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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996 Commission File No. 0-18298
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UNITRIN, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4255452
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
One East Wacker Drive
Chicago, Illinois 60601
(Address of Principal Executive Offices) (Zip Code)
(312) 661-4600
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par Value
Preferred Share Purchase Rights Pursuant to Rights Agreement
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Based on the closing market price of Registrant's common stock on December
31, 1996, the aggregate market value of such stock held by non-affiliates of
Registrant is approximately $1.46 billion. Solely for purposes of this
calculation, all executive officers and directors of Registrant are considered
affiliates.
Registrant had 37,340,894 shares of common stock outstanding as of December 31,
1996.
Documents Incorporated by Reference
Part of the Form 10-K
into which incorporated
Document
Portions of 1996 Annual Report to Shareholders Parts I, II and IV
Portions of Proxy Statement for 1997 Annual Meeting Part III
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PART I
ITEM 1. Business
Unitrin, Inc. ("Unitrin" or the "Company") serves the basic financial needs
of individuals, families and small businesses. Through its subsidiaries, Unitrin
provides property and casualty insurance, life and health insurance, and
consumer finance services.
(a) General development of business
-------------------------------
During 1996, Unitrin repurchased and retired 1,277,175 shares of its common
stock in open market transactions at a total cost of $61.1 million, bringing the
total number of shares that have been repurchased since August 1994 to
approximately 14.8 million at a total cost of $722 million. Unitrin's board of
directors has authorized a total of 18 million shares to be repurchased.
Effective May 31, 1996, United Insurance Company of America ("United"), one
of the Company's subsidiaries, entered into an agreement to cede certain life
insurance policies to a third party. Life insurance reserves related to this
block were approximately $112 million at December 31, 1996. At such date,
United had not been relieved of its primary obligation to these policyholders
and, under applicable accounting requirements, the Company therefore continues
to include the life insurance reserves related to this block of business on its
balance sheet, along with a corresponding amount classified as "Other
Receivables." As a result of this transaction, premiums in the Company's Life
and Health Insurance segment decreased by $7.3 million in 1996 and will decrease
by an additional $6 million in 1997. The effect of this transaction on the
segment's operating profit is not material.
Effective as of January 1, 1997, Unitrin acquired Union Automobile
Indemnity Company ("Union") of Bloomington, Illinois, a property and casualty
insurance company with annual direct written premiums of approximately $35
million.
(b) Business segment financial data
-------------------------------
Financial information about the Company's business segments for the years
ended December 31, 1996, 1995 and 1994 is contained in the following portions of
Unitrin's 1996 Annual Report and incorporated herein by reference: (i) Note 16
to the Company's Consolidated Financial Statements, which Financial Statements
are further described in Item 14(a)1 hereto and filed as Exhibit 13.1 hereto
(the "Financial Statements"), and (ii) "Management's Discussion and Analysis of
Results of Operations and Financial Condition," which is filed as Exhibit 13.2
hereto (the "MD&A").
(c) Description of business
-----------------------
Unitrin conducts its operations in three segments: Property and Casualty
Insurance, Life and Health Insurance and Consumer Finance. Unitrin and its
subsidiaries have approximately 7,400 full-time employees of which approximately
5,000 are employed in the Life and Health Insurance segment, 1,700 in the
Property and Casualty Insurance segment and 600 in the Consumer Finance segment.
1
Property and Casualty Insurance
-------------------------------
Trinity Universal Insurance Company ("Trinity"), together with its
subsidiaries, affiliates and Union (collectively, the "Property and Casualty
Group") comprise a network of regional insurers operating in the southern,
midwestern and western United States. The Property and Casualty Group provides
insurance coverage to over 775,000 policyholders in thirty-two states. Taking
the acquisition of Union into account, the five states providing the largest
amount of premium revenues are: Texas (27%), California (13%), Wisconsin (9%),
Illinois (8%), and Louisiana (6%).
Property insurance indemnifies an insured with an interest in physical
property for loss of such property or the loss of its income-producing
abilities. Casualty insurance primarily covers liability for damage to property
of, or injury to, a person or entity other than the insured.
Products and Distribution
The Property and Casualty Group provides automobile, homeowners, commercial
multi-peril, motorcycle, boat and watercraft, fire, casualty, workers
compensation and other types of property and casualty insurance to individuals
and businesses. Automobile insurance accounted for 37%, 33% and 32% of
Unitrin's consolidated insurance premiums for the years ended December 31, 1996,
1995 and 1994 respectively.
Preferred and Standard Risk Insurance Products. Preferred and standard
risk insurance products are marketed exclusively by over 2,600 independent
agents. These personal and commercial products are designed and priced for
those individuals and businesses that have demonstrated favorable risk
characteristics and loss history. Typical customers include "main street"
businesses and middle income families. Products are marketed primarily in
suburban and rural communities. Trinity and its subsidiaries (Milwaukee
Guardian Insurance, Inc., Milwaukee Safeguard Insurance Company, Security
National Insurance Company, and Trinity Universal Insurance Company of Kansas,
Inc.) and its affiliates (Milwaukee Mutual Insurance Company and Trinity Lloyd's
Insurance Company) principally provide the Property and Casualty Group's
preferred and standard products in Texas, Wisconsin, Illinois, Louisiana,
Minnesota and other southern, midwestern and northwestern states. In addition,
Unitrin's most recent acquisition, Union, will market the Group's products in
Illinois and adjacent states beginning in 1997.
Specialty Products. Specialty products are principally provided by
Financial Indemnity Company and Alpha Property & Casualty Insurance Company and
include nonstandard automobile, motorcycle, and specialty watercraft insurance.
Nonstandard automobile insurance is provided for individuals and companies that
have had difficulty obtaining standard or preferred risk insurance, usually
because of their driving record. Nonstandard automobile insurance products are
marketed through over 4,600 agents in California and twenty other states.
Storm Losses/Seasonality.
Geographic location can have an impact on a property insurer's exposure to
losses from hazards such as hurricanes, tornadoes, windstorms and hail.
Moreover, these storms add an element
2
of seasonality to property insurance claims, since windstorms and tornadoes tend
to occur in the spring of the year, while hurricanes generally occur in the
summer and fall. Historically, the Property and Casualty Group wrote a sizable
portion of its business in Texas, the plains states and certain coastal areas
that are storm-prone. In recent years, the Property and Casualty Group has
endeavored to reduce its vulnerability to storm losses through a combination of
geographic expansion outside of these areas and reduced concentration of
business in storm-prone areas.
Pricing
Pricing levels for property and casualty insurance are influenced by many
factors, including the frequency and severity of claims, state regulation and
legislation, competition, general business conditions, inflation, expense levels
and judicial decisions. In addition, many state regulators are requiring
consideration of investment income when approving or setting rates, which has
led to reduced underwriting margins.
Reinsurance
In accordance with the practice of the insurance industry, the Company
cedes insurance to other insurers. These reinsurance arrangements limit the
Company's exposure arising from large risks or from hazards of a catastrophic
nature. Although such reinsurance does not discharge the Company from its
obligations on risks insured, so long as reinsurers meet their obligations, the
Company's net liability is limited to the amount of risk it retains.
Competition
Based on the most recent data published by A.M. Best Company ("A.M. Best"),
at the end of 1995 there were approximately 1,200 property and casualty
insurance organizations in the United States, made up of more than 2,400
companies. Unitrin's Property and Casualty Group ranked among the 100 largest
property and casualty insurance company organizations in the United States,
measured by admitted assets (73rd), net premiums written (62nd) and
policyholders' surplus (52nd).
In 1995, the industry's estimated net premiums written were $260 billion,
72% of which were accounted for by 50 groups of companies. Unitrin's property
and casualty insurance companies together wrote less than 1% of the industry's
estimated 1995 premium volume.
Profitability of the property and casualty insurance industry is cyclical,
particularly with respect to commercial lines. Periods of severe price
competition and excess capacity to write new business tend to be followed by
periods of premium increases and diminished capacity to provide coverage.
Life and Health Insurance
-------------------------
Unitrin conducts its life and health insurance business through United and
United's subsidiaries, Union National Life Insurance Company and The Pyramid
Life Insurance Company (collectively, the "Life and Health Group"). The leading
product of the Life and Health Group is traditional life insurance, including
permanent and term insurance. This product accounted for 28%, 32% and 32% of
Unitrin's consolidated insurance premiums for the years ended December 31, 1996,
3
1995 and 1994, respectively. Permanent policies are offered primarily on a non-
participating, guaranteed-cost basis.
Home Service Insurance Products
United, together with its subsidiary, Union National Life Insurance
Company, is one of the largest home service insurance operations in the United
States (see: "Competition," below). In the "home service" market, agents who
are full-time employees of the insurer call on customers in their homes to sell
insurance products, provide services related to policies in force and collect
premiums, typically monthly. The Life and Health Group's home service operations
generated 81% of the Group's premiums in 1996.
The major market for home service business generally consists of middle and
lower income families. Approximately 3,700 of the Life and Health Group's 5,000
employees are full-time sales representatives and sales management personnel
engaged in the home service business.
The Life and Health Group also distributes property and casualty insurance
products to its home service customers through United Casualty Insurance Company
of America and Union National Fire Insurance Company
Group Life and Health Insurance Products
United's Group Division specializes in fully insured and stop loss group
life and health insurance, as well as administrative services for medium-sized
businesses and organizations. Its nearly 250 brokers and independent agents are
concentrated in the western states.
Worksite Insurance Products
United's Worksite Products Division specializes in employer-paid and
voluntary group and individual life insurance products and Section 125
administration programs. It provides such products on behalf of employers,
financial institutions, credit unions, and banks to their employees, members,
and customers.
Medicare Supplement and Other Health Insurance Products
United's subsidiary, The Pyramid Life Insurance Company, focuses primarily
on selling insurance to the senior market. Its products include Medicare
supplement, long-term care, home health care, major medical, and supplemental
health insurance. Products are marketed in 22 states through over 3,000
independent agents and agencies. Medicare supplement insurance is also marketed
through hospital networks.
Pricing
Premiums for life and health insurance products are based on assumptions
with respect to mortality, morbidity, investment yields, expenses and lapses and
are also affected by state laws and regulations, as well as competition.
Pricing assumptions are based on the experience of the Life and Health Group, as
well as the industry in general, depending upon the factor being considered.
4
The actual profit or loss produced by a product will vary from the anticipated
profit if the actual experience differs from the assumptions used in pricing the
product.
Premiums for policies sold through the Life and Health Group's home service
operations are set at levels designed to cover the relatively high cost of
distribution in the home service market. As a result of such higher expenses,
incurred claims as a percentage of premium income tend to be lower for home
service companies than the insurance industry average.
Premiums for Medicare supplement and other accident and health policies
must take into account the rising costs of medical care. The annual rate of
medical cost inflation has historically been higher than the general rate of
inflation, necessitating frequent rate increases, most of which are subject to
approval by state regulatory agencies. The rate of medical care inflation has
moderated in the recent past, though there can be no assurances that such
moderation will continue.
Reinsurance
As is customary among life and health insurance companies, the Life and
Health Group cedes insurance above certain Company-determined retention limits
to other insurance companies to limit losses on risks. The Life and Health
Group's maximum retention for individual life insurance policies is $250,000,
plus an additional $100,000 for policies with accidental death or dismemberment
benefits. Retention limits for group policies vary depending on the type of
policy. Under any reinsurance arrangement, should the reinsurer be unable to
meet the obligations it assumes, the ceding insurance company remains
contingently liable with respect to the ceded insurance.
Lapse Ratio
The lapse ratio is a measure reflecting a life insurer's loss of existing
business. For a given year, this ratio is commonly computed as the total face
amount of individual life insurance policies lapsed, surrendered, expired and
decreased during such year, less policies increased and revived during such
year, divided by the total face amount of policies at the beginning of the year
plus the face amount of policies issued and reinsurance assumed in the prior
year. The Life and Health Group's lapse ratios for individual life insurance
were 19%, 18% and 20% for the years 1996, 1995 and 1994, respectively.
The lapse ratios of companies in the home service market tend to be higher
than the lapse ratios of other life insurance companies. Thus, to maintain or
increase the level of its home service business, the Life and Health Group's
home service operations must continue to write a high volume of new policies.
Competition
Based on the most recent data published by A.M. Best, in 1995, there were
approximately 660 life and health insurance company groups in the United States,
made up of about 1,200 companies. Unitrin's Life and Health Group ranked among
the 100 largest life and health insurance company groups, as measured by
admitted assets (89th), net premiums written (94th) and capital and surplus
(40th).
5
Approximately 70 life insurance companies participate in the home service
life insurance market in the United States. In 1995, the Life and Health Group's
home service operations ranked among the top three home service groups of
companies, based on net premiums written in home service life insurance.
Consumer Finance
----------------
Unitrin is engaged in the consumer finance business through its subsidiary,
Fireside Thrift Co. ("Fireside Thrift"), which has 38 branches in California and
Arizona.
Fireside Thrift is organized under California law as an industrial loan
company and is a member of the Federal Deposit Insurance Corporation ("FDIC").
Industrial loan companies are sometimes also referred to as thrift and loan
companies, and are distinct from both savings and loan associations and banks.
(See also, "Regulation," below.)
Fireside Thrift's principal business is the financing of used automobiles
through the purchase of conditional sales contracts from automobile dealers.
Fireside Thrift also makes personal loans, mostly secured by automobiles. The
borrowers under these contracts and loans typically have marginal credit
histories. Fireside Thrift competes for loans primarily on the basis of timely
service to its customers and by offering flexible loan terms. Principal
competitors include banks, finance companies, "captive" credit subsidiaries of
automobile manufacturers and other industrial loan companies.
Fireside Thrift's financing activities are funded primarily by thrift
investment certificates (i.e., interest-bearing instruments that may be redeemed
by the owner or repurchased by Fireside Thrift under certain circumstances)
ranging from thirty-one days to five years in maturity, money market accounts
and Individual Retirement Accounts ("IRAs"). It competes for funds primarily
with banks, savings and loan associations and other industrial loan companies.
Investments
-----------
The quality, nature and amount of various types of investments which can be
made by insurance companies are regulated by state laws. These laws permit
investments in qualified assets, including municipal, state and federal
government obligations, corporate bonds, real estate, preferred and common
stocks, and mortgages where the value of the underlying real estate exceeds the
amount of the loan.
Unitrin's investment strategy is based on current market conditions and
other factors that it reviews from time to time. Unitrin's consolidated
investment portfolio consists primarily of United States Government obligations
and investment-grade fixed maturities. The Company's investment in non-
investment grade, fixed maturity investments is insignificant.
Regulation
----------
Unitrin is subject to the insurance holding company laws of several states.
Certain dividends and distributions by an insurance subsidiary to its holding
company are subject to approval by the
6
insurance regulators of the state of incorporation of such subsidiary. Other
significant transactions between an insurance subsidiary and its holding company
or other subsidiaries of the holding company may require approval by insurance
regulators in the state(s) of incorporation of one or more of the insurance
subsidiaries participating in such transactions.
Unitrin's insurance subsidiaries are subject to regulation in the states in
which they do business. Such regulation pertains to matters such as approving
policy forms and various premium rates, setting minimum reserve and loss ratio
requirements, the type and amount of permissible investments, minimum capital
and surplus requirements, licensing agents, granting and revoking licenses to
transact business and regulating trade practices. The majority of Unitrin's
insurance operations are in states requiring prior approval by regulators before
proposed rates for property, casualty or health insurance policies may be
implemented. However, rates proposed for life insurance generally become
effective immediately upon filing with a state, even though the same state may
require prior rate approval for other forms of insurance. Insurance regulatory
authorities also prescribe the form and content of required financial statements
and perform periodic examinations of an insurer's affairs.
In addition, the Company's insurance subsidiaries are required under the
guaranty fund laws of most states in which they transact business to pay
assessments up to prescribed limits to fund policyholder losses or liabilities
of insolvent insurance companies. The Company also is required to participate
in various involuntary pools, principally involving workers compensation and
windstorms. The Company's involuntary pool participation in most states is
generally in proportion to its voluntary writings of related lines of business
in such states.
Fireside Thrift is chartered by the California Department of Corporations
and is subject to the provisions of the California Industrial Loan Law, which
imposes minimum capitalization requirements, limits dividends, regulates loan
terms, collection practices and remedies and mandates disclosure of certain
contract terms. In addition, since Fireside Thrift is a member of the FDIC, it
is subject to regulations imposed by the FDIC on member institutions, including
federal consumer credit regulations. Fireside Thrift is also governed by
Federal Reserve Board regulations applicable to non-member state banks.
ITEM 2. Properties
Owned Properties.
Unitrin's subsidiary, United, owns the 41-story office building at One East
Wacker Drive, Chicago, Illinois, that houses the executive offices of Unitrin
and United. Unitrin and United occupy approximately 172,000 square feet of the
527,000 rentable square feet in the building. Unitrin's subsidiary, Milwaukee
Insurance Group, Inc., owns a two-story office building in downtown Milwaukee,
Wisconsin, consisting of approximately 132,000 square feet, which houses the
Property and Casualty Group's northern regional office. In addition, the Life
and Health Group occupies approximately 227,000 square feet in 33 Company-owned
buildings located in 15 states.
7
Leased Facilities.
The Life and Health Group leases facilities at 204 locations in 28 states
and the District of Columbia with aggregate square footage of approximately
526,000. The terms of these leases range from monthly tenancies to 5 years.
The Property and Casualty Group leases facilities at 28 locations in 12
states with an aggregate of approximately 328,000 square feet. The expiration
date of the longest current lease is September 2006.
Fireside Thrift occupies 40 leased facilities with an aggregate of
approximately 130,000 square feet. The longest term of the current leases
expires in August 2001.
The properties described are in good condition and suitable for all
presently anticipated requirements of the Company.
ITEM 3. Legal Proceedings
Unitrin and its subsidiaries are parties to various legal actions
incidental to their businesses. Some of these actions seek substantial punitive
damages that bear no apparent relationship to the actual damages alleged.
Although no assurances can be given and no determination can be made as of the
date hereof as to the outcome of any particular action, the Company and its
subsidiaries believe there are meritorious defenses to these legal actions and
are defending them vigorously. Unitrin believes that resolution of these
actions will not have a material adverse effect on Unitrin's financial position.
In connection with one action, Ronnie Dale Bleeker v. Trinity Universal
Insurance Company et al., the District Court of Hildalgo County, Texas, on
February 9, 1995 entered a judgment in the amount of $77.0 million, including
attorney's fees of $38.5 million, against Trinity. The case involves Trinity's
alleged improper handling of a claim made under a $40 thousand automobile
insurance policy. Trinity has strongly denied any wrongdoing and intends to
pursue vigorously all avenues for relief from the judgment. The matter is
presently on appeal to the Thirteenth Court of Appeals in Corpus Christi, Texas.
The ultimate outcome of this litigation cannot presently be predicted. However,
the Company believes that Trinity has a number of meritorious grounds for
appeal, and, accordingly, the judgment has not been accrued in the Company's
financial statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1996, no matters were submitted to a
vote of shareholders.
8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Unitrin's common stock is traded on the National Market Tier of the Nasdaq
Stock Market. The high and low prices for Unitrin's common stock during each
quarterly period in 1995 and 1996 are incorporated herein by reference to Note
19 to the Financial Statements, captioned "Quarterly Financial Information
(Unaudited)."
Information as to the amount and frequency of cash dividends declared by
Unitrin on its common stock during 1995 and 1996 is incorporated herein by
reference to the following portions of the Financial Statements:
(a) Consolidated Statements of Shareholders' Equity, and
(b) Dividends Paid to Common Shareholders (Per Share) included in Note 19
under the caption "Quarterly Financial Information (Unaudited)."
Information as to restrictions on the ability of Unitrin's subsidiaries to
transfer funds to Unitrin in the form of cash dividends, loans or advances is
incorporated herein by reference to the following items:
(a) Note 9 to the Financial Statements, captioned "Shareholders' Equity,"
and
(b) The "Liquidity and Capital Resources" section of the MD&A.
As of December 31, 1996, the approximate number of record holders of
Unitrin's common stock was 10,000.
ITEM 6. Selected Financial Data
Selected consolidated financial data for the five years ended December 31,
1996 is incorporated herein by reference to the data captioned "Financial
Highlights" on page 1 of Unitrin's 1996 Annual Report, which data are filed as
Exhibit 13.3 hereto.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The MD&A is incorporated herein by reference to Exhibit 13.2 hereto.
Effective January 1, 1997, United entered into an agreement to cede all in-
force life, health, property and casualty insurance policies written by the Life
and Health Group's home service operations in the states of Arkansas and
Missouri to a third party. As a result of this transaction, annual premium
income will decrease by approximately $10.8 million in the Company's Life and
9
Health segment and by $3.2 million in the Property and Casualty segment. The
effect of this transaction on operating profit is not material.
ITEM 8. Financial Statements and Supplementary Data
The Financial Statements (including their related notes and the report
thereon of KPMG Peat Marwick LLP), are incorporated herein by reference to
Exhibit 13.1 hereto.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There was no change in, or disagreement with, the Company's accountants
during or relating to the year ended December 31, 1996.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers, including, to the
extent applicable, information required by Item 405 of Regulation S-K, is
incorporated herein by reference to Unitrin's definitive proxy statement, which
will be filed within 120 days after the end of Unitrin's fiscal year.
ITEM 11. Executive Compensation
Information regarding compensation of executive officers is incorporated
herein by reference to Unitrin's definitive proxy statement, which will be filed
within 120 days after the end of Unitrin's fiscal year. Neither the joint
report by the Compensation and Stock Option Committees of Unitrin's Board of
Directors nor the Unitrin stock performance graph to be included in such proxy
statement shall be deemed to be incorporated herein by this reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated herein by reference to Unitrin's
definitive proxy statement, which will be filed within 120 days after the end of
Unitrin's fiscal year.
ITEM 13. Certain Relationships and Related Transactions
This information is incorporated herein by reference to Unitrin's
definitive proxy statement, which will be filed within 120 days after the end of
Unitrin's fiscal year.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report:
10
1. Financial Statements. The following financial statements, in response
to Item 8 of this Report on Form 10-K, have been incorporated herein by
reference to pages 19 through 39 of Unitrin's 1996 Annual Report and are
filed as Exhibit 13.1 hereto:
The consolidated balance sheets of Unitrin, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the consolidated statements of income,
cash flows and shareholders' equity for the years ended December 31,
1996, 1995 and 1994, together with the notes thereto and the report of
KPMG Peat Marwick LLP thereon, which is dated January 7, 1997.
2. Financial Statement Schedules.
------------------------------
Schedule I: Investments - Other Than Investments in Related Parties
Schedule II: Parent Company Financial Statements
Schedule III: Supplementary Insurance Information
Schedule IV: Reinsurance Schedule
Schedules not listed here have been omitted because they are not
applicable, not material or the required information is included in the
Financial Statements, including the notes thereto.
3. Exhibits. The following exhibits are either filed as a part hereto or
are incorporated by reference. Exhibit numbers correspond to the
numbering system in Item 601 of Regulation S-K. Exhibits 10.1 through
10.5 relate to compensatory plans filed or incorporated by reference as
exhibits hereto pursuant to Item 14(c) of Form 10-K.
3.1 Certificate of Incorporation (incorporated herein by reference to
Exhibit 3.1 to Unitrin's Registration Statement on Form 10 dated
February 15, 1990)
3.2 Amended and Restated By-Laws (incorporated herein by reference to
Exhibit 3.2 to the Company's 1994 Annual Report on Form 10-K)
4 Rights Agreement between Unitrin, Inc. and First Chicago Trust
Company of New York, as rights agent, dated as of August 3, 1994
(incorporated herein by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated August 3, 1994)
10.1 Unitrin, Inc. 1990 Stock Option Plan, as amended and restated
(incorporated herein by reference to Exhibit 10.1 to the Company's
1995 Annual Report on Form 10-K)
10.2 Unitrin, Inc. 1995 Non-Employee Director Stock Option Plan
(incorporated herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995)
10.3 Unitrin, Inc. Pension Equalization Plan (incorporated herein by
reference to Exhibit 10.4 to the Company's 1994 Annual Report on
Form 10-K)
11
10.4 Unitrin is a party to individual severance agreements (the form of
which is incorporated herein by reference to Exhibit 10.5 to the
Company's 1994 Annual Report on Form 10-K), with the following
executive officers:
Jerrold V. Jerome (Chairman)
Richard C. Vie (President and Chief Executive Officer)
David F. Bengston (Vice President)
James W. Burkett (Vice President)
Thomas H. Maloney (Vice President & General Counsel)
Eric J. Draut (Chief Financial Officer and Treasurer)
Scott Renwick (Secretary)
(Note: Each of the foregoing agreements is identical except that
the severance compensation multiple is 2.99 for Messrs. Jerome and
Vie and 2.0 for the other executive officers. The term of these
agreements has been extended by action of Unitrin's board of
directors through December 31, 1997.)
10.5 Severance Compensation Plan After Change of Control (incorporated
herein by reference to Exhibit 10.6 to the Company's 1994 Annual
Report on Form 10-K; the term of this plan has been extended by
action of Unitrin's board of directors through December 31, 1997)
10.6 Credit Agreement, dated January 24, 1995 among Unitrin, Inc.,
NationsBank, N.A. (Carolinas), The First National Bank of Chicago
and First Interstate Bank of California (incorporated herein by
reference to Exhibit 10.7 to the Company's 1994 Annual Report on
Form 10-K)
10.7 First Amendment to Credit Agreement among Unitrin, Inc.,
NationsBank, N.A. (Carolinas), The First National Bank of Chicago,
First Interstate Bank of California, The Fuji Bank, Limited, Union
Bank and The Long-Term Credit Bank of Japan, Ltd., Chicago Branch
(incorporated herein by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995)
10.8 Tax Allocation Agreement by and among Unitrin, Inc. and its
Subsidiaries and Teledyne, Inc. (incorporated herein by reference
to Amendment No. One, dated April 5, 1990, on Form 8 to Unitrin's
Registration Statement on Form 10)
13.1 Financial Statements (pages 19 through 39 of Unitrin's 1996 Annual
Report)
13.2 MD&A (pages 14 through 18 of Unitrin's 1996 Annual Report
13.3 Financial Highlights (page 1 of Unitrin's 1996 Annual Report)
21 Subsidiaries of Unitrin, Inc.
12
23.1 Report of Independent Public Accountants
23.2 Consent of Independent Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
(c) Exhibits.
Included in Item 14(a)3 above.
(d) Financial Statement Schedules.
Included in Item 14(a)2 above.
13
SCHEDULE I
UNITRIN, INC. AND SUBSIDIARES
INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31,1996
(Dollars in Millions)
Amount
Amortized Fair Carried in
Cost Value Balance Sheet
--------- -------- -------------
Fixed Maturities:
Bonds and Notes:
United States Government and
Government Agencies and Authorities $1,930.3 $1,957.0 $1,957.0
States, Municipalities
and Political Subdivisions 133.4 136.7 136.7
Corporate Securities:
Other Bonds and Notes 58.5 58.9 58.9
Redemptive Preferred Stocks 54.2 54.8 54.8
-------- -------- --------
Total Investments in Fixed Maturities 2,176.4 2,207.4 2,207.4
-------- -------- --------
Equity Securities:
Common Stocks 20.0 57.9 57.9
Non-redemptive Preferred Stocks 152.0 201.8 201.8
-------- -------- --------
Total Investments in Equity Securities 172.0 259.7 259.7
-------- -------- --------
Investees (A)
Litton Industries, Inc. 245.9 602.8 245.9
Western Atlas Inc. 349.3 897.1 349.3
Curtiss-Wright Corporation 74.9 110.4 74.9
-------- -------- --------
Total Investees 670.1 1,610.3 670.1
-------- -------- --------
Loans, Real Estate and Short-term Investments 154.2 XXX.X 154.2
-------- --------
Total Investments $3,172.7 $3,291.4
======== ========
(A) - Amortized Cost = Cost Plus Cumulative Undistributed Earnings.
SCHEDULE II
UNITRIN, INC.
PARENT COMPANY BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Millions)
December 31,
------------------------
ASSETS 1996 1995
------ -------- --------
Investment in Subsidiaries and Investees $1,663.9 $1,623.1
Equity Securities at Fair Value (Cost: 1996 and 1995 - $50.0) 53.6 51.5
Other Assets 7.1 2.6
-------- --------
Total Assets $1,724.6 $1,677.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes Payable $ 53.0 $ 93.0
Accrued Expenses and Other Liabilities 191.3 59.7
-------- --------
Total Liabilities 244.3 152.7
-------- --------
Shareholders' Equity:
Common Stock 3.7 3.8
Additional Paid-in Capital 133.0 126.2
Retained Earnings 1,265.8 1,281.1
Net Unrealized Appreciation on Equity Securities 2.4 1.0
Net Unrealized Appreciation in Subsidiaries' Securities 75.4 112.4
-------- --------
Total Shareholders' Equity 1,480.3 1,524.5
-------- --------
Total Liabilities and Shareholders' Equity $1,724.6 $1,677.2
======== ========
SCHEDULE II
UNITRIN, INC.
PARENT COMPANY STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Millions)
Years Ended December 31,
--------------------------
1996 1995 1994
------ ------ ------
Revenues:
Net Investment Income $ 7.1 $ 1.9 $ 10.1
Net Gains (Losses) on Sales of Investments -- -- (4.5)
------ ------ ------
Total Revenues 7.1 1.9 5.6
------ ------ ------
Interest Expense 9.8 10.5 --
Other Operating Expenses 1.6 6.0 10.4
------ ------ ------
Total Operating Expenses 11.4 16.5 10.4
------ ------ ------
Income (Loss) Before Income Taxes and Equity
in Net Income of Subsidiaries and Investees (4.3) (14.6) (4.8)
Income Tax (Benefit) Expense (3.2) (5.4) (1.6)
------ ------ ------
Income (Loss) Before Equity in
Net Income of Subsidiaries and Investees (1.1) (9.2) (3.2)
Equity in Net Income of Subsidiaries and
Investees 133.6 159.8 151.6
------ ------ ------
Net Income $132.5 $150.6 $148.4
====== ====== ======
SCHEDULE II
UNITRIN, INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Millions)
Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
Operating Activities:
Net Income $132.5 $150.6 $148.4
Adjustment Required to Reconcile Net Income
to Net Cash Provided by Operations:
Equity in Net Income of Subsidiaries and Investees (133.6) (159.8) (151.6)
Cash Dividends from Subsidiaries 149.8 441.1 150.3
Cash Dividends from Investee 1.4 - -
Other, Net 128.4 52.4 14.4
------ ------ ------
Net Cash Provided by Operating Activities 278.5 484.3 161.5
------ ------ ------
Investing Activities:
Sales and Maturities of Fixed Maturities - - 245.6
Purchases of Fixed Maturities - - (47.3)
Purchase of Securities from Subsidiaries:
Curtiss-Wright Common Stock (95.4) - -
Navistar Series G Preferred Stock - (50.0) -
Litton Industries, Inc. Common Stock - (77.0) -
Change in Short-term Investments - 41.0 (41.0)
Purchases of Property (3.7) - -
------ ------ ------
Net Cash Provided (Used) by Investing Activities (99.1) (86.0) 157.3
------ ------ ------
Financing Activities:
Notes Payable Proceeds 170.0 401.0 -
Notes Payable Payments (210.0) (308.0) -
Cash Dividends Paid (83.0) (80.7) (75.8)
Common Stock Repurchases (61.1) (416.0) (245.3)
Issuance of Unitrin Common Stock 4.7 4.6 0.9
------ ------ ------
Net Cash Used by Financing Activities (179.4) (399.1) (320.2)
------ ------ ------
Increase (Decrease) in Cash - (0.8) (1.4)
Cash, Beginning of Year - 0.8 2.2
------ ------ ------
Cash, End of Year $ - $ - $ 0.8
====== ====== ======
SCHEDULE III
UNITRIN, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in Millions)
Insurance Amortization
Claims Of Deferred
Net and Policy
Premiums Investment Policyholders' Acquisition
Premiums Written Income Benefits Costs
-------- -------- ---------- -------------- -----------
Year Ended December 31, 1996:
Life and Health $ 489.1 $ N/A $123.0 $289.7 $ 59.8
Property and Casualty 731.2 741.3 50.0 510.0 110.3
Other - N/A 6.0 - -
-------- ------ ------ ------ ------
Total $1,220.3 $ N/A $179.0 $799.7 $170.1
======== ====== ====== ====== ======
Year Ended December 31, 1995:
Life and Health $ 511.8 $ N/A $137.9 $302.3 $ 64.5
Property and Casualty 587.3 575.0 44.2 415.2 93.0
Other - N/A 4.5 - -
-------- ------ ------ ------ ------
Total $1,099.1 $ N/A $186.6 $717.5 $157.5
======== ====== ====== ====== ======
Year Ended December 31, 1994:
Life and Health $ 518.7 $ N/A $148.9 $296.1 $ 66.0
Property and Casualty 530.1 532.1 45.5 358.3 82.4
Other - N/A 12.8 - -
-------- ------ ------ ------ ------
Total $1,048.8 $ N/A $207.2 $654.4 $148.4
======== ====== ====== ====== ======
Deferred
Other Policy
Insurance Acquisition Insurance Unearned
Expenses Costs Reserves Premiums
--------- ---------- --------- --------
Year Ended December 31, 1996:
Life and Health $222.3 $225.9 $1,599.0 $ 6.7
Property and Casualty 97.7 39.4 454.8 253.8
Other (3.9) - - -
------ ------ -------- ------
Total $316.1 $265.3 $2,053.8 $260.5
====== ====== ======== ======
Year Ended December 31, 1995:
Life and Health $230.1 $252.0 $1,569.5 $ 6.8
Property and Casualty 73.1 36.5 437.8 246.1
Other (2.3) - - -
------ ------ -------- ------
Total $300.9 $288.5 $2,007.3 $252.9
====== ====== ======== ======
Year Ended December 31, 1994:
Life and Health $236.8
Property and Casualty 69.5
Other (2.2)
------
Total $304.1
======
SCHEDULE IV
UNITRIN, INC.
REINSURANCE SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Dollars in Millions)
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount to Net
--------- --------- --------- --------- ----------
Year Ended December 31,
1996:
- -----------------------
Life Insurance in Force $18,747.2 $2,120.2 $ - $16,627.0 -
Premiums
Life Insurance $ 368.8 $ 9.4 - $ 359.4 -
Accident and Health
Insurance 130.6 0.9 - 129.7 -
Property and Liability
Insurance 643.4 21.8 109.6 731.2 15.0%
--------- --------- --------- --------- ----------
Total Premiums $ 1,142.8 $ 32.1 $109.6 $ 1,220.3 9.0%
========== ========= ========= ========= ==========
Year Ended December 31,
1995:
- -----------------------
Life Insurance in Force $20,082.9 $ 565.7 $ - $19,517.2 -
Premiums
Life Insurance $ 370.5 $ 1.9 - $ 368.6 -
Accident and Health
Insurance 144.4 1.2 - 143.2 -
Property and Liability
Insurance 566.1 15.7 36.9 587.3 6.3%
--------- --------- --------- --------- ----------
Total Premiums $ 1,081.0 $ 18.8 $ 36.9 $ 1,099.1 3.4%
========== ========= ========= ========= ==========
Year Ended December 31,
1994:
- -----------------------
Life Insurance in Force $20,242.0 $ 535.1 $ - $19,706.9 -
Premiums
Life Insurance $ 362.1 $ 2.7 - $ 359.4 -
Accident and Health
Insurance 161.0 1.7 - 159.3 -
Property and Liability
Insurance 538.0 16.8 8.9 530.1 1.7%
--------- --------- --------- --------- ----------
Total Premiums $ 1,061.1 $ 21.2 $ 8.9 $ 1,048.8 0.8%
========== ========= ========= ========= ==========
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITRIN, INC.
(Registrant)
By: /s/ Richard C. Vie
---------------------------------------
DATE: February 24, 1997 Richard C. Vie
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
DATE: February 24, 1997 By: /s/ Jerrold V. Jerome
---------------------------------------
Jerrold V. Jerome
Chairman of the Board of Directors
DATE: February 24, 1997 By: /s/ Richard C. Vie
---------------------------------------
Richard C. Vie
Director, President and Chief Executive
Officer (Principal Executive Officer)
DATE: February 24, 1997 By: /s/ Henry E. Singleton
---------------------------------------
Henry E. Singleton
Director
DATE: February 24, 1997 By: /s/ George A. Roberts
---------------------------------------
George A. Roberts
Director
DATE: February 24, 1997 By: /s/ Fayez S. Sarofim
---------------------------------------
Fayez S. Sarofim
Director
DATE: February 24, 1997 By: /s/ James E. Annable
---------------------------------------
James E. Annable
Director
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
DATE: February 24, 1997 By: /s/ Reuben L. Hedlund
--------------------------------------------
Reuben L. Hedlund
Director
DATE: February 24, 1997 By: /s/ Eric J. Draut
--------------------------------------------
Eric J. Draut
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)