Properties The Company’s Home Office is located at 2801 Highway 280 South, Birmingham, Alabama. This campus includes the original 142,000 square-foot building which was completed in 1976, a second contiguous 220,000 square-foot building which was completed in 1985, and a third contiguous 315,000 square-foot building that was completed in 2002. In addition, parking is provided for approximately 2,760 vehicles. In February 2000, the Company entered into an arrangement related to the construction of the third building. In connection with the arrangement the Company established a special purpose vehicle (SPV) that owns the building and leases it to the Company. The lease is accounted for as an operating lease under SFAS No. 13 “Accounting For Leases”. The SPV is funded and its equity is held by outside investors, and as a result, neither the debt nor the building owned by the SPV are included in the Company’s consolidated financial statements. Lease payments commence upon completion, which occurred January 31, 2003, and is based on then current LIBOR interest rates and the cost of the building. At the end of the lease term, February 1, 2007, the Company may purchase the building for the original building cost of approximately $75 million. Based upon current interest rates, annual lease payments are estimated to be $1.6 million. Were the Company not to purchase the building, a payment of approximately $66.8 million would be due at the end of the lease term.
YEAR ENDED DECEMBER 31 -------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA Premium and policy fees................ $ 1,543,350 $ 1,389,820 $ 1,175,898 $ 861,027 $ 790,584 Reinsurance ceded...................... (760,218) (771,151) (686,108) (462,297) (378,397) ------------ ------------ ------------ ----------- ------------ Net of reinsurance ceded 783,132 618,669 489,790 398,730 412,187 Net investment income.................. 1,031,204 884,041 730,149 667,968 629,045 Realized investment gains (losses)..... Derivative financial instruments 5,236 (11,431) 9,013 (2,279) 3,121 All other investments 910 (8,740) (16,056) 1,222 60,022 ------------ ------------ ------------ ----------- ------------ Other income........................... 100,196 120,647 151,833 89,680 1,104,375 Total revenues..................... 1,920,678 1,603,186 1,364,729 1,155,321 922,404 Benefits and expenses.................. 1,653,475 1,393,590 1,153,054 951,932 63,309 Income tax expense..................... 88,444 68,538 74,321 71,941 Income (loss) from discontinued 12,119 operations (1) (30,522) 16,122 21,642 Extraordinary loss(2) (1,404) (1,763) Change in accounting principle (3) (7,593) ------------ ------------- ------------ ----------- ------------ Net income............................. $ 177,355 $ 102,943 $ 153,476 $ 151,327 $ 130,781 ============ ============= ============ =========== ============ PER SHARE DATA(4) Net income from continuing operations(5) - basic.............. $ 2.56 $ 2.02 $ 2.09 $ 2.01 $ 1.87 Net income - basic..................... $ 2.54 $ 1.48 $ 2.33 $ 2.31 $ 2.06 Average shares outstanding - basic..... 69,923,955 69,410,525 65,832,349 65,604,311 63,521,587 Operating income from continuing operations(6) - diluted............ $ 2.50 $ 2.21 $ 2.15 $ 2.01 $ 1.83 Net income from continuing operations(5) - diluted............ $ 2.54 $ 2.01 $ 2.08 $ 1.99 $ 1.85 Net income - diluted.................. $ 2.52 $ 1.47 $ 2.32 $ 2.29 $ 2.04 Average shares outstanding - diluted.............. 70,462,797 69,950,173 66,281,128 66,161,367 64,087,744 Cash dividends......................... $ .59 $ .55 $ .51 $ .47 $ .43 Share-owners' equity................... $ 25.06 $ 20.42 $ 17.26 $ 13.41 $ 14.65 Share-owners' equity excluding accumulated other comprehensive income(7).......................... $ 21.62 $ 19.63 $ 18.05 $ 15.68 $ 13.80
DECEMBER 31 -------------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA Total assets........................... $21,953,004 $ 19,718,824 $ 15,145,633 $ 12,994,164 $ 11,989,495 Total debt............................. $ 406,110 $ 376,211 $ 306,125 $ 236,023 $ 172,035 Total stable value contract and annuity account balances(8)................ $ 4,198,070 $ 3,907,892 $ 3,385,092 $ 2,915,417 $ 2,952,030 9% Cumulative Monthly Income Preferred Securities, Series A..... $ 55,000 8.25% Trust Originated Preferred Securities......................... $ 75,000 $ 75,000 $ 75,000 $ 75,000 7.5% Trust Originated Preferred Securities......................... $ 100,000 $ 100,000 7.25% Trust Originated Preferred Securities......................... $ 115,000 6.5% FELINE PRIDES $ 115,000 $ 115,000 $ 115,000 Share-owners' equity................... $ 1,720,702 $ 1,400,144 $ 1,114,058 $ 865,223 $ 944,194 Share-owners' equity excluding accumulated other comprehensive income(9).......................... $ 1,484,788 $ 1,345,816 $ 1,165,431 $ 1,011,304 $ 889,137
(8) Includes stable value contract account balances and annuity account balances which do not pose significant mortality risk. (9) "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.
Financial Statements and Supplementary Data The financial statements and supplementary data for the Company and its subsidiaries, which are included under the caption “Consolidated Financial Statements” in the Company’s 2002 Annual Report to Share Owners, are incorporated herein by reference.
Our audits of the consolidated financial statements referred to in our report dated March 3, 2003 appearing in the 2002 Annual Report to Share Owners of Protective Life Corporation and subsidiaries (which report and consolidated financial statements are incorporated by reference on this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15 (a) (2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
2002 2001 2000 ---- ---- ---- REVENUES Dividends from subsidiaries* $ 5,007 $ 3,701 $ 27,362 Service fees from subsidiaries* 97,045 87,239 78,999 Net investment income 9,117 6,804 7,173 Realized investment gains (losses) 6,791 (12,341) 6,856 Other income (loss) (2000 - sale of affiliate) (328) 24,856 --------- --------- --------- 117,632 85,403 145,246 --------- --------- --------- EXPENSES Operating and administrative 56,268 55,256 50,600 Interest - subsidiaries* 15,227 10,163 14,085 Interest - other 10,139 22,859 18,082 --------- --------- --------- 81,634 88,278 82,767 --------- --------- --------- INCOME BEFORE INCOME TAX AND OTHER ITEMS BELOW 35,998 (2,875) 62,479
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 29,069 (725) 46,011
Income (Loss) From Discontinued Operations, Net Of Income Tax (9,977) 16,122
Extraordinary (Loss) On Early Extinguishment Of Debt, Net Of Income Tax (1,404) --------- --------- --------- 177,355 110,536 153,476 Cumulative Effect Of Change In Accounting Principle, Net Of Income Tax (7,593) --------- --------- --------- NET INCOME $177,355 $102,943 $153,476 ========= ========= =========
CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under line of credit arrangements and long-term debt 69,000 159,160 237,104 Principal payments on line of credit arrangements and debt (39,102) (93,729) (166,979) Issuance of guaranteed preferred beneficial interests 115,000 100,000 Redemption of guaranteed preferred beneficial interests (75,000) Purchase of Common Stock (882) (217) (697) Purchase of Treasury Stock (828) (3,405) 0 Dividends to Share Owners (40,511) (37,187) (32,919) --------- ---------- ---------- Net cash provided by (used in) financing activities 27,677 124,622 36,509 --------- ---------- ---------- INCREASE (DECREASE) IN CASH (1,936) (844) 1,335 CASH AT BEGINNING OF YEAR 2,114 2,958 1,623 --------- ---------- ---------- CASH AT END OF YEAR $ 178 $ 2,114 $ 2,958 ========= ========== ==========
NOTE 2 - DEBT At December 31, 2002, the Company had $30.0 million of borrowings under its $200 million line of credit arrangements at an interest rate of 1.92%. The amounts outstanding under these credit arrangements are due in 2005. $100.0 million of Floating Rate Senior Notes due 2003, $75.0 million of 7.95% Senior Notes due 2004, $49.9 million of 8.00% Senior Notes due 2010, $9.9 million of 7.45% Medium-Term Notes due 2011, $39.9 million of 8.10% Senior Notes due 2015, $59.9 million of 7.50% Senior Notes due 2016, $34.7 million of 8.25% Senior Notes due 2030, $103.1 million of subordinated debentures due 2031, and $118.6 million of subordinated debentures due 2032 were outstanding at December 31, 2002, The subordinated debentures were issued to affiliates in connection with the issuance by such affiliates of Trust Originated Preferred Securities.
Interest Paid to Subsidiary* 15,227 10,163 14,085 ------- -------- ------- $32,937 $ 32,856 $28,781 ======= ======== ======= Income Taxes (reduced by amounts received from affiliates under a tax sharing agreement) $ 7,000 $ 3,000 $32,039 ======= ======== =======
Change in unallocated Stock in ESOP $ 540 $ 369 $ 357 ======= ======== =======
NOTE 4 - SUBSIDIARY SURPLUS DEBENTURES Protective Life Insurance Company (Protective Life) has issued surplus debentures to the Company in order to finance acquisitions and growth. At December 31, 2002, the balance of the surplus debentures was $2.0 million. The surplus debentures are included in receivables from subsidiaries. Protective Life must obtain the approval of the Tennessee Commissioner of Insurance before it may pay interest or repay principal on the surplus debentures.
COL. A COL. B COL. C COL. D COL. E COL. F ------ ------ ------ ------ ------ ------ PERCENTAGE OF CEDED TO OTHER ASSUMED FROM AMOUNT ASSUMED GROSS AMOUNT COMPANIES OTHER COMPANIES NET AMOUNT TO NET ---------------------------------------------------------------------------------------- Year Ended December 31, 2002: Life insurance in force $248,994,479 $219,025,215 $21,523,110 $51,492,374 41.8% ============ ============ =========== =========== =====
Premiums and policy fees: Life insurance $ 854,813 $ 545,976 $ 235,198 $ 544,035 43.2% Accident/health insurance 103,858 61,512 44,337 86,683 51.1% Property and liability insurance 194,601 152,730 110,543 152,414 72.5% ------------ ------------ ----------- ----------- TOTAL $ 1,153,272 $ 760,218 $ 390,078 $ 783,132 ============ ============ =========== ===========
COL. A COL. B COL. C COL. D COL. E ------ ------ ------- ------- ------ ADDITIONS (1) BALANCE AT CHARGED TO (2) BEGINNING OF COSTS AND CHARGES TO BALANCE AT END DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD. ------------------------------------------------------------------------------------------------------------------------- Allowance for Uncollected Reinsurance Receivable $0 $0 $24,833 $0 $24,833