AMERUS GROUP CO/IA - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

/ x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

/ / 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 001-15166

AMERUS GROUP CO.

(Exact name of Registrant as specified in its charter)


IOWA		42-1458424
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

699 Walnut Street
Des Moines, Iowa 50309-3948
(Address of principal executive offices)

Registrant’s telephone number, including area code (515) 362-3600

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / x / No / /

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes / x / No / /

The number of shares outstanding of each of the Registrant’s classes of common stock on November 1, 2004 was as follows:

Common Stock 39,175,969 shares

Exhibit index - Page 42
Page 1 of 43

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to trends in operations and financial results and the business and the products of the Registrant and its subsidiaries, as well as other statements including words such as “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, and other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such forward-looking statements are not guarantees of future performance. Factors that may cause our actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities: (a) general economic conditions and other factors, including prevailing interest rate levels and stock and bond market performance, which may affect our ability to sell our products, the market value of our investments and the lapse rate and profitability of policies; (b) our ability to achieve anticipated levels of operational efficiencies and cost-saving initiatives and to meet cash requirements based upon projected liquidity sources; (c) customer response to new products, distribution channels and marketing initiatives; (d) mortality, morbidity, and other factors which may affect the profitability of our insurance products; (e) our ability to develop and maintain effective risk management policies and procedures and to maintain adequate reserves for future policy benefits and claims; (f) changes in the federal income tax and other federal laws, regulations, and interpretations, including federal regulatory measures that may significantly affect the insurance business including limitations on antitrust immunity, minimum solvency requirements, and changes to the tax advantages offered by life insurance and annuity products or programs with which they are used; (g) increasing competition in the sale of insurance and annuities and the recruitment of sales representatives; (h) regulatory changes, interpretations, initiatives or pronouncements, including those relating to the regulation of insurance companies and the regulation and sale of their products and the programs in which they are used; (i) our ratings and those of our subsidiaries by independent rating organizations which we believe are particularly important to the sale of our products; (j) the performance of our investment portfolios; (k) the impact of changes in standards of accounting; (l) our ability to integrate the business and operations of acquired entities; (m) expected protection products and accumulation products margins; (n) the impact of anticipated investment transactions; and (o) unanticipated litigation or regulatory investigations or examinations.

There can be no assurance that other factors not currently anticipated by us will not materially and adversely affect our results of operations. You are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements speak only as of the date the statement was made. We undertake no obligation to update or revise any forward-looking statement.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERUS GROUP CO.

CONSOLIDATED BALANCE SHEETS

($ in thousands)


	September 30,		December 31,
	2004		2003
	(unaudited)
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities	$	15,181,826	$	13,944,961
Equity securities		76,743		74,890
Short-term investments		7,017		28,556
Securities held for trading purposes at fair value:
Fixed maturity securities		1,754,240		2,089,502
Equity securities		10,550		1,652
Short-term investments		—		591
Mortgage loans		847,391		968,572
Real estate		32		33
Policy loans		485,515		494,646
Other investments		279,262		339,436

Total investments		18,642,576		17,942,839
Cash and cash equivalents		537,673		274,150
Accrued investment income		217,832		205,492
Premiums, fees and other receivables		44,417		42,761
Reinsurance receivables		690,114		663,452
Deferred policy acquisition costs		1,184,022		1,021,856
Capitalized bonus interest		118,409		98,274
Value of business acquired		381,937		419,582
Goodwill		226,291		224,075
Property and equipment		45,582		48,849
Other assets		308,398		311,305
Separate account assets		242,447		261,657
Assets of discontinued operations		—		27,950

Total assets	$	22,639,698	$	21,542,242

See accompanying notes to consolidated financial statements.

AMERUS GROUP CO.
CONSOLIDATED BALANCE SHEETS
($ in thousands)


	September 30,			December 31,
	2004			2003
	(unaudited)
Liabilities and Stockholders’ Equity
Liabilities:
Policy reserves and policyowner funds:
Future life and annuity policy benefits	$	17,503,744		$	16,994,255
Policyowner funds		1,418,770			1,306,160

		18,922,514			18,300,415
Accrued expenses and other liabilities		845,276			443,589
Dividends payable to policyowners		319,141			321,233
Policy and contract claims		57,088			58,880
Income taxes payable		32,104			50,274
Deferred income taxes		115,674			80,861
Notes payable		546,073			596,101
Separate account liabilities		242,447			261,657
Liabilities of discontinued operations		—			19,421

Total liabilities		21,080,317			20,132,431
Stockholders’ equity:
Preferred Stock, no par value, 20,000,000 shares authorized, none issued		—			—
Common Stock, no par value, 230,000,000 shares authorized; 43,942,340 shares issued and 39,113,503 shares outstanding in 2004; 43,836,608 shares issued and 39,194,602 shares outstanding in 2003		43,942			43,836
Additional paid-in capital		1,188,526			1,184,237
Accumulated other comprehensive income (loss)		113,046			84,519
Unearned compensation		(1,303	)		(1,361	)
Retained earnings		379,773			255,006
Treasury stock, at cost (4,828,837 shares in 2004 and 4,642,006 shares in 2003)		(164,603	)		(156,426	)

Total stockholders’ equity		1,559,381			1,409,811

Total liabilities and stockholders’ equity	$	22,639,698		$	21,542,242

See accompanying notes to consolidated financial statements.

AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except share data)


	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2004		2003		2004			2003
			(unaudited)
Revenues:
Insurance premiums	$	64,582	$	64,355	$	199,110		$	225,597
Product charges		61,455		40,634		165,301			136,168
Net investment income		261,988		244,278		770,174			751,098
Realized/unrealized capital gains (losses)		2,513		8,542		(42,122	)		75,365
Other income		17,458		16,848		54,359			50,460

		407,996		374,657		1,146,822			1,238,688

Benefits and expenses:
Policyowner benefits		225,572		198,602		632,351			683,725
Underwriting, acquisition and other expenses		45,918		40,734		130,456			114,533
Restructuring costs		—		1,551		—			17,415
Amortization of deferred policy acquisition costs and value of business acquired		45,272		44,198		151,461			137,175
Dividends to policyowners		24,538		22,016		60,958			86,330

		341,300		307,101		975,226			1,039,178

Income from continuing operations		66,696		67,556		171,596			199,510
Interest expense		7,810		7,864		24,144			22,238

Income before income tax expense		58,886		59,692		147,452			177,272
Income tax expense		16,024		19,402		26,074			58,499

Net income from continuing operations		42,862		40,290		121,378			118,773
Income from discontinued operations, net of tax		—		545		3,899			1,567

Net income before cumulative effect of change in accounting		42,862		40,835		125,277			120,340
Cumulative effect of change in accounting, net of tax		—		—		(510	)		—

Net income	$	42,862	$	40,835	$	124,767		$	120,340

Net income from continuing operations per common share:
Basic	$	1.09	$	1.03	$	3.09		$	3.03

Diluted	$	1.05	$	1.02	$	2.98		$	3.01

Net income per common share:
Basic	$	1.09	$	1.04	$	3.17		$	3.07

Diluted	$	1.05	$	1.03	$	3.07		$	3.05

Weighted average common shares outstanding:
Basic		39,237,840		39,208,151		39,307,268			39,144,872

Diluted		40,768,893		39,650,473		40,667,066			39,453,126

See accompanying notes to consolidated financial statements.

AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)


	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2004			2003			2004			2003
				(unaudited)
Net income	$	42,862		$	40,835		$	124,767		$	120,340
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		145,117			(46,732	)		14,369			84,644
Less: Reclassification adjustment for gains (losses) included in net income		5,415			27,370			(29,519	)		45,143

Other comprehensive income (loss), before tax		139,702			(74,102	)		43,888			39,501
Income tax (expense) benefit related to items of other comprehensive income		(48,896	)		25,936			(15,361	)		(13,826	)

		90,806			(48,166	)		28,527			25,675

Comprehensive income (loss)	$	133,668		$	(7,331	)	$	153,294		$	146,015

See accompanying notes to consolidated financial statements.

AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2004 and the Year Ended December 31, 2003

($ in thousands)


						Accumulated
			Additional			Other						Unallocated									Total
			Paid-In			Comprehensive			Unearned			ESOP			Retained			Treasury			Stockholders’
	Common Stock		Capital			Income (Loss)			Compensation			Shares			Earnings			Stock			Equity
Balance at December 31, 2002	$	43,656	$	1,179,646		$	88,522		$	(458	)	$	(1,443	)	$	109,517		$	(156,492	)	$	1,262,948
2003:
Net income		—		—			—			—			—			161,147			—			161,147
Net unrealized gain (loss) on securities		—		—			1,971			—			—			—			—			1,971
Net unrealized gain (loss) on derivatives designated as cash flow hedges		—		—			2,476			—			—			—			—			2,476
Change in accounting transfer of unrealized gain on available-for-sale securities to trading		—		—			(5,204	)		—			—			—			—			(5,204	)
Stock issued under various incentive plans, net of forfeitures		180		11,717			—			(903	)		—			—			66			11,060
PRIDES purchase contract adjustments and allocated fees and expenses		—		(7,280	)		—			—			—			—			—			(7,280	)
Dividends declared on common stock		—		—			—			—			—			(15,658	)		—			(15,658	)
Allocation of shares in leveraged ESOP		—		154			—			—			1,443			—			—			1,597
Minimum pension liability adjustment		—		—			(3,246	)		—			—			—			—			(3,246	)

Balance at December 31, 2003		43,836		1,184,237			84,519			(1,361	)		—			255,006			(156,426	)		1,409,811
2004 (unaudited):
Net income		—		—			—			—			—			124,767			—			124,767
Net unrealized gain (loss) on securities		—		—			28,016			—			—			—			—			28,016
Net unrealized gain (loss) on derivatives designated as cash flow hedges		—		—			511			—			—			—			—			511
Stock issued under various incentive plans, net of forfeitures		106		4,289			—			58			—			—			976			5,429
Purchase of treasury stock		—		—			—			—			—			—			(9,153	)		(9,153	)

Balance at September 30, 2004	$	43,942	$	1,188,526		$	113,046		$	(1,303	)	$	—		$	379,773		$	(164,603	)	$	1,559,381

See accompanying notes to consolidated financial statements.

AMERUS GROUP CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)


	For The Nine Months Ended September 30,
	2004			2003
	(unaudited)
Cash flows from operating activities
Net income	$	124,767		$	120,340
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting		510			—
Gain on sale of discontinued operations		(3,899	)		—
Product charges		(165,301	)		(136,168	)
Interest credited to policyowner account balances		356,201			357,606
Change in option value of equity indexed products and market value adjustments on total return strategy annuities		(5,926	)		22,527
Realized/unrealized capital (gains) losses		42,122			(75,365	)
DAC and VOBA amortization		151,461			137,175
DAC and VOBA capitalized		(276,886	)		(262,920	)
Change in:
Accrued investment income		(12,340	)		(12,855	)
Reinsurance receivables		(71,970	)		279,984
Securities held for trading purposes:
Fixed maturities		325,145			44,166
Equity securities		(8,952	)		(473	)
Short-term investments		579			—
Liabilities for future policy benefits		22,420			(245,130	)
Accrued expenses and other liabilities		401,684			530,153
Policy and contract claims and other policyowner funds		112,784			46,069
Income taxes:
Current		(20,740	)		(30,051	)
Deferred		19,508			53,425
Other, net		27,857			21,802

Net cash provided by operating activities		1,019,024			850,285

Cash flows from investing activities:
Purchase of fixed maturities available-for-sale		(4,271,467	)		(9,308,393	)
Proceeds from sale of fixed maturities available-for-sale		2,115,844			6,615,403
Maturities, calls and principal reductions of fixed maturities available-for-sale		921,812			2,027,662
Purchase of equity securities		(43,053	)		(8,267	)
Proceeds from sale of equity securities		42,036			13,695
Change in short-term investments, net		28,691			4,595
Purchase of mortgage loans		(86,676	)		(143,567	)

AMERUS GROUP CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
($ in thousands)


	For The Nine Months Ended September 30,
	2004			2003
	(unaudited)
Proceeds from repayment and sale of mortgage loans		214,816			92,414
Purchase of real estate and other invested assets		(55,512	)		(339,763	)
Proceeds from sale of real estate and other invested assets		104,977			226,853
Change in policy loans, net		9,131			5,241
Proceeds from sale of discontinued operations		15,000			—
Other assets, net		(3,652	)		(3,464	)

Net cash used in investing activities		(1,008,053	)		(817,591	)

Cash flows from financing activities:
Deposits to policyowner account balances		1,655,736			1,684,637
Withdrawals from policyowner account balances		(1,349,432	)		(1,182,474	)
Change in debt, net		(50,028	)		(102,433	)
Stock issued under various incentive plans, net of forfeitures		5,429			10,051
Purchase of treasury stock		(9,153	)		—
Proceeds from issuance of PRIDES		—			136,483
Adoption and allocation of shares in leveraged ESOP		—			37

Net cash provided by financing activities		252,552			546,301

Net increase in cash		263,523			578,995
Cash and cash equivalents at beginning of period		274,150			102,612


		Page No.
PART I - FINANCIAL INFORMATION			4
Item 1.	Financial Statements		4
	Consolidated Balance Sheets September 30, 2004 (Unaudited) and December 31, 2003		4
	Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2004 and 2003		6
	Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Nine Months Ended September 30, 2004 and 2003		7
	Consolidated Statements of Stockholders’ Equity For the Nine Months Ended September 30, 2004 (Unaudited) and the Year Ended December 31, 2003		8
	Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2004 and 2003		9
	Notes to Consolidated Financial Statements (Unaudited)		11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		38
PART II - OTHER INFORMATION			39
Item 1.	Legal Proceedings		39
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		39
Item 6.	Exhibits		40
Signatures			41
Index to Exhibits			42
Computation of Ratios of Earnings to Fixed Charges
Certification of Chief Executive Officer
Certification of Chief Financial Officer
1350 Certification of Chief Executive Officer
1350 Certification of Chief Financial Officer

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