UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9254
UNUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 01-0405657
(State or other jurisdiction
of incorporation or organization) (I.R.S. employer identification no.)
2211 CONGRESS STREET, PORTLAND, MAINE 04122
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211
NONE
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1998MARCH 31, 1999
COMMON STOCK, $0.10 PAR VALUE 138,285,779139,059,749 SHARES
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
March 31, 1999, and Six Months Ended June 30, 1998 and 1997 (Unaudited) 3
Consolidated Balance Sheets as of June 30, 1998,March 31, 1999,
(Unaudited) and December 31, 19971998 4
Consolidated Statements of Cash Flows - SixThree Months
Ended June 30,March 31, 1999, and 1998 and 1997 (Unaudited) 5
Consolidated Statements of Comprehensive Income (Loss) -
Three Months Ended March 31, 1999, and Six Months Ended June 30, 1998
and 1997 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Independent Accountant's Review Report 1014
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1115
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 1724
Signatures 1825
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
(Unaudited - Dollars in millions, except
per common share data)
1998 1997 1998 1997
- -------------------------------------------------------------------------------
REVENUES
Premiums $ 962.2 $786.7 $1,880.6 $1,569.4
Investment income 165.2 165.7 328.5 331.2
Net realized investment gains (losses) 2.3 (3.0) 5.4 (5.2)
Fees and other income 29.9 43.0 66.6 156.1
- -------------------------------------------------------------------------------
Total revenues 1,159.6 992.4 2,281.1 2,051.5
BENEFITS AND EXPENSES
Benefits to policyholders 710.0 585.0 1,389.1 1,173.5
Interest credited 11.3 18.9 23.4 52.3
Operating expenses 213.5 191.4 434.9 376.8
Commissions 123.8 100.1 266.5 212.0
Increase in deferred policy
acquisition costs (52.7) (40.0) (132.6) (82.0)
Interest expense 12.3 10.6 24.0 20.8
- -------------------------------------------------------------------------------
Total benefits and expenses 1,018.2 866.0 2,005.3 1,753.4
- -------------------------------------------------------------------------------
Income before income taxes 141.4 126.4 275.8 298.1
INCOME TAXES
Current 15.0 17.0 27.5 35.6
Deferred 27.7 21.8 56.1 59.9
- -------------------------------------------------------------------------------
Total income taxes 42.7 38.8 83.6 95.5
- -------------------------------------------------------------------------------
NET INCOME $ 98.7 $ 87.6 $ 192.2 $ 202.6
===============================================================================
NET INCOME PER COMMON SHARE:
Basic $ 0.71 $ 0.63 $ 1.39 $ 1.44
Diluted $ 0.70 $ 0.62 $ 1.36 $ 1.41
===============================================================================UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Three Months Ended
March 31,
------------------
(Unaudited - Dollars in millions, except per common
share data) 1999 1998
- ----------------------------------------------------------------------------
REVENUES
Premiums $1,085.1 $ 918.4
Investment income 172.8 163.3
Net realized investment gains 3.2 3.1
Fees and other income 42.3 36.7
- ----------------------------------------------------------------------------
Total revenues 1,303.4 1,121.5
BENEFITS AND EXPENSES
Benefits to policyholders 881.2 679.1
Interest credited 10.3 12.1
Salaries and related expenses 142.0 134.1
Other operating expenses 138.2 87.3
Commissions 162.0 142.7
Increase in deferred policy acquisition costs (95.6) (79.9)
Interest expense 16.8 11.7
- ----------------------------------------------------------------------------
Total benefits and expenses 1,254.9 987.1
- ----------------------------------------------------------------------------
Income before income taxes 48.5 134.4
INCOME TAXES
Current (3.5) 12.5
Deferred 36.5 28.4
- ----------------------------------------------------------------------------
Total income taxes 33.0 40.9
- ----------------------------------------------------------------------------
NET INCOME $ 15.5 $ 93.5
============================================================================
NET INCOME PER COMMON SHARE:
Basic $ 0.11 $ 0.68
Diluted $ 0.11 $ 0.66
============================================================================
Dividends declared per share $ 0.295 $ 0.290
============================================================================
See notes to consolidated financial statements.
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D B A L A N C E S H E E T S
June 30, 1998 December 31,
(Dollars in millions) (Unaudited) 1997
- --------------------------------------------------------------------------------
ASSETS
Investments
Fixed maturities available for sale-at fair value
(amortized cost: 1998-$7,129.1; 1997-$6,893.0) $ 7,576.3 $ 7,310.9
Equity securities available for sale-at fair value
(cost: 1998-$22.8; 1997-$21.1) 34.8 30.7
Mortgage loans 1,128.4 1,131.0
Real estate, net 221.7 231.5
Policy loans 127.5 128.5
Other long-term investments 1.8 1.8
Short-term investments 158.5 124.5
- --------------------------------------------------------------------------------
Total investments 9,249.0 8,958.9
Cash 52.8 56.8
Accrued investment income 156.8 160.3
Premiums due 570.2 390.9
Deferred policy acquisition costs 1,163.7 1,031.7
Property and equipment, net 219.6 196.2
Reinsurance receivables 1,640.0 1,441.2
Deposit assets 715.3 688.3
Other assets 509.5 486.2
Separate account assets 33.6 29.6
- --------------------------------------------------------------------------------
Total assets $14,310.5 $13,440.1
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits $ 2,383.6 $ 2,108.4
Unpaid claims and claim expenses 6,283.2 5,944.4
Other policyholder funds 923.7 1,004.9
Income taxes
Current 16.7 20.7
Deferred 555.4 496.2
Notes payable 717.8 635.8
Other liabilities 812.2 765.3
Separate account liabilities 33.6 29.6
- --------------------------------------------------------------------------------
Total liabilities 11,726.2 11,005.3
Stockholders' equity
Preferred stock (par value $0.10 per share, authorized
10,000,000 shares, none issued)
Common stock (par value $0.10 per share, authorized
240,000,000 shares, issued 199,975,916 shares) 20.0 20.0
Additional paid-in capital 1,142.8 1,123.0
Unrealized gains, net 234.3 211.4
Unrealized foreign currency translation adjustment (16.8) (16.0)
Retained earnings 2,314.6 2,162.5
- --------------------------------------------------------------------------------
3,694.9 3,500.9
Less:
Treasury stock, at cost (1998-61,690,137 shares;
1997-61,703,924 shares) 1,092.1 1,050.3
Restricted stock deferred compensation 18.5 15.8
- --------------------------------------------------------------------------------
Total stockholders' equity 2,584.3 2,434.8
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $14,310.5 $13,440.1
================================================================================UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D B A L A N C E S H E E T S
March 31, 1999 December 31,
(Dollars in millions) (Unaudited) 1998
- -----------------------------------------------------------------------------
ASSETS
Investments
Fixed maturities available for sale-at fair value
(amortized cost: 1999-$7,563.6; 1998-$7,350.0) $ 7,972.0 $ 7,896.9
Equity securities available for sale-at fair value
(cost: 1999-$18.9; 1998-$21.3) 28.8 31.0
Mortgage loans 1,273.3 1,303.4
Real estate, net 140.0 250.6
Policy loans 137.1 137.6
Other long-term investments 2.1 2.0
Short-term investments 271.6 216.2
- -----------------------------------------------------------------------------
Total investments 9,824.9 9,837.7
Cash 77.0 80.5
Accrued investment income 154.4 167.4
Premiums due 636.4 518.1
Deferred policy acquisition costs 1,357.3 1,266.0
Property and equipment, net 238.8 237.9
Reinsurance receivables 1,806.5 1,770.0
Deposit assets 665.7 729.7
Other assets 584.9 540.3
Separate account assets 35.3 35.3
- -----------------------------------------------------------------------------
Total assets $15,381.2 $15,182.9
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits $ 2,491.9 $ 2,360.2
Unpaid claims and claim expenses 6,958.0 6,841.2
Other policyholder funds 871.6 875.4
Income taxes
Current 5.9 47.3
Deferred 612.8 625.8
Notes payable 961.1 881.8
Other liabilities 777.8 778.2
Separate account liabilities 35.3 35.3
- -----------------------------------------------------------------------------
Total liabilities 12,714.4 12,445.2
Stockholders' equity
Preferred stock (par value $0.10 per share, authorized
10,000,000 shares, none issued)
Common stock (par value $0.10 per share, authorized
240,000,000 shares, issued 199,975,916 shares) 20.0 20.0
Additional paid-in capital 1,153.5 1,151.2
Retained earnings 2,439.9 2,444.9
Accumulated other comprehensive income:
Unrealized gains, net 176.3 248.4
Unrealized foreign currency translation adjustment (25.7) (19.4)
- -----------------------------------------------------------------------------
Total accumulated other comprehensive income 150.6 229.0
- -----------------------------------------------------------------------------
3,764.0 3,845.1
Less:
Treasury stock, at cost (1999-60,916,167 shares;
1998-61,266,501 shares) 1,080.1 1,085.9
Restricted stock deferred compensation 17.1 21.5
- -----------------------------------------------------------------------------
Total stockholders' equity 2,666.8 2,737.7
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $15,381.2 $15,182.9
=============================================================================
See notes to consolidated financial statements.
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Six Months Ended
June 30,
----------------
(Unaudited - Dollars in millions) 1998 1997
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $192.2 $202.6
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in future policy benefits and unpaid claims and
claim expenses 558.7 342.4
Increase in amounts receivable under reinsurance agreements (198.1) (97.0)
Increase in premiums due (179.1) (70.9)
Increase in income tax liability 42.8 45.9
Increase in deferred policy acquisition costs (131.4) (82.5)
Decrease in deposit assets 0.7 29.8
Recognition of deferred gain on sale of tax-sheltered
annuities (1.9) (67.4)
Other 65.0 (60.5)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 348.9 242.4
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Maturities of fixed maturities available for sale 222.7 172.7
Sales of fixed maturities available for sale 244.3 426.4
Sales and maturities of other investments 55.0 111.9
Purchases of fixed maturities available for sale (686.3) (599.1)
Purchases of other investments (57.1) (89.9)
Net increase in short-term investments (33.8) (82.8)
Net additions to property and equipment (26.2) (23.2)
- -------------------------------------------------------------------------------
Net cash used in investing activities (281.4) (84.0)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to investment contracts 102.8 221.3
Maturities and withdrawals from investment contracts (172.2) (213.4)
Dividends to stockholders (40.1) (39.5)
Treasury stock acquired (63.1) (197.1)
Proceeds from notes payable 50.0 --
Repayment of notes payable (38.0) (15.0)
Net increase in short-term debt 70.4 32.4
Other 19.1 16.9
- -------------------------------------------------------------------------------
Net cash used in financing activities (71.1) (194.4)
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash (0.4) (0.5)
- -------------------------------------------------------------------------------
Net decrease in cash (4.0) (36.5)
Cash at beginning of year 56.8 77.9
- -------------------------------------------------------------------------------
Cash at end of period $ 52.8 $ 41.4
===============================================================================UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Three Months Ended
March 31,
------------------
(Unaudited - Dollars in millions) 1999 1998
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 15.5 $ 93.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in future policy benefits and unpaid claims and
claim expenses 374.9 263.9
Increase in amounts receivable under reinsurance agreements (38.2) (51.0)
Increase in premiums due (118.8) (110.3)
Increase (decrease) in income tax liability (10.3) 38.5
Increase in deferred policy acquisition costs (92.4) (80.1)
Other 52.0 25.9
- ----------------------------------------------------------------------------
Net cash provided by operating activities 182.7 180.4
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Maturities of fixed maturities available for sale 192.5 133.5
Sales of fixed maturities available for sale 355.0 118.8
Sales and maturities of other investments 57.7 28.3
Purchases of fixed maturities available for sale (774.0) (383.8)
Purchases of other investments (17.6) (16.8)
Net increase in short-term investments (56.0) (12.5)
Net additions to property and equipment (6.5) (25.7)
- ----------------------------------------------------------------------------
Net cash used in investing activities (248.9) (158.2)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to investment contracts 35.5 39.4
Maturities and withdrawals from investment contracts (37.5) (72.1)
Dividends to stockholders (20.5) (19.7)
Treasury stock acquired -- (36.7)
Proceeds from notes payable -- 49.7
Net increase in short-term debt 79.0 5.8
Other 6.8 10.7
- ----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 63.3 (22.9)
- ----------------------------------------------------------------------------
Effect of exchange rate changes on cash (0.6) (0.1)
- ----------------------------------------------------------------------------
Net decrease in cash (3.5) (0.8)
Cash at beginning of year 80.5 56.8
- ----------------------------------------------------------------------------
Cash at end of period $ 77.0 $ 56.0
============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 33.4 $ 46.8
Interest $ 30.1 $ 20.9
SUPPLEMENTAL DISCLOSUREDISCLOSURES OF NONCASH ACTIVITIES:
DuringCASH FLOW INFORMATION:
Cash paid (received) during the six months ended June 30, 1997, in connection with contractholder
and participant consents for assumption reinsurance related to the tax-sheltered
annuity business UNUM sold in 1996, UNUM reduced its deposit assets by $2,110.4
million, policy loan assets by $99.4 million, other policyholder fund
liabilities by $2,266.5 million, and separate account assets and liabilities by
$485.1 million.
===============================================================================period for:
Income taxes $ (10.5) $(11.2)
Interest $ 7.5 $ 7.7
============================================================================
See notes to consolidated financial statements.
UNUM CORPORATION AND SUBSIDIARIES
FORM 10-Q
C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E
I N C O M E (L O S S)
Three Months Ended
Six Months Ended
June 30, June 30,
------------------ -----------------March 31,
----------------
(Unaudited - Dollars in millions) 1999 1998
1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------------------------------------
Net income $ 98.715.5 $ 87.6 $192.2 $202.693.5
Other comprehensive income:loss:
Unrealized holding gains (losses)losses arising during the period, 42.0 43.1 25.8 (7.4)net (69.9) (16.2)
Reclassification adjustment for realized (gains) lossesgains included
in net income, (1.1) 1.0 (2.9) 0.6net (2.2) (1.8)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in unrealized gains (losses),losses, net 40.9 44.1 22.9 (6.8)(72.1) (18.0)
Foreign currency translation adjustments (4.6) 1.8 (0.8) (8.9)(6.3) 3.8
- -------------------------------------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive loss (78.4) (14.2)
- -----------------------------------------------------------------------------
Comprehensive income (loss) 36.3 45.9 22.1 (15.7)
- --------------------------------------------------------------------------------
Comprehensive$ (62.9) $ 79.3
=============================================================================
Supplemental disclosures of comprehensive income $135.0 $133.5 $214.3 $186.9
================================================================================
SUPPLEMENTAL DISCLOSURES OF COMPREHENSIVE INCOME INFORMATION:(loss) information:
Tax expense (benefit)benefit related to unrealized holding gains (losses)losses $ 20.940.1 $ 21.4 $ 12.5 $ (2.9)8.4
Tax (expense) benefitexpense related to reclassification adjustment
for realized (gains) lossesgains $ (0.5)(1.2) $ 0.5 $ (1.5) $ 0.3
================================================================================(1.0)
=============================================================================
See notes to consolidated financial statements.
UNUM Corporation and Subsidiaries
Form 10-Q
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1998March 31, 1999
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the requirements of Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation
have been included in the financial statements. Interim results for the
three month and six month periodsperiod ended June 30, 1998,March 31, 1999, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998.1999.
This report should be read in conjunction with the 19971998 Form 10-K
included in the 1997 Annual Report to stockholders of UNUM
Corporation and subsidiaries ("UNUM") and Form 10-Q for the quarterly period ended
March 31, 1998..
NOTE 2. ACCOUNTING CHANGE
- --------------------------
In March 1998, the American Institute of Certified Public Accountant's
Accounting Standards Executive Committee issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 provides guidance on accounting
for the costs of developing or obtaining computer software for internal
use. In the second quarter of 1998, UNUM implemented SOP 98-1, effective
January 1, 1998; the adoption of SOP 98-1 did not have a material effect on
UNUM's first or second quarter results of operations or financial position.
NOTE 3. EARNINGS PER SHARE
- ---------------------------
The approximate number of shares used to calculate earnings per share
("EPS") was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Shares in thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
Weighted average shares outstanding
for basic EPS 138,367 139,399 138,240 140,885
Effect of dilutive securities 3,270 2,700 3,282 2,727
- --------------------------------------------------------------------------------
Weighted average shares outstanding
for diluted EPS 141,637 142,099 141,522 143,612
================================================================================
NOTE 4. STOCKHOLDERS' EQUITY
- -----------------------------
Dividends
UNUM's Board of Directors declared a fourteen and three quarters cents per
share cash dividend on January 5, 1999, which was paid February 19, 1999.
On July 10, 1998,March 12, 1999, UNUM's Board of Directors declared a fourteen and three
quarters cents per share cash dividend. The dividend is payable on AugustMay 21,
1998,1999, to common stockholders of record at the close of business on July
27, 1998. During the first six monthsApril
26, 1999.
Earnings Per Share
The number of 1998, a fourteen and one quarter
centsshares used to calculate earnings per share cash dividend("EPS") was paid on February 20,as
follows:
Three Months Ended
March 31,
------------------
(Shares in thousands) 1999 1998
and a fourteen
and three quarters cents per- -----------------------------------------------------------------------------
Weighted average shares outstanding for basic EPS 138,900 138,113
Effect of dilutive securities 2,843 3,250
- -----------------------------------------------------------------------------
Weighted average shares outstanding for diluted EPS 141,743 141,363
=============================================================================
The following number of outstanding options to purchase shares were
excluded from the diluted weighted average share cash dividend was paid on May 15, 1998.
Effective February 13,calculation as the options'
exercise prices were greater than the average market price.
Three Months Ended
March 31,
------------------
(Options in thousands) 1999 1998
UNUM's Board of Directors approved an
expansion of the Company's stock repurchase program by authorizing an
additional 4.6 million shares. At June 30, 1998, approximately 5.3 million
shares of common stock remained authorized for repurchase. Through the
first six months of 1998, UNUM acquired approximately 1.2 million shares of
its common stock in the open market at an aggregate cost of $63.1 million.- -----------------------------------------------------------------------------
Antidilutive options outstanding 180 1,649
=============================================================================
NOTE 5.3. LITIGATION
- -------------------
In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and
a number of lawsuits were pending at June 30, 1998.March 31, 1999. In some instances,
these proceedings include claims for punitive damages and similar types of
relief in unspecified or substantial amounts, in addition to amounts for
alleged contractual liability or other compensatory damages. In the
opinion of management, the ultimate liability, if any, arising from this
litigation is not expected to have a material adverse effect on the
consolidated financial position or the consolidated operating results of
UNUM.
NOTE 4. NOTES PAYABLE
- ----------------------
On December 29, 1993,4, 1997, UNUM filedborrowed [British pound] 100 million ($168.3 million)
through a suitprivate placement with an investor in the United States District CourtKingdom. Under
the terms of the agreement, the investor exercised its right to redeem the
private placement on April 13, 1999, at par value. UNUM issued commercial
paper to meet its immediate needs and is currently evaluating various
financing alternatives to replace this financing.
NOTE 5. REINSURANCE BUSINESSES
- -------------------------------
During first quarter 1999, UNUM recognized a pretax charge relating to its
reinsurance businesses of $101.1 million. The charge includes $45.5 million
related to the Lloyd's of London managed and non-managed syndicates.
Included in the $45.5 million is $44.0 million related to UNUM's risk
participation in various Lloyd's of London syndicates, which primarily
consists of the recognition of estimated losses for all open syndicate years.
The remaining $1.5 million represents a reduction of profit commissions
related to the reinsurance management company operations. The charge also
includes a reserve increase of $28.6 million for expected ultimate losses in
certain reinsurance pools in which UNUM participates and a $27.0 million
write-down to recognize goodwill impairment on UNUM's reinsurance management
company. Based upon the poor results to date and revisions to future expected
earnings from these businesses, UNUM determined that the goodwill associated
with the reinsurance management company was not recoverable when measured
using the estimated future undiscounted cash flows. The impairment
represents the difference between the carrying value of the reinsurance
management company and the estimated fair value using both an earnings
valuation model and a discounted free cash flow valuation model. A portion
of these losses does not receive a tax benefit, which unfavorably impacted
UNUM's effective tax rate in first quarter 1999.
The impact of the charge to UNUM in first quarter 1999 was a $72.6 million
increase in benefits to policyholders, of which $56.1 million was reflected
in the Special Risk Insurance segment and $16.5 million was reflected in
the Disability Insurance segment, a $27.0 million increase in other
operating expenses and a $1.5 million reduction in fee income reflected in
the Special Risk Insurance segment. On an after-tax basis the charge
reduced net income by $88.0 million for first quarter 1999.
NOTE 6. ACCOUNTING PRONOUNCEMENT ADOPTED
- -----------------------------------------
Effective January 1, 1999, UNUM adopted Statement of Position ("SOP") 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments," which provided guidance on accounting for the Districtrecognition
and measurement of Maine, seekingliabilities for guaranty funds and other insurance-
related assessments. The adoption of SOP 97-3 did not have a federal income tax refund. The suit
was basedmaterial
effect on a claim for a deduction in certain prior tax years, for $652
million in cash and stock distributed to policyholders in connection with
the 1986 conversion of Union Mutual Life Insurance Company to a stock
company. UNUM has fully paid, and provided for in prior years' financial
statements, the tax at issue in this litigation. On May 23, 1996, the
District Court issued its decision that the distribution in question was
not a deductible expenditure. On December 2, 1997, the United States Court
of Appeals affirmed the decision of the District Court denying UNUM's claim
for refund. UNUM has filed a petition requesting that the United States
Supreme Court review the decision of the United States Court of Appeals.
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivatives embedded in other contracts, and for hedging
activities. FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative under FAS 133 depends on the intended use of the
derivative and its hedging designation. UNUM is required to adopt FAS 133
effective January 1, 2000. UNUM has not yet determined the impact FAS 133
will have on its results of operations liquidity or financial position.
NOTE 7. SEGMENT INFORMATION
- ----------------------------
Summarized financial information for the four business segments and Corporate is
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Dollars in millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------
REVENUES
Disability Insurance $ 667.6 $570.4 $1,307.4 $1,134.1
Special Risk Insurance 319.9 236.7 628.1 484.9
Colonial Products 154.3 148.0 309.1 290.6
Retirement Products 17.0 35.7 34.9 138.5
Corporate 0.8 1.6 1.6 3.4
- ------------------------------------------------------------------------------
Total revenues $1,159.6 $992.4 $2,281.1 $2,051.5
==============================================================================
INCOME (LOSS) BEFORE INCOME TAXES
Disability Insurance $ 89.8 $ 75.5 $ 177.9 $ 151.1
Special Risk Insurance 40.2 28.4 76.4 55.8
Colonial Products 26.5 24.8 50.9 46.7
Retirement Products 0.3 10.2 0.2 69.9
Corporate (15.4) (12.5) (29.6) (25.4)
- ------------------------------------------------------------------------------
Total income before income taxes 141.4 126.4 275.8 298.1
Income taxes 42.7 38.8 83.6 95.5
- ------------------------------------------------------------------------------
Net income $ 98.7 $ 87.6 $ 192.2 $ 202.6
==============================================================================
June 30, December 31,
(Dollars in millions) 1998 1997
- ------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Disability Insurance $ 8,995.9 $ 8,546.6
Special Risk Insurance 2,232.6 1,821.6
Colonial Products 1,410.3 1,334.7
Retirement Products 1,000.7 1,115.9
Corporate 301.9 254.0
Individual Participating Life and Annuity 369.1 367.3
- ------------------------------------------------------------------------------
Total assets $14,310.5 $13,440.1
==============================================================================
Summarized financial information for the four reportable operating segments
and Corporate is as follows:
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
- ----------------------------------------------------------------------------
PREMIUMS
Disability Insurance $ 603.2 $ 506.7
Special Risk Insurance 340.5 273.2
Colonial Products 140.7 137.5
Retirement Products 0.7 1.0
- ----------------------------------------------------------------------------
Total premiums $ 1,085.1 $ 918.4
============================================================================
PRETAX OPERATING INCOME (LOSS)
Disability Insurance $ 97.8 $ 84.9
Special Risk Insurance 39.5 36.1
Colonial Products 26.2 24.0
Retirement Products 0.3 0.5
Corporate (17.4) (14.2)
- ----------------------------------------------------------------------------
Total pretax operating income 146.4 131.3
Taxes on pretax operating income 45.0 39.9
- ----------------------------------------------------------------------------
Operating income $ 101.4 $ 91.4
============================================================================
The following is provided to reconcile certain financial information for the
reportable segment totals to consolidated totals and provide a description of
the reconciling items:
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
- ----------------------------------------------------------------------------
Income before income taxes:
Total pretax operating income for reportable
segments and Corporate $146.4 $131.3
Realized investment gains (a) 3.2 3.1
Special item:
Charge for reinsurance businesses (a) (101.1) --
- ----------------------------------------------------------------------------
Total consolidated income before income taxes $ 48.5 $134.4
============================================================================
(a) Management's evaluation of segment performance excludes realized investment
gains (losses) and special items. See Note 5 "Reinsurance Businesses" for a
description of the first quarter 1999 special item.
NOTE 8. PROPOSED MERGER WITH PROVIDENT AND PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
On November 22, 1998, UNUM entered into an agreement with Provident Companies,
Inc. ("Provident"), pursuant to which UNUM and Provident will merge under the
name UNUMProvident Corporation ("UNUMProvident"). Under the merger agreement,
each outstanding share of Provident common stock will be reclassified and
converted into 0.73 of a share of UNUMProvident common stock and each
outstanding share of UNUM common stock will be converted into one share of
UNUMProvident common stock. The merger will be accounted for as a pooling of
interests. The merger is subject to regulatory and UNUM stockholder and
Provident stockholder approval.
The following unaudited pro forma combined condensed financial statements and
explanatory notes are presented to show the impact on the historical financial
positions and results of operations of UNUM and Provident of the planned merger
under the pooling of interests method of accounting. The unaudited pro
forma combined condensed financial statements combine the historical financial
information of UNUM and Provident as of March 31, 1999, and for the three-month
periods ended March 31, 1999 and March 31, 1998, respectively. The unaudited
pro forma combined condensed statements of income give effect to the merger as
if it had been completed at the beginning of the earliest period presented. The
unaudited pro forma combined condensed balance sheet assumes the merger was
completed on March 31, 1999.
The unaudited pro forma combined condensed financial statements as of March 31,
1999, and for the three-month periods ended March 31, 1999 and March 31, 1998,
are based on and derived from, and should be read in conjunction with the UNUM
and Provident historical consolidated financial statements and related notes.
On the date the merger is completed or on an earlier date if required by
generally accepted accounting principles, it is expected that UNUMProvident
will record an expense for merger related costs of approximately $139 million
($109 million net of income taxes) and an expense related to the early
retirement offer to employees of approximately $94 million ($66 million net of
income taxes). The estimated expenses related to the merger include amounts
for severance and related costs, exit costs for duplicate facilities and asset
abandonments, and investment banking, legal and accounting fees. The estimated
expenses related to the merger and to the early retirement offer to employees
have not been reflected in the pro forma balance sheet, statements of income,
and related per share calculations. The estimated expenses related to the
merger and the early retirement offer represent management's best estimates
based on available information at this time. Actual charges may differ from
these estimates.
The unaudited pro forma combined condensed financial statements are presented
for comparative purposes only and are not necessarily indicative of the results
of operations that would have been realized had the merger been completed during
the periods or as of the date for which the pro forma financial statements are
presented, nor are they necessarily indicative of the results of operations in
future periods or the future financial position of UNUMProvident.
UNUM/PROVIDENT UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (a)
Three Months Ended
March 31,
------------------
(Dollars in millions, except per common share data) 1999 1998
- -----------------------------------------------------------------------------
REVENUES
Premium income $1,704.2 $1,505.6
Net investment income 499.6 525.1
Net realized investment gains 7.2 9.3
Other income 80.8 75.1
- -----------------------------------------------------------------------------
Total revenues 2,291.8 2,115.1
BENEFITS AND EXPENSES
Policyholder benefits 1,524.8 1,326.8
Commissions 242.5 233.4
Operating expenses 403.7 364.2
Increase in deferred policy acquisition costs (118.0) (100.8)
Amortization of value of business acquired and goodwill 42.7 16.9
Interest and debt expense 32.9 27.3
- -----------------------------------------------------------------------------
Total benefits and expenses 2,128.6 1,867.8
- -----------------------------------------------------------------------------
Income before income taxes 163.2 247.3
Income taxes 73.9 82.7
- -----------------------------------------------------------------------------
Net income 89.3 164.6
Preferred stock dividends -- 1.9
- -----------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 89.3 $ 162.7
=============================================================================
NET INCOME PER COMMON SHARE:
Basic $ 0.38 $ 0.69
Diluted $ 0.37 $ 0.67
=============================================================================
Average shares outstanding - basic (a) 237.8 236.6
Average shares outstanding - diluted (a) 242.3 242.6
=============================================================================
(a) The above unaudited pro forma combined condensed consolidated statements of
income reflect the combined results of the operations of UNUM and Provident
for the periods presented. No adjustments have been made to arrive at net
income available to common shareholders. The pro forma combined basic and
diluted earnings per share for the respective periods presented are based on
the combined weighted-average number of common and dilutive potential common
shares and adjusted weighted-average shares of UNUM and Provident. The
number of weighted-average common shares and adjusted weighted-average
shares, including all dilutive potential common shares, reflect the
reclassification of Provident common stock on a 0.73 to 1.0 basis and the
conversion of each outstanding share of UNUM common stock into one share of
UNUMProvident common stock in the merger.
UNUM CORPORATION AND PROVIDENT COMPANIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
UNUM/Provident
Historical Pro Forma Pro Forma
UNUM Provident Adjustments Combined
---- --------- ----------- --------
(Dollars in millions)
- --------------------------------------------------------------------------------
ASSETS
Invested assets $ 9,824.9 $16,901.2 $ -- $26,726.1
Reinsurance receivables 1,806.5 3,057.4 -- 4,863.9
All other assets 3,714.5 2,413.2 -- 6,127.7
Separate account assets 35.3 388.2 -- 423.5
- --------------------------------------------------------------------------------
Total assets $15,381.2 $22,760.0 $ -- $38,141.2
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities, accruals
and unearned premiums $ 9,449.9 $14,456.7 $ 230.0 (b) $24,136.6
Other policyholders' funds 871.6 2,980.1 -- 3,851.7
All other liabilities 2,357.6 1,411.5 (80.0) (b) 3,689.1
Separate account liabilities 35.3 388.2 -- 423.5
- --------------------------------------------------------------------------------
Total liabilities 12,714.4 19,236.5 150.0 32,100.9
Company Obligated Mandatorily
Redeemable
Preferred Securities of
Subsidiary Trust Holding
Soley Junior Subordinated Debt
Securities of the Company -- 300.0 -- 300.0
Common stock 20.0 135.9 (132.1) (c) 23.8
Additional paid-in capital 1,153.5 764.0 (948.0) (c) 969.5
Accumulated other
comprehensive income 150.6 438.2 -- 588.8
Retained earnings 2,439.9 1,894.6 (150.0) (b) 4,184.5
Treasury stock (1,080.1) (9.2) 1,080.1 (c) (9.2)
Restricted stock deferred
compensation (17.1) -- -- (17.1)
- --------------------------------------------------------------------------------
Total stockholders' equity 2,666.8 3,223.5 (150.0) 5,740.3
- --------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $15,381.2 $22,760.0 $ -- $38,141.2
================================================================================
(b) UNUM and Provident are in the process of reviewing their accounting policies
and financial statement classifications. One aspect of this preliminary
review has indicated that UNUM's process and assumptions used to calculate
the discount rate for claim reserves of certain disability businesses
differs from that used by Provident. It has been determined that
Provident's process and assumptions are more appropriate in the context of a
combined entity. Upon completion of the merger, UNUM will reduce the rates
used to discount unpaid claims reserves for group long term disability,
individual disability and the disability businesses of UNUM Limited. The
preliminary estimates of discount rate reductions will result in an
estimated increase to UNUM's unpaid claims reserves upon consummation of the
merger of approximately $230 million ($150 million after tax). This
estimated merger related adjustment has not been reflected in the unaudited
pro forma combined condensed statements of income and related per share
calculations.
(c) The pro forma adjustments to common stock, additional paid-in capital and
treasury stock reflect the retirement of shares of UNUM common stock held
in treasury, the reduction in par value of Provident common stock from one
dollar to ten cents, and the reclassification of Provident common stock on a
0.73 to 1.0 basis that results in 98.8 million shares issued to replace the
135.4 million shares of Provident common stock held by Provident
stockholders on March 31, 1999, and the issuance to UNUM stockholders of
139.1 million shares of UNUMProvident common stock pursuant to the merger
(calculated by multiplying the number of shares of UNUM common stock
outstanding at March 31, 1999, of 139.1 million by the exchange ratio of 1.0
to 1.0 representing the number of shares UNUM stockholders will receive for
each share of UNUM common stock they own immediately prior to consummation
of the merger). The number of shares of UNUMProvident common stock that
will be issued after completion of the merger will be based on the actual
number of shares of UNUM common stock, and Provident common stock (after
reclassification on a 0.73 to 1.0 basis) outstanding at the effective time
of the merger.
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
--------------------------------------
To the Board of Directors and Stockholders
UNUM Corporation
We have reviewed the accompanying consolidated balance sheet of UNUM Corporation
and subsidiaries as of June 30, 1998,March 31, 1999, and the related consolidated statements
of income, and comprehensive income for the three month and six month periods ended
June 30, 1998, and 1997, and consolidated statements of cash flows for the six
monththree-month periods then ended.ended
March 31, 1999 and 1998. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
/s//S/ PRICEWATERHOUSECOOPERS LLP
Portland, Maine
July 22, 1998April 27, 1999
UNUM Corporation and Subsidiaries
Form 10-Q
June 30, 1998March 31, 1999
ITEM 2.7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's DiscussionFORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
"safe harbor" for forward-looking statements which are identified as such and
Analysisare accompanied by the identification of Financial Conditionimportant factors which could cause a
material difference from the forward-looking statements. UNUM claims the
protection afforded by the safe harbor in the Act. Certain information
contained in this discussion, or in any other written or oral statements made by
UNUM, is or may be considered as forward-looking; for example, disclosures
regarding the "Year 2000 Date Conversion" and Resultsreserves discussed in the
Disability Insurance segment contain such information. Forward-looking
statements are those not based on historical information, but rather, relate to
future operations, strategies, financial results or other developments, and
contain terms such as "may," "expects," "should," "believes," "anticipates,"
"intends," "estimates," "projects," "goals," "objectives" or similar
expressions. Although UNUM has used appropriate care in developing forward-
looking statements, such statements are based upon estimates and assumptions
that are subject to significant risks, business, economic and competitive
uncertainties, and other factors, many of Operationswhich are beyond UNUM's control or,
with respect to future business decisions, are subject to change.
Certain risks and uncertainties are inherent in UNUM's business. Therefore,
UNUM cautions the reader that revenues and income could differ materially from
those expected to occur depending on factors which may be global or national in
scope, related to the insurance industry generally, or applicable to UNUM
specifically. Such factors are general economic conditions including changes in
interest rates and the performance of financial markets, changes in domestic and
foreign laws, regulations and taxes, competition, industry consolidation,
competitor demutualization, credit risks and other factors. Insurance reserve
liabilities can fluctuate as a result of changes in numerous factors, and such
fluctuations can have material positive or negative effects on earnings. These
factors include, but are not limited to, interest rates, incidence rates and
recovery rates. Incidence and recovery rates may be influenced by many factors,
including but not limited to, the emergence of new diseases, new trends and
developments in medical treatments, general economic and societal conditions of
the markets where UNUM has operations, and the effectiveness of risk management
programs. UNUM disclaims any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
developments or otherwise.
CONSOLIDATED OVERVIEW
Net income for the quarter ended March 31, 1999, was $15.5 million, as compared
with net income of $93.5 million for the same quarter in 1998. Diluted earnings
per share were $0.11 for first quarter 1999 versus $0.66 in first quarter 1998.
Revenues for UNUM were $1,303.4 million for first quarter 1999 and $1,121.5
million for first quarter 1998.
A comparison of net income is impacted by the inclusion of realized investment
gains (losses) and a special item that occurred in first quarter 1999. This
management's discussion and analysis focuses on results on a pretax operating
income basis, which is defined as income (loss) before income taxes exclusive of
realized investment gains (losses) and special items. Realized investment gains
(losses) are excluded from this discussion as management believes the volatility
in gains and losses associated with the selling of invested assets in the
financial markets is not representative of ongoing operations. Special items
are excluded from this discussion as management considers them as being not
representative of our ongoing operations and believes a discussion of the
results on a pretax operating income basis provides a better understanding of
the results of ongoing operations. While management believes that pretax
operating income provides relevant and useful information, it does not replace
income before income taxes and net income calculated in accordance with
generally accepted accounting principles as a measure of UNUM's profitability.
Therefore, this discussion should be read in conjunction with the Consolidated
Financial Statements (Unaudited) and Notes to Consolidated Financial Statements
(Unaudited) included elsewhere in the Form 10-Q and the 19971998 Form 10-K
included in the 1997 Annual Report to stockholders of UNUM
Corporation and subsidiaries ("UNUM").
CONSOLIDATED OVERVIEW
Net income for the quarter ended June 30, 1998, was $98.7 million, or $0.70
per diluted share, as compared with net income of $87.6 million, or $0.62
per diluted share, for the same quarter in 1997. For the six months ended
June 30, 1998, net income was $192.2 million, or $1.36 per diluted share,
as compared with $202.6 million, or $1.41 per diluted share, for the same
period in 1997. Total revenue for second quarter 1998 and 1997 was
$1,159.6 million and $992.4 million, respectively. For the six months
ended June 30, 1998, total revenue was $2,281.1 million compared with
$2,051.5 million for the same period in 1997.
A comparison of net income is impacted by the inclusion of realized
investment gains or losses and a special item that occurred in both first
and second quarter of 1997. This management's discussion and analysis
discusses the results of operations on a pretax operating income basis,
which is defined as income (loss) before income taxes exclusive of realized
investment gains (losses) and special items. Special items are excluded
from pretax operating income as management considers them to be unusual,
and also believes a discussion of the results on a pretax operating income
basis provides a better understanding of the results of operations.
The following table summarizes pretax operating income (loss) for the four
businessoperating segments and Corporate for the three months ended March 31, 1999, and
six months ended
June 30, 1998, and 1997, and is followed by a discussion of the 1997first quarter 1999 special item and
a reconciliation of income (loss) before income taxes to pretax operating income
(loss).
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------
SUMMARY OF PRETAX OPERATING
INCOME (LOSS)
Disability Insurance Segment $ 88.0 $ 77.8 13.1% $172.9 $154.6 11.8%
Special Risk Insurance Segment 39.7 28.5 39.3 75.8 55.5 36.6
Colonial Products Segment 26.5 25.0 6.0 50.5 47.3 6.8
Retirement Products Segment 0.3 1.2 (75.0) 0.8 3.2 (75.0)
Corporate (15.4) (12.5) 23.2 (29.6) (24.7) 19.8
- --------------------------------------------------------------------------------
Total pretax operating
income $139.1 $120.0 15.9% $270.4 $235.9 14.6%Three Months Ended
March 31,
-------------------------
(Dollars in millions) 1999 1998 Change
- --------------------------------------------------------------------------------
SUMMARY OF PRETAX OPERATING INCOME (LOSS)
Disability Insurance Segment $ 97.8 $ 84.9 15.2%
Special Risk Insurance Segment 39.5 36.1 9.4
Colonial Products Segment 26.2 24.0 9.2
Retirement Products Segment 0.3 0.5 (0.4)
Corporate (17.4) (14.2) 22.5
- --------------------------------------------------------------------------------
Total pretax operating income $146.4 $131.3 11.5%
================================================================================
UNUM reported increased pretax operating income for the three months and
six months ended June 30, 1998,March
31, 1999, as compared with the same periodsperiod in 1997.1998. The increase was primarily
attributable to improvedimprovements in pretax operating income for the Disability
Insurance and Special Risk Insurance and Disability Insurance segments, largelysegments. Premium growth driven by strong
sales, was the result of solid premium growth in each segment's major product lines.primary contributor for both segments' improved first quarter
operating results, as compared with one year ago. See the segment discussions
that follow for a more detailed analysis of operating results.
SPECIAL ITEM IN FIRST AND SECOND QUARTER 19971999
- -------------------------------------------------------------------------------
During first quarter 1999, UNUM Life Insurance Companyrecognized a pretax charge relating to its
reinsurance businesses of America$101.1 million. The charge includes $45.5 million
related to the Lloyd's of London managed and Firstnon-managed syndicates.
Included in the $45.5 million is $44.0 million related to UNUM's risk
participation in various Lloyd's of London syndicates, which primarily
consists of the recognition of estimated losses for all open syndicate years.
The remaining $1.5 million represents a reduction of profit commissions related
to the reinsurance management company operations. The charge also includes a
reserve increase of $28.6 million for expected ultimate losses in certain
reinsurance pools in which UNUM Life Insurance
Company closedparticipates and a $27.0 million write-down
to recognize goodwill impairment on UNUM's reinsurance management company.
Based upon the salepoor results to date and revisions to future expected earnings
from these businesses, UNUM determined that the goodwill associated with the
reinsurance management company was not recoverable when measured using the
estimated future undiscounted cash flows. The impairment represents the
difference between the carrying value of their respective tax-sheltered annuity
businessesthe reinsurance management company
and the estimated fair value using both an earnings valuation model and a
discounted free cash flow valuation model. A portion of these losses does
not receive a tax benefit, which unfavorably impacted UNUM's effective tax
rate in first quarter 1999.
The impact of the charge to The Lincoln National Life Insurance Company and Lincoln Life
& Annuity Company of New York, both subsidiaries of Lincoln National
Corporation, on October 1, 1996. The sale resultedUNUM in first quarter 1999 was a deferred pretax
gain,$72.6 million
increase in benefits to policyholders, of which $9.4$56.1 million and $67.4 million, respectively, were
recognized in income during the three months and six months ended June 30,
1997. These gains werewas reflected as fees and other income in
the Retirement ProductsSpecial Risk Insurance segment and $16.5 million was reflected in the
Disability Insurance segment, a $27.0 million increase in other operating
expenses and a $1.5 million reduction in fee income reflected in the Special
Risk Insurance segment.
RECONCILIATION OF INCOME (LOSS) BEFORE INCOME TAXES TO PRETAX OPERATING INCOME
(LOSS)
- ------------------------------------------------------------------------------
The following table reconciles income (loss) before income taxes to pretax
operating income (loss) for the four businessoperating segments and Corporate for the
three months ended March 31, 1999, and six months ended June 30, 1998, and 1997:1998:
Disability Special Risk Colonial Retirement Consolidated
(Dollars in millions) Insurance Insurance Products Products Corporate UNUM
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1998:March 31, 1999:
- -------------------------------------------------------------------
Income (loss) before
income taxes $81.2 $(45.0) $26.9 $ 89.8 $40.2 $26.52.8 $(17.4) $ 0.3 $(15.4) $141.448.5
Exclude realized
investment gains (1.8) (0.5)(gains) losses 0.1 (0.1) (0.7) (2.5) -- (3.2)
- ---------------------------------------------------------------------------------------------------
81.3 (45.1) 26.2 0.3 (17.4) 45.3
Special item:
Charge for reinsurance
businesses 16.5 84.6 -- -- -- (2.3)101.1
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PRETAX OPERATING INCOME
(LOSS) $97.8 $ 88.0 $39.7 $26.539.5 $26.2 $ 0.3 $(15.4) $139.1
==================================================================================================$(17.4) $146.4
===================================================================================================
Three Months Ended June 30, 1997:March 31, 1998:
- -------------------------------------------------------------------
Income (loss) before
income taxes $88.1 $ 75.5 $28.4 $24.8 $10.2 $(12.5) $126.4
Exclude realized investment
losses 2.3 0.1 0.2 0.4 -- 3.0
- --------------------------------------------------------------------------------------------------
77.8 28.5 25.0 10.6 (12.5) 129.4
Special item:
TSA deferred gain
recognition -- -- -- (9.4) -- (9.4)
- --------------------------------------------------------------------------------------------------
PRETAX OPERATING INCOME
(LOSS) $ 77.8 $28.5 $25.0 $ 1.2 $(12.5) $120.0
==================================================================================================
Six Months Ended June 30, 1998:
- -------------------------------
Income (loss) before
income taxes $177.9 $76.4 $50.9 $ 0.2 $(29.6) $275.836.2 $24.4 $(0.1) $(14.2) $134.4
Exclude realized investment
(gains) losses (5.0) (0.6)(3.2) (0.1) (0.4) 0.6 -- (5.4)(3.1)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PRETAX OPERATING INCOME
(LOSS) $172.9 $75.8 $50.5$84.9 $ 0.8 $(29.6) $270.4
==================================================================================================
Six Months Ended June 30, 1997:
- -------------------------------
Income (loss) before
income taxes $151.1 $55.8 $46.7 $69.9 $(25.4) $298.1
Exclude realized
investment (gains) losses 3.5 (0.3) 0.6 0.7 0.7 5.2
- --------------------------------------------------------------------------------------------------
154.6 55.5 47.3 70.6 (24.7) 303.3
Special item:
TSA deferred gain
recognition -- -- -- (67.4) -- (67.4)
- --------------------------------------------------------------------------------------------------
PRETAX OPERATING INCOME
(LOSS) $154.6 $55.5 $47.336.1 $24.0 $ 3.2 $(24.7) $235.9
==================================================================================================0.5 $(14.2) $131.3
===================================================================================================
PREMIUMS:
- ---------
Premiums for the three months and six months ended June 30, 1998, and 1997,
are summarized by segment in the following table.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------------
(Dollars in millions) 1998 1997 Change 1998 1997 Change
- --------------------------------------------------------------------------------
Disability Insurance
Group Long Term
Disability $334.5 $295.2 13.3% $ 676.9 $ 586.6 15.4%
Group Short Term
Disability 66.8 49.4 35.2 129.8 96.8 34.1
UNUM Limited 39.5 36.9 7.1 78.4 73.6 6.5
Individual Products 30.8 23.5 31.1 60.2 45.0 33.8
Other Disability
Insurance 62.7 35.3 77.6 95.7 71.6 33.7
- --------------------------------------------------------------------------------
Total 534.3 440.3 21.3 1,041.0 873.6 19.2
Special Risk Insurance
Group Life 159.2 126.4 25.9 313.6 252.1 24.4
Other Special Risk
Products 129.7 85.6 51.5 248.5 177.6 39.9
- --------------------------------------------------------------------------------
Total 288.9 212.0 36.3 562.1 429.7 30.8
Colonial Products 138.0 132.7 4.0 275.5 261.4 5.4
Retirement Products 1.0 1.7 (41.2) 2.0 4.7 (57.4)
- --------------------------------------------------------------------------------
Total premiums $962.2 $786.7 22.3% $1,880.6 $1,569.4 19.8%
================================================================================
A new product grouping, Individual Products, as shown in the above table,
was reported in the Disability Insurance segment effective June 30, 1998,
and prior year amounts have been reclassified for comparative purposes.
Those products reported as Individual Products include long term care,
guaranteed renewable individual disability (Lifelong Disability Protection)
and certain other individual disability products. Additionally, the
traditional, fixed price, non-cancellable individual disability ("non-
cancellable ID") business is now reported in the Other Disability
Insurance line.
Claim block acquisitions, which generated one-time premium in the
Disability Insurance and Special Risk Insurance segments for the periods
presented, are summarized in the table below. Management intends to pursue
additional claim block acquisitions in the future.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Dollars in millions) 1998 1997 1998 1997
- -----------------------------------------------------------------------
Disability Insurance
Group Long Term Disability $ 0.6 $2.9 $13.4 $3.8
UNUM Limited -- 0.3 0.2 1.2
Disability Reinsurance
Operations 29.8 -- 29.8 --
Special Risk Insurance
Reinsurance Operations 5.1 -- 5.1 --
- -----------------------------------------------------------------------
Total $35.5 $3.2 $48.5 $5.0
=======================================================================
PRETAX OPERATING INCOME (LOSS) BY SEGMENT:SEGMENT
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The following sections discuss the results of the four businessoperating segments and
Corporate for the three months ended March 31, 1999, and six months ended June 30, 1998, and
1997.1998. Within these
businessoperating segment discussions, reference is made to pretax operating income
(loss), which excludes realized investment gains (losses) and the special item
previously defined. The summary financial information provided prior to each
segment discussion has been adjusted to exclude the impact of the special item
from the related income statement line items, consistent with the discussion of
results on a pretax operating income basis.
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1999
DISABILITY INSURANCE SEGMENT
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
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REVENUES
Premiums
Group LTD $392.7 $342.4
Group STD 82.0 63.0
UNUM Limited 46.7 38.9
Individual Products 41.2 29.4
Other Disability Insurance 40.6 33.0
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Total premiums (a) 603.2 506.7
Investment income 125.2 117.0
Fees and other income 16.6 12.9
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Total operating revenues 745.0 636.6
BENEFITS AND EXPENSES
Benefits to policyholders 494.4 413.0
Operating expenses 137.3 119.2
Commissions 58.6 49.2
Increase in deferred
policy acquisition costs (43.1) (29.7)
- ------------------------------------------------------------------------------
Total operating benefits and expenses 647.2 551.7
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PRETAX OPERATING INCOME (b) $ 97.8 $ 84.9
==============================================================================
SUPPLEMENTAL INFORMATION (c):
Sales (annualized new premiums)
Group LTD $ 65.2 $ 57.6
Group STD $ 27.6 $ 23.7
UNUM Limited $ 11.5 $ 3.8
Long Term Care $ 11.5 $ 4.7
Lifelong Disability Protection $ 3.7 $ 2.3
Benefit ratio (% of premiums) 82.0% 81.5%
Operating expense ratio
(% of premiums) 22.8% 23.5%
==============================================================================
(a) One-time premiums, which are generated by claim block acquisitions, for the
three months ended March 31, 1999, and 1998, were $21.0 million and $12.8
million, respectively, for group long term disability ("group LTD").
Management intends to pursue additional claim block acquisitions in the
future.
(b) For the definition of pretax operating income see the Consolidated Overview.
(c) Information relating to sales is presented as an indicator of premium growth
in the segment. Benefit ratios and operating expense ratios show the
relative relationships among data to earned premiums in the segment's income
statement.
The Disability Insurance segment reported increased pretax operating income for
the three months and six months ended June 30, 1998,March 31, 1999, as compared with the same periodsperiod in
1997.1998. The increase was primarily attributable to solid premium growth in group
long term disability ("group LTD")LTD and group short term disability ("group STD"), favorable expense growth for the
segment and a lower benefit ratio for the non-cancellable ID business.
Partially offsetting the increase were higher benefit ratios in several
other product lines and reduced fees and otherincreased investment
income for the segment. Pretax operating income for group LTD increased forHigher benefit ratios in most lines of business
partially offset these favorable factors.
As discussed in the three monthssection titled Forward-Looking Information, certain risks
and six months ended June 30, 1998, as compared with the same periodsuncertainties are inherent in 1997,
primarily driven by solid premium growth and favorable expense growth. The
premium growth improvement was primarily the result of favorable
persistency trends, reflecting positive results from customer service
actions, and the impact from strong sales in recent quarters, as compared
with the same periods in 1997. Partially offsetting the increase was a
higher benefit ratio, largely the result of increased levelsUNUM's business. Components of claims
experience, including but not limited to, incidence levels and an increaseclaims duration,
may continue for some period of time at or above the higher levels experienced
in the average size of claims, compared with the
same periods in 1997. Management1998. Therefore, management continues to monitor claim trends in
group LTDclaims experience and
responds to changes by periodically adjusting prices, refining underwriting
guidelines, changing product features and strengthening risk management policies
and procedures. In addition, management will continue to evaluate the impacts
of the proposed merger with Provident on disability claims experience and the
assumptions around expected disability claims duration. The $59.4 million
reserve increase in fourth quarter 1998 assumed that claim durations would
increase for a relatively short period of time due to the planning for and
implementation of the integration of the UNUM and Provident claims operations.
The reserve increase assumed, and management expects, that the increase in
claims duration due to the integration activities will cease at the end of
1999. During the first quarter of 1999 the claims integration planning
activities progressed as anticipated, and management expects that second
quarter progress will be consistent with the assumptions made in connection
with the reserve increase. If these integration activities take longer than
expected to implement or if they result in unforeseen difficulties, claims
durations could continue to increase and income could be adversely affected.
During 1998, market interest rates fell to historically low levels negatively
affecting investment returns. Management expects the reserve discount rate for
certain disability lines will continue to decline due primarily to the impact of
the declining interest rate environment resulting in higher claim liabilities.
Management expects to price new business and reprice existing business, at
contract renewal dates, in an attempt to mitigate the effect on new claim
liabilities from declining interest rates. However, given the competitive
market conditions for UNUM's disability products, it is uncertain whether
pricing actions can mitigate the entire effect of interest rate declines. In
addition, as previously disclosed in Note 8 "Proposed Merger with Provident and
Pro Forma Combined Condensed Financial Statements," management expects to
lower the discount rate used to calculate certain disability claim reserves, to
conform with Provident's process and assumptions, which are considered more
appropriate in the context of the combined entity resulting from the proposed
merger with Provident.
Pretax operating income for group LTD increased for the three months ended March
31, 1999, as compared with the same period in 1998, primarily resulting from
improved premium growth driven by strong sales, and increased investment income.
Partially offsetting the increase was a higher benefit ratio as compared with
first quarter 1998, largely due to increased levels of claims incidence and a
longer duration of claims. If the impact of merger related claim operations
integration activities on claim durations had not been anticipated at
December 31, 1998, first quarter 1999 pretax operating earnings would have been
negatively impacted by approximately $14 million. Actual claim resolutions in
first quarter 1999 were generally as expected when the fourth quarter 1998
disability claims reserve increase was determined.
For the three months and six months ended June 30, 1998,March 31, 1999, group STD's pretax operating income for group STD
increased as compared with the same periodsperiod in 1997.
Additional1998. The increase was primarily
attributable to significant premium growth resultingof 30.2% and a favorable operating
expense ratio. Premium growth resulted largely from record sales and improved
persistency continues to be the major contributorimpact of the improved pretax
operating income, as compared with the same periods in 1997. These strong sales
levelsresults, which reflect management's continuing efforts to cross-sell group STD
products with other group products sold by UNUM. An unfavorable change in the
benefit ratio, primarily from larger size cases, higher claims incidence levels
and slightly longer duration of claims, partially offset the increase.
UNUM as well as an increase
in large case sales during second quarter 1998.
UNUM Limited'sLimited experienced increased pretax operating income remained flat for the three months
ended June 30, 1998, and declined for the six months ended June 30, 1998,March 31, 1999, as compared with the same periods in 1997. The decline was primarily due
to unfavorable claims experiencefirst quarter 1998. A favorable benefit
ratio, largely resulting from a longer durationhigher claim recoveries, was the primary driver of
claims. Favorable expense growth partially offset this decline.
The non-cancellable ID business contributed favorably to the Disability
Insurance segment'sincrease in pretax operating earnings for the three monthsincome.
UNUM Corporation and six
months ended June 30, 1998. The improvement was primarily due to favorable
claims experience when compared with the same periods in 1997, during which
the non-cancellable block of business incurred higher levels of claims
incidence and increased severity. This favorable factor was partially
offset by a decline in the operating results of the reinsured block of the
non-cancellable ID business reported in fees and other income.Subsidiaries
Form 10-Q
March 31, 1999
SPECIAL RISK INSURANCE SEGMENT
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
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REVENUES
Premiums
Group life $189.6 $154.4
Other special risk products 150.9 118.8
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Total premiums 340.5 273.2
Investment income 21.3 19.0
Fees and other income 20.1 15.9
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Total operating revenues 381.9 308.1
BENEFITS AND EXPENSES
Benefits to policyholders 239.5 191.9
Operating expenses 74.3 59.5
Commissions 74.9 61.3
Increase in deferred
policy acquisition costs (46.3) (40.7)
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Total operating benefits and expenses 342.4 272.0
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PRETAX OPERATING INCOME (a) $ 39.5 $ 36.1
==============================================================================
SUPPLEMENTAL INFORMATION (b):
Group life sales
(annualized new premiums) $ 43.9 $ 31.3
Benefit ratio (% of premiums) 70.3% 70.2%
Operating expense ratio
(% of premiums) 21.8% 21.8%
==============================================================================
(a) For the definition of pretax operating income see the Consolidated Overview.
(b) Information relating to sales is presented as an indicator of premium growth
in the segment. Benefit ratios and operating expense ratios show the
relative relationships among data to earned premiums in the segment's income
statement.
The Special Risk Insurance segment reported increased pretax operating income
for the second quarter 1998,ended March 31, 1999, as compared with the same quarterperiod in 1997. Continuing1998.
The increase was primarily due to premium growth across most major product lines, resulting
fromdriven by strong sales and favorable persistency, and a lower benefit ratio in the
group life product were the primary forces behind the improvement. In
addition, the increase was attributable to lower expense ratios in most
product lines additional fee income from the reinsurance underwriting
management operations, and increased investment income for the segment. Favorable factors wereThe
increase was partially offset by increased benefit ratiosunfavorable results in the reinsurance
businesses. Due to the nature of the risks underwritten and the relative size
of the blocks of businesses, several of the products in the Special Risk
Insurance segment can exhibit claims variability.
During first quarter 1999, UNUM conducted a comprehensive strategic review of
its reinsurance businesses to determine the appropriateness of their fit
within the context of the UNUMProvident merged entity. These businesses
include the reinsurance management operations and the risk assumption
(reinsurance pool participation, direct reinsurance and Lloyd's of London
syndicate participation). In April 1999, UNUM completed the comprehensive
strategic review of its reinsurance businesses. UNUM concluded that these
businesses are not solidly aligned with UNUM's strength in the disability
insurance market and decided to exit these businesses. The exit from these
businesses may be accomplished through a combination of a sale, reinsurance
and placing certain components of the business in run-off.
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1999
COLONIAL PRODUCTS SEGMENT
Three Months Ended
March 31,
------------------
(Dollars in millions) 1999 1998
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REVENUES
Premiums $ 140.7 $ 137.5
Investment income 17.3 15.3
Fees and other product lines.
Duringincome 0.2 1.6
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Total operating revenues 158.2 154.4
BENEFITS AND EXPENSES
Benefits to policyholders 68.9 68.7
Interest credited 4.3 3.6
Operating expenses 36.5 35.4
Commissions 28.5 32.2
Increase in deferred
policy acquisition costs (6.2) (9.5)
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Total operating benefits and expenses 132.0 130.4
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PRETAX OPERATING INCOME (a) $ 26.2 $ 24.0
==============================================================================
SUPPLEMENTAL INFORMATION (b):
Sales (annualized
first month's premiums) $ 48.1 $ 41.2
Benefit ratio (% of premiums) 49.0% 50.0%
Operating expense ratio
(% of premiums) 25.9% 25.7%
==============================================================================
(a) For the six months ended June 30, 1998,definition of pretax operating income forsee the segment was favorably affected byConsolidated Overview.
(b) Information relating to sales is presented as an indicator of premium growth
forin the segment, increased
income from the reinsurance underwriting management operationssegment. Benefit ratios and additional investment income across most product lines, as compared with
the same period in 1997. Also contributing to the favorable results were
lower benefit andoperating expense ratios show the
relative relationships among data to earned premiums in group life, partially offset by
increased benefit ratios in certain other product lines.
COLONIAL PRODUCTS SEGMENT
During second quarter 1998, pretaxthe segment's income
statement.
Pretax operating income increased in the Colonial Products segment in first
quarter 1999, as compared with secondfirst quarter of 1997.1998. The primary contributorsincrease was due
primarily to the increase were a lower benefit ratioratios in the
accident, sickness and disabilitycertain product lines and increasedan increase in
investment income across all products. These favorable factors werefor the segment, partially offset by slightly higher
operating expense ratios for the segment, a higher benefit ratio in the
canceracross most product linelines and an increase in interest
credited. ForIn the six months ended June 30, 1998, the Colonial Products segment's
pretax operating income was favorably affected by lower benefit ratios
across most product lines andfirst quarter 1999, sales increased investment income, as comparedin comparison with the
same period in 1997. A higher benefit ratio1998, however, these sales are not necessarily indicative of the
levels that may be attained in the cancer product line
and increased interest credited partially offset these favorable items.
During the three month and six month periods ended June 30, 1998, sales in
this segment declined in comparison with 1997, which may negatively affect
future premium growth. Infuture. Therefore, management continues its
efforts to improveincrease sales and premium Colonial's management continues to focus on rebuildingthrough the distribution
system through recruiting, trainingrealignment of the sales
organization and strengtheningthe enhancement of collaborative sales management.across UNUM.
UNUM Corporation and Subsidiaries
Form 10-Q
March 31, 1999
RETIREMENT PRODUCTS SEGMENT
The Retirement Products segment includes products no longer actively marketed by
UNUM. For the three months and six months ended June 30, 1998,March 31, 1999, pretax operating income for
the Retirement Products segment reported decreased pretax operating incomeslightly as compared with the same
periodsperiod in 1997.1998. UNUM expects these blocks of business to continue to decline in
size over several years and experience earnings volatility, reflecting their
run-off nature.
CORPORATE
For the three month and six month periodsmonths ended June 30, 1998,March 31, 1999, as compared with the same periodsperiod in
1997,1998, the increased pretax operating loss in
Corporate was due primarily to higherincreased
interest expense and decreased
investment income.due to a higher average debt balance, partially offset by lower
operating expenses.
LITIGATION
Refer to Note 3 "Litigation" for information.
LIQUIDITY AND CAPITAL RESOURCES
UNUM's businesses produce positive cash flows which are invested primarily in
intermediate term, fixed maturity investments intended to reflect the
anticipated cash obligations of insurance benefit payments and insurance
contract maturities and to optimize investment returns at appropriate risk
levels. Unexpected cash requirements and liquidity needs can be met through
UNUM's investment portfolio of fixed maturities classified as available for
sale, equity securities, cash and short-term investments.
At June 30, 1998,March 31, 1999, UNUM had $174.0 million and $543.8 million of short-term and long-term debt totaling $362.6
million and $598.5 million, respectively. Approximately $378At March 31, 1999, approximately $334
million was available for additional financing under the existing revolving
credit facility and $450$200 million of investment grade debt instruments was
available for issuance under the shelf registration. Contingent upon market
conditions and corporate needs, management may issue additional debt or refinance short-term notes
payable for longer term securities.
In the normal course of business, UNUM enters into letters of credit, primarily
to satisfy capital requirements related to certain subsidiary transactions.
At June 30, 1998, UNUM had outstanding letters of credit of $150.2 million.$160.6 million at March 31, 1999.
Effective February 13,November 23, 1998, UNUM's Board of Directors approved an
expansion ofrescinded the Company'scompany's
stock repurchase program by authorizing an
additional 4.6 million shares. At June 30, 1998, approximately 5.3
millionas a result of the pending merger agreement with
Provident Companies Inc. As a result, no shares of UNUM common stock remained authorized for repurchase. Throughwere
repurchased during the first sixthree months of 1999. During the first quarter of
1998, UNUM acquired approximately 1.20.7 million shares of its common stock in the
open market at an aggregate cost of $63.1$36.7 million.
On December 4, 1997, UNUM borrowed [British pound] 100 million ($168.3 million)
through a private placement with an investor in the United Kingdom. Under the
terms of the agreement, the investor exercised its right to redeem the private
placement on April 13, 1999, at par value. UNUM issued commercial paper to meet
its immediate needs and is currently evaluating various financing alternatives
to replace this financing.
YEAR 2000 ISSUEDATE CONVERSION
The following discussion regarding the Year 2000 Date Conversion contains
forward-looking statements, and should be read in conjunction with the Forward-
Looking Information disclosure made at the beginning of the Management's
Discussion and Analysis.
As of March 31, 1999, UNUM has completed the assessment phase and
essentially completed the code remediation phase for all its critical and
non-critical systems with approximately 95% completing the testing phase.
Deployment is underway for most critical and non-critical systems as of
March 31, 1999. As previously discussed in UNUM's 1998 Form 10-K,
management has substantially completed all phases for its critical and non-
critical systems, and as of March 31, 1999, continues to expect completion
of all phases by the end of 1999.
UNUM estimates that total internal (opportunity costs) and external (out-of-
pocket) costs for addressing the year 2000 issue relatesconversion will range from $70
million to whether computer systems will properly
recognize date-sensitive information when the year changes to 2000.$80 million, which are expensed as incurred. As of March 31, 1999,
UNUM has determined that it is required to modify or replace significant
portions ofincurred approximately $62 million in connection with its software so its computer systems will properly function
using dates beyond December 31, 1999. Management is utilizing both
internal and external resources to reprogram, or replace, and test the
software for year 2000
modifications and believes it will have its computer
systems compliant by year 2000. The financial impact of rectifying UNUM's
internal computer systems has not had, and is not anticipated to have, a
material adverse impact on UNUM's results of operations, liquidity or
capital resources.program. The costs of the project and the date on which UNUM plans to complete
year 2000 modifications are based on management's best estimates, derived using
numerous assumptions about future events. In addition, UNUM is assessing its critical external dependencies,
including suppliers, business partners and customers to determine the
extent to which it is vulnerable to the possibility of third parties'
failing to remediate their own year 2000 issues. ThereHowever, there can be no guarantee
that the computer systems of third partiesthese estimates will be year 2000 compliant.
Risk avoidanceachieved and contingency plans are therefore being developed in order
to attempt to mitigate the extent of this potential impact. Failure by
third parties to successfully address year 2000 issuesactual results could have a
material adverse effect on UNUM's results of operations, liquidity or
capital resources; however, the potential impact and related costs, if any,
are not known at this time.
LITIGATION
Refer to Note 5 "Litigation" for information.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 6 "New Accounting Pronouncements" for information.differ materially
from those plans.
UNUM Corporation and Subsidiaries
Form 10-Q
June 30, 1998
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of UNUM Corporation held on May 8, 1998,
the following proposals were approved:
Votes
Votes Votes Withheld/
For Against Abstentions
----------- --------- -----------
1. Ratification of the appointment of 117,672,772 88,782 197,714
PricewaterhouseCoopers LLP, formerly
Coopers & Lybrand L.L.P., as the
Corporation's independent auditors
for the year 1998.
UNUM Corporation and Subsidiaries
Form 10-Q
June 30, 1998March 31, 1999
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
(a) Exhibit Index
12. Statement re: Computation of ratio of earnings to fixed charges. 1926
15. Letter re: Unaudited interim financial information. 2027
27. Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant with the United States
Securities and
Exchange Commission during the quarter ended June 30, 1998.March 31, 1999.
UNUM Corporation and Subsidiaries
Form 10-Q
June 30, 1998March 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date August 4, 1998May 17, 1999 /s/ ROBERT E. BROATCH
-------------------- -----------------------------
Robert E. Broatch
Senior Vice President and
Chief Financial Officer
Date August 4, 1998May 17, 1999 /s/ JOHN M. LANG, JR.JR
-------------------- -----------------------------
John M. Lang, Jr.
Vice President and
Corporate Controller