UNITED STATES
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 March 31, 2004.
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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). 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 March 31, 2004 | |
| Common stock, $0.10 par value |
296,291,201 |
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 that could cause actual results to differ materially from the forward-looking statements. For these statements, UnumProvident Corporation, together with its subsidiaries, unless the context implies otherwise (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 and speak only as of the date made. 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, many of which are beyond the Company’s control. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following factors:
| • | General economic or business conditions, both domestic and foreign, may be less favorable than expected, which may affect premium levels, claims experience, the level of pension benefit costs and funding, and investment results, including credit deterioration of investments. |
| • | Competitive pressures in the insurance industry may increase significantly through industry consolidation, competitor demutualization, or otherwise. |
| • | Events or consequences relating to terrorism and acts of war, both domestic and foreign, may adversely affect the Company’s business and may also affect the availability and cost of reinsurance. |
| • | Legislative, regulatory, or tax changes, both domestic and foreign, may adversely affect the businesses in which the Company is engaged. |
| • | Rating agency actions, state insurance department and other enforcement actions, and negative media attention may adversely affect the Company’s business. |
| • | The level and results of litigation may vary from prior experience and may adversely affect the Company’s business. |
| • | Investment results, including, but not limited to, realized investment losses resulting from impairments, may differ from prior experience and negatively affect results. |
| • | Changes in the interest rate environment may adversely affect reserve and policy assumptions and ultimately profit margins and reserve levels. |
| • | Sales growth may be less than planned, which could affect revenue and profitability. |
| • | Effectiveness in supporting new product offerings and providing customer service may not meet expectations. |
| • | Actual experience in pricing, underwriting, and reserving may deviate from the Company’s assumptions. |
| • | 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 rate of unemployment and consumer confidence, the emergence of new diseases, new trends and developments in medical treatments, and the effectiveness of risk management programs. |
| • | Insurance reserve liabilities may fluctuate as a result of changes in numerous factors, and such fluctuations can have material positive or negative effects on net income. |
| • | Retained risks in the Company’s reinsurance operations are influenced primarily by the credit risk of the reinsurers and potential contract disputes. Any material changes in the reinsurers’ credit risk or willingness to pay according to the terms of the contract could have material effects on results. |
1
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” contained in Part 1 of the Company’s Form 10-K for the fiscal year ended December 31, 2003.
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.
2
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UnumProvident Corporation and Subsidiaries
| March 31 2004 |
December 31 2003 | |||||
| (in millions of dollars) | ||||||
| (Unaudited) | ||||||
| Assets |
||||||
| Investments |
||||||
| Fixed Maturity Securities - at fair value |
||||||
| Available-for-Sale - Continuing Operations |
$ | 31,565.9 | $ | 30,084.2 | ||
| Available-for-Sale - Discontinued Operations |
1,125.5 | 1,102.4 | ||||
| Total Fixed Maturity Securities |
32,691.4 | 31,186.6 | ||||
| Equity Securities |
43.8 | 39.1 | ||||
| Mortgage Loans |
460.3 | 474.7 | ||||
| Real Estate |
26.0 | 25.9 | ||||
| Policy Loans |
2,877.1 | 2,877.9 | ||||
| Other Long-term Investments |
78.0 | 91.9 | ||||
| Short-term Investments |
370.1 | 332.2 | ||||
| Total Investments |
36,546.7 | 35,028.3 | ||||
| Other Assets |
||||||
| Cash and Bank Deposits |
131.3 | 119.2 | ||||
| Accounts and Premiums Receivable |
2,115.5 | 2,093.5 | ||||
| Reinsurance Receivable |
6,243.7 | 6,242.6 | ||||
| Accrued Investment Income |
553.7 | 543.6 | ||||
| Deferred Policy Acquisition Costs |
2,798.8 | 3,051.9 | ||||
| Value of Business Acquired |
110.4 | 463.5 | ||||
| Goodwill |
270.0 | 476.7 | ||||
| Other Assets |
1,346.2 | 1,336.3 | ||||
| Other Assets - Discontinued Operations |
328.3 | 330.2 | ||||
| Separate Account Assets |
32.3 | 32.5 | ||||
| Total Assets |
$ | 50,476.9 | $ | 49,718.3 | ||
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - Continued
UnumProvident Corporation and Subsidiaries
| March 31 2004 |
December 31 2003 |
|||||||
| (in millions of dollars) |
||||||||
| (Unaudited) | ||||||||
| Liabilities and Stockholders’ Equity |
||||||||
| Liabilities |
||||||||
| Policy and Contract Benefits |
$ | 2,059.1 | $ | 1,928.4 | ||||
| Reserves for Future Policy and Contract Benefits and Unearned Premiums |
32,228.8 | 31,431.1 | ||||||
| Other Policyholders’ Funds |
2,487.6 | 2,493.3 | ||||||
| Current Income Tax |
35.9 | 32.8 | ||||||
| Deferred Income Tax |
924.3 | 914.0 | ||||||
| Long-term Debt |
2,789.0 | 2,789.0 | ||||||
| Other Liabilities |
1,312.7 | 1,363.6 | ||||||
| Other Liabilities - Discontinued Operations |
1,472.9 | 1,462.6 | ||||||
| Separate Account Liabilities |
32.3 | 32.5 | ||||||
| Total Liabilities |
43,342.6 | 42,447.3 | ||||||
| Commitments and Contingent Liabilities - Note 9 |
||||||||
| Stockholders’ Equity |
||||||||
| Common Stock, $0.10 par |
29.8 | 29.8 | ||||||
| Additional Paid-in Capital |
1,611.4 | 1,609.1 | ||||||
| Accumulated Other Comprehensive Income |
1,615.5 | 1,171.2 | ||||||
| Retained Earnings |
3,942.5 | 4,526.9 | ||||||
| Treasury Stock - at cost: 1,951,095 shares |
(54.2 | ) | (54.2 | ) | ||||
| Deferred Compensation |
(10.7 | ) | (11.8 | ) | ||||
| Total Stockholders’ Equity |
7,134.3 | 7,271.0 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 50,476.9 | $ | 49,718.3 | ||||
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
UnumProvident Corporation and Subsidiaries
| Three Months Ended March 31 |
||||||||
| 2004 | 2003 | |||||||
| (in millions of dollars, except share data) |
||||||||
| Revenue |
||||||||
| Premium Income |
$ | 1,956.2 | $ | 1,871.3 | ||||
| Net Investment Income |
534.1 | 519.3 | ||||||
| Net Realized Investment Gain (Loss) |
25.4 | (85.1 | ) | |||||
| Other Income |
108.0 | 89.3 | ||||||
| Total Revenue |
2,623.7 | 2,394.8 | ||||||
| Benefits and Expenses |
||||||||
| Benefits and Change in Reserves for Future Benefits |
1,879.3 | 2,143.4 | ||||||
| Commissions |
221.3 | 221.2 | ||||||
| Interest and Debt Expense |
49.2 | 41.5 | ||||||
| Deferral of Policy Acquisition Costs |
(148.3 | ) | (172.7 | ) | ||||
| Amortization of Deferred Policy Acquisition Costs |
108.6 | 114.0 | ||||||
| Amortization of Value of Business Acquired |
3.9 | 9.8 | ||||||
| Impairment of Intangible Assets |
856.4 | — | ||||||
| Compensation Expense |
187.7 | 190.6 | ||||||
| Other Operating Expenses |
235.8 | 236.5 | ||||||
| Total Benefits and Expenses |
3,393.9 | 2,784.3 | ||||||
| Loss from Continuing Operations Before Income Tax Benefit |
(770.2 | ) | (389.5 | ) | ||||
| Income Tax Benefit |
(200.9 | ) | (140.5 | ) | ||||
| Loss from Continuing Operations |
(569.3 | ) | (249.0 | ) | ||||
| Discontinued Operations - Note 2 |
||||||||
| Income from Operations |
10.8 | 4.0 | ||||||
| Income Tax Expense |
3.8 | 1.4 | ||||||
| Income from Discontinued Operations |
7.0 | 2.6 | ||||||
| Net Loss |
$ | (562.3 | ) | $ | (246.4 | ) | ||
| Earnings Per Common Share |
||||||||
| Basic |
||||||||
| Loss from Continuing Operations |
$ | (1.93 | ) | $ | (1.03 | ) | ||
| Net Loss |
$ | (1.91 | ) | $ | (1.02 | ) | ||
| Assuming Dilution |
||||||||
| Loss from Continuing Operations |
$ | (1.93 | ) | $ | (1.03 | ) | ||
| Net Loss |
$ | (1.91 | ) | $ | (1.02 | ) | ||
| Dividends Paid |
$ | 0.0750 | $ | 0.1475 | ||||
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
UnumProvident Corporation and Subsidiaries
| Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Income |
Retained Earnings |
Treasury Stock |
Deferred Compensation |
Total | ||||||||||||||||||||
| (in millions of dollars) |
||||||||||||||||||||||||||
| Balance at December 31, 2002 |
$ | 24.4 | $ | 1,086.8 | $ | 777.4 | $ | 5,011.4 | $ | (54.2 | ) | $ | (2.6 | ) | $ | 6,843.2 | ||||||||||
| Comprehensive Loss, Net of Tax |
||||||||||||||||||||||||||
| Net Loss |
(246.4 | ) | (246.4 | ) | ||||||||||||||||||||||
| Change in Net Unrealized Gain on Securities |
(31.9 | ) | (31.9 | ) | ||||||||||||||||||||||
| Change in Net Gain on Cash Flow Hedges |
(0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
| Change in Foreign Currency Translation Adjustment |
15.4 | 15.4 | ||||||||||||||||||||||||
| Total Comprehensive Loss |
(263.3 | ) | ||||||||||||||||||||||||
| Common Stock Activity |
0.8 | 0.2 | ||||||||||||||||||||||||