized gains or losses on debt and equity securities
available-for-sale resulting from fluctuations in fair values were recorded, net
of deferred income taxes and adjustments to the deferred acquisition costs for
interest-sensitive insurance products, directly to a separate component of
stockholders' equity. Realized investment gains or losses are calculated on the
basis of specific identification and include writedowns on those investments
where the decline in value below its cost or amortized cost is considered to be
other than temporary.
Policy loans are carried at the actual amount loaned to the
policyholder. No policy loans are made for amounts in excess of the cash
surrender value of the related policy. Accordingly, in all instances, the policy
loans are fully collateralized by the related liability for future policy
benefits for traditional insurance policies and by the policyholders' account
balance for interest-sensitive policies.
Mortgage loans are reported at amortized cost, less an allowance for
possible losses.
(d) PROPERTY AND EQUIPMENT
Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives of the respective assets.
(e) POLICY AND CONTRACT CLAIMS
Accruals are provided to cover the cost of reported claims not paid and
for claims incurred but not reported to the Company. The accruals are computed
based on historical claims experience modified for variations in expected future
benefits.
(f) OTHER OPERATING EXPENSES
Other operating expenses include primarily interest expense related to
bank borrowings and mandatorily redeemable preferred securities, other general
corporate expenses of AHLIC and insurance agency expenses.
(g) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary 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 expected to apply to taxable income in the years 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 tax expense in the period that includes the enactment date.
(h) EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods presented are
restated to conform to the Statement 128 requirements.
(i) RECLASSIFICATIONS
Certain amounts for 1997 and 1996 have been reclassified to conform
with the presentation adopted in 1998.
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) INCOME TAXES
The effective Federal income tax rates on earnings before income taxes
(amounts in thousands) were lower than the maximum statutory rates as follows:
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996
Amt. % Amt. % Amt. %
- ---------------------------------------------------------------------------------------------------------
Computed "expected" tax expense $ 19,126 35 $ 16,356 35 $ 13,951 35
Tax exempt interest & dividends (92) - (323) (1) (329) (1)
Credits from oil and gas investments (636) (1) (680) (1) (788) (2)
Other, net (498) (1) 17 - (7) -
- ---------------------------------------------------------------------------------------------------------
Effective income
tax expense $ 17,900 33 $ 15,370 33 $ 12,827 32
- ---------------------------------------------------------------------------------------------------------
The components of income tax expense (in thousands) for each of the
three years ended December 31 were as follows:
- ------------------------------------------
1998 1997 1996
- ------------------------------------------
Current $14,678 9,627 9,823
Deferred 3,222 5,743 3,004
- ------------------------------------------
Total $17,900 15,370 12,827
- ------------------------------------------
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets at December 31,
1998 and December 31, 1997 (in thousands) were as follows:
- -----------------------------------------------------------
1998 1997
- -----------------------------------------------------------
Deferred tax assets:
Insurance reserves $29,920 27,033
Unearned investment income 124 217
Other 127 131
- -----------------------------------------------------------
Total deferred tax assets 30,171 27,381
- -----------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 58,586 56,356
Unrealized investment gains on
securities available-for-sale 15,920 14,992
Other 3,520 2,853
- -----------------------------------------------------------
Total deferred tax liabilities 78,026 74,201
- -----------------------------------------------------------
Net deferred tax liability 47,855 46,820
Current tax liability 400 683
- -----------------------------------------------------------
Accrued and deferred income taxes $48,255 47,503
- -----------------------------------------------------------
No valuation allowance was recorded at December 31, 1998 or 1997.
Prior to 1985, certain life insurance company income was not subject to
Federal income tax until distributed. For tax purposes such income was
accumulated in a memorandum "policyholders' surplus account" and is not taxable
unless it is distributed, unless certain limitations under the Internal Revenue
Code are exceeded or, unless the income tax deferral status of the account is
modified by future tax legislation. At December 31, 1998, the policyholders'
surplus account was $10.9 million.
(3) INVESTMENTS
For the years ended December 31, 1998, 1997 and 1996, net investment
income (in thousands) was as follows:
- ----------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------
Investment income:
Debt securities $ 72,350 65,366 41,573
Equity securities 1,014 1,407 809
Mortgage loans on real estate 7,084 5,797 3,657
Investment real estate 50 50 54
Policy loans 30,543 33,341 33,496
Short-term investments 1,475 1,282 2,928
Other 1,301 1,716 4
- ----------------------------------------------------------------------
Gross investment income 113,817 108,959 82,521
Investment expenses and investment
related interest expense 2,920 3,567 5,486
- ----------------------------------------------------------------------
Net investment income $110,897 105,392 77,035
- ----------------------------------------------------------------------
Proceeds from sales and maturities of investments in debt securities
during 1998, 1997 and 1996 were $139.7 million, $115.8 million and $59.1
million, respectively.
Gross gains and losses on those sales, and net gains and losses on
sales of other investments (in thousands), were as follows:
- --------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------
Debt securities - gains $ 1,643 1,124 794
Debt securities - losses (4,411) (2,620) (2,683)
- --------------------------------------------------------------------
Debt securities, net (2,768) (1,496) (1,889)
Equity securities, net 3,408 2,046 2,309
Other, net (88) (84) -
- --------------------------------------------------------------------
Realized investment gains, net $ 552 466 420
- --------------------------------------------------------------------
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stockholders' equity included the following unrealized investment gains
(losses) (in thousands) at December 31:
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Equity securities available-for-sale:
Gross unrealized investment
gains $ 15,054 16,839 13,434
Gross unrealized investment
losses (732) (351) (379)
- ----------------------------------------------------------------------------
14,322 16,488 13,055
- ----------------------------------------------------------------------------
Debt securities available-for-sale:
Gross unrealized investment
gains 45,154 36,276 12,583
Gross unrealized investment
losses (6,496) (2,800) (3,567)
- ----------------------------------------------------------------------------
38,658 33,476 9,016
- ----------------------------------------------------------------------------
Gross unrealized investment
gains 52,980 49,964 22,071
Decrease in deferred
acquisition costs for interest-
sensitive insurance products (10,546) (9,360) (3,367)
Deferred federal income tax
benefit (15,920) (14,992) (6,546)
- ----------------------------------------------------------------------------
Net unrealized investment
gains $ 26,514 25,612 12,158
- ----------------------------------------------------------------------------
The amortized cost and fair values of debt securities
available-for-sale by category of securities (in thousands) were as follows:
- -----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
- -----------------------------------------------------------------------
December 31, 1998:
U.S. government and
government agencies
and authorities $ 47,969 2,112 15 50,066
States, municipalities and
political subdivisions 3,008 334 7 3,335
Foreign governments 775 59 - 834
Public utilities 140,049 7,768 81 147,736
Corporate securities 599,158 28,620 5,555 622,223
Mortgage backed securities 154,716 6,261 838 160,139
- -----------------------------------------------------------------------
Total $945,675 45,154 6,496 984,333
- -----------------------------------------------------------------------
December 31, 1997:
U.S. government and
government agencies
and authorities $ 61,771 1,321 175 62,917
States, municipalities and
political subdivisions 3,549 254 8 3,795
Foreign governments 2,333 65 - 2,398
Public utilities 148,556 5,474 60 153,970
Corporate securities 461,416 24,884 915 485,385
Mortgage backed securities 212,186 4,278 1,642 214,822
- -----------------------------------------------------------------------
Total $889,811 36,276 2,800 923,287
- -----------------------------------------------------------------------
The amortized cost and fair value of debt securities available-for-sale
(in thousands) at December 31, 1998, by contractual maturity, were as follows:
- ----------------------------------------------------------------
At December 31, 1998
- ----------------------------------------------------------------
Amortized Fair
Cost Value
- ----------------------------------------------------------------
Due in one year or less $ 16,088 16,278
Due after one year through five years 129,144 136,814
Due after five years through ten years 114,519 119,372
Due after ten years 479,930 500,879
Mortgage backed securities 154,716 160,139
Redeemable preferred stocks 51,278 50,851
- ----------------------------------------------------------------
Total $945,675 984,333
- ----------------------------------------------------------------
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without
penalties.
The amortized cost of high yield bonds included in debt securities
available-for-sale was $42.4 million with a market value of $41.0 million, which
represented 2.6% of invested assets.
There were no individual investments at December 31, 1998, other than
U.S. government securities, which exceeded 10% of the Company's stockholders'
equity.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values (in thousands) of the Company's financial instruments
are summarized as follows:
- --------------------------------------------------------------------
AT DECEMBER 31, 1998
- --------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- --------------------------------------------------------------------
Debt securities $ 984,333 984,333
Equity securities 35,795 35,795
Mortgage loans on real estate 88,922 105,808
Investment real estate 532 2,400
Policy loans 481,970 481,970
Cash and short-term investments 6,420 6,420
- -------------------------------------------------------------------
Total cash and investments $1,597,972 1,616,726
- -------------------------------------------------------------------
Investment type insurance contracts $ 211,189 212,007
Notes payable to banks 63,571 63,571
Mandatorily redeemable
preferred securities 103,500 103,500
- -------------------------------------------------------------------
- -------------------------------------------------------------------
At December 31, 1997
- -------------------------------------------------------------------
Carrying Estimated
Amount Fair Value
- -------------------------------------------------------------------
Debt securities $ 923,287 923,287
Equity securities 36,817 36,817
Mortgage loans on real estate 70,697 82,160
Investment real estate 482 2,400
Policy loans 407,482 407,482
Cash and short-term investments 55,896 55,896
- -------------------------------------------------------------------
Total cash and investments $1,494,661 1,508,042
- -------------------------------------------------------------------
Investment type insurance contracts $ 179,489 179,489
Notes payable to banks 39,192 39,192
Mandatorily redeemable
preferred securities 103,500 103,500
- -------------------------------------------------------------------
These fair values were determined as follows:
Debt securities
The fair value and carrying value of debt securities were estimated
based on bid prices published in financial newspapers or bid quotations received
from securities dealers.
Equity securities
The fair value and carrying value of equity securities, other than
private placements, were based on bid prices published in financial newspapers.
For private placements, cost has been determined to approximate fair value.
Mortgage loans on real estate
For residential mortgage loans, fair value was estimated using quoted
market prices for securities backed by similar loans. The fair value of
commercial loans was estimated by discounting expected future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Investment in real estate
The fair value of real estate was calculated using estimated market
values.
Policy loans
The fair value of policy loans approximates the book value, as interest
rates charged for a majority of the policy loans are updated to current market
rates on an annual basis.
Cash and short-term investments
The carrying amount approximates fair value because of the short
maturity of these instruments.
Investment type insurance contracts
The carrying amount approximates fair value.
Notes payable to banks
The carrying amount approximates fair value because the interest rates
charged represent current market rates.
Mandatorily redeemable preferred securities
The carrying amount approximates fair value.
(5) COST OF BUSINESS ACQUIRED
Under current assumptions, amortization of cost of business acquired,
including accrued interest implicit in the calculation of the amortization, for
the next five years is expected to be as follows (amounts in thousands):
==================================================
1999 $ 4,973
2000 4,393
2001 3,814
2002 3,298
2003 2,914
==================================================
(6) NOTES PAYABLE TO BANKS
At December 31, 1998, all of the notes payable to banks were
short-term, unsecured and related to advances under $137.0 million lines of
credit ($73.4 million available to be drawn at December 31, 1998) bearing
interest at rates ranging from 5.48% to 5.66%. The arrangements under the terms
of the lines of credit are reviewed annually for renewal. The Company also has a
$75.0 million line of credit (the entire $75.0 million available to be drawn at
December 31, 1998) which is specifically to be used for acquisitions. The loan
has a term of five years and contains certain financial covenants and commitment
fees. The Company was in compliance with the covenants at December 31, 1998.
33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Interest expense to banks for the years ended December 31, 1998, 1997
and 1996 totaled $3.2 million, $4.4 million and $6.1 million, respectively.
(7)MANDATORILY REDEEMABLE PREFERRED SECURITIES
On June 27, 1997, the Company completed the offering of 2.07 million
shares of FELINE PRIDES. Proceeds from the offering of $98.4 million (after
underwriting and other associated costs) were used for the repayment of debt of
the Company. Each unit of FELINE PRIDES pays quarterly interest and yield
enhancement payments of $1.0625 per share, or 8.50% annually. Interest expense
on these securities for the years ended December 31, 1998 and 1997 totaled $7.0
million and $3.6 million, respectively. The Company recorded the yield
enhancement payments initially of 1.75% totaling $5.4 million, as a liability
and a reduction to stockholders' equity on the Company's Consolidated Balance
Sheets. The liability is reduced when the yield enhancement payments are paid.
Each FELINE PRIDES consists of a unit with a stated amount of $50
comprised of (a) a stock purchase contract under which (i) the holder will
purchase from the Company on August 16, 2000, a number of shares of common stock
of the Company equal to a specified rate and (ii) the Company will pay 1.75%
yield enhancement payments to the holder and (b) beneficial ownership of a 6.75%
trust preferred security representing a preferred undivided interest in the
assets of a Trust. The sole assets of the Trust are a 6.75% subordinated
debenture of the Company due August 16, 2002 with a principal amount of $106.7
million.
(8)REINSURANCE
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of benefits paid
by ceding insurance to other insurance companies or reinsurers under excess
coverage and co-insurance contracts. The maximum risk generally retained on
ordinary life insurance on any one insured ranges from $100,000 to $200,000. The
amount retained on group and credit life insurance is generally $50,000.
Generally, income from reinsurance arrangements is recognized in a manner
similar to the income recognition on the underlying policy contracts.
The reinsurance contracts do not relieve the Company from its
obligations to its policyholders, and it remains liable should any reinsurer be
unable to meet its obligations. The Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies. In the
accompanying financial statements, insurance revenues, benefits and claims and
deferred acquisition costs are reported net of reinsurance ceded.
The amount of insurance premiums assumed under reinsurance agreements
for the years ended December 31, 1998, 1997 and 1996 were $8.6 million, $4.5
million and $5.8 million, respectively. The amount of insurance premiums ceded
under reinsurance agreements for the years ended December 31, 1998, 1997 and
1996 were $90.3 million, $126.6 million and $111.7 million, respectively. The
amounts of recoveries for benefits paid under reinsurance agreements for the
years ended December 31, 1998, 1997 and 1996 were $97.6 million, $108.8 million
and $104.0 million, respectively.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
earnings per share (amounts in thousands):
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Numerator for basic and diluted
earnings per share:
Net earnings $36,746 31,360 27,032
- -----------------------------------------------------------------------------
Denominator:
Denominator for basic earnings
per share-weighted average
shares 27,552 27,561 27,567
Effect of dilutive securities:
Mandatorily redeemable,
preferred securities 709 -- --
Employee stock options 144 178 60
Restricted stock 95 92 84
Dilutive potential common shares 948 270 144
- -----------------------------------------------------------------------------
Denominator for diluted earnings
per share-weighted average shares
and assumed conversions 28,500 27,831 27,711
- -----------------------------------------------------------------------------
Basic net earnings per share $ 1.33 1.14 0.98
- -----------------------------------------------------------------------------
Diluted net earnings per share $ 1.29 1.13 0.98
- -----------------------------------------------------------------------------
34
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(10) STOCK COMPENSATION PLANS
At December 31, 1998, the Company had six stock-based compensation
plans, which are described below. The Company applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock issued to Employees" and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed option plans. The compensation that has been
charged against income for the long-term incentive plan stock, employee stock
purchase and agents stock purchase plans (in thousands) was as follows:
- ----------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------
Long-term incentive plan stock $707 547 487
Employee stock purchase plan 100 78 70
Agents stock investment plan 15 13 13
- ----------------------------------------------------------------
Compensation cost determined pursuant to Financial Accounting Standard
No. 123 "Accounting for Stock-Based Compensation" would not have had a material
effect on the Company's net earnings and earnings per share for 1998, 1997 and
1996.
(A) FIXED STOCK OPTION PLANS
The Company has three fixed stock option plans primarily for its
employees. Under the 1980 Stock Option Plan, the Company may grant options to
its employees for up to 600,000 shares of common stock. Under the 1996 Stock
Option Plan, the Company may grant options to its employees for up to 700,000
shares of common stock. The 1988 Stock Option Plan expired July 27, 1998 and
therefore no new options may be granted under this plan. Under all plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant. Under the 1980 and 1996 Plans, the option's maximum term is
ten years. Under the 1980 and 1996 Plans, options are granted during the year
and vest in increments of 20% or 33% per year over a five or three year period
beginning no less than six months after the grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 1.7%, 2.2% and 3.1%; expected volatility of 22% for 1998 and 20% for 1997 and
1996. The weighted-average fair value of options granted for the three years
ended December 31, 1998, 1997 and 1996, respectively, was $7.51, $5.23 and
$3.26.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996, and changes during the years ended on those
dates is presented below:
- -----------------------------------------------------------------
Weighted
Average
Number Exercise Options
of Shares Price Exercisable
- -----------------------------------------------------------------
Outstanding 1/1/96 543,894 $ 9.05 188,888
Granted 46,600 11.32
Exercised (54,672) 5.57
Forfeited - -
- -----------------------------------------------------------------
Outstanding 12/31/96 535,822 9.60 275,278
Granted 590,424 17.13
Exercised (248,596) 9.58
Forfeited (14,200) 9.71
- -----------------------------------------------------------------
Outstanding 12/31/97 863,450 14.51 149,606
Granted 357,080 22.33
Exercised (192,482) 9.72
Forfeited - -
- -----------------------------------------------------------------
Outstanding 12/31/98 1,028,048 $18.12 159,454
- -----------------------------------------------------------------
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
- -------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------
Number Weighted-Avg Number Weighted-Avg
Exercise Outstanding Remaining Exercisable Exercise
Prices at 12-31-98 Contractual Life at 12-31-98 Price
- -------------------------------------------------------------------------------
1980 Plan
$ 9.25 19,240 6 yr 1 mo 19,240 $ 9.25
9.38 4,516 5 yr 1 mo 4,516 9.38
10.75 3,956 4 yr 1 mo 3,956 10.75
11.31 27,318 7 yr 1 mo 12,512 11.31
11.44 53,938 8 yr 1 mo 9,230 11.44
18.81 57,080 9 yr 1 mo -- --
23.00 100,000 9 yr 11 mo -- --
- -------------------------------------------------------------------------------
266,048 49,454 $ 10.31
- -------------------------------------------------------------------------------
1988 Plan $ 8.75 42,000 10 mo 6,000 $ 8.75
17.50 30,000 8 yr 7 mo 6,000 17.50
- -------------------------------------------------------------------------------
72,000 12,000 $ 13.13
- -------------------------------------------------------------------------------
1996 Plan $ 17.50 490,000 8 yr 7 mo 98,000 $ 17.50
- -------------------------------------------------------------------------------
23.00 200,000 9 yr 11 mo -- --
- -------------------------------------------------------------------------------
690,000 98,000 $ 17.50
- -------------------------------------------------------------------------------
(B) LONG-TERM INCENTIVE PLAN
Under the Company's Long-Term Incentive Plan, the restricted stock
feature provides for the grant of common stock to a participating employee. The
number of shares of restricted stock available to be issued in the name of
35
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
each participating employee is determined at the beginning of each fiscal year
and is based on the prior year's operating results. Such shares are restricted
for three years and held by the Company in the name of the participating
employee, who has the right to vote and to receive dividends paid on all such
shares. Such shares are subject to forfeiture to the Company if the
participating employee does not remain in the Company's employ for three years
after the date of grant.
During the years ended December 31, 1998, 1997 and 1996, the Company
granted 28,028, 34,432 and 21,940 shares of restricted stock, respectively.
Under the Company's Long-Term Incentive Plan, the performance units
feature provides for the grant to a participating employee of shares of common
stock based on targeted performance levels established for each participating
employee at the beginning of each fiscal year in accordance with a formula
relating to individual levels of performance.
During the years ended December 31, 1998, 1997 and 1996, the Company
granted 7,892, 11,734 and 8,428 shares of common stock related to the
performance units feature, respectively.
(C) EMPLOYEE STOCK PURCHASE PLAN
The Company maintains a stock purchase plan under which its employees
and directors and those of its subsidiaries can purchase shares of its common
stock in the open market through an unaffiliated plan administrator. Pursuant to
the plan, 743,351 shares had been purchased as of December 31, 1998. During the
years ended December 31, 1998 and 1997, 40,947 shares and 45,336 shares,
respectively, were purchased pursuant to the plan. This plan provides for
monthly payroll and directors' fees purchases up to $1,500, with the employer
making a monthly percentage contribution for the account of each participant,
based upon their purchases, as follows: (a) 25% of amounts from $5 through $25,
(b) 20% of amounts in excess of $25 through $50, and (c) 15% of amounts in
excess of $50 through $1,500.
(D) AGENTS STOCK INVESTMENT PLAN
The Company maintains a stock purchase plan under which its agents can
purchase shares of its common stock in the open market through an unaffiliated
plan administrator. Pursuant to the plan, 101,353 shares had been purchased as
of December 31, 1998. During the years ended December 31, 1998 and 1997, 15,307
shares and 18,930 shares, respectively, were purchased pursuant to the plan. The
plan provides for monthly deductions from commissions payable by participating
subsidiaries of the Company to their participating agents with a minimum monthly
deduction of $500 and maximum of $2,000. The participating subsidiary
contributes, at the time of each purchase, an amount equal to five percent (5%)
of its agent's deduction for purchases from commissions payable.
(11) PROFIT SHARING PLAN
The Company has a trusteed profit sharing plan for the exclusive
benefit of eligible employees. The Company's annual contribution to the plan is
equal to the lesser of 10% of consolidated earnings as defined or 10% of
qualifying compensation paid to participants. The annual contributions amounted
to $1.5 million in 1998, $1.3 million in 1997 and $1.2 million in 1996.
(12) POLICY AND CONTRACT CLAIMS
Activity in the liability for policy and contract claims (in thousands)
at December 31, 1998, 1997 and 1996 is summarized as follows:
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of year $ 58,484 51,261 50,375
Less reinsurance recoverables 3,744 5,486 3,592
- -------------------------------------------------------------------------------
Net balance at beginning of year 54,740 45,775 46,783
- -------------------------------------------------------------------------------
Incurred related to:
Current year 128,340 148,114 144,248
Prior years (183) (655) (953)
- -------------------------------------------------------------------------------
Total incurred 128,157 147,459 143,295
- -------------------------------------------------------------------------------
Paid related to:
Current year 99,873 122,198 128,137
Prior years 21,604 16,296 16,166
- -------------------------------------------------------------------------------
Total paid 121,477 138,494 144,303
- -------------------------------------------------------------------------------
Net balance at end of year 61,420 54,740 45,775
Plus reinsurance recoverables 3,637 3,744 5,486
- -------------------------------------------------------------------------------
Balance at end of year $ 65,057 58,484 51,261
- -------------------------------------------------------------------------------
36
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(13)INDUSTRY SEGMENT INFORMATION
The Company has three reportable segments: ordinary, group and credit
insurance. The Company's Ordinary Insurance Department provides
interest-sensitive products (universal life, single and flexible premium
deferred annuities, single premium immediate annuities), level and decreasing
term products and supplemental accident and health insurance products to
individuals. The Group Insurance Department distributes insurance products and
related services to large employers for their employee benefit plans. The group
products provide life, disability, medical and dental insurance. The Credit
Insurance Department offers life, accident and health and property insurance
coverages to consumer debtors, primarily through banks, automobile dealers,
finance companies, credit unions and retailers. This coverage is issued on
either the single-premium or outstanding loan balance basis.
The Company evaluates performance and allocates resources based on the
earnings from operations before income taxes (excluding realized investment
gains and losses). Performance is also evaluated based on premium equivalents.
Premium equivalents for ordinary insurance include cash deposits from
interest-sensitive products. Group premium equivalents include business sold on
a self-funded or split-funded basis, and credit premium equivalents include
business written on an administrative services only basis. The accounting
policies of the reportable segments are the same as those described in Footnote
(1), Summary of Significant Accounting Policies.
The following table details the industry segment information for the
three years ended December 31, 1998:
- -------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
INSURANCE REVENUES:
Ordinary $197,435 168,218 137,421
Group 39,964 31,034 35,480
Credit 71,458 80,579 85,618
- -------------------------------------------------------------------------------
Total $308,857 279,831 258,519
- -------------------------------------------------------------------------------
PREMIUM EQUIVALENTS:
Ordinary $ 87,784 72,862 44,048
Group 181,823 192,562 179,453
Credit 73,124 93,205 85,591
- -------------------------------------------------------------------------------
Total $342,731 358,629 309,092
- -------------------------------------------------------------------------------
TOTAL PREMIUMS AND
PREMIUM EQUIVALENTS:
Ordinary $285,219 241,080 181,469
Group 221,787 223,596 214,933
Credit 144,582 173,784 171,209
- -------------------------------------------------------------------------------
Total $651,588 638,460 567,611
- -------------------------------------------------------------------------------
TOTAL PREMIUMS, PREMIUM
EQUIVALENTS, NET INVESTMENT
INCOME AND OTHER INCOME:
Ordinary $385,310 335,297 248,797
Group 227,457 229,026 220,254
Credit 152,227 179,771 175,574
- -------------------------------------------------------------------------------
Total $764,994 744,094 644,625
- -------------------------------------------------------------------------------
ORDINARY DEPARTMENT:
Insurance revenues $197,435 168,218 137,421
Net investment income 100,091 94,217 67,328
Total income 297,526 262,435 204,749
Benefits and claims 158,894 144,323 110,959
Taxes, commissions and
general expenses 49,528 45,358 33,092
Amortization of deferred
acquisition costs 38,929 32,425 25,628
Other operating expenses 407 15 --
Total benefits & expenses 247,758 222,121 169,679
- -------------------------------------------------------------------------------
Pre-tax operating earnings $ 49,768 40,314 35,070
- -------------------------------------------------------------------------------
GROUP DEPARTMENT:
Insurance revenues $ 39,964 31,034 35,480
Net investment income 5,670 5,430 5,321
Total income 45,634 36,464 40,801
Benefits and claims 26,467 18,255 24,013
Taxes, commissions and
general expenses 14,285 13,601 12,275
Total benefits & expenses 40,752 31,856 36,288
- -------------------------------------------------------------------------------
Pre-tax operating earnings $ 4,882 4,608 4,513
- -------------------------------------------------------------------------------
CREDIT DEPARTMENT:
Insurance revenues $ 71,458 80,579 85,618
Net investment income 5,319 4,889 4,365
Other income 2,326 1,098 --
Total income 79,103 86,566 89,983
Benefits and claims 9,661 12,559 13,901
Taxes, commissions and
general expenses 60,856 67,537 72,332
Other operating expenses 1,908 866 --
Total benefits & expenses 72,425 80,962 86,233
- -------------------------------------------------------------------------------
Pre-tax operating earnings $ 6,678 5,604 3,750
- -------------------------------------------------------------------------------
37
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Reconciliations of total income and pre-tax operating earnings for the
three years ended December 31, 1998 were as follows:
- -------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
TOTAL INCOME:
Ordinary $ 297,526 262,435 204,749
Group 45,634 36,464 40,801
Credit 79,103 86,566 89,983
Other non-segmented income 18,485 2,811 763
Realized investment gains 552 466 420
Intercompany eliminations (18,669) (1,955) (742)
- -------------------------------------------------------------------------------
Total income $ 422,631 386,787 335,974
- -------------------------------------------------------------------------------
PRE-TAX OPERATING EARNINGS:
Ordinary 49,768 40,314 35,070
Group 4,882 4,608 4,513
Credit 6,678 5,604 3,750
Other non-segmented earnings 7,108 (6,685) (3,877)
Intercompany eliminations (14,341) 2,424 (17)
- -------------------------------------------------------------------------------
Pre-tax operating earnings $ 54,095 46,265 39,439
- -------------------------------------------------------------------------------
The following table presents assets specifically related to each
industry segment. Assets not able to be separately identified with an industry
segment have not been allocated. Total assets of subsidiaries are included in
industry segments without regard to that portion related to equity.
- --------------------------------------------------------
(in thousands) 1998 1997
- --------------------------------------------------------
Industry-segment assets:
Ordinary $1,779,848 1,638,454
Group 67,561 63,921
Credit 108,178 125,938
- --------------------------------------------------------
1,955,587 1,828,313
Non-segmented assets 100,100 86,946
- --------------------------------------------------------
Total assets $2,055,687 1,915,259
- --------------------------------------------------------
(14) STOCKHOLDER'S EQUITY AND NET EARNINGS
The payment of dividends to AHLIC by AHL is subject to the regulation
of the State of Florida Department of Insurance. A dividend may be made without
prior Florida Insurance Commissioner's approval if the dividend is equal to or
less than the greater of: (a) 10% of AHL's surplus as to policyholders derived
from realized net operating profits on its business and net realized capital
gains; or (b) AHL's entire net operating profits and realized net capital gains
derived during the immediately preceding calendar year, if AHL will have surplus
as to policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. As a result of such
restrictions, the maximum dividend which could be paid to AHLIC by its insurance
subsidiaries during 1999 without prior approval is $26.0 million.
AHLIC's insurance subsidiaries had statutory net operating earnings of
$27.7 million, $24.5 million and $20.6 million and statutory net earnings of
$31.3 million, $27.8 million and $22.1 million for the years ended December 31,
1998, 1997 and 1996, respectively. Total statutory stockholder's equity of the
separate subsidiaries was $204.4 million at December 31, 1998 and $196.8 million
at December 31, 1997. At December 31, 1998, pursuant to the insurance laws of
the State of Florida, the minimum capital and surplus required to be maintained
by AHL was approximately $51.8 million.
(15)NEW PRONOUNCEMENTS BY THE FINANCIAL
ACCOUNTING STANDARDS BOARD
No pronouncements, otherwise not disclosed, which have been issued by
the Financial Accounting Standards Board will have a significant impact on the
consolidated financial statements of the Company.
(16) CONTINGENT LIABILITIES
AHL, like other insurance companies, is currently a defendant in
lawsuits that involve claims for punitive, exemplary or other extracontractual
damages, which are for amounts substantially in excess of the actual damages
sought. Management considers such litigation regrettably to be of the type to
which insurance companies are usually and customarily subjected in the ordinary
course of business; and to date the settlements of such claims of this nature
have not been material to the financial position of the Company. In the opinion
of management, based on the currently ascertained facts of the pending
litigation, which the Company intends to vigorously defend, the ultimate
resolution of such litigation should not be material to the financial position
of the Company.
(17) OTHER COMPREHENSIVE INCOME
Other comprehensive income, as reflected in the Consolidated Statements
of Stockholders' Equity, consisted of net unrealized investment gains of $.9
million for the year ended December 31, 1998. Total comprehensive income, which
was $37.6 million for the year ended December 31, 1998, included net earnings of
$36.7 million and other comprehensive income.
38
39
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
QUARTERLY FINANCIAL DATA
(In thousands except per share amounts)
(Unaudited)
========================================================================================================
1998
========================================================================================================
March June September December
----- ---- --------- --------
Total income $ 99,406 106,212 110,416 106,597
Operating earnings 8,601 9,117 9,181 9,489
Net earnings 8,674 9,162 9,287 9,624
Operating earnings per share-diluted .31 .32 .32 .33
Net earnings per share-basic .32 .33 .34 .35
Net earnings per share-diluted .31 .32 .32 .34
========================================================================================================
1997
========================================================================================================
March June September December
----- ---- --------- --------
Total income $ 90,374 92,827 102,487 101,099
Operating earnings 7,678 7,761 7,589 8,030
Net earnings 7,745 7,801 7,684 8,131
Operating earnings per share-diluted .28 .28 .27 .29
Net earnings per share-basic .28 .28 .28 .30
Net earnings per share-diluted .28 .28 .28 .29
========================================================================================================
39
40
SCHEDULE I
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1998
(amounts in thousands)
Amount at
which shown
in the
Type of Investment Cost Fair Value balance sheet
------------------ ---- ---------- -------------
Debt securities available-for sale:
Bonds:
United States Government and government agencies
and authorities $ 202,685 $ 210,205 $210,205
States, municipalities and political subdivisions 3,008 3,335 3,335
Foreign governments 775 834 834
Public utilities 140,049 147,736 147,736
Convertibles and bonds with warrants attached 713 736 736
All other corporate 547,167 570,636 570,636
Redeemable preferred stock 51,278 50,851 50,851
---------- ---------- ----------
Total debt securities 945,675 984,333 984,333
---------- ========== ----------
Equity securities available-for-sale:
Common stocks:
Public utilities 1,041 1,146 1,146
Banks, trust and insurance companies 1,486 6,700 6,700
Industrial, miscellaneous and all other 18,946 27,949 27,949
---------- ---------- ----------
Total equity securities 21,473 35,795 35,795
---------- ========== ----------
Mortgage loans on real estate 88,922 88,922
Real estate 532 532
Policy loans 481,970 481,970
Short-term investments 6,420 6,420
---------- ----------
Total investments $1,544,992 $1,597,972
========== ==========
See Footnote 1(c) on page 30 which sets forth the accounting policies related to
investments.
40
41
SCHEDULE II
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONDENSED FINANCIAL INFORMATION OR REGISTRANT
The following condensed balance sheets of American Heritage Life
Investment Corporation ("Registrant") as of December 31, 1998 and 1997 and its
condensed statements of earnings and cash flows for the years ended December 31,
1998, 1997 and 1996 should be read in conjunction with the notes to consolidated
financial statements included elsewhere in this report. Since the Registrant's
condensed statements of changes in stockholders' equity for the years ended
December 31, 1998, 1997 and 1996 are identical to the consolidated statements of
changes in stockholders' equity included elsewhere in this report, such
statements are not repeated in this schedule.
On December 30, 1998, a dividend of $13,000,000 related to American
Heritage Life Insurance Company's (AHL's) earnings in 1997, was paid from AHL to
the Registrant. In the years 1997 and 1996, no dividend was paid to the
Registrant by AHL.
41
42
SCHEDULE II, Continued
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
($ IN THOUSANDS)
1998 1997
--------- ---------
ASSETS
Cash $ 60 $ 16
Investment in life insurance subsidiaries, at equity 395,423 364,403
Investment in non-life insurance subsidiaries, at equity 13,682 13,351
Accounts receivable 3,170 4,272
Intercompany accounts 6,911 7,550
Other assets 19,531 16,216
--------- ---------
$ 438,777 $ 405,808
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable to banks $ 47,571 $ 39,192
Other liabilities 6,447 7,692
--------- ---------
Total liabilities 54,018 46,884
--------- ---------
AHLIC Junior Subordinated Debentures 106,701 106,701
--------- ---------
Stockholders' equity:
Common stock of $1.00 par value. Authorized 75,000,000
shares in 1998 and 35,000,000 shares in 1997;
issued 28,138,886 in 1998 and 14,020,861 in 1997 28,139 14,021
Preferred stock:
Convertible of $10.00 par value. Authorized 500,000
shares; none issued -- --
Non-Convertible of $10.00 par value. Authorized 500,000
shares; none issued -- --
Additional paid-in capital 42,161 42,528
Retained earnings 194,854 183,852
Yield enhancement, contract and issuance costs of
mandatorily redeemable preferred securities (9,561) (9,561)
Unrealized investment gains 26,514 25,612
--------- ---------
282,107 256,452
Less cost of 272,715 in 1998 and 142,589 in 1997 common
shares in treasury 4,049 4,229
--------- ---------
Total stockholders' equity 278,058 252,223
--------- ---------
$ 438,777 $ 405,808
========= =========
42
43
SCHEDULE II, Continued
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ IN THOUSANDS)
1998 1997 1996
-------- -------- --------
Income:
Investment income $ 583 $ 849 $ 364
Other income 404 389 304
Realized investment losses -- (39) --
-------- -------- --------
Total income 987 1,199 668
Operating expenses 10,555 8,207 4,226
-------- -------- --------
Loss before income tax benefits (9,568) (7,008) (3,558)
Income tax benefits (3,227) (2,396) (1,260)
-------- -------- --------
Loss before equity in earnings
(loss) of subsidiaries (6,341) (4,612) (2,298)
Equity in net earnings of life
insurance subsidiaries 42,823 36,138 29,670
Equity in net earnings (losses) of
non-life insurance subsidiaries 264 (166) (340)
-------- -------- --------
Net earnings $ 36,746 $ 31,360 $ 27,032
======== ======== ========
43
44
SCHEDULE II, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ IN THOUSANDS)
1998 1997 1996
-------- -------- --------
Operating activities:
Net earnings $ 36,746 $ 31,360 $ 27,032
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Change in accounts receivable 1,102 851 6,326
Change in other assets (3,315) (4,315) (2,416)
Change in other liabilities (1,378) (504) 2,150
Equity in net earnings of life insurance subsidiaries (42,823) (36,138) (29,670)
Equity in net loss of non-life insurance subsidiaries (264) 166 341
-------- -------- --------
Net cash provided by (used) operating activities (9,932) (8,580) 3,763
-------- -------- --------
Investing activities:
Decrease in certificate of deposit 0 100 0
-------- -------- --------
Net cash provided by investing activities 0 100 0
-------- -------- --------
Financing activities:
Dividends from subsidiaries 13,000 0 0
Capital contribution to subsidiaries 0 (45,764) (99)
Increase (decrease) in notes payable to banks 8,379 (26,267) 10,465
Net proceeds from securities offering 0 98,478 0
Change in intercompany accounts 639 (5,798) (996)
Dividends to stockholders (12,048) (10,800) (12,388)
Purchase of treasury stock (54) (3,228) (1,241)
Excess over par value on shares issued (367) 542 317
Other, net 427 1,319 147
-------- -------- --------
Net cash provided by (used) financing activities 9,976 8,482 (3,795)
-------- -------- --------
Increase (decrease) in cash 44 2 (32)
-------- -------- --------
Cash at beginning of year 16 14 46
-------- -------- --------
Cash at end of year $ 60 $ 16 $ 14
======== ======== ========
44
45
SCHEDULE III
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
($ IN THOUSANDS)
DEFERRED FUTURE POLICYHOLDERS' POLICY AND
ACQUISITION POLICY ACCOUNT UNEARNED CONTRACT
INDUSTRY SEGMENT COSTS BENEFITS BALANCES PREMIUMS CLAIMS
- ----------------------------- ----------- --------- ------------- -------- ----------
YEAR ENDED DECEMBER 31, 1998
Ordinary $240,554 $ 308,202 $1,094,316 $ 8,524 $ 23,221
Group 0 7,664 2,750 83 34,098
Credit 0 0 0 36,447 7,738
Other 0 0 0 0 0
-------- ---------- ---------- ------- --------
$240,554 $ 315,866 $1,097,066 $45,054 $ 65,057
======== ========== ========== ======= ========
YEAR ENDED DECEMBER 31, 1997
Ordinary $223,651 $ 282,568 $1,009,790 $ 7,776 $ 16,866
Group 0 7,197 3,812 0 31,148
Credit 0 0 0 44,890 10,470
Other 0 0 0 0 0
-------- ---------- ---------- ------- --------
$223,651 $ 289,765 $1,013,602 $52,666 $ 58,484
======== ========== ========== ======= ========
YEAR ENDED DECEMBER 31, 1996
Ordinary $173,699 $ 196,895 $ 676,744 $ 5,375 $ 10,213
Group 0 6,501 4,354 0 29,229
Credit 0 0 0 46,904 11,819
Other 0 0 0 0 0
-------- ---------- ---------- ------- --------
$173,699 $ 203,396 $ 681,098 $52,279 $ 51,261
======== ========== ========== ======= ========
AMORTIZATION TAXES,
NET BENEFITS OF DEFERRED COMMISSIONS
INSURANCE INVESTMENT AND ACQUISITION AND GENERAL
INDUSTRY SEGMENT REVENUES (C) INCOME (A) CLAIMS COSTS EXPENSES (B)
- --------------------------- -------------- ----------- ---------- ------------- ------------
YEAR ENDED DECEMBER 31, 1998
Ordinary $197,435 $ 100,091 $158,894 $ 38,929 $ 49,528
Group 39,964 5,670 26,467 0 14,285
Credit 71,458 5,319 9,661 0 60,856
Other 0 (183) 11 0 (3,476)
-------- --------- -------- -------- ---------
$308,857 $ 110,897 $195,033 $ 38,929 $ 121,193
======== ========= ======== ======== =========
YEAR ENDED DECEMBER 31, 1997
Ordinary $168,218 $ 94,216 $144,323 $ 32,425 $ 45,358
Group 31,034 5,430 18,255 0 13,601
Credit 80,579 4,890 12,559 0 67,537
Other 0 856 33 0 (3,488)
-------- --------- -------- -------- ---------
$279,831 $ 105,392 $175,170 $ 32,425 $ 123,008
======== ========= ======== ======== =========
YEAR ENDED DECEMBER 31, 1996
Ordinary $137,421 $ 67,328 $110,959 $ 25,628 $ 33,092
Group 35,480 5,321 24,013 0 12,275
Credit 85,618 4,365 13,901 0 72,332
Other 0 21 14 0 (285)
-------- --------- -------- -------- ---------
$258,519 $ 77,035 $148,887 $ 25,628 $ 117,414
======== ========= ======== ======== =========
(a) Allocated to the industry segment based on required liabilities for
future policy benefits.
(b) Allocated on functional cost basis unless specifically identifiable
with industry segment.
(c) Includes only cost of insurance, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include group
and credit premium equivalents and cash deposits from
interest-sensitive products.
45
46
SCHEDULE IV
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
REINSURANCE
(IN THOUSANDS OF DOLLARS)
CEDED TO ASSUMED PERCENTAGE
GROSS OTHER FROM OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNTS ASSUMED TO NET
----------- ---------- ----------- ---------- --------------
YEAR ENDED DECEMBER 31, 1998
Life insurance volume in force $21,957,820 5,068,470 5,648,502 22,537,852 25.1%
=========== ========= ========= ========== ====
Insurance revenues(a):
Ordinary $ 207,112 12,419 2,742 197,435 1.4%
Group 38,954 4,852 5,862 39,964 14.7%
Credit 144,449 72,991 0 71,458 - %
----------- --------- --------- ---------- ----
Total $ 390,515 90,262 8,604 308,857 2.8%
=========== ========= ========= ========== ====
YEAR ENDED DECEMBER 31, 1997
Life insurance volume in force $20,132,475 5,316,974 5,552,822 20,368,323 27.3%
=========== ========= ========= ========== ====
Insurance revenues(a):
Ordinary $ 176,351 10,306 2,173 168,218 1.3%
Group 34,263 5,509 2,280 31,034 7.3%
Credit 191,391 110,812 0 80,579 - %
----------- --------- --------- ---------- ----
Total $ 402,005 126,627 4,453 279,831 1.6%
=========== ========= ========= ========== ====
YEAR ENDED DECEMBER 31, 1996
Life insurance volume in force $16,208,820 4,599,978 4,314,210 15,923,052 27.1%
=========== ========= ========= ========== ====
Insurance revenues(a):
Ordinary $ 142,397 6,963 1,987 137,421 1.4%
Group 38,294 6,583 3,769 35,480 10.6%
Credit 183,787 98,169 0 85,618 - %
----------- --------- --------- ---------- ----
Total $ 364,478 111,715 5,756 258,519 2.2%
=========== ========= ========= ========== ====
(a) Includes both life and accident and health premiums and commission and
expense allowances on reinsurance ceded.
46
47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
American Heritage Life Investment Corporation (the "Company") retained
Ernst and Young LLP as its independent auditors and replaced KPMG Peat Marwick
LLP effective July 25, 1997. No report of KPMG Peat Marwick LLP on the financial
statements of the Company contained an adverse opinion, or disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. Since the engagement of KPMG Peat Marwick LLP through the
date of replacement, there were no disagreements between the Company and KPMG
Peat Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. The change in independent
accountants was approved by the board of Directors of the Company. Reference is
made to current reports on Forms 8-K and 8-K/A dated July 25, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors of the Company who are not executive
officers, is contained in the Company's 1999 Proxy Statement, dated March 19,
1999 (the "Proxy Statement") under the sections entitled "Election of Directors"
and "Executive Compensation and Other Transactions with Management -- Other
Transactions and Relationships" which sections are incorporated herein by
reference.
MANAGEMENT
The following tabulation is a list of the names and ages as well as the
position held for the past five years by each executive officer and director of
the Company and certain executive officers of AHL, none of whom is related to
each other either by blood or marriage, except W. Ashley Verlander and Chris A.
Verlander, who are father and son, respectively, and A. Dano Davis and Robert D.
Davis, who are first cousins.
Name Age Position
- ---- --- --------
T. O'Neal Douglas . . . . . . . . . . . . . . . . . . . . . . 63 AHL and AHLIC - Chairman of the Board
and Chief Executive Officer, Director
Chris A. Verlander . . . . . . . . . . . . . . . . . . . . . 51 AHL and AHLIC - Vice Chairman and Corporate
Secretary
C. Richard Morehead . . . . . . . . . . . . . . . . . . . . 52 AHL and AHLIC - President
and Chief Operating Officer, Director
John K. Anderson, Jr. . . . . . . . . . . . . . . . . . . . . 50 AHL and AHLIC - Executive Vice-President,
Treasurer and Chief Financial Officer
David A. Bird . . . . . . . . . . . . . . . . . . . . . . . . 42 AHL and AHLIC - Executive Vice-President
and Chief Marketing Officer
Charles C. Baggs . . . . . . . . . . . . . . . . . . . . . . 48 AHL - Senior Vice-President, Administration
James H. Baum . . . . . . . . . . . . . . . . . . . . . . . . 47 AHL - Senior Vice-President, Group Department
Robert E. Poland . . . . . . . . . . . . . . . . . . . . . . 57 AHL - Senior Vice-President, Agency
Elizabeth A. Mahin . . . . . . . . . . . . . . . . . . . . . 38 AHL - Senior Vice-President and Chief Accounting Officer
Mike Pinkham . . . . . . . . . . . . . . . . . . . . . . . . 60 CUL - President and Chief Executive Officer
William J Thomas . . . . . . . . . . . . . . . . . . . . . . 54 AHL - Senior Vice-President, Credit Department
Curtiss S. Sheldon . . . . . . . . . . . . . . . . . . . . . 57 AHL - Senior Vice-President and Chief Actuary
Edward L. Baker . . . . . . . . . . . . . . . . . . . . . . 63 Director
A. Dano Davis . . . . . . . . . . . . . . . . . . . . . . . 53 Director
Robert D. Davis . . . . . . . . . . . . . . . . . . . . . . 67 Director
H. Corbin Day . . . . . . . . . . . . . . . . . . . . . . . 61 Director
Radford D. Lovett . . . . . . . . . . . . . . . . . . . . . 65 Director
W. Ashley Verlander . . . . . . . . . . . . . . . . . . . . 79 Director
47
48
T. O'NEAL DOUGLAS' principal positions are those of: Chairman of the
Board of Directors of the Company, a position he has held since April, 1994;
Chief Executive Officer of the Company, a position he has held since February,
1990; Director of the Company, a position he has held since July, 1987; Director
of AHL, a position he has held since January, 1984; Chief Executive Officer of
AHL, a position he has held since February, 1990; and Chairman of AHL, a
position he has held since April, 1994. From February, 1990 to April, 1996, he
was President of the Company. From July, 1986 to April, 1994, he was President
of AHL. Mr. Douglas is also a Director of PSS/World Medical Inc.
CHRIS A. VERLANDER's principal positions are those of: Vice-chairman
and Corporate Secretary of the Company and AHL, which he has held since August,
1997; Director of the Company, a position he has held since July, 1987; Director
of AHL, which he has held since April, 1985. Prior to August, 1997, and since
April, 1996 he was President and Chief Operating Officer. Prior to April, 1996,
and since April, 1990, he was Executive Vice President of the Company. Prior to
April, 1994, and since April, 1990, he was Executive Vice President of AHL.
C. RICHARD MOREHEAD's principal positions are those of President and
Chief Operating Officer of the Company and AHL, which he has held since August,
1997; Director of AHL, which he has held since July, 1990; and Director of the
Company which he has held since July, 1998. Prior to August, 1997 and since
April, 1994, he was Executive Vice President, Treasurer, Chief Financial Officer
and Chief Accounting Officer of the Company and AHL. Prior to April, 1994 and
since July, 1986, he was Senior Vice President and Chief Financial Officer of
the Company and AHL.
JOHN K. ANDERSON, JR.'S principal position is that of Executive Vice
President and Chief Financial Officer of the Company and AHL, a position he has
held since August, 1997. Prior to August, 1997 and since December, 1995 he was
Director of the Cancer Insurance Division of AHL. Prior to December, 1995 and
since September, 1993 he was Chief Executive Officer of E.G. Baldwin and
Associates, Inc. in Cleveland, Ohio.
DAVID A. BIRD'S principal position is that of Executive Vice President
and Chief Marketing Officer of the Company and AHL, a position he has held since
August, 1997. Prior to August, 1997 and since May, 1994 he was Senior Vice
President, Agency of AHL. Prior to May, 1994 and since January, 1994 he was Vice
President of AHL.
CHARLES C. BAGGS' principal position is that of Senior Vice President
of AHL, a position he has held since December, 1990.
JAMES H. BAUM'S principal position is that of Senior Vice President of
AHL, a position he has held since December, 1990.
ROBERT E. POLAND'S principal position is that of Senior Vice President,
Agency Department of AHL, a position he has held since February, 1998. Prior to
February, 1998 and since April, 1992 he was Vice President of AHL.
ELIZABETH A. MAHIN'S principal positions are those of Senior Vice
President and Chief Accounting Officer of AHL, which she has held since April,
1994, and Senior Vice President and Chief Accounting Officer of the Company,
which she has held since April, 1998. Prior to April, 1994 and since August,
1990, she was Vice President and Controller of AHL.
MIKE PINKHAM'S principal position is that of President, Chief Executive
Officer and Director of CUL, which he has held since May, 1997. Prior to May,
1997 and since 1993 he was President, Chief Operating Officer, Chief Marketing
Officer and Director of CUL. . William J Thomas' principal position is that of
Senior Vice President of AHL, a position he has held since July, 1995. Prior to
July, 1995 and since April, 1990, he was Vice President of AHL.
CURTISS S. SHELDON'S principal position is that of Senior Vice
President and Chief Actuary of AHL, which he has held since August, 1993.
48
49
EDWARD L. BAKER has served as a Director since 1994. Mr. Baker has been
Chairman of the Board of Florida Rock Industries, Inc., a construction products
company since February, 1989. Mr. Baker is also a Director of FRP Properties,
Inc. and Flowers Industries, Inc.
A. DANO DAVIS has served as a Director since June, 1993. Mr. Davis has
been Chairman of the Board and Principal Executive Officer of Winn-Dixie Stores,
Inc., a retail grocery chain, since 1988. Mr. Davis is also a Director of First
Union Corporation, a bank holding company.
ROBERT D. DAVIS has served as a Director since 1968. Mr. Davis has been
Chairman of the Board of D.D.I., Inc., a private investment company, since 1984.
Prior to June, 1990 and since 1988, he was Vice Chairman of the Board of
Winn-Dixie Stores, Inc. Mr. Davis is also a Director of Winn-Dixie Stores, Inc.
H. CORBIN DAY has served as a Director since June, 1993 and has served
on the board of AHL since 1989. Mr. Day has been Chairman of the Board of
Jemison Investment Co., Inc., an investment banking firm since May, 1988. Mr.
Day is also a Director of Blount International, Inc., a construction and
manufacturing company, Hughes Supply, Inc. and Champion International
Corporation.
RADFORD D. LOVETT has served as a Director since 1989. Mr. Lovett has
been Chairman of the Board of Commodores Point Terminal Corp., which operates a
marine terminal, since 1982. Mr. Lovett is also a Director of First Union
Corporation, Winn-Dixie Stores, Inc., Florida Rock Industries, Inc., a
construction products company and FRP Properties, Inc., a trucking and real
estate company.
W. ASHLEY VERLANDER has served as a Director of the Company since its
organization in 1968. He served as Chairman of the Board of the Company from
February, 1990 to April, 1994. He was Chairman of the Board of AHL from July,
1986 to April, 1994.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation and Other Transactions
with Management" of the Proxy Statement which section, except for the
subsections "Compensation Committee Report on Executive Compensation" and
"Shareholder Return Performance Presentation" is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the sections entitled "Election of Directors" and "Principal
Shareholders" of the Proxy Statement which sections are incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Executive Compensation and Other Transactions
with Management - Other Transactions and Relationships" of the Proxy Statement
which section is incorporated herein by reference.
49
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents incorporated by reference or filed with this report
(1) Financial Statement - See "Index to Financial Statements and
Schedules" on page 22, Part II of this report.
(2) Schedules - See "Index to Financial Statements and Schedules" on
page 22, Part II of this report.
(3) Exhibits required by Item 601.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3(a) -- Amended and Restated Articles of Incorporation of American
Heritage Life Investment Corporation effective May 5, 1998.
Incorporated by reference to Exhibit 3(I) of the Form 8-K,
dated May 18, 1998 (File No. 1-7255).
(b) -- By-Laws of American Heritage Life Investment Corporation as
amended and restated, dated July 30, 1998. Incorporated by
reference to Exhibit 3 of a Form 8-K, dated July 30, 1998
(File No. 1-7255).
4(a) -- Common Stock Certificate of American Heritage Life Investment
Corporation. Incorporated by reference to Exhibit 4 of the
Form 10-K filed by Registrant for the period ended
December 31, 1994 (File No. 1-7255).
4(b) -- Form of Indenture between the Company and The First National
Bank of Chicago, as Trustee. Incorporated by reference to
Exhibit 4(b) of the Registrant's Amendment No. 2 to Form S-3
dated June 23, 1997. (File No. 1-7255).
4(c) -- Form of Preferred Security. Incorporated by reference to
Exhibit 4(c) of the Registrant's Amendment No. 1 to Form S-3
dated June 3, 1997. (File No. 1-7255).
(d) -- Form of Junior Subordinated Debenture. Incorporated by
reference to Exhibit 4(d) of the Registrant's Amendment No. 1
to Form S-3 dated June 3, 1997. (File No. 1-7255).
4(e) -- Form of Guarantee Agreement with respect to Trust Preferred
Securities. Incorporated by reference to Exhibit 4(e) of the
Registrant's Amendment No. 1 to Form S-3 dated June 3, 1997.
(File No. 1-7255).
4(f) -- Form of Purchase Contract Agreement, between the Company and
The First National Bank of Chicago as Purchase Contract Agent.
Incorporated by reference to Exhibit 4(f) of the Registrant's
Amendment No. 1 to Form S-3 dated June 3, 1997. (File No.
1-7255).
4(g) -- Form of Pledge Agreement, among the Company, The Chase
Manhattan Bank, as Collateral Agent and The First National
Bank of Chicago, as Purchase Contract Agent. Incorporated by
reference to Exhibit 4(g) of the Registrant's Amendment No. 1
to Form S-3 dated June 3, 1997. (File No. 1-7255).
4(h) -- Certificate of Trust of AHL Financing. Incorporated by
reference to Exhibit 4(h) of the Registrant's Form S-3 dated
March 28, 1997. (File No. 1-7255).
4(i) -- Declaration of Trust of AHL Financing. Incorporated by
reference to Exhibit 4(I) of the Registrant's Form S-3 dated
March 28, 1997. (File No. 1-7255).
4(j) -- Form of Supplemental Indenture to Indenture to be used in
connection with issuance of Junior Subordinated Debentures
related to Income PRIDES. Incorporated by reference to Exhibit
4(j) of the Registrant's Amendment No. 2 to Form S-3 dated
June 23, 1997. (File No. 1-7255).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4(k) -- Form of Amended and Restated Declaration of Trust of AHL
Financing. Incorporated by reference to Exhibit 4(k) of the
Registrant's Form S-3 dated March 28, 1997. (File No. 1-7255).
10(a)(1) -- American Heritage Life Investment Corporation 1988 Stock
Option Plan, as Amended and Restated. Incorporated by
reference to Exhibit 3(a) of the Form 10-K filed by Registrant
for the period ended December 31, 1994 (File No. 1-7255).
(a)(2) -- American Heritage Life Investment Corporation 1980 Stock
Option Plan, as Amended and Restated. Incorporated by
reference to Exhibit 3(a) of the Form 10-K filed by Registrant
for the period ended December 31, 1994 (File No. 1-7255).
(a)(3) -- American Heritage Life Investment Corporation 1996 Stock
Option Plan. Incorporated by reference to Exhibit II of
Registrant's Proxy Statement dated March 22, 1996. (File No.
1-7255).
10(b)(1) -- American Heritage Life Investment Corporation Amended and
Restated Annual Incentive Plan. Incorporated by reference to
Exhibit 10(b)(1) of Form 10-K filed by Registrant for the
period ended December 31, 1995 (File No. 1-7255).
(2) -- American Heritage Life Investment Corporation Long-Term
Incentive Plan. Incorporated by reference to Exhibit I of
Registrant's Proxy Statement dated March 22, 1996 (File No.
1-7255).
10(c)(1) -- Senior Corporate Officers Management Security Plan of American
Heritage Life Investment Corporation and Subsidiaries.
Incorporated by reference to Exhibit 10(c)(1) of Form 10-K
filed by Registrant for the period ended December 31, 1993
(File No. 1-7255). Incorporated by reference to Exhibit
10(b)(1) of Form 10-K filed by Registrant for period ended
December 31, 1995 (File No. 1- 7255).
(2) -- Officers Management Security Plan of American Heritage Life
Investment Corporation and Subsidiaries. Incorporated by
reference to Exhibit 10(c)(2) of Form 10-K filed by Registrant
for the period ended December 31, 1993 (File No. 1-7255).
10(d) -- Loan agreement dated February 21, 1997 among and between
American Heritage Life Investment Corporation and Barnett Bank
N.A., SunTrust Bank of North Florida, N.A. and SouthTrust Bank
of Alabama, National Association and related documents.
Incorporated by reference to Exhibit 99(c) of Form 8-K dated
March 3, 1997 (File No. 1-7255).
16(a) -- Letter dated July 28, 1997, from KPMG Peat Marwick LLP to
Securities and Exchange Commission. Incorporation by reference
to Exhibit 16 of the Registrant's Form 8-K dated July 25,
1997, filed with the Commission on July 29, 1997.
16(b) -- Letter dated August 28, 1997, from KPMG Peat Marwick LLP to
Securities and Exchange Commission. Incorporation by reference
to Exhibit 16(b) of the Registrant's Form 8-K/A dated July 25,
1997, filed with the Commission on August 29, 1997.
21 -- Significant Subsidiaries of the Registrant.
27 -- Financial Data Schedule (for SEC purposes only)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December
31, 1998.
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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.
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
March 29, 1999 By: /s/ T. O'NEAL DOUGLAS
--------------------------------------------
T. O'Neal Douglas
Its Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ T. O'NEAL DOUGLAS Chairman and Director March 29, 1999
- -------------------------------- (Principal Executive Officer)
T. O'Neal Douglas
/s/ CHRIS A. VERLANDER
- -------------------------------- Vice Chairman, Director March 29, 1999
Chris A. Verlander
/s/ C. RICHARD MOREHEAD President, Chief Operating March 29, 1999
- -------------------------------- Officer and Director
C. Richard Morehead
/s/ JOHN K. ANDERSON, JR Executive Vice President and March 29, 1999
- -------------------------------- Treasurer (Principal Financial
John K. Anderson,Jr Officer)
/s/ ELIZABETH A. MAHIN Senior Vice President and Chief March 29, 1999
- -------------------------------- Accounting Officer (Principal
Elizabeth A Mahin Accounting Officer)
/s/ EDWARD L. BAKER Director March 29, 1999
- --------------------------------
Edward L. Baker
/s/ A. DANO DAVIS Director March 29, 1999
- --------------------------------
A. Dano Davis
/s/ ROBERT D. DAVIS Director March 29, 1999
- --------------------------------
Robert D. Davis
/s/ H. CORBIN DAY Director March 29, 1999
- --------------------------------
H. Corbin Day
/s/ RADFORD D. LOVETT Director March 29, 1999
- --------------------------------
Radford D. Lovett
/s/ W.A. VERLANDER Director March 29, 1999
- --------------------------------
W. A. Verlander
52