UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34680
Primerica, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
27-1204330 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
1 Primerica Parkway Duluth, Georgia |
|
30099 |
|
(Address of principal executive offices) |
|
(ZIP Code) |
(770) 381-1000
(Registrant’s telephone number, including area code)
Not applicable.
(Former name, former address and former fiscal year, if changed since last report)
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
x |
Accelerated filer |
o |
|
|
|
|
|
|
Non-accelerated filer |
o (Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class |
|
As of April 30, 2016 |
|
Common Stock, $0.01 Par Value |
|
47,045,782 shares |
|
|
|
|
i
PART I – FINANCIAL INFORMATION
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Assets |
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
Fixed-maturity securities available-for-sale, at fair value (amortized cost: $1,640,210 in 2016 and $1,690,043 in 2015) |
|
$ |
1,705,705 |
|
|
$ |
1,731,459 |
|
|
Fixed-maturity securities held-to-maturity, at amortized cost (fair value: $424,007 in 2016 and $371,742 in 2015) |
|
|
404,860 |
|
|
|
365,220 |
|
|
Equity securities available-for-sale, at fair value (cost: $40,159 in 2016 and $39,969 in 2015) |
|
|
49,554 |
|
|
|
47,839 |
|
|
Trading securities, at fair value (cost: $7,626 in 2016 and $5,383 in 2015) |
|
|
7,620 |
|
|
|
5,358 |
|
|
Policy loans |
|
|
29,825 |
|
|
|
28,627 |
|
|
Total investments |
|
|
2,197,564 |
|
|
|
2,178,503 |
|
|
Cash and cash equivalents |
|
|
175,717 |
|
|
|
152,294 |
|
|
Accrued investment income |
|
|
17,930 |
|
|
|
17,080 |
|
|
Due from reinsurers |
|
|
4,160,266 |
|
|
|
4,110,628 |
|
|
Deferred policy acquisition costs, net |
|
|
1,559,833 |
|
|
|
1,500,259 |
|
|
Premiums and other receivables |
|
|
204,406 |
|
|
|
193,841 |
|
|
Intangible assets, net (accumulated amortization: $72,680 in 2016 and $71,828 in 2015) |
|
|
57,467 |
|
|
|
58,318 |
|
|
Deferred income taxes |
|
|
31,796 |
|
|
|
30,112 |
|
|
Other assets |
|
|
343,701 |
|
|
|
304,356 |
|
|
Separate account assets |
|
|
2,264,108 |
|
|
|
2,063,899 |
|
|
Total assets |
|
$ |
11,012,788 |
|
|
$ |
10,609,290 |
|
|
|
|
|
|
|
|
|
|
|
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Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Future policy benefits |
|
$ |
5,518,834 |
|
|
$ |
5,431,711 |
|
|
Unearned premiums |
|
|
594 |
|
|
|
628 |
|
|
Policy claims and other benefits payable |
|
|
243,813 |
|
|
|
238,157 |
|
|
Other policyholders’ funds |
|
|
352,650 |
|
|
|
356,123 |
|
|
Notes payable |
|
|
372,643 |
|
|
|
372,552 |
|
|
Surplus note |
|
|
404,079 |
|
|
|
364,424 |
|
|
Income taxes |
|
|
177,457 |
|
|
|
148,125 |
|
|
Other liabilities |
|
|
418,469 |
|
|
|
416,417 |
|
|
Payable under securities lending |
|
|
87,383 |
|
|
|
71,482 |
|
|
Separate account liabilities |
|
|
2,264,108 |
|
|
|
2,063,899 |
|
|
Commitments and contingent liabilities (see Commitments and Contingent Liabilities note) |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
9,840,030 |
|
|
|
9,463,518 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock ($0.01 par value; authorized 500,000 in 2016 and 2015; issued and outstanding 47,295 shares in 2016 and 48,297 shares in 2015) |
|
|
473 |
|
|
|
483 |
|
|
Paid-in capital |
|
|
137,855 |
|
|
|
180,250 |
|
|
Retained earnings |
|
|
989,685 |
|
|
|
952,804 |
|
|
Accumulated other comprehensive income (loss), net of income tax: |
|
|
|
|
|
|
|
|
|
Unrealized foreign currency translation gains (losses) |
|
|
(3,933 |
) |
|
|
(19,801 |
) |
|
Net unrealized investment gains (losses): |
|
|
|
|
|
|
|
|
|
Net unrealized investment gains not other-than-temporarily impaired |
|
|
48,747 |
|
|
|
32,107 |
|
|
Net unrealized investment losses other-than-temporarily impaired |
|
|
(69 |
) |
|
|
(71 |
) |
|
Total stockholders’ equity |
|
|
1,172,758 |
|
|
|
1,145,772 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
11,012,788 |
|
|
$ |
10,609,290 |
|
See accompanying notes to condensed consolidated financial statements.
1
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income – Unaudited
|
|
|
Three months ended March 31, |
|
|
|||||
|
|
|
2016 |
|
|
2015 |
|
|
||
|
|
|
(In thousands, except per-share amounts) |
|||||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Direct premiums |
|
$ |
597,130 |
|
|
$ |
577,458 |
|
|
|
Ceded premiums |
|
|
(395,333 |
) |
|
|
(397,540 |
) |
|
|
Net premiums |
|
|
201,797 |
|
|
|
179,918 |
|
|
|
Commissions and fees |
|
|
128,821 |
|
|
|
132,835 |
|
|
|
Investment income net of investment expenses |
|
|
25,392 |
|
|
|
23,648 |
|
|
|
Interest expense on surplus note |
|
|
(4,154 |
) |
|
|
(2,475 |
) |
|
|
Net investment income |
|
|
21,238 |
|
|
|
21,173 |
|
|
|
Realized investment gains (losses), including other-than- temporary impairment losses |
|
|
(783 |
) |
|
|
1,284 |
|
|
|
Other, net |
|
|
11,889 |
|
|
|
9,636 |
|
|
|
Total revenues |
|
|
362,962 |
|
|
|
344,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses: |
|
|
|
|
|
|
|
|
|
|
Benefits and claims |
|
|
90,977 |
|
|
|
82,500 |
|
|
|
Amortization of deferred policy acquisition costs |
|
|
43,129 |
|
|
|
36,213 |
|
|
|
Sales commissions |
|
|
66,643 |
|
|
|
68,457 |
|
|
|
Insurance expenses |
|
|
33,311 |
|
|
|
34,348 |
|
|
|
Insurance commissions |
|
|
4,147 |
|
|
|
3,190 |
|
|
|
Interest expense |
|
|
7,173 |
|
|
|
8,676 |
|
|
|
Other operating expenses |
|
|
47,370 |
|
|
|
44,653 |
|
|
|
Total benefits and expenses |
|
|
292,750 |
|
|
|
278,037 |
|
|
|
Income before income taxes |
|
|
70,212 |
|
|
|
66,809 |
|
|
|
Income taxes |
|
|
25,036 |
|
|
|
23,408 |
|
|
|
Net income |
|
$ |
45,176 |
|
|
$ |
43,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.92 |
|
|
$ |
0.82 |
|
|
|
Diluted earnings per share |
|
$ |
0.92 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,550 |
|
|
|
52,643 |
|
|
|
Diluted |
|
|
48,574 |
|
|
|
52,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
|
|
Total impairment losses |
|
$ |
(2,027 |
) |
|
$ |
(237 |
) |
|
|
Impairment losses recognized in other comprehensive income before income taxes |
|
|
- |
|
|
|
- |
|
|
|
Net impairment losses recognized in earnings |
|
|
(2,027 |
) |
|
|
(237 |
) |
|
|
Other net realized investment gains (losses) |
|
|
1,244 |
|
|
|
1,521 |
|
|
|
Realized investment gains (losses), including other-than- temporary impairment losses |
|
$ |
(783 |
) |
|
$ |
1,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
0.17 |
|
|
$ |
0.16 |
|
|
See accompanying notes to condensed consolidated financial statements.
2
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Net income |
|
$ |
45,176 |
|
|
$ |
43,401 |
|
|
Other comprehensive income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
Unrealized investment gains (losses): |
|
|
|
|
|
|
|
|
|
Change in unrealized holding gains/(losses) on investment securities |
|
|
24,717 |
|
|
|
15,661 |
|
|
Reclassification adjustment for realized investment (gains) losses included in net income |
|
|
887 |
|
|
|
(1,670 |
) |
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
|
|
Change in unrealized foreign currency translation gains (losses) before income tax expense (benefit) |
|
|
16,036 |
|
|
|
(20,566 |
) |
|
Total other comprehensive income (loss) before income taxes |
|
|
41,640 |
|
|
|
(6,575 |
) |
|
Income tax expense (benefit) related to items of other comprehensive income (loss) |
|
|
9,130 |
|
|
|
4,667 |
|
|
Other comprehensive income (loss), net of income taxes |
|
|
32,510 |
|
|
|
(11,242 |
) |
|
Total comprehensive income |
|
$ |
77,686 |
|
|
$ |
32,159 |
|
See accompanying notes to condensed consolidated financial statements.
3
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity – Unaudited
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Common stock: |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
483 |
|
|
$ |
522 |
|
|
Repurchases of common stock |
|
|
(12 |
) |
|
|
(9 |
) |
|
Net issuance of common stock |
|
|
2 |
|
|
|
3 |
|
|
Balance, end of period |
|
|
473 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital: |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
180,250 |
|
|
|
353,337 |
|
|
Share-based compensation |
|
|
10,580 |
|
|
|
15,307 |
|
|
Net issuance of common stock |
|
|
(2 |
) |
|
|
(3 |
) |
|
Repurchases of common stock |
|
|
(52,973 |
) |
|
|
(44,781 |
) |
|
Adjustments to paid-in capital, other |
|
|
- |
|
|
|
136 |
|
|
Balance, end of period |
|
|
137,855 |
|
|
|
323,996 |
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
952,804 |
|
|
|
795,740 |
|
|
Net income |
|
|
45,176 |
|
|
|
43,401 |
|
|
Dividends |
|
|
(8,295 |
) |
|
|
(8,517 |
) |
|
Balance, end of period |
|
|
989,685 |
|
|
|
830,624 |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
12,235 |
|
|
|
95,527 |
|
|
Change in foreign currency translation adjustment, net of income tax expense (benefit) |
|
|
15,868 |
|
|
|
(20,336 |
) |
|
Change in net unrealized investment gains (losses) during the period, net of income taxes: |
|
|
|
|
|
|
|
|
|
Change in net unrealized investment gains (losses) not-other-than temporarily impaired, net of income tax expense (benefit) |
|
|
16,640 |
|
|
|
9,094 |
|
|
Change in net unrealized investment losses other-than-temporarily impaired, net of income tax expense (benefit) |
|
|
2 |
|
|
|
- |
|
|
Balance, end of period |
|
|
44,745 |
|
|
|
84,285 |
|
|
Total stockholders’ equity |
|
$ |
1,172,758 |
|
|
$ |
1,239,421 |
|
See accompanying notes to condensed consolidated financial statements.
4
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows – Unaudited
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
45,176 |
|
|
$ |
43,401 |
|
|
Adjustments to reconcile net income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Change in future policy benefits and other policy liabilities |
|
|
60,985 |
|
|
|
47,672 |
|
|
Deferral of policy acquisition costs |
|
|
(86,925 |
) |
|
|
(75,434 |
) |
|
Amortization of deferred policy acquisition costs |
|
|
43,129 |
|
|
|
36,213 |
|
|
Change in income taxes |
|
|
20,855 |
|
|
|
18,576 |
|
|
Realized investment (gains) losses, including other-than-temporary impairments |
|
|
783 |
|
|
|
(1,284 |
) |
|
Accretion and amortization of investments |
|
|
(597 |
) |
|
|
(438 |
) |
|
Depreciation and amortization |
|
|
3,139 |
|
|
|
2,633 |
|
|
Change in due from reinsurers |
|
|
(28,825 |
) |
|
|
(6,956 |
) |
|
Change in premiums and other receivables |
|
|
(12,919 |
) |
|
|
456 |
|
|
Trading securities sold, matured, or called (acquired), net |
|
|
(2,268 |
) |
|
|
365 |
|
|
Share-based compensation |
|
|
7,483 |
|
|
|
8,943 |
|
|
Change in other operating assets and liabilities, net |
|
|
(15,099 |
) |
|
|
(10,809 |
) |
|
Net cash provided by (used in) operating activities |
|
|
34,917 |
|
|
|
63,338 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Available-for-sale investments sold, matured or called: |
|
|
|
|
|
|
|
|
|
Fixed-maturity securities — sold |
|
|
25,104 |
|
|
|
23,278 |
|
|
Fixed-maturity securities — matured or called |
|
|
86,609 |
|
|
|
72,979 |
|
|
Equity securities |
|
|
- |
|
|
|
1,659 |
|
|
Available-for-sale investments acquired: |
|
|
|
|
|
|
|
|
|
Fixed-maturity securities |
|
|
(55,886 |
) |
|
|
(122,264 |
) |
|
Equity securities |
|
|
(99 |
) |
|
|
(625 |
) |
|
Purchases of property and equipment and other investing activities, net |
|
|
(7,761 |
) |
|
|
(1,635 |
) |
|
Cash collateral received (returned) on loaned securities, net |
|
|
15,901 |
|
|
|
5,411 |
|
|
Sales (purchases) of short-term investments using securities lending collateral, net |
|
|
(15,901 |
) |
|
|
(5,411 |
) |
|
Net cash provided by (used in) investing activities |
|
|
47,967 |
|
|
|
(26,608 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(8,295 |
) |
|
|
(8,517 |
) |
|
Common stock repurchased |
|
|
(49,945 |
) |
|
|
(38,749 |
) |
|
Excess tax benefits on share-based compensation |
|
|
405 |
|
|
|
3,456 |
|
|
Tax withholdings on share-based compensation |
|
|
(3,040 |
) |
|
|
(6,041 |
) |
|
Cash proceeds from stock options exercised |
|
|
- |
|
|
|
136 |
|
|
Net cash provided by (used in) financing activities |
|
|
(60,875 |
) |
|
|
(49,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash |
|
|
1,414 |
|
|
|
(2,388 |
) |
|
Change in cash and cash equivalents |
|
|
23,423 |
|
|
|
(15,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
152,294 |
|
|
|
191,997 |
|
|
Cash and cash equivalents, end of period |
|
$ |
175,717 |
|
|
$ |
176,624 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
PRIMERICA, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements — Unaudited
(1) Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
Description of Business. Primerica, Inc. (the "Parent Company"), together with its subsidiaries (collectively, "we", "us" or the "Company"), is a leading distributor of financial products to middle income households in the United States and Canada. We assist our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. Our primary subsidiaries include the following entities: Primerica Financial Services, Inc. ("PFS"), a general agency and marketing company; Primerica Life Insurance Company ("Primerica Life"), our principal life insurance company; Primerica Financial Services (Canada) Ltd., a holding company for our Canadian operations, which includes Primerica Life Insurance Company of Canada ("Primerica Life Canada") and PFSL Investments Canada Ltd. ("PFSL Investments Canada"); and PFS Investments Inc. ("PFS Investments"), an investment products company and broker-dealer. Primerica Life, domiciled in Massachusetts, owns National Benefit Life Insurance Company ("NBLIC"), a New York insurance company. We established Peach Re, Inc. ("Peach Re") and Vidalia Re, Inc. (“Vidalia Re”) as special purpose financial captive insurance companies and wholly owned subsidiaries of Primerica Life. Peach Re and Vidalia Re have each entered into separate coinsurance agreements with Primerica Life whereby Primerica Life has ceded certain level premium term life insurance policies to Peach Re and Vidalia Re (respectively, the “Peach Re Coinsurance Agreement” and the “Vidalia Re Coinsurance Agreement”).
Basis of Presentation. We prepare our financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). These principles are established primarily by the Financial Accounting Standards Board ("FASB"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect financial statement balances, revenues and expenses and cash flows, as well as the disclosure of contingent assets and liabilities. Management considers available facts and knowledge of existing circumstances when establishing the estimates included in our financial statements.
The accompanying unaudited condensed consolidated financial statements contain all adjustments, generally consisting of normal recurring accruals, which are necessary to fairly present the balance sheets as of March 31, 2016 and December 31, 2015 and the statements of income, comprehensive income (loss), stockholders' equity and cash flows for the three months ended March 31, 2016 and 2015. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2015 ("2015 Annual Report").
Use of Estimates. The most significant items that involve a greater degree of accounting estimates and actuarial determinations subject to change in the future are the valuation of investments, deferred policy acquisition costs ("DAC"), liabilities for future policy benefits and unpaid policy claims, and income taxes. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.
Consolidation. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and those entities required to be consolidated under applicable accounting standards. All material intercompany profits, transactions, and balances among the consolidated entities have been eliminated.
Reclassifications. Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications. These reclassifications had no impact on net income or total stockholders' equity.
Subsequent Events. The Company has evaluated subsequent events for recognition and disclosure for occurrences and transactions after the date of the unaudited condensed consolidated financial statements dated as of March 31, 2016.
Significant Accounting Policies. All significant accounting policies remain unchanged from the 2015 Annual Report.
New Accounting Principles. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). Prior to the adoption of ASU 2015-03, debt issuance costs related to a recognized debt liability were presented as a deferred charge, or asset, within the balance sheet. ASU 2015-03 requires the presentation of debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted ASU 2015-03 during the three months ended March 31, 2016 and the amendments in the update were applied retrospectively, which resulted in the deduction of debt issuance costs of approximately $2.8 million from other assets and a corresponding reduction in the carrying amounts of the notes payable and surplus note of approximately $2.0 million and $0.8 million, respectively, in our consolidated balance sheets as of December 31, 2015. This update had no impact on our results of operations.
6
In February 2016, FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (ASC 842). ASU 2016-02 intends to enhance transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet. The amendments in ASU 2016-02 are effective for the Company beginning in fiscal year 2019, with early adoption permitted. The Company intends to adopt the amendments in ASU 2016-02 beginning in the first quarter of 2019, and we are currently in the process of evaluating its impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No 2016-09 (“ASU 2016-09”) Compensation—Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 intends to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. While we are still in the process of evaluating the guidance in ASU 2016-09, we anticipate that its most notable impact on the Company’s financial statements will involve the change in accounting for the income tax consequences associated with share-based payment transactions in the income statement. The amendments in ASU 2016-09 require that the tax effect of the difference between the cumulative compensation cost of a share-based award recognized for financial reporting purposes and the deduction of the award for tax purposes (“excess tax benefits or deficiencies”) be recognized as income tax expense or benefit in the income statement. Under current U.S. GAAP, the Company recognizes excess tax benefits or deficiencies as an adjustment to additional paid-in capital in the statement of stockholders’ equity. The amendments in ASU 2016-09 that require a change in the accounting for excess tax benefits and deficiencies in the income statement are effective prospectively, with early adoption permitted. The Company intends to adopt the amendments in ASU 2016-09 beginning in the first quarter of 2017. The impact on the income tax consequences of share-based payment transactions from adopting the amendments in ASU 2016-09 will be affected by future market prices of our common stock when we deduct the cost of share-based payment transactions for income tax purposes, and therefore, we are unable to quantify the impact at this time.
Future Application of Accounting Standards. Recent accounting guidance not discussed here and in the 2015 Annual Report is not applicable, is immaterial to our financial statements, or did not or is not expected to have a material impact on our business.
(2) Segment and Geographical Information
Segments. We have two primary operating segments - Term Life Insurance and Investment and Savings Products. We also have a Corporate and Other Distributed Products segment.
Results of operations by segment were as follows:
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
Term life insurance segment |
|
$ |
206,278 |
|
|
$ |
182,196 |
|
|
Investment and savings products segment |
|
|
125,034 |
|
|
|
129,074 |
|
|
Corporate and other distributed products segment |
|
|
31,650 |
|
|
|
33,576 |
|
|
Total revenues |
|
$ |
362,962 |
|
|
$ |
344,846 |
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
Term life insurance segment |
|
$ |
46,080 |
|
|
$ |
36,076 |
|
|
Investment and savings products segment |
|
|
31,689 |
|
|
|
35,044 |
|
|
Corporate and other distributed products segment |
|
|
(7,557 |
) |
|
|
(4,311 |
) |
|
Total income before income taxes |
|
$ |
70,212 |
|
|
$ |
66,809 |
|
Total assets by segment were as follows:
|
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Assets: |
|
|
|
|
|
|
|
|
|
Term life insurance segment |
|
$ |
5,742,576 |
|
|
$ |
5,638,682 |
|
|
Investment and savings products segment(1) |
|
|
2,367,439 |
|
|
|
2,157,548 |
|
|
Corporate and other distributed products segment |
|
|
2,902,773 |
|
|
|
2,813,060 |
|
|
Total assets |
|
$ |
11,012,788 |
|
|
$ |
10,609,290 |
|
(1) The Investment and Savings Products segment includes assets held in separate accounts. Excluding separate accounts, the Investment and Savings Products segment assets were approximately $103.5 million and $93.8 million as of March 31, 2016 and December 31, 2015, respectively.
Segment Measurement Change. In the third quarter of 2015, the Company changed its basis for allocating net investment income, interest expense and invested assets between the Term Life Insurance segment and the Corporate and Other Distributed Products segment in measuring segment results and total assets by segment. As a result of this change in segment measurement, the amounts of net investment income and interest expense that have been reclassified from the Term Life Insurance segment to the Corporate and Other Distributed Products segment, were approximately $15.9 million and $4.1 million, respectively, for the three months ended
7
March 31, 2015. For additional discussion regarding this segment measurement change, see Note 3 (Segment and Geographical Information) to our consolidated financial statements within our 2015 Annual Report.
See “Management's Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this report for more information regarding the results of our operating segments.
Geographical Information. Results of operations by country and long-lived assets, primarily tangible assets reported in Other assets in our unaudited condensed consolidated balance sheets, were as follows:
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Revenues by country: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
305,015 |
|
|
$ |
286,141 |
|
|
Canada |
|
|
57,947 |
|
|
|
58,705 |
|
|
Total revenues |
|
$ |
362,962 |
|
|
$ |
344,846 |
|
|
Income before income taxes by country: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
54,958 |
|
|
$ |
48,856 |
|
|
Canada |
|
|
15,254 |
|
|
|
17,953 |
|
|
Total income before income taxes |
|
$ |
70,212 |
|
|
$ |
66,809 |
|
|
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Long-lived assets by country: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
28,756 |
|
|
$ |
28,621 |
|
|
Canada |
|
|
859 |
|
|
|
787 |
|
|
Total long-lived assets |
|
$ |
29,615 |
|
|
$ |
29,408 |
|
(3) Investments
Available-for-sale Securities. The period-end cost or amortized cost, gross unrealized gains and losses, and fair value of available-for-sale fixed-maturity and equity securities follow:
|
|
|
March 31, 2016 |
|
|||||||||||||
|
|
|
Cost or amortized cost |
|
|
Gross unrealized gains |
|
|
Gross unrealized losses |
|
|
Fair value |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Securities available-for-sale, carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
$ |
16,675 |
|
|
$ |
565 |
|
|
$ |
- |
|
|
$ |
17,240 |
|
|
Foreign government |
|
|
111,706 |
|
|
|
7,937 |
|
|
|
(858 |
) |
|
|
118,785 |
|
|
States and political subdivisions |
|
|
41,093 |
|
|
|
2,892 |
|
|
|
(565 |
) |
|
|
43,420 |
|
|
Corporates |
|
|
1,243,942 |
|
|
|
62,343 |
|
|
|
(18,400 |
) |
|
|
1,287,885 |
|
|
Mortgage- and asset-backed securities |
|
|
226,794 |
|
|
|
11,872 |
|
|
|
(291 |
) |
|
|
238,375 |
|
|
Total fixed-maturity securities(1) |
|
|
1,640,210 |
|
|
|
85,609 |
|
|
|
(20,114 |
) |
|
|
1,705,705 |
|
|
Equity securities |
|
|
40,159 |
|
|
|
10,034 |
|
|
|
(639 |
) |
|
|
49,554 |
|
|
Total fixed-maturity and equity securities |
|
$ |
1,680,369 |
|
|
$ |
95,643 |
|
|
$ |
(20,753 |
) |
|
$ |
1,755,259 |
|
|
(1) |
Includes approximately $0.1 million of other-than-temporary impairment (“OTTI”) losses related to corporates and mortgage- and asset-backed securities recognized in accumulated other comprehensive income. |
|
|
|
December 31, 2015 |
|
|||||||||||||
|
|
|
Cost or amortized cost |
|
|
Gross unrealized gains |
|
|
Gross unrealized losses |
|
|
Fair value |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Securities available-for-sale, carried at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
|
$ |
20,233 |
|
|
$ |
448 |
|
|
$ |
(22 |
) |
|
$ |
20,659 |
|
|
Foreign government |
|
|
114,656 |
|
|
|
7,082 |
|
|
|
(1,522 |
) |
|
|
120,216 |
|
|
States and political subdivisions |
|
|
38,995 |
|
|
|
2,111 |
|
|
|
(541 |
) |
|
|
40,565 |
|
|
Corporates |
|
|
1,276,965 |
|
|
|
49,008 |
|
|
|
(24,211 |
) |
|
|
1,301,762 |
|
|
Mortgage- and asset-backed securities |
|
|
239,194 |
|
|
|
9,818 |
|
|
|
(755 |
) |
|
|
248,257 |
|
|
Total fixed-maturity securities(1) |
|
|
1,690,043 |
|
|
|
68,467 |
|
|
|
(27,051 |
) |
|
|
1,731,459 |
|
|
Equity securities |
|
|
39,969 |
|
|
|
8,252 |
|
|
|
(382 |
) |
|
|
47,839 |
|
|
Total fixed-maturity and equity securities |
|
$ |
1,730,012 |
|
|
$ |
76,719 |
|
|
$ |
(27,433 |
) |
|
$ |
1,779,298 |
|
8
|
(1) |
Includes approximately $0.1 million of OTTI related to corporates and mortgage- and asset-backed securities recognized in accumulated other comprehensive income. |
All of our available-for-sale mortgage- and asset-backed securities represent variable interests in variable interest entities ("VIEs"). We are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the entities’ economic performance. The maximum exposure to loss as a result of our involvement in these VIEs equals the carrying value of the securities.
The scheduled maturity distribution of the available-for-sale fixed-maturity portfolio at March 31, 2016 follows:
|
|
|
Amortized cost |
|
|
Fair value |
|
||
|
|
|
(In thousands) |
|
|||||
|
Due in one year or less |
|
$ |
71,107 |
|
|
$ |
71,731 |
|
|
Due after one year through five years |
|
|
675,707 |
|
|
|
711,733 |
|
|
Due after five years through 10 years |
|
|
618,931 |
|
|
|
632,263 |
|
|
Due after 10 years |
|
|
47,671 |
|
|
|
51,603 |
|
|
|
|
|
1,413,416 |
|
|
|
1,467,330 |
|
|
Mortgage- and asset-backed securities |
|
|
226,794 |
|
|
|
238,375 |
|
|
Total fixed-maturity securities |
|
$ |
1,640,210 |
|
|
$ |
1,705,705 |
|
Expected maturities may differ from scheduled contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.
Unrealized Gains and Losses on Investments. The net effect on stockholders’ equity of unrealized gains and losses on investments was as follows:
|
|
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Net unrealized investment gains including OTTI: |
|
|
|
|
|
|
|
|
|
Fixed-maturity and equity securities |
|
$ |
74,890 |
|
|
$ |
49,286 |
|
|
OTTI |
|
|
107 |
|
|
|
109 |
|
|
Net unrealized investment gains excluding OTTI |
|
|
74,997 |
|
|
|
49,395 |
|
|
Deferred income taxes |
|
|
(26,250 |
) |
|
|
(17,288 |
) |
|
Net unrealized investment gains excluding OTTI, net of tax |
|
$ |
48,747 |
|||||