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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
 
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002.
 
Commission file number 1-11834
 
 
UnumProvident Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
  
62-1598430
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
1 Fountain Square
Chattanooga, Tennessee 37402
(Address of principal executive offices)
 
423.755.1011
(Registrant’s telephone number, including area code)
 
Not Applicable
(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     ¨
 
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, 2002
Common stock, $0.10 par value
   
241,387,655
 

Table of Contents
TABLE OF CONTENTS
 
PART I
 
    
Page
  
1
    
  
2
  
4
  
5
  
6
  
7
  
13
  
14
  
31
 
PART II
 
     
  
32
  
32
  
32
        Signatures
  
33

Table of Contents
PART I
 
Cautionary Statement Regarding Forward-Looking Statements
 
The Private Securities Litigation Reform Act of 1995 (the Act) provides a “safe-harbor” for forward-looking statements which are identified as such and are accompanied by the identification of important factors which could cause actual results to differ materially from the forward-looking statements. UnumProvident Corporation (the Company) 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 the Company, is or may be considered as forward-looking. Examples of disclosures that contain such information include, among others, sales estimates, income projections, and reserves and related assumptions. Forward-looking statements are those not based on historical information, but rather relate to future operations, strategies, financial results, or other developments. These statements may be made directly in this document or may be made part of this document by reference to other documents filed with the Securities and Exchange Commission by the Company, which is known as “incorporation by reference.” You can find many of these statements by looking for words such as “may,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” or similar expressions in this document or in documents incorporated herein.
 
These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following possibilities:
 
 
•
 
Insurance reserve liabilities can fluctuate as a result of changes in numerous factors, and such fluctuations can have material positive or negative effects on net income.
 
 
•
 
Actual persistency may be lower than projected persistency, resulting in lower than expected revenue and higher than expected amortization of deferred policy acquisition costs.
 
 
•
 
Incidence and recovery rates may be influenced by, among other factors, the emergence of new diseases, new trends and developments in medical treatments, and the effectiveness of risk management programs.
 
 
•
 
Retained risks in the Company’s reinsurance operations, including the credit risk of the reinsurers, are influenced by many factors. Any material changes in these factors can have material positive or negative effects on results.
 
 
•
 
Effectiveness in supporting new product offerings and providing customer service may not meet expectations.
 
 
•
 
Sales growth may be less than planned, which will impact revenue and profitability.
 
 
•
 
Actual experience may deviate from that assumed in pricing and underwriting.
 
 
•
 
Competitive pressures in the insurance industry may increase significantly through industry consolidation, competitor demutualization, or otherwise.
 
 
•
 
General economic or business conditions, both domestic and foreign, may be less favorable than expected, which can impact premium levels, claims experience, and investment results, including credit deterioration of investments.
 
 
•
 
Legislative or regulatory changes may adversely affect the businesses in which the Company is engaged.
 
 
•
 
Changes in the interest rate environment may adversely affect reserve and policy assumptions and ultimately profit margins.
 
 
•
 
The level and results of claim-related litigation may vary from that previously experienced by the Company’s insurance subsidiaries.
 
 
•
 
Events or consequences relating to terrorism and acts of war, both domestic and foreign, which are in many respects unpredictable, may adversely affect the Company’s business and may also affect the availability and cost of reinsurance.
 
 
For further discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in Part I of the Company’s Form 10-K for the fiscal year ended December 31, 2001.
 
All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The Company does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

1

Table of Contents

UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

Item 1.     FINANCIAL STATEMENTS
 
    
June 30 2002
   
December 31 2001
    
(Unaudited)
     
    
(in millions of dollars)
Assets
              
Investments
              
Fixed Maturity Securities
   
$
24,944.3
   
$
24,393.0
Equity Securities
   
 
8.1
   
 
10.9
Mortgage Loans
   
 
726.7
   
 
941.2
Real Estate
   
 
37.5
   
 
51.8
Policy Loans
   
 
2,614.0
   
 
2,517.0
Short-term Investments
   
 
220.9
   
 
379.7
Other Investments
   
 
34.7
   
 
30.4
    
  
Total Investments
   
 
28,586.2
   
 
28,324.0
 
Cash and Bank Deposits
   
 
 
95.4
   
 
123.9
Accounts and Premiums Receivable
   
 
2,382.1
   
 
1,789.4
Reinsurance Receivable
   
 
6,176.5
   
 
6,224.0
Accrued Investment Income
   
 
578.0
   
 
601.3
Deferred Policy Acquisition Costs
   
 
2,828.7
   
 
2,674.8
Value of Business Acquired
   
 
525.0
   
 
542.2
Goodwill
   
 
666.8
   
 
674.7
Other Assets
   
 
1,482.8
   
 
1,445.3
Separate Account Assets
   
 
34.5
   
 
43.1
    
  
Total Assets
   
$
43,356.0
   
$
42,442.7
    
  
 
 
See notes to condensed consolidated financial statements.

2

Table of Contents

UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION—(Continued)

 
    
June 30
     
December 31
  
    
2002
     
2001
  
    
(Unaudited)
         
    
(in millions of dollars)
  
Liabilities and Stockholders’ Equity
                  
Policy and Contract Benefits
   
$
1,931.9
 
   
$
1,926.1
 
Reserves for Future Policy and Contract Benefits and Unearned Premiums
   
 
28,234.4
 
   
 
27,511.2
 
Other Policyholders’ Funds
   
 
2,550.6
 
   
 
2,542.5
 
Federal Income Tax
   
 
642.9
 
   
 
528.9
 
Short-term Debt
   
 
35.0
 
   
 
161.8
 
Long-term Debt
   
 
2,132.8
 
   
 
2,004.2
 
Other Liabilities
   
 
1,357.9
 
   
 
1,485.0
 
Separate Account Liabilities
   
 
34.5
 
   
 
43.1
 
    
  
Total Liabilities
   
 
36,920.0
 
   
 
36,202.8
 
    
  
Commitments and Contingent Liabilities—Note 6
                  
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debt Securities of the Company
   
 
300.0
 
   
 
300.0
 
    
  
Stockholders’ Equity
                  
Common Stock, $0.10 par
        Authorized: 725,000,000 shares
        Issued: 243,338,750 and 242,394,996 shares
   
 
24.3
 
   
 
24.2
 
Additional Paid-in Capital
   
 
1,082.8
 
   
 
1,064.1
 
Accumulated Other Comprehensive Income
   
 
177.9
 
   
 
48.0
 
Retained Earnings
   
 
4,908.2
 
   
 
4,816.3
 
Treasury Stock at Cost: 1,951,095 and 176,295 shares
   
 
(54.2
)
   
 
(9.2
)
Deferred Compensation
   
 
(3.0
)
   
 
(3.5
)
    
  
Total Stockholders’ Equity
   
 
6,136.0
 
   
 
5,939.9
 
    
  
Total Liabilities and Stockholders’ Equity
   
$
43,356.0
 
   
$
42,442.7
 
    
  
 
 
See notes to condensed consolidated financial statements.

3

Table of Contents

UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 
    
Three Months Ended
June 30
     
Six Months Ended
June 30
  
    
2002
     
2001
     
2002
     
2001
  
    
(in millions of dollars, except share data)
  
Revenue
                                    
Premium Income
   
$
1,865.5
 
   
$
1,769.8
 
   
$
3,691.0
 
   
$
3,516.7
 
Net Investment Income
   
 
515.2
 
   
 
500.0
 
   
 
1,015.0
 
   
 
994.5
 
Net Realized Investment Loss
   
 
(85.8
)
   
 
(1.5
)
   
 
(204.1
)
   
 
(2.7
)
Other Income
   
 
105.3
 
   
 
94.7
 
   
 
196.2
 
   
 
195.4
 
    
  
  
  
Total Revenue
   
 
2,400.2
 
   
 
2,363.0
 
   
 
4,698.1
 
   
 
4,703.9
 
    
  
  
  
Benefits and Expenses
                                    
Policyholder Benefits
   
 
1,648.8
 
   
 
1,571.2
 
   
 
3,236.3
 
   
 
3,089.3
 
Commissions
   
 
219.5
 
   
 
196.4
 
   
 
433.5
 
   
 
395.3
 
Interest and Debt Expense
   
 
38.7
 
   
 
44.2
 
   
 
77.1
 
   
 
87.0
 
Deferral of Policy Acquisition Costs
   
 
(182.4
)
   
 
(164.7
)
   
 
(356.1
)
   
 
(343.7
)
Amortization of Deferred Policy Acquisition Costs
   
 
102.8
 
   
 
95.6
 
   
 
213.6
 
   
 
210.7
 
Amortization of Value of Business Acquired and Goodwill
   
 
11.1
 
   
 
18.1
 
   
 
21.4
 
   
 
35.8
 
Other Operating Expenses
   
 
415.1
 
   
 
391.3
 
   
 
822.6
 
   
 
793.1
 
    
  
  
  
Total Benefits and Expenses
   
 
2,253.6
 
   
 
2,152.1
 
   
 
4,448.4
 
   
 
4,267.5
 
    
  
  
  
Income Before Federal Income Tax and Cumulative Effect of Accounting Principle Change
   
 
146.6
 
   
 
210.9
 
   
 
249.7
 
   
 
436.4
 
Federal Income Tax
   
 
49.8
 
   
 
64.8
 
   
 
79.1
 
   
 
108.3
 
    
  
  
  
Income Before Cumulative Effect of Accounting Principle Change
   
 
96.8
 
   
 
146.1
 
   
 
170.6
 
   
 
328.1
 
Cumulative Effect of Accounting Principle Change
   
 
—  
 
   
 
—  
 
   
 
(7.1
)
   
 
—  
 
    
  
  
  
Net Income
   
$
96.8
 
   
$
146.1
 
   
$
163.5
 
   
$
328.1
 
    
  
  
  
Earnings Per Common Share
                                    
Basic
                                    
Income Before Cumulative Effect of Accounting Principle Change
   
$
0.40
 
   
$
0.60
 
   
$
0.70
 
   
$
1.36
 
Net Income
   
$
0.40
 
   
$
0.60
 
   
$
0.67
 
   
$
1.36
 
Assuming Dilution
                                    
Income Before Cumulat