| TENNESSEE | 63-0169720 | ||
|---|---|---|---|
| (State or other jurisdiction | (IRS Employer | ||
| incorporation or organization) | Identificiation No. |
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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No[ ]
Number of shares of Common Stock, $1.00 par value, outstanding as of August 9, 2002: 5,000,000 shares.
The registrant meets the conditions set forth in General Instruction H(1)(a)and (b) of Form 10-Q and
Part I. Financial Information:
Item 1. Financial Statements:
Report of Independent Accountants........................................
Consolidated Condensed Statements of Income for the Three and
Six Months ended June 30, 2002 and 2001 (unaudited)..................
Consolidated Condensed Balance Sheets as of June 30, 2002
(unaudited) and December 31, 2001....................................
Consolidated Condensed Statements of Cash Flows for the
Six Months ended June 30, 2002 and 2001 (unaudited)..................
Notes to Consolidated Condensed Financial Statements (unaudited).........
Item 2. Management's Narrative Analysis of the Results of Operations........
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K....................................
Signature.......................................................................
To the Directors and Share Owner
Protective Life Insurance Company
We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Insurance Company and subsidiaries as of June 30, 2002, and the related consolidated condensed statements of income for each of the three-month and six-month periods ended June 30, 2002 and 2001, and the consolidated condensed statements of cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, and the related consolidated statements of income, share-owner’s equity, and cash flows for the year then ended (not presented herein), and in our report dated March 1, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2001 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Birmingham, Alabama
August 14, 2002
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Premiums and policy fees $395,821 $324,597 $762,956 $636,142
Reinsurance ceded (211,138) (176,689) (394,505) (320,405)
--------- --------- --------- ---------
Premiums and policy fees, net of reinsurance ceded 184,683 147,908 368,451 315,737
Net investment income 241,315 204,264 473,787 398,906
Realized investment gains (losses)
Derivative financial instruments 1,467 (3,133) 149 503
All other investments 7,205 (2,081) 8,060 966
Other income 12,087 8,153 20,701 17,612
--------- --------- --------- ---------
446,757 355,111 871,148 733,724
--------- --------- --------- ---------
BENEFITS AND EXPENSES
Benefits and settlement expenses
(net of reinsurance ceded:
three months: 2002 - $180,959; 2001 - $98,131
six months: 2002 - $330,144; 2001 - $200,569) 294,465 233,262 568,069 485,944
Amortization of deferred policy acquisition costs 40,397 37,224 88,336 64,884
Amortization of goodwill 0 706 0 1,413
Other operating expenses (net of reinsurance ceded:
three months: 2002 - $42,655; 2001 - $52,042
six months: 2002 - $76,229; 2001 - $81,993) 35,246 33,353 82,120 71,637
--------- --------- --------- ---------
370,108 304,545 738,525 623,878
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX 76,649 50,566 132,623 109,846
Income tax expense 26,357 18,065 43,078 37,372
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 50,292 32,501 89,545 72,474
Loss from discontinued operations, net of income tax 0 (6,275) 0 (2,739)
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 50,292 26,226 89,545 69,735
Cumulative effect of change in accounting principle (8,341)
---------- --------- ---------- ---------
NET INCOME $ 50,292 $ 26,226 $ 89,545 $ 61,394
========== ========= ========== =========
See notes to consolidated condensed financial statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31
2002 2001
------------ -----------
(UNAUDITED)
ASSETS
Investments:
Fixed maturities, at market $11,037,744 $ 9,812,091
Equity securities, at market 55,913 60,493
Mortgage loans on real estate 2,600,613 2,512,844
Investment in real estate, net of accumulated depreciation 19,761 24,173
Policy loans 551,987 521,840
Other long-term investments 146,463 100,686
Short-term investments 240,891 228,396
------------ ------------
Total investments 14,653,372 13,260,523
Cash 19,454 107,166
Accrued investment income 167,385 158,841
Accounts and premiums receivable, net 87,905 55,809
Reinsurance receivables 2,192,843 2,173,987
Deferred policy acquisition costs 1,646,038 1,532,683
Goodwill, net 35,143 35,992
Property and equipment, net 43,551 46,337
Other assets 227,690 219,355
Assets related to separate accounts
Variable annuity 1,691,789 1,873,195
Variable universal life 113,570 114,618
Other 4,158 3,997
------------ ------------
$20,882,898 $19,582,503
============ ============
LIABILITIES
Policy liabilities and accruals $ 8,577,933 $ 7,876,338
Stable value investment contract deposits 4,078,763 3,716,530
Annuity account balances 3,603,722 3,248,218
Other policyholders' funds 144,422 132,124
Securities sold under repurchase agreements 0 117,000
Other liabilities 436,668 410,621
Accrued income taxes 18,020 125,835
Deferred income taxes 182,028 72,403
Debt
Notes payable 2,277 2,291
Indebtedness to related parties 4,000 6,000
Liabilities related to separate accounts
Variable annuity 1,691,789 1,873,195
Variable universal life 113,570 114,618
Other 4,158 3,997
------------ ------------
18,857,350 17,699,170
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares
authorized and issued: 2,000, liquidation preference $2,000 2 2
Common Stock, $1.00 par value, shares
authorized and issued: 5,000,000 5,000 5,000
Additional paid-in capital 784,296 785,419
Note receivable from PLC Employee Stock Ownership Plan (3,838) (4,499)
Retained earnings 1,133,787 1,044,243
Accumulated other comprehensive income:
Net unrealized gains on investments (net of income
tax: 2002 - $57,239; 2001 - $28,629) 106,301 53,168
------------ ------------
2,025,548 1,883,333
------------ ------------
$20,882,898 $19,582,503
============ ============
See notes to consolidated condensed financial statements
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30
------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,545 $ 61,394
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment gains (8,209) (1,469)
Amortization of deferred policy acquisition costs 88,336 68,399
Capitalization of deferred policy acquisition costs (189,860) (126,277)
Depreciation expense 5,560 5,952
Deferred income tax 81,015 (19,445)
Accrued income tax (107,815) 53,289
Amortization of goodwill 0 4,149
Interest credited to universal life and investment products 560,416 421,869
Policy fees assessed on universal life and investment products (122,447) (101,607)
Change in accrued investment income and other receivables (50,447) (16,698)
Change in policy liabilities and other policyholders' funds
of traditional life and health products 47,199 14,472
Change in other liabilities 24,885 82,497
Other (net) (5,130) (15,461)
------------ -----------
Net cash provided by operating activities 413,048 431,064
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 4,436,562 9,402,613
Other 148,496 140,734
Sale of investments
Investments available for sale 4,326,372 938,665
Other 4,218 1,363
Cost of investments acquired
Investments available for sale (9,661,370) (11,228,329)
Corporate owned life insurance 0 (100,000)
Other (216,729) (170,818)
Acquisitions and bulk reinsurance assumptions 130,515 137,754
Purchase of property and equipment (3,504) (6,119)
Sale of property and equipment 48 0
------------ ------------
Net cash used in investing activities (835,392) (884,137)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and debt 1,987,272 512,600
Principal payments on line of credit arrangements and debt (2,104,285) (454,300)
Capital contribution from PLC 0 91,000
Principal payment on surplus notes to PLC (2,000) (2,000)
Investment product deposits and change in universal life deposits 1,040,707 929,479
Investment product withdrawals (587,062) (604,223)
------------- ------------
Net cash provided by financing activities 334,632 472,556
------------- ------------
(DECREASE)/INCREASE IN CASH (87,712) 19,483
CASH AT BEGINNING OF PERIOD 107,166 33,517
------------- ------------
CASH AT END OF PERIOD $ 19,454 $ 53,000
============= ============
See notes to consolidated condensed financial statements
The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company and subsidiaries (“Protective Life”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement have been included. Operating results for the six month period ended June 30, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and notes thereto included in Protective Life’s annual report on Form 10-K for the year ended December 31, 2001.
Protective Life is a wholly-owned subsidiary of Protective Life Corporation ("PLC").
Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Protective Life does not currently believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.
A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. Protective Life, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, Protective Life believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of Protective Life.
Protective Life operates several business segments each having a strategic focus which can be grouped into three general product categories: life insurance, retirement savings and investment products, and specialty insurance products. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:
| The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the “bank owned life insurance” market. |
| The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies sold to individuals. |
| The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The segment also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. The segment also sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. |
| The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Life Marketing segment’s sales force. |
| The Credit Products segment markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers, and markets vehicle and recreational marine extended service contracts. |
| Protective Life has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which Protective Life is not actively marketing (mostly cancer insurance and group annuities). |
Protective Life uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax, adjusted to exclude any pretax minority interest in income of consolidated subsidiaries. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.
There are no significant intersegment transactions.
The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense, income from discontinued operations, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations. The reduction in the goodwill balance in the Credit Products segment relates to the sale of a small subsidiary in the first quarter of 2002.
In December 2001, Protective Life sold substantially all of its Dental Division and discontinued other Dental Division related operations (See Note K - “Discontinued Operations”). Additionally, other adjustments were made to combine its life marketing operations into a single segment, and to reclassify certain smaller businesses. Prior period segment results have been restated to reflect these changes.
OPERATING SEGMENT INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 2002
-------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
--------- ------------ ------------- ---------
Premiums and policy fees $309,291 $156,171 $ 13,450
Reinsurance ceded (223,143) (35,892)
--------- --------- ---------
Net of reinsurance ceded 86,148 120,279 13,450
Net investment income 101,509 117,512 $121,533 105,454
Realized investment gains (losses) 256 3,237
Other income 380 1,073 1,795
--------- --------- --------- ---------
Total revenues 188,037 238,864 121,789 123,936
--------- --------- --------- ---------
Benefits and settlement expenses 123,890 156,177 98,911 87,448
Amortization of deferred policy
acquisition costs 28,297 16,706 1,160 13,677
Other operating expenses (12,714) 21,909 1,947 11,577
--------- --------- --------- ---------
Total benefits and expenses 139,473 194,792 102,018 112,702
--------- --------- --------- ---------
Income from continuing operations
before income tax 48,564 44,072 19,771 11,234
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- ------- ----------- ------------
Premiums and policy fees $255,428 $28,616 $762,956
Reinsurance ceded (125,087) (10,383) (394,505)
--------- -------- ---------
Net of reinsurance ceded 130,341 18,233 368,451
Net investment income 21,983 5,796 473,787
Realized investment gains (losses) $ 4,716 8,209
Other income 16,950 503 20,701
--------- -------- -------- ---------
Total revenues 169,274 24,532 4,716 871,148
--------- -------- -------- ---------
Benefits and settlement expenses 84,549 17,094 568,069
Amortization of deferred policy
acquisition costs 27,687 809 88,336
Other operating expenses 44,504 14,897 82,120
--------- -------- ---------
Total benefits and expenses 156,740 32,800 738,525
--------- -------- ---------
Income from continuing operations
before income tax 12,534 (8,268) 132,623
Income tax expense 43,078 43,078
---------
Net income $ 89,545
=========
OPERATING SEGMENT INCOME FOR THE
THREE MONTHS ENDED JUNE 30, 2002
----------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
--------- ------------ ------------- ---------
Premiums and policy fees $159,869 $ 74,807 $ 6,841
Reinsurance ceded (123,128) (17,889)
--------- --------- --------
Net of reinsurance ceded 36,741 56,918 6,841
Net investment income 51,241 58,802 $62,026 53,510
Realized investment gains (losses) (265) 2,855
Other income 162 524 903
--------- --------- -------- --------
Total revenues 88,144 116,244 61,761 64,109
--------- --------- -------- --------
Benefits and settlement expenses 60,759 76,933 50,082 45,061
Amortization of deferred policy
acquisition costs 12,106 7,797 595 6,683
Other operating expenses (11,496) 11,031 1,062 5,809
--------- --------- -------- --------
Total benefits and expenses 61,369 95,761 51,739 57,553
--------- --------- -------- --------
Income from continuing operation
before income tax 26,775 20,483 10,022 6,556
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
Premiums and policy fees $138,542 $15,762 $395,821
Reinsurance ceded (63,355) (6,766) (211,138)
--------- --------- ---------
Net of reinsurance ceded 75,187 8,996 184,683
Net investment income 10,888 4,848 241,315
Realized investment gains (losses) $ 6,082 8,672
Other income 10,033 465 12,087
--------- -------- -------- ---------
Total revenues 96,108 14,309 6,082 446,757
--------- -------- -------- ---------
Benefits and settlement expenses 52,541 9,089 294,465
Amortization of deferred policy
acquisition costs 12,848 368 40,397
Other operating expenses 26,851 1,989 35,246
--------- -------- ---------
Total benefits and expenses 92,240 11,446 370,108
--------- -------- ---------
Income from continuing operations
before income tax 3,868 2,863 76,649
Income tax expense 26,357 26,357
---------
Net income $ 50,292
=========
OPERATING SEGMENT INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 2001
---------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
--------- ------------ ------------ ---------
Premiums and policy fees $246,635 $102,355 $14,472
Reinsurance ceded (159,955) (20,348)
--------- --------- --------
Net of reinsurance ceded 86,680 82,007 14,472
Net investment income 84,171 85,565 $129,744 77,859
Realized investment gains (losses) 2,695 24
Other income 425 (52) 1,724
--------- --------- --------- --------
Total revenues 171,276 167,520 132,439 94,079
--------- --------- --------- --------
Benefits and settlement expenses 108,539 113,371 110,500 63,536
Amortization of deferred policy
acquisition costs 22,268 7,341 608 11,318
Amortization of goodwill
Other operating expenses (2,545) 14,605 1,981 11,853
--------- --------- --------- --------
Total benefits and expenses 128,262 135,317 113,089 86,707
--------- --------- --------- --------
Income from continuing operations
before income tax 43,014 32,203 19,350 7,372
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- ----- ----------- ------------
Premiums and policy fees $248,277 $24,403 $636,142
Reinsurance ceded (134,237) (5,865) (320,405)
--------- -------- ---------
Net of reinsurance ceded 114,040 18,538 315,737
Net investment income 23,543 (1,976) 398,906
Realized investment gains (losses) $(1,250) 1,469
Other income 14,780 735 17,612
--------- -------- -------- ---------
Total revenues 152,363 17,297 (1,250) 733,724
--------- -------- -------- ---------
Benefits and settlement expenses 73,604 16,394 485,944
Amortization of deferred policy
acquisition costs 22,502 847 64,884
Amortization of goodwill 1,413 1,413
Other operating expenses 37,191 8,552 71,637
--------- -------- ---------
Total benefits and expenses 134,710 25,793 623,878
--------- -------- ---------
Income from continuing operations
before income tax 17,653 (8,496) 109,846
Income tax expense 37,372 37,372
Loss from discontinued operations,
net of income tax (2,739) (2,739)
Cumulative effect of change in accounting
principle, net of income tax (8,341) (8,341)
---------
Net income $ 61,394
=========
OPERATING SEGMENT INCOME FOR THE
THREE MONTHS ENDED JUNE 30, 2001
-------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
--------- ------------ ------------- ---------
Premiums and policy fees $128,736 $51,410 $ 7,127
Reinsurance ceded (92,764) (12,302)
--------- -------- --------
Net of reinsurance ceded 35,972 39,108 7,127
Net investment income 43,398 44,693 $64,489 40,380
Realized investment gains (losses) 251 (145)
Other income 171 (52) 905
--------- -------- -------- --------
Total revenues 79,541 83,749 64,740 48,267
--------- -------- -------- --------
Benefits and settlement expenses 46,344 55,339 55,036 32,492
Amortization of deferred policy
acquisition costs 14,774 2,776 363 5,430
Amortization of goodwill
Other operating expenses (6,007) 8,605 985 6,038
--------- -------- -------- --------
Total benefits and expenses 55,111 66,720 56,384 43,960
--------- -------- -------- --------
Income from continuing operations
before income tax 24,430 17,029 8,356 4,307
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
Premiums and policy fees $124,817 $12,507 $ 324,597
Reinsurance ceded (68,391) (3,232) (176,689)
--------- -------- ----------
Net of reinsurance ceded 56,426 9,275 147,908
Net investment income 11,637 (333) 204,264
Realized investment gains (losses) $(5,320) (5,214)
Other income 6,644 485 8,153
--------- -------- -------- ----------
Total revenues 74,707 9,427 (5,320) 355,111
--------- -------- -------- ----------
Benefits and settlement expenses 34,846 9,205 233,262
Amortization of deferred policy
acquisition costs 13,545 336 37,224
Amortization of goodwill 706 706
Other operating expenses 17,886 5,846 33,353
--------- -------- ---------
Total benefits and expenses 66,983 15,387 304,545
--------- -------- ---------
Income from continuing operations
before income tax 7,724 (5,960) 50,566
Income tax expense 18,065 18,065
Loss from discontinued operations,
net of income tax (6,275) (6,275)
---------
Net income $ 26,226
=========
OPERATING SEGMENT ASSETS
JUNE 30, 2002
--------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
---------- ------------ ------------ ----------
Investments and other assets $3,710,864 $4,530,570 $4,028,677 $4,893,495
Deferred policy acquisition costs 941,399 406,271 6,015 138,036
Goodwill
----------- ----------- ----------- -----------
Total assets $4,652,263 $4,936,841 $4,034,692 $5,031,531
=========== =========== =========== ===========
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
---------- -------- ----------- ------------
Investments and other assets $1,006,670 $913,867 $117,574 $19,201,717
Deferred policy acquisition costs 146,892 7,425 1,646,038
Goodwill 34,795 348 35,143
----------- --------- --------- ------------
Total assets $1,188,357 $921,640 $117,574 $20,882,898
=========== ========= ========= ============
OPERATING SEGMENT ASSETS
DECEMBER 31, 2001
----------------------------------------------------------------------------
RETIREMENT SAVINGS AND
LIFE INSURANCE INVESTMENT PRODUCTS
LIFE STABLE VALUE
MARKETING ACQUISITIONS CONTRACTS ANNUITIES
--------- ------------ ------------- ---------
Investments and other assets $3,431,441 $4,091,672 $3,872,637 $4,501,667
Deferred policy acquisition costs 829,021 418,268 6,374 128,488
Goodwill
----------- ----------- ----------- -----------
Total assets $4,260,462 $4,509,940 $3,879,011 $4,630,155
=========== =========== =========== ===========
SPECIALTY INSURANCE
PRODUCTS
CORPORATE
CREDIT AND TOTAL
PRODUCTS OTHER ADJUSTMENTS CONSOLIDATED
----------- -------- ------------ ------------
Investments and other assets $1,050,546 $955,984 $109,881 $18,013,828
Deferred policy acquisition costs 142,230 8,302 1,532,683
Goodwill 35,644 348 35,992
----------- --------- --------- ------------
Total assets $1,228,420 $964,634 $109,881 $19,582,503
=========== ========= ========= ============
Financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. In accordance with statutory accounting reporting practices, at June 30, 2002, and for the six months then ended, Protective Life and its life insurance subsidiaries had combined share-owner’s equity of $722.8 million and a net loss of $49.5 million. The net loss was primarily due to the expensing of a reinsurance-ceding commission to acquire, through coinsurance, a block of policies from Conseco Variable Insurance Company and to policy acquisition costs related to current period sales.
As prescribed by Statement of Financial Accounting Standard (“SFAS”) No. 115, certain investments are recorded at their market values with the resulting net unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, recorded as a component of share-owner’s equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect Protective Life’s operations, its reported share-owner’s equity will fluctuate significantly as interest rates change.
Protective Life’s balance sheets at June 30, 2002 and December 31, 2001, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:
JUNE 30 DECEMBER 31
------------ -------------
Total investments $14,455,760 $13,157,623
Deferred policy acquisition costs 1,680,110 1,553,786
All other assets 4,583,488 4,789,297
------------ ------------
$20,719,358 $19,500,706
============ ============
Deferred income taxes $ 124,789 $ 43,774
All other liabilities 18,675,322 17,626,767
------------ ------------
18,800,111 17,670,541
Share-owner's equity 1,919,247 1,830,165
------------ ------------
$20,719,358 $19,500,706
============ ============
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS Nos. 141, "Business Combinations", and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. Protective Life adopted SFAS No. 142 in the first quarter of 2002. Protective Life has performed an impairment test and determined that its goodwill was not impaired at January 1, or June 30, 2002.
The following table illustrates adjusted income from continuing operations before cumulative effect of change in accounting principle as if these pronouncements were adopted as of January 1, 2001:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Adjusted net income:
Income from continuing operations
before cumulative effect of change
in accounting principle $50,292 $32,501 $89,545 $72,474
Add back amortization of goodwill,
net of tax 459 918
------- ------- ------- -------
Adjusted income from continuing
operations before cumulative effect
of change in accounting principle $50,292 $32,960 $89,545 $73,392
======= ======= ======= =======
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective Life does not expect the adoption of SFAS No. 143 to have a material effect on Protective Life’s financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operation accounting is applied. Protective life adopted SFAS No. 144 on January 1, 2002, and the adoption did not have a material effect on Protective Life’s financial position or results of operations.
Protective Life has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective Life excludes the embedded call option’s time value component from each derivative’s total gain or loss. For the three months and six months ended June 30, 2002, total measured ineffectiveness for the fair value hedging relationships and the excluded time value component was insignificant. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.
Protective Life has not designated any hedging relationships as a cash flow hedge.
Protective Life uses certain interest rate swaps, caps, floors, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments of Protective Life. For the three and six months ended June 30, 2002, Protective Life recognized total pre-tax gains of $3.2 million and $4.5 million, respectively, which represents the change in fair value of these derivative instruments.
On its foreign currency swaps, Protective Life recognized a $53.7 million pre-tax gain for the first six months of fiscal 2002 and a $63.0 million pre-tax gain for the quarter while recognizing a $56.8 million foreign exchange pre-tax loss on the related foreign-currency-denominated stable value contracts for the six month period and a $64.2 million pre-tax loss for the quarter. The net change primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net change is reflected in Realized Investment Gains (Losses) – Derivative Financial Instruments in Protective Life’s consolidated condensed statements of income.
Protective Life 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. For the six months ended June 30, 2002, Protective Life recognized a $5.9 million pre-tax gain for the change in the asset swaps’ fair value and recognized a $7.2 million pre-tax loss to separately record the embedded equity options at fair value. For the quarter, Protective life recognized a $2.1 million pre-tax gain for the change in the asset swaps’ fair value and recognized a $2.7 million pre-tax loss to separately record embedded equity options at fair value.
The following table sets forth Protective Life’s comprehensive income for the periods shown:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 50,292 $ 26,226 $ 89,545 $ 61,394
Change in net unrealized gains/losses
on investments (net of income tax:
three months: 2002 - $74,692; 2001 - $(20,668)
six months: 2002 - $31,431; 2001 - $27,249) 138,714 (38,383) 58,372 50,606
Reclassification adjustment for amounts
included in net income (net of income tax:
three months: 2002 - $(2,522); 2001 - $728
six months: 2002 - $(2,821); 2001 - $338) (4,683) 1,353 (5,239) (628)
Transition adjustment on derivative financial
instruments (net of income tax:
six months: 2002 - $2,127) 3,951
--------- --------- --------- ---------
Comprehensive income (loss) $184,323 $(10,804) $142,678 $115,323
========= ========= ========= =========
The following table sets forth supplemental cash flow information for the periods presented below:
SIX MONTHS ENDED
JUNE 30
---------------------------------
2002 2001
---- ----
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reduction of principal on note from ESOP $ 661 $ 342
Acquisitions and bulk reinsurance assumptions
Assets acquired, net of cash 358,897 658,200
Liabilities assumed (489,412) (795,954)
Equity from subsidiary transfer (7,772)
---------- ----------
Net $(130,515) $(145,526)
========== ===========
Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owner’s equity.
On December 31, 2001, PLC completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued certain other remaining Dental Division related operations, primarily other health insurance lines. The results of the operations of the Dental Division as related to Protective Life have been included herein as discontinued operations.
In October 2001, Protective Life completed the acquisition of Inter-State Assurance Company and First Variable Life Insurance Company. The transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their effective date.
Summarized below are the consolidated results of operations for the periods presented below on an unaudited pro forma basis, as if the acquisitions had occurred as of January 1, 2001. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2001
------------------ -----------------
(UNAUDITED) (UNAUDITED)
Total revenues $378,211 $779,936
Net income 29,151 67,244
On June 28, 2002, Protective Life completed its acquisition through coinsurance of a block of traditional life and interest-sensitive life insurance policies from Conseco Variable Insurance Company. In the transaction, Protective Life received approximately $470 million of statutory reserves and paid a ceding commission of approximately $49.5 million.
Protective Life Insurance Company (“Protective Life”) is a wholly-owned subsidiary of Protective Life Corporation (“PLC”), an insurance holding company whose common stock is traded on the New York Stock Exchange under the symbol “PL”. Founded in 1907, Protective Life provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires, “Protective Life” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.
In accordance with General Instruction H(2)(a), Protective Life includes the following analysis with the reduced disclosure format.
Protective Life operates several business segments each having a strategic focus which can be grouped into three general product categories: life insurance, retirement savings and investment products, and specialty insurance products. Protective Life’s operating segments are Life Marketing, Acquisitions, Stable Value Contracts, Annuities and Credit Products. Protective Life also has an additional business segment referred to as Corporate and Other.
This report includes “forward-looking statements” which express expectations of future events and/or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and Protective Life cannot give assurance that such statements will prove to be correct. Please refer to Exhibit 99 herein for more information about factors which could affect future results.
In the conduct of business, Protective Life makes certain assumptions regarding the mortality, persistency, claims, expenses and interest rates, or other factors appropriate to the type of business, it expects to experience in future periods, which are also used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, and various other components of Protective Life’s balance sheet. Protective Life’s actual experience, as well as changes in estimates, are used to prepare Protective Life’s statements of income. The calculations Protective Life uses to estimate various components of its balance sheet and statement of income are necessarily complex and involve large amounts of data. Assumptions and estimates involve judgement and by their nature are imprecise and subject to changes and revision over time. Accordingly, Protective Life’s results may be affected, positively or negatively, from time to time, by actual results differing from assumptions, by changes in estimates, and by changes arising from implementing more sophisticated administrative systems and procedures that are capable of calculating more precise estimates.
The following discussion and analysis primarily relates to the six months ended June 30, 2002, as it compares to the same period last year. Unless otherwise noted, the general factors discussed also apply to the quarter ended June 30, 2002, as it compares to the same quarter last year. Where needed for a more complete understanding of Protective Life’s operating results, information related to the quarters ended June 30, 2002, and June 30, 2001, has been provided.
Protective Life’s results may fluctuate from period to period due to fluctuations in mortality, persistency, claims, expenses, interest rates, and other factors. Therefore, it is management’s opinion that quarterly operating results for an insurance company are not necessarily indicative of results to be achieved in future periods, and that a review of operating results over a longer period is necessary to assess an insurance company’s performance.
The following table sets forth revenues by source for the period shown:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Premiums and policy fees, net $184,683 $147,908 $368,451 $315,737
Net investment income 241,315 204,264 473,787 398,906
Realized investment gains (losses)
Derivative financial instruments 1,467 (3,133) 149 503
All other investments 7,205 (2,081) 8,060 966
Other income 12,087 8,153 20,701 17,612
--------- --------- --------- ---------
$446,757 $355,111 $871,148 $733,724
========= ========= ========= =========
Premiums and policy fees, net of reinsurance ceded, increased $52.7 million or 16.7% in the first six months of 2002 over the six months of 2001. Premiums and policy fees in the Life Marketing segment decreased $0.5 million in the first six months of 2002 as compared to the same period in 2001 due to a higher amount of reinsurance ceded. Premiums and policy fees in the Acquisitions segment are expected to decline with time (due to the lapsing of policies resulting from death of insureds or terminations of coverage) unless new acquisitions are made. In October 2001, Protective Life acquired Inter-State Assurance Company (“Inter-State”) and First Variable Life Insurance Company (“First Variable”) from ILona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc. This acquisition resulted in a $33.6 million increase in premium and policy fees. Premium and policy fees from a January 2001 acquisition increased $6.1 million. Premiums and policy fees related to older acquired blocks decreased $1.4 million in the first six months of 2002 as compared to the same period last year. The decrease in premiums and policy fees from the Annuities segment was $1.0 million. Premiums and policy fees related to the Credit Products segment increased $16.3 million in the first six months of 2002 as compared to the first six months of 2001 due to a lower amount of reinsurance ceded. There was no material change in premiums and policy fees relating to the various insurance lines in the Corporate and Other segment.
Net investment income in the first six months of 2002 increased by $74.9 million or 18.8% higher than the corresponding period of the preceding year primarily due to an increase in the average amount of invested assets. The October 2001 acquisitions resulted in an increase in investment income of $21.7 million.
Protective Life generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. The sales of investment that have occurred have resulted principally from portfolio management decisions to maintain approximate matching of assets and liabilities. Accordingly, Protective Life has classified its fixed maturities and certain other securities as “available for sale.”
Realized investment gains related to derivative financial instruments were $0.1 million for the first six months of 2002 compared to gains of $0.5 million in the same period of 2001. Realized investment gains related to all other investments were $8.1 million for the first six months of 2002 compared to a gain of $1.0 million for the corresponding period of 2001.
Other income consists primarily of revenues from Protective Life’s direct response business, service contract business, non-insurance subsidiaries and rental of space in its administrative building to PLC. In the first six months of 2002 as compared to the same period of 2001, revenues from Protective Life’s service contract business increased $1.8 million. Income from other sources increased $1.3 million.
The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:
OPERATING INCOME (LOSS) AND INCOME (LOSS) BEFORE INCOME TAX
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Operating Income (Loss) (1)
Life Insurance
Life Marketing $26,775 $24,430 $ 48,564 $ 43,014
Acquisitions 20,483 17,029 44,072 32,203
Retirement Savings and Investment Products
Stable Value Contracts 10,287 8,105 19,515 16,655
Annuities 4,653 4,307 9,316 7,372
Specialty Insurance Products
Credit Products 3,868 7,724 12,534 17,653
Corporate and Other 2,863 (5,960) (8,268) (8,496)
-------- -------- --------- ---------
Total operating income 68,929 55,635 125,733 108,401
-------- -------- -------- ---------
Realized Investment Gains (Losses)
Stable Value Contracts (265) 251 256 2,695
Annuities 2,855 (145) 3,237 24
Unallocated Realized Investment Gains (Losses) 6,082 (5,320) 4,716 (1,250)
Related Amortization of Deferred Policy
Acquisition Costs
Annuities (952) 145 (1,319) (24)
-------- --------- --------- ---------
Total net 7,720 (5,069) 6,890 1,445
-------- --------- --------- --------
Income (Loss) Before Income Tax
Life Insurance
Life Marketing 26,775 24,430 48,564 43,014
Acquisitions 20,483 17,029 44,072 32,203
Retirement Savings and Investment Products
Stable Value Contracts 10,022 8,356 19,771 19,350
Annuities 6,556 4,307 11,234 7,372
Specialty Insurance Products
Credit Products 3,868 7,724 12,534 17,653
Corporate and Other 2,863 (5,960) (8,268) (8,496)
Unallocated Realized Investment Gains (Losses) 6,082 (5,320) 4,716 (1,250)
-------- -------- --------- ---------
Total income before income tax $76,649 $50,566 $132,623 $109,846
======== ======== ========= =========
(1) Income from continuing operations before income tax excluding realized investment gains and losses and related amortization of
deferred policy acquisition costs.
The Life Marketing segment’s pretax operating income was $48.6 million in the first six months of 2002 compared to $43.0 million in the same period of 2001. The increase is primarily attributable to growth through sales. In addition, the segment had a favorable expense variance during the current quarter compared to an unfavorable variance during the same quarter of 2001, which was partially offset by less favorable mortality.
During the second quarter of 2002, Protective Life discovered that the rates payable for reinsurance with respect to certain universal life policies in its Life Marketing segment were incorrectly entered into Protective Life’s reinsurance administrative systems in 1991. As a result, Protective Life has overpaid the reinsurance premiums related to such policies over a period of ten years beginning in 1992. After an internal review, Protective Life notified the reinsurance companies receiving the overpayments and is seeking return of the amounts overpaid. Protective Life believes that it is entitled to return of the amounts overpaid. However, the ultimate amount and timing of such recoveries cannot currently be determined, and as a result, no receivable was recorded with respect to such amounts as of June 30, 2002. While no assurance can be given as to the amount or timing of any such recovery, if all amounts Protective Life believes are due are recovered, Protective Life would receive reimbursements of approximately $62 million, after the payment of income taxes.
Protective Life believes that the amounts ultimately recovered will be largely offset by amortization of deferred policy acquisition costs, and that recoveries, net of amortization and income taxes, will be recorded in the periods in which the amounts are determinable. While Protective Life believes that no prior period was materially misstated and that no operating trends were materially affected as a result, the recovery of such amounts could cause Protective Life to restate past financial results to increase previously reported net income by amounts that are immaterial in each prior period for which earnings are restated. Protective Life is unable to determine the proper method of accounting for any such recoveries until the amounts and the timing of the recoveries can be determined.
While Protective Life believes it is entitled to return of the amounts overpaid, should a significant portion not be recovered, Protective Life could consequently be required to accelerate the amortization of the segment’s deferred policy acquisition costs.
Pretax operating income from the Acquisitions segment was $44.1 million in the first six months of 2002, an increase of $11.9 million from the first six months of 2001. Earnings from the Inter-State and First Variable acquisitions contributed $7.7 million in the first six months of 2002. Operating income related to a block of business coinsured in early 2001 increased $1.8 million in the first six months of 2002 as compared to the same period in 2001.
The Stable Value Contracts segment had pretax operating income of $19.5 million in the first six months of 2002 as compared to $16.7 million in the corresponding period of 2001. The increase is due to an increase in account balances and a widening of operating spreads.
The Annuities segment’s pretax operating income for the first six months of 2002 was $9.3 million as compared to $7.4 million in the first six months of 2001. The increase reflects the segment’s growth through sales.
The segment’s future results may be negatively affected by the economy. Lower interest rates could negatively affect sales of fixed annuities. Volatile equity markets could negatively affect sales of variable annuities. Declines in the equity markets decreases the fees the segment assesses on variable annuity contracts and increase the cost of providing minimum death benefit guarantees. The segment’s variable annuity products generally contain provisions that guarantee a minimum level of an annuity’s account value at the time of the contract holder’s death. Protective life paid approximately $2.0 million of guaranteed minimum death benefits in the first six months of 2002. Sharp or prolonged declines in the equity markets can also accelerate the amortization of deferred policy acquisition costs and, accordingly, reduce reported results in the future.
The Credit Products segment had pretax operating income of $12.5 million in the first six months of 2002 as compared to $17.7 million for the same period in 2001. The decrease was attributable to lower sales volume and negative claims experience in the current period. The segment has also experienced losses in several ancillary lines of business. Protective Life is taking action to curtail sales in several of these lines, but does not expect improvement in the results of these lines over the next several quarters. Included in the segment’s pretax income for 2002 was $2.7 million of income related to the sale of the inactive charter of a small subsidiary.
The segment has also experienced much higher claims than expected in certain blocks of its vehicle service contract business in recent quarters. Vehicle service contracts represent approximately 40% of the segment’s sales. Protective Life has raised the rates in its vehicle service contract business in an effort to achieve an appropriate level of profitability in this line of business. Protective Life is monitoring the level of policy liabilities and accruals established to cover future claims in this line of business. An increase in accruals, and a reduction in the segment’s earnings, could be required in future periods if such claims trends persist.
Weakness in the overall economy is expected to continue to negatively impact the segment’s sales and may also contribute to higher levels of claims. Lower levels of consumer lending and lower automobile sales could negatively affect the segment’s sales and earnings. Also, the level of claims in this segment generally increases in a slowing economy.
The Corporate and Other segment consist primarily of net investment income on capital, interest expense on all debt, and various other items not associated with the other segments. The segment had a pretax operating loss of $8.3 million in the first six months of 2002 as compared to a pretax operating loss of $8.5 million in the first six months of 2001.
The following table sets forth the effective tax rates for the periods shown:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ----
Estimated Effective Income tax rates 34.4% 35.7% 32.5% 34.0%
The effective income tax rate for the full year of 2001 was 32.9%. Management's estimate of the effective income tax rate for 2002 is between 33% and 34%.
The following table sets forth net income from continuing operations before cumulative effect of change in accounting principle for the periods shown:
THREE MONTHS ENDED SIX MONTHS ENDED
NET INCOME JUNE 30 JUNE 30
---------- ------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Total (in thousands) $50,292 $26,226 $89,545 $61,394
Compared to the same period in 2001, net income from continuing operations before cumulative effect of change in accounting principle in the first six months of 2002 increased $28.2 million, reflecting improved operating earnings in the Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Corporate and Other segments offset by lower operating results in the Credit Products segment.
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. Protective Life does not expect the adoption of SFAS No. 143 to have a material effect on Protective Life’s financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operation accounting is applied. The Company adopted SFAS No. 144 on January 1, 2002, and the adoption did not have a material effect on the Company’s financial position or results of operations.
The table below sets forth future maturities of debt and stable value contracts.
(in thousands) 2002 2003-2004 2005-2006 After 2006
-------------- ---- ---------- --------- ----------
Stable Value Contracts $562,857 $1,930,342 $1,211,862 $373,702
Notes Payable 2,277
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99 - Safe Harbor for Forward-Looking Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Protective Life Insurance Company | |||
|---|---|---|---|
| Date: | August 14, 2002 | /s/ Jerry W. Defoor | |
| Jerry W. DeFoor | |||
| Vice President and Controller | |||
| and Chief Accounting Officer | |||
| (Duly authrorized officer) |