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Section 1: 10-Q (10-Q)

pri-10q_20160630.htm

 

 

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 June 30, 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 July 31, 2016

Common Stock, $0.01 Par Value

 

46,471,932 shares

 

 

 

 

 

 

 


 

 

TABLE OF CONTENTS

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

1

Item 1. Financial Statements (unaudited).

 

1

Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

 

1

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015

 

2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015

 

3

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2016 and 2015

 

4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015

 

5

Notes to Condensed Consolidated Financial Statements

 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

35

Item 4. Controls and Procedures.

 

35

 

PART II – OTHER INFORMATION

 

36

Item 1. Legal Proceedings.

 

36

Item 1A. Risk Factors.

 

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

37

Item 6. Exhibits.

 

37

 

Signatures

 

39

 

 

 

 

i


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

 

(Unaudited)

 

 

 

 

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Fixed-maturity securities available-for-sale, at fair value (amortized cost: $1,631,169 in 2016

   and $1,690,043 in 2015)

 

$

1,726,774

 

 

$

1,731,459

 

Fixed-maturity securities held-to-maturity, at amortized cost (fair value: $466,324 in 2016 and

   $371,742 in 2015)

 

 

431,000

 

 

 

365,220

 

Equity securities available-for-sale, at fair value (cost: $39,407 in 2016 and $39,969 in 2015)

 

 

49,040

 

 

 

47,839

 

Trading securities, at fair value (cost: $8,014 in 2016 and $5,383 in 2015)

 

 

8,012

 

 

 

5,358

 

Policy loans

 

 

30,817

 

 

 

28,627

 

Total investments

 

 

2,245,643

 

 

 

2,178,503

 

Cash and cash equivalents

 

 

213,091

 

 

 

152,294

 

Accrued investment income

 

 

16,100

 

 

 

17,080

 

Due from reinsurers

 

 

4,147,284

 

 

 

4,110,628

 

Deferred policy acquisition costs, net

 

 

1,619,236

 

 

 

1,500,259

 

Premiums and other receivables

 

 

213,329

 

 

 

188,886

 

Intangible assets, net (accumulated amortization: $73,530 in 2016 and $71,828 in 2015)

 

 

56,617

 

 

 

58,318

 

Income taxes

 

 

30,844

 

 

 

35,067

 

Other assets

 

 

351,340

 

 

 

304,356

 

Separate account assets

 

 

2,311,124

 

 

 

2,063,899

 

Total assets

 

$

11,204,608

 

 

$

10,609,290

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Future policy benefits

 

$

5,581,043

 

 

$

5,431,711

 

Unearned premiums

 

 

560

 

 

 

628

 

Policy claims and other benefits payable

 

 

235,265

 

 

 

238,157

 

Other policyholders’ funds

 

 

351,740

 

 

 

356,123

 

Notes payable

 

 

372,735

 

 

 

372,552

 

Surplus note

 

 

430,233

 

 

 

364,424

 

Income taxes

 

 

199,985

 

 

 

148,125

 

Other liabilities

 

 

422,556

 

 

 

416,417

 

Payable under securities lending

 

 

91,901

 

 

 

71,482

 

Separate account liabilities

 

 

2,311,124

 

 

 

2,063,899

 

Commitments and contingent liabilities (see Commitments and Contingent Liabilities note)

 

 

 

 

 

 

 

 

Total liabilities

 

 

9,997,142

 

 

 

9,463,518

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.01 par value; authorized 500,000 in 2016 and 2015; issued and

   outstanding 46,602 shares in 2016 and 48,297 shares in 2015)

 

 

466

 

 

 

483

 

Paid-in capital

 

 

102,825

 

 

 

180,250

 

Retained earnings

 

 

1,040,860

 

 

 

952,804

 

Accumulated other comprehensive income (loss), net of income tax:

 

 

 

 

 

 

 

 

Unrealized foreign currency translation gains (losses)

 

 

(5,091

)

 

 

(19,801

)

Net unrealized investment gains (losses):

 

 

 

 

 

 

 

 

Net unrealized investment gains not other-than-temporarily impaired

 

 

68,472

 

 

 

32,107

 

Net unrealized investment losses other-than-temporarily impaired

 

 

(66

)

 

 

(71

)

Total stockholders’ equity

 

 

1,207,466

 

 

 

1,145,772

 

Total liabilities and stockholders’ equity

 

$

11,204,608

 

 

$

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 June 30,

 

 

Six months ended June 30,

 

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

(In thousands, except per-share amounts)

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct premiums

 

$

612,189

 

 

$

588,248

 

 

$

1,209,319

 

 

$

1,165,707

 

 

Ceded premiums

 

 

(406,683

)

 

 

(406,854

)

 

 

(802,017

)

 

 

(804,395

)

 

Net premiums

 

 

205,506

 

 

 

181,394

 

 

 

407,302

 

 

 

361,312

 

 

Commissions and fees

 

 

136,902

 

 

 

139,150

 

 

 

265,723

 

 

 

271,985

 

 

Investment income net of investment expenses

 

 

24,994

 

 

 

21,782

 

 

 

50,387

 

 

 

45,431

 

 

Interest expense on surplus note

 

 

(4,605

)

 

 

(2,707

)

 

 

(8,760

)

 

 

(5,182

)

 

Net investment income

 

 

20,389

 

 

 

19,075

 

 

 

41,627

 

 

 

40,249

 

 

Realized investment gains (losses), including other-than-

   temporary impairment losses

 

 

3,440

 

 

 

597

 

 

 

2,657

 

 

 

1,881

 

 

Other, net

 

 

13,007

 

 

 

10,301

 

 

 

24,896

 

 

 

19,936

 

 

Total revenues

 

 

379,244

 

 

 

350,517

 

 

 

742,205

 

 

 

695,363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits and claims

 

 

88,984

 

 

 

82,521

 

 

 

179,961

 

 

 

165,021

 

 

Amortization of deferred policy acquisition costs

 

 

38,720

 

 

 

36,384

 

 

 

81,849

 

 

 

72,595

 

 

Sales commissions

 

 

70,146

 

 

 

71,499

 

 

 

136,789

 

 

 

139,956

 

 

Insurance expenses

 

 

33,026

 

 

 

28,744

 

 

 

66,337

 

 

 

63,093

 

 

Insurance commissions

 

 

4,472

 

 

 

4,145

 

 

 

8,619

 

 

 

7,334

 

 

Interest expense

 

 

7,178

 

 

 

8,642

 

 

 

14,350

 

 

 

17,316

 

 

Other operating expenses

 

 

44,838

 

 

 

41,757

 

 

 

92,208

 

 

 

86,413

 

 

Total benefits and expenses

 

 

287,364

 

 

 

273,692

 

 

 

580,113

 

 

 

551,728

 

 

Income before income taxes

 

 

91,880

 

 

 

76,825

 

 

 

162,092

 

 

 

143,635

 

 

Income taxes

 

 

32,554

 

 

 

27,652

 

 

 

57,590

 

 

 

51,062

 

 

Net income

 

$

59,326

 

 

$

49,173

 

 

$

104,502

 

 

$

92,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.23

 

 

$

0.94

 

 

$

2.15

 

 

$

1.76

 

 

Diluted earnings per share

 

$

1.23

 

 

$

0.94

 

 

$

2.15

 

 

$

1.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used in computing earnings

   per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

47,658

 

 

 

51,787

 

 

 

48,104

 

 

 

52,212

 

 

Diluted

 

 

47,708

 

 

 

51,812

 

 

 

48,141

 

 

 

52,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impairment losses

 

$

(803

)

 

$

(632

)

 

$

(2,830

)

 

$

(869

)

 

Impairment losses recognized in other comprehensive income

   before income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

Net impairment losses recognized in earnings

 

 

(803

)

 

 

(632

)

 

 

(2,830

)

 

 

(869

)

 

Other net realized investment gains (losses)

 

 

4,243

 

 

 

1,229

 

 

 

5,487

 

 

 

2,750

 

 

Realized investment gains (losses), including other-than-

  temporary impairment losses

 

$

3,440

 

 

$

597

 

 

$

2,657

 

 

$

1,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.17

 

 

$

0.16

 

 

$

0.34

 

 

$

0.32

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


 

 

 

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Loss) – Unaudited

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Net income

 

$

59,326

 

 

$

49,173

 

 

$

104,502

 

 

$

92,573

 

Other comprehensive income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized holding gains/(losses) on investment

    securities

 

 

33,568

 

 

 

(32,720

)

 

 

58,284

 

 

 

(17,059

)

Reclassification adjustment for realized investment (gains) losses

   included in net income

 

 

(3,219

)

 

 

(602

)

 

 

(2,332

)

 

 

(2,272

)

Foreign currency translation adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized foreign currency translation gains (losses)

    before income tax expense (benefit)

 

 

(1,167

)

 

 

3,157

 

 

 

14,869

 

 

 

(17,409

)

Total other comprehensive income (loss) before income taxes

 

 

29,182

 

 

 

(30,165

)

 

 

70,821

 

 

 

(36,740

)

Income tax expense (benefit) related to items of other comprehensive

   income (loss)

 

 

10,612

 

 

 

(11,627

)

 

 

19,741

 

 

 

(6,961

)

Other comprehensive income (loss), net of income taxes

 

 

18,570

 

 

 

(18,538

)

 

 

51,080

 

 

 

(29,779

)

Total comprehensive income

 

$

77,896

 

 

$

30,635

 

 

$

155,582

 

 

$

62,794

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

3


PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity – Unaudited

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Common stock:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

483

 

 

$

522

 

Repurchases of common stock

 

 

(21

)

 

 

(25

)

Net issuance of common stock

 

 

4

 

 

 

4

 

Balance, end of period

 

 

466

 

 

 

501

 

 

 

 

 

 

 

 

 

 

Paid-in capital:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

180,250

 

 

 

353,337

 

Share-based compensation

 

 

16,873

 

 

 

22,231

 

Net issuance of common stock

 

 

(4

)

 

 

(4

)

Repurchases of common stock

 

 

(94,294

)

 

 

(115,763

)

Adjustments to paid-in capital, other

 

 

-

 

 

 

136

 

Balance, end of period

 

 

102,825

 

 

 

259,937

 

 

 

 

 

 

 

 

 

 

Retained earnings:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

952,804

 

 

 

795,740

 

Net income

 

 

104,502

 

 

 

92,573

 

Dividends

 

 

(16,446

)

 

 

(16,873

)

Balance, end of period

 

 

1,040,860

 

 

 

871,440

 

 

 

 

 

 

 

 

 

 

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)

 

 

14,710

 

 

 

(17,214

)

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)

 

 

36,365

 

 

 

(12,565

)

Change in net unrealized investment losses other-than-temporarily impaired, net

   of income tax expense (benefit)

 

 

5

 

 

 

-

 

Balance, end of period

 

 

63,315

 

 

 

65,748

 

Total stockholders’ equity

 

$

1,207,466

 

 

$

1,197,626

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

4


PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows – Unaudited

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

104,502

 

 

$

92,573

 

Adjustments to reconcile net income to cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Change in future policy benefits and other policy liabilities

 

 

115,404

 

 

 

122,424

 

Deferral of policy acquisition costs

 

 

(183,145

)

 

 

(158,581

)

Amortization of deferred policy acquisition costs

 

 

81,849

 

 

 

72,595

 

Change in income taxes

 

 

36,306

 

 

 

27,522

 

Realized investment (gains) losses, including other-than-temporary impairments

 

 

(2,657

)

 

 

(1,881

)

Accretion and amortization of investments

 

 

(723

)

 

 

(984

)

Depreciation and amortization

 

 

7,108

 

 

 

5,373

 

Change in due from reinsurers

 

 

(17,062

)

 

 

(45,479

)

Change in premiums and other receivables

 

 

(24,443

)

 

 

(12,454

)

Trading securities sold, matured, or called (acquired), net

 

 

(2,658

)

 

 

(233

)

Share-based compensation

 

 

10,031

 

 

 

10,858

 

Change in other operating assets and liabilities, net

 

 

(20,611

)

 

 

(27,879

)

Net cash provided by (used in) operating activities

 

 

103,901

 

 

 

83,854

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Available-for-sale investments sold, matured or called:

 

 

 

 

 

 

 

 

Fixed-maturity securities — sold

 

 

69,925

 

 

 

63,584

 

Fixed-maturity securities — matured or called

 

 

137,044

 

 

 

148,730

 

Equity securities

 

 

3,297

 

 

 

1,920

 

Available-for-sale investments acquired:

 

 

 

 

 

 

 

 

Fixed-maturity securities

 

 

(133,604

)

 

 

(201,717

)

Equity securities

 

 

(986

)

 

 

(709

)

Purchases of property and equipment and other investing activities, net

 

 

(10,679

)

 

 

(4,956

)

Cash collateral received (returned) on loaned securities, net

 

 

20,419

 

 

 

13,687

 

Sales (purchases) of short-term investments using securities lending collateral, net

 

 

(20,419

)

 

 

(13,687

)

Net cash provided by (used in) investing activities

 

 

64,997

 

 

 

6,852

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Dividends paid

 

 

(16,446

)

 

 

(16,873

)

Common stock repurchased

 

 

(90,558

)

 

 

(109,712

)

Excess tax benefits on share-based compensation

 

 

1,448

 

 

 

4,259

 

Tax withholdings on share-based compensation

 

 

(3,757

)

 

 

(6,076

)

Cash proceeds from stock options exercised

 

 

-

 

 

 

136

 

Net cash provided by (used in) financing activities

 

 

(109,313

)

 

 

(128,266

)

 

 

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash

 

 

1,212

 

 

 

(2,475

)

Change in cash and cash equivalents

 

 

60,797

 

 

 

(40,035

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

152,294

 

 

 

191,997

 

Cash and cash equivalents, end of period

 

$

213,091

 

 

$

151,962

 

 

 

 

 

 

 

 

 

 

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 June 30, 2016 and December 31, 2015 and the statements of income and comprehensive income (loss) for the three and six months ended June 30, 2016 and 2015, and the statements of the stockholders' equity and cash flows for the six months ended June 30, 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 June 30, 2016.

Significant Accounting Policies. All significant accounting policies remain unchanged from the 2015 Annual Report.

New Accounting Principles. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces new guidance for accounting for credit losses on financial instruments within its scope by replacing the current approach that delays recognition until it is probable a loss has been incurred with a new approach that estimates an allowance for anticipated credit losses on the basis of an entity’s own expectations. The objective of the new approach for estimating credit losses is to require consideration of a broader range of forward-looking information, which is expected to result in earlier recognition of credit losses on financial instruments.  

Available-for-sale (“AFS”) debt securities are excluded from the scope of financial instruments that require measurement of credit losses on the basis of a forward-looking expected loss estimate under ASU 2016-13. The incurred probable loss approach for

 

6


measuring credit losses on AFS debt securities will remain under ASU 2016-13 but will be presented as an allowance rather than as a write-down. Therefore, an entity will be allowed to reverse credit losses previously recorded on AFS debt securities in situations where the estimate of credit losses on those securities has declined.  The amendments in ASU 2016-13 also preclude an entity from considering the length of time an AFS debt security has been in an unrealized loss position to avoid recording a credit loss and remove the requirement to consider recoveries or declines in fair value after the balance sheet date.  

 

The amendments in ASU 2016-13 are effective for the Company beginning in fiscal year 2020, with early adoption permitted beginning in fiscal year 2019. The Company is currently in the process of evaluating its impact on the Company’s consolidated financial statements.

 

Future Application of Accounting Standards. Recent accounting guidance not discussed above is not applicable, is immaterial to our financial statements, or did not or is not expected to have a material impact on our business. For additional information on new accounting pronouncements and recent accounting principles and their impact, if any, on our financial position or results of operations, see Note 1 (Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies) in our 2015 Annual Report and in the unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016.

 

(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 June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term life insurance segment

 

$

210,679

 

 

$

184,389

 

 

$

416,957

 

 

$

366,583

 

Investment and savings products segment

 

 

132,693

 

 

 

135,081

 

 

 

257,729

 

 

 

264,155

 

Corporate and other distributed products segment

 

 

35,872

 

 

 

31,047

 

 

 

67,519

 

 

 

64,625

 

Total revenues

 

$

379,244

 

 

$

350,517

 

 

$

742,205

 

 

$

695,363

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term life insurance segment

 

$

58,018

 

 

$

44,689

 

 

$

104,098

 

 

$

80,764

 

Investment and savings products segment

 

 

36,064

 

 

 

37,746

 

 

 

67,755

 

 

 

72,789

 

Corporate and other distributed products segment

 

 

(2,202

)

 

 

(5,610

)

 

 

(9,761

)

 

 

(9,918

)

Total income before income taxes

 

$

91,880

 

 

$

76,825

 

 

$

162,092

 

 

$

143,635

 

 

Total assets by segment were as follows:

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

Term life insurance segment

 

$

5,804,441

 

 

$

5,638,682

 

Investment and savings products segment(1)

 

 

2,419,043

 

 

 

2,157,548

 

Corporate and other distributed products segment

 

 

2,981,124

 

 

 

2,813,060

 

Total assets

 

$

11,204,608

 

 

$

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 $108.1 million and $93.8 million as of June 30, 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 $16.7 million and $4.1 million, respectively, for the three months ended June 30, 2015, and approximately $32.6 million and $8.2 million, respectively, for the six months ended June 30, 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.

 

7


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 June 30,

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Revenues by country:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

319,284

 

 

$

291,808

 

 

$

624,299

 

 

$

577,949

 

Canada

 

 

59,960

 

 

 

58,709

 

 

 

117,906

 

 

 

117,414

 

Total revenues

 

$

379,244

 

 

$

350,517

 

 

$

742,205

 

 

$

695,363

 

Income before income taxes by country:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

73,653

 

 

$

60,199