The Company leases administrative and marketing office space in approximately 60 cities including approximately 53,264 square feet in Birmingham, with most leases being for periods of three to ten years. The aggregate annualized rent is approximately $11.0 million.
(1) Income from discontinued operations in 2001 includes loss on sale of discontinued operations and loss from discontinued operations, net of income tax. (2) Due to early extinguishments of debt, net of income tax. (3) Cumulative effect of change in accounting principle relating to SFAS No. 133, net of income tax. (4) Prior periods have been restated to reflect a two-for-one stock split on April 1, 1998, and to reflect discontinued operations. (5) Net income excluding extraordinary loss, change in accounting principle, and income from discontinued operations. (6) "Operating income from continuing operations" is a non-GAAP measure consisting of net income excluding realized investment gains and losses and related amortization, income (loss) from discontinued operations, extraordinary loss, and change in accounting principle. "Net income from continuing operations" is a GAAP measure to which "operating income from continuing operations" may be compared. (7) "Share-owners' equity excluding accumulated other comprehensive income" is a non-GAAP measure. "Share-owners' equity" is a GAAP measure to which "Share-owners' equity excluding accumulated other comprehensive income" may be compared.
As discussed in Note 1 of the Notes to the Condensed Financial Statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.”
Loss From Sale Of Discontinued Operations, Net Of Income Tax (20,545)
DECEMBER 31 -------------------------------------- 2002 2001 ---- ---- ASSETS Investments: Fixed maturities $ 8,600 $ 26,000 Other long-term investments 27,232 20,303 Short-term investments 1,105 10 Investments in subsidiaries (equity method)* 2,343,033 1,942,449 ----------- ----------- 2,379,970 1,988,762
Cash 178 2,114 Receivables from subsidiaries* 8,985 18,171 Property and equipment, net 1,317 285 Other 41,286 36,466 ----------- ----------- $2,431,736 $2,045,798 =========== =========== LIABILITIES Accrued expenses and other liabilities $ 57,458 $ 77,186 Accrued income taxes (34,517) (17,336) Deferred income taxes 67,277 36,150 Debt: Senior and Medium-Term Notes 399,166 369,241 Subsidiaries* 221,650 180,413 ----------- ---------- 711,034 645,654 ----------- ---------- SHARE-OWNERS' EQUITY Preferred Stock Junior Participating Cumulative Preferred Stock Common Stock 36,626 36,626 Additional paid-in capital 408,397 405,420 Treasury stock (16,402) (15,895) Stock Held in Trust (2,417) (1,535) Unallocated stock in Employee Stock Ownership Plan (2,777) (3,317) Retained earnings (including undistributed income of subsidiaries: 2002 - $1,213,878; 2001 - $1,064,188) 1,061,361 924,517 Accumulated other comprehensive income Net unrealized gains (losses) on investments (all from subsidiaries, net of income tax: 2002 - $128,145; 2001 - $29,254) 237,983 54,328 Accumulated gain (loss) - hedging (net of income tax: 2002 - $(1,114)) (2,069) ----------- ----------- 1,720,702 1,400,144 ----------- ----------- $2,431,736 $2,045,798 =========== ===========
2002 2001 2000 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $177,355 $ 102,943 $ 153,476 Adjustments to reconcile net income to net cash provided by operating activities: Realized investment (gains) losses (6,791) 12,341 (6,856) Equity in undistributed net income of subsidiaries* (149,690) (105,418) (107,465) Deferred income taxes 31,127 (18,566) 25,947 Accrued income taxes (17,180) 14,928 (43,080) Accrued expenses 2,787 25,313 6,822 Accrued investment income 247 1,913 Receivables from subsidiaries 5,187 (7,823) 8,976 Other (net) (2,900) (16,995) (11,255) --------- ---------- ---------- Net cash provided by operating activities 39,895 6,970 28,478 --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of and/or additional investments in subsidiaries* (68,272) (133,406) (102,987) Return of capital from subsidiaries 34,288 Purchase of fixed assets (1,275) Principal payments received on loan to subsidiary* 4,000 4,000 4,000 Change in fixed maturities and long-term investments (2,866) (7,020) 3,047 Change in short-term investments (1,095) 3,990 (2,000) --------- ---------- ---------- Net cash used in investing activities (69,508) (132,436) (63,652) --------- ---------- ----------
PROTECTIVE LIFE CORPORATION (Parent Company) NOTES TO CONDENSED FINANCIAL STATEMENTS The Company publishes consolidated financial statements that are its primary financial statements. Therefore, these parent company condensed financial statements are not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of Protective Life Corporation and subsidiaries.
NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS Nos. 137 and 138, requires the company to record all derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative charge to net income, net of income tax, of $7.6 million on January 1, 2001. The charge to net income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002.” SFAS No. 145 rescinds SFAS No. 4, which required companies to treat the extinguishment of debt as an extraordinary item. SFAS No. 145 requires companies to apply APB Opinion 30 when determining the accounting for the extinguishment of debt. The statement also rescinds and amends other statements to make various technical corrections and clarifications. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, and will require the Company to restate previously issued financial statements to reclassify losses related to the early extinguishment of debt from extraordinary losses to operating expenses. As discussed in Note 7, the Company reported an extraordinary loss of $1.4 million related to the extinguishment of debt in 2002. Thus the Company’s 2002 financial statements will be restated to reflect the requirements of this accounting standard in 2003.
2002 2001 2000 --------------------------------------------------- CASH PAID (RECEIVED) DURING THE YEAR FOR:
Reissuance of Treasury Stock to ESOP $ 59 $ 879 $ 255 ======= ======== =======
NOTE 6 - DISCONTINUED OPERATIONS On December 31, 2001, the Company completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued other remaining Dental Division related operations, primarily other health insurance lines.
NOTE 7 - EXTRAORDINARY LOSS On October 25, 2002, the Company caused PLC Capital Trust I to redeem the 8.25% Trust Originated Preferred Securities (TOPrSSM). In a related transaction, the Company redeemed its subordinated debentures which were held by PLC Capital Trust I. The redemption of the subordinated debentures resulted in an extraordinary loss of $1.4 million due to early extinguishment of debt. The loss is comprised primarily of unamortized deferred debt issue costs, net of an income tax benefit of $0.8 million.
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I COL. J ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ STABLE VALUE CONTRACTS, ANNUITY AMORTIZATION DEFERRED CONTRACTS AND OF DEFERRED POLICY FUTURE POLICY OTHER NET PREMIUMS NET BENEFITS AND POLICY OTHER ACQUISITION BENEFITS AND UNEARNED POLICYHOLDERS' AND POLICY INVESTMENT SETTLEMENT ACQUISITIONS OPERATING SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INCOME(1) EXPENSES COSTS EXPENSES(1) ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, 2002: Life Marketing $ 973,631 $ 4,031,021 $ 318 $ 48,558 $220,184 $ 209,002 $ 228,224 $117,836 $ 13,948 Acquisitions 437,677 3,240,407 395 1,054,031 239,014 252,147 315,930 35,245 46,525 Stable Value Contracts 4,908 - - 3,930,668 - 246,098 196,576 2,304 4,946 Annuities 93,140 571,109 - 2,742,643 25,826 220,447 186,107 24,669 30,660 Asset Protection 164,165 329,713 810,587 9,288 262,011 44,296 200,958 57,957 101,637 Corporate and Other 7,702 55,863 2,212 95,018 36,097 59,214 34,436 1,479 54,038 Adjustments(2) 88,944 286 23,157 ---------- ---------- -------- ---------- -------- ---------- ---------- -------- -------- TOTAL $1,681,223 $8,317,057 $813,798 $7,903,363 $783,132 $1,031,204 $1,162,231 $239,490 $251,754 ========== ========== ======== ========== ======== ========== ========== ======== ======== Year Ended December 31, 2001: Life Marketing $ 829,021 $3,326,841 $ 303 $ 86,937 $120,995 $ 179,346 $ 190,538 $ 41,399 $ 38,712 Acquisitions 418,268 3,046,401 434 876,221 182,433 187,535 238,877 20,501 43,232 Stable Value Contracts 6,375 - - 3,872,637 261,079 222,306 1,662 3,961 Annuities 128,488 281,074 - 2,232,779 28,145 167,905 137,204 24,021 29,434 Asset Protection 142,229 208,818 901,062 2,773 250,061 48,940 154,893 57,681 99,103 Corporate and Other 8,302 16,573 2,241 247 37,035 39,236 28,806 1,794 59,466 Adjustments(2) 92,085 334 24,193 ---------- ---------- -------- ---------- -------- ---------- ---------- -------- -------- TOTAL $1,532,683 $6,971,792 $904,374 $7,095,787 $618,669 $ 884,041 $ 972,624 $147,058 $273,908 ========== ========== ======== ========== ======== ========== ========== ======== ======== Year Ended December 31, 2000: Life Marketing $ 99,813 $ 152,511 $ 149,430 $ 48,771 $ 47,861 Acquisitions 102,997 116,940 125,151 17,081 24,939 Stable Value Contracts - 243,132 207,143 900 3,881 Annuities 30,127 132,314 109,607 24,156 25,403 Asset Protection 220,421 47,029 135,494 50,132 90,958 Corporate and Other 36,432 38,223 33,953 2,140 56,054 Adjustments(2) -------- ---------- ---------- -------- -------- TOTAL $489,790 $ 730,149 $ 760,778 $143,180 $249,096 ======== ========== ========== ======== ========
(1) Allocations of Net Investment Income and Other Operating Expenses are based on a number of assumptions and estimates and results would change if different methods were applied. (2) Asset adjustments represent the inclusion of assets related to discontinued operations.
Year Ended December 31, 2001: Life insurance in force $191,105,511 $171,449,182 $23,152,614 $42,808,943 54.1% ============ ============ =========== =========== Premiums and policy fees: Life insurance $ 774,294 $ 565,130 $ 198,832 $ 407,996 48.7% Accident/health insurance 181,509 122,747 58,762 0.0% Property and liability insurance 158,890 83,274 76,295 151,911 50.2% ------------ ------------ ------------ ------------ TOTAL $ 1,114,693 $ 771,151 $ 275,127 $ 618,669 ============ ============ ============ ============
Year Ended December 31, 2000: Life insurance in force $153,371,754 $128,374,583 $ 17,050,342 $ 42,047,513 40.6% ============ ============ ============= ============ Premiums and policy fees: Life insurance $ 670,113 $ 493,793 $ 112,668 $ 288,988 39.0% Accident/health insurance 203,430 128,520 17,164 92,074 18.6% Property and liability insurance 159,354 63,795 13,169 108,728 12.1% ------------ ------------ ------------- ------------ TOTAL $ 1,032,897 $ 686,108 $ 143,001 $ 489,790 ============ ============ ============= ============