DECEMBER 31 --------------------------------------------------- 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income.............................................................................. $ 106,658 $ 124,035 $ 128,258 Adjustments to reconcile net income to net cash provided by operating activities: Realized investment (gains) losses................................................. 7,841 14,599 (4,760) Amortization of deferred policy acquisition costs.................................. 154,383 149,574 104,913 Amortization of goodwill........................................................... 8,328 3,867 Capitalization of deferred policy acquisition costs................................ (317,626) (338,685) (239,483) Loss from sale of discontinued operations.......................................... 17,754 Depreciation expense............................................................... 11,651 9,581 10,513 Deferred income taxes.............................................................. (40,970) 55,161 24,234 Accrued income taxes............................................................... 139,017 13,265 (14,841) Interest credited to universal life and investment products........................ 944,098 766,004 331,746 Policy fees assessed on universal life and investment products..................... (222,415) (197,581) (165,818) Change in accrued investment income and other receivables.......................... (241,230) (160,488) (119,183) Change in policy liabilities and other policyholder funds of traditional life and health products.................................................................... 443,023 508,454 215,201 Change in other liabilities........................................................ 138,190 1,809 67,552 Other (net)........................................................................ 8,764 (34,626) (5,526) ------------ ------------ ------------ Net cash provided by operating activities................................................... 1,157,466 914,969 332,806 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Maturities and principal reduction of investments: Investments available for sale..................................................... 3,062,262 12,828,276 9,973,742 Other.............................................................................. 283,181 133,814 243,280 Sale of investments: Investments available for sale..................................................... 8,943,123 810,716 537,343 Other.............................................................................. 0 5,222 267,892 Cost of investments acquired: Investments available for sale..................................................... (13,647,757) (14,384,625) (10,625,354) Corporate owned life insurance..................................................... (100,000) Other.............................................................................. (378,520) (463,909) (864,100) Acquisitions and bulk reinsurance assumptions.......................................... (118,557) (141,040) 46,508 Purchase of property and equipment..................................................... (10,099) (5,085) (18,075) Sale of discontinued operations, net of cash transferred............................... 216,031 Sale of property and equipment......................................................... 70 151 ------------ ------------- ------------- Net cash used in investing activities....................................................... (1,750,266) (1,216,631) (438,613) ------------ ------------- -------------
(All dollar amounts in tables are in thousands) Note A - SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION
Note A-- SIGNIFICANT ACCOUNTING POLICIES (continued) Protective has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for an interest rate swap that converts the remaining host bond to a variable rate instrument. In 2001, Protective recognized a $12.2 million pre-tax gain for the change in the asset swaps’ fair value and recognized a $16.9 million pre-tax loss to separately record the embedded equity options at fair value.
Protective’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts.
2001 2000 1999 ------------------------------------------------------------------------------- Derivative financial instruments $(1,718) $2,157 $3,425 -------------------------------------------------------------------------------
In January 2001, Protective coinsured a block of individual life policies from Standard Insurance Company.
Note M-- STOCK BASED COMPENSATION Certain Protective employees participate in PLC's stock-based incentive plans and receive stock appreciation rights (SARs) from PLC.