Protective Announces Second Quarter 2006 Earnings.BIRMINGHAM Birmingham, cities, United States Birmingham (bûr`mĭnghăm') 1 City (1990 pop. 265,968), seat of Jefferson co., N central Ala., in the Jones Valley near the southern end of the Appalachian system; founded and inc. , Ala ALA aminolevulinic acid. Ala alanine. ala (a´lah) pl. a´lae [L.] a winglike process. . -- Protective Life Corporation (NYSE NYSE See: New York Stock Exchange : PL) today reported results for the second quarter of 2006. Highlights include: --Net income increased 38.2% to $0.94 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to $0.68 per share in the second quarter of 2005. Included in the current quarter's net income were net realized investment losses of $0.01 per share, compared to net realized investment losses of $0.22 per share one year ago. --Operating income increased to $0.95 per diluted share, compared to $0.90 per share in the second quarter of 2005. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. differs from the GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measure, net income, in that it excludes realized investment gains (losses) and related amortization. The tables below reconcile operating income to net income for the Company and its business segments. --Life Insurance pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating income, which includes operating income from the Life Marketing and Acquisitions segments, was $70.2 million, an increase of 17.4% over the second quarter of 2005. Life insurance sales were $53.5 million compared to $69.7 million in the prior year's quarter. --Pretax operating income in the Annuities segment was $6.2 million in the current quarter compared to $8.1 million in the prior year. Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. sales were $217.8 million, an increase of 44.1% over the prior year's quarter. --The Stable Value Products segment reported pretax operating income of $11.8 million in the second quarter of 2006 compared to $13.5 million in the same period last year. --The Asset Protection segment reported pretax operating income of $8.9 million, an increase of 41.5% over the prior year's quarter. --Participating mortgage income increased to $9.2 million from $6.7 million in the second quarter of 2005. --As of June June: see month. 30, 2006, share-owners' equity per share, excluding accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as , was $31.37 compared with $28.14 a year ago. Share-owners' equity per share, including accumulated other comprehensive income, was $29.23 compared with $33.02 a year ago. --Operating income return on average equity for the twelve months ended June 30, 2006 was 12.9%. --Net income return on average equity for the twelve months ended June 30, 2006 was 13.4%. --At June 30, 2006, below investment grade securities were less than four percent of invested assets, and problem mortgage loans and foreclosed properties remained less than one percent of the commercial mortgage loan portfolio. John D. Johns, Protective's Chairman, President and Chief Executive Officer commented: "Our effort in the second quarter was focused on the completion of the Chase Insurance Group acquisition, which was completed in early July July: see month. . This is the most significant acquisition in the Company's history, and we are very excited about the opportunities it provides to grow earnings in our Acquisitions segment and our ongoing life and annuity marketing operations. We have re-established a solid competitive position in the term insurance market, and we expect to see our term application count and sales build as the year progresses. Sales of universal life products fell as expected as a result of pricing actions necessitated by AG38. We plan to introduce new, more competitive UL products in the fourth quarter, which should put us back in a solid competitive position. Sales of fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. increased during the quarter, and we expect to benefit in the second half from new sales through the Chase retail system. We reported another strong quarter in the Asset Protection segment, and the completion of the Western General acquisition is expected to be immediately accretive to earnings. We experienced lower unallocated investment income in the Corporate and Other segment as a result of the redeployment re·de·ploy tr.v. re·de·ployed, re·de·ploy·ing, re·de·ploys 1. To move (military forces) from one combat zone to another. 2. of capital to our operating lines. Overall, we continue to believe that we are positioned to benefit from our recent acquisitions, new product offerings and expanding distribution capacity. Although industry issues remain challenging, we see many opportunities to expand sales and grow our franchise." For information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc non-GAAP measures (operating income, share-owners' equity per share excluding other comprehensive income, operating return on average equity, and net income return on average equity) in this press release, please refer to the disclosure at the end of this press release. All per share results used throughout this press release are presented on a diluted basis, unless otherwise noted.
SECOND QUARTER CONSOLIDATED RESULTS
($ in thousands; net of income tax)
2Q2006 2Q2005
----------- ----------
Operating income $67,719 $63,412
Realized investment gains (losses) and
related amortization, net of certain
derivative gains (losses) (778) (15,381)
----------- ----------
Net Income $66,941 $48,031
=========== ==========
($ per share; net of income tax)
2Q2006 2Q2005
----------- ----------
Operating income $0.95 $0.90
Realized investment gains (losses) and
related amortization
Investments 0.04 0.05
Derivatives (0.05) (0.27)
----------- ----------
Net Income $0.94 $0.68
=========== ==========
BUSINESS SEGMENT OPERATING INCOME (LOSS) BEFORE INCOME TAX
The table below sets forth business segment operating income (loss)
before income tax for the periods shown:
OPERATING INCOME (LOSS) BEFORE INCOME TAX
($ in thousands)
2Q2006 2Q2005
------------ -----------
LIFE MARKETING $51,225 $38,332
ACQUISITIONS 18,958 21,473
ANNUITIES 6,150 8,145
STABLE VALUE PRODUCTS 11,800 13,484
ASSET PROTECTION 8,904 6,292
CORPORATE AND OTHER 6,848 9,380
------------ -----------
$103,885 $97,106
============ ===========
In the Life Marketing, Acquisitions, and Asset Protection segments, pretax operating income equals segment income before income tax for all periods. In the Annuities, Stable Value Products, and Corporate and Other segments, operating income excludes realized investment gains (losses) and related amortization as set forth in the table below.
($ in thousands) 2Q2006 2Q2005
----------- ----------
Operating income before
income tax $103,885 $97,106
Realized investment gains (losses)
Stable Value Contracts 710 2,085
Annuities 1,598 1,474
Corporate and Other (1,284) (22,983)
Less: periodic settlements on derivatives
Corporate and Other 674 2,960
Related amortization of deferred policy
acquisition costs
Annuities (1,549) (1,280)
----------- ----------
Income before income tax $102,686 $73,442
=========== ==========
Income before income tax (which, unlike operating income before income tax, does not exclude realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. (losses) net of the related amortization of deferred policy acquisition costs ("DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ") and participating income from real estate ventures) for the Annuities segment was $6.2 million for the second quarter of 2006 and $8.3 million in the second quarter of 2005. Income before income tax for the Stable Value segment was $12.5 million for the second quarter of 2006 compared to $15.6 million for the second quarter of 2005. Income before income tax for the Corporate and Other segment was $4.9 million for the second quarter of 2006 and a loss of $16.6 million for the second quarter of 2005. The sales statistics given in this press release are used by the Company to measure the relative progress of its marketing efforts. These statistics were derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from the Company's various sales tracking and administrative systems and were not derived from the Company's financial reporting systems or financial statements. These statistics attempt to measure only one of many factors that may affect future business segment profitability, and therefore are not intended to be predictive of future profitability.
SALES
The table below sets forth business segment sales for the
periods shown:
($ in millions)
2Q2006 2Q2005
--------- ---------
LIFE MARKETING $53.5 $69.7
ANNUITIES 217.8 151.2
STABLE VALUE PRODUCTS 124.5 451.8
ASSET PROTECTION 136.2 127.4
BUSINESS SEGMENT HIGHLIGHTS LIFE MARKETING: Pretax operating income for the Life Marketing segment was $51.2 million in the quarter, an increase of 33.6% over the prior year's quarter. The current quarter included positive unlocking of deferred policy acquisition costs ("DAC") related to universal life products partially offset by unfavorable mortality and certain one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. expenses in non-core marketing operations. The net effect of these items increased earnings approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $10.8 million. The remainder of the increase is primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to higher investment income due to the related growth in life insurance reserves and growth in business in-force due to strong sales in prior periods. Life insurance sales were $53.5 million for the quarter compared to $69.7 million in the second quarter of 2005. Term insurance sales in the current quarter were up 33.0% to $35.7 million. Universal life insurance sales in the second quarter of 2006 were $17.7 million compared to $42.8 million in the prior year's quarter. ACQUISITIONS: Pretax operating income in the Acquisitions segment was $19.0 million for the second quarter of 2006 compared to $21.5 million in the second quarter of 2005. The decrease in the quarter is primarily attributable to the run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → of the in-force block and lower investment income. Mortality was favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. by approximately $0.9 million, approximately $0.3 million less favorable than the same period last year. ANNUITIES: Pretax operating income in the Annuities segment was $6.2 million in the second quarter of 2006 compared to $8.1 million in the second quarter of 2005. The prior year's quarter included $5.0 million of positive DAC unlocking related to the fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. portfolio. Excluding the positive DAC unlocking in the prior year's quarter, the increase is primarily attributable to the increase in interest spreads, higher fees and lower DAC amortization. Mortality was $1.6 million unfavorable in the current quarter and was unchanged from the prior year's quarter. Total annuity sales increased 44.1% to $217.8 million in the second quarter of 2006. Variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. sales were $81.2 million in the second quarter of 2006 compared to $90.3 million in the second quarter of 2005. Fixed annuity sales were $136.6 million in the second quarter of 2006 compared to $60.8 million in the prior year's quarter. Included in fixed annuity sales for the second quarter of 2006 and 2005 were indexed annuity sales of $29.0 million and $6.6 million, respectively. Annuity account balances were $5.8 billion as of June 30, 2006. STABLE VALUE PRODUCTS: Pretax operating income in the Stable Value Products segment was $11.8 million in the second quarter of 2006 compared to $13.5 million in the second quarter of 2005. Spreads narrowed to 82 basis points in the second quarter of 2006 from 95 basis points in the second quarter of 2005. The decrease in spreads is attributable to higher credited interest. Average account balances ended the quarter at $5.9 billion, an increase of approximately $0.1 million over the same period in the prior year. ASSET PROTECTION: The Asset Protection segment had pretax operating income of $8.9 million for the second quarter of 2006 compared to $6.3 million in the prior year's quarter. The improvement over the prior year's quarter is primarily attributable to higher volumes and lower loss ratios. CORPORATE & OTHER: This segment consists primarily of net investment income on unallocated capital, interest expense on all debt, various other items not associated with the other segments and ancillary Subordinate; aiding. A legal proceeding that is not the primary dispute but which aids the judgment rendered in or the outcome of the main action. A descriptive term that denotes a legal claim, the existence of which is dependent upon or reasonably linked to a main claim. run-off lines of business. The segment reported pretax operating income of $6.8 million in the second quarter of 2006 compared to $9.4 million in the second quarter of 2005. The decrease is primarily attributable to an increase in interest expense and corporate overhead, partially offset by higher participating mortgage income and investment income on unallocated capital and improved results in certain run-off lines. Total participating mortgage income was $9.2 million in the second quarter of 2006 compared to $6.7 million in the prior year's quarter. Investment income on unallocated capital was $21.2 million compared to $18.3 million in the second quarter of 2005. Interest expense increased $4.2 million in the second quarter of 2006 compared to the prior year's quarter. CONFERENCE CALL There will be a conference call for management to discuss the quarterly results with analysts and professional investors on August 2, 2006 at 9:00 a.m. Eastern. Analysts and professional investors may access this call by calling 1-800-895-1549 (international callers 1-785-424-1057 and giving the conference ID: Protective. A recording of the call will be available from 12:00 p.m. Eastern August 2 until midnight August 9. The recording may be accessed by calling 1-800-925-9527 (international callers 1-402-220-5388). The public may listen to a simultaneous webcast of the call on the homepage See home page. of the Company's web site at www.protective.com. A recording of the webcast will also be available from 12:00 p.m. Eastern August 2 until midnight August 9. Supplemental financial information is available on the Company's web site at www.protective.com in the Analyst/Investor section under the financial report library titled Supplemental Financial Information. INFORMATION RELATING TO NON-GAAP MEASURES Throughout this press release, GAAP refers to accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, . Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: and segment operating income are defined as income before income tax excluding net realized investment gains (losses) net of the related amortization of deferred policy acquisition costs ("DAC") and participating income from real estate ventures, and the cumulative effect of change in accounting principle. Periodic settlements of derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. associated with corporate debt and certain investments and annuity products are included in realized gains (losses) but are considered part of consolidated and segment operating income because the derivatives are used to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. risk in items affecting consolidated
and segment operating income. Management believes that consolidated and
segment operating income provides relevant and useful information to
investors, as it represents the basis on which the performance of the
Company's business is internally assessed. Although the items
excluded from consolidated and segment operating income may be
significant components in understanding and assessing the Company's
overall financial performance, management believes that consolidated and
segment operating income enhances an investor's understanding of
the Company's results of operations by highlighting the income
(loss) attributable to the normal, recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. operations of the Company's business. As prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by GAAP, certain investments are recorded at their market values with the resulting unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. (losses) affected by a related adjustment to DAC, net of income tax, reported as a component of share-owners' equity. The market values of fixed maturities increase or decrease as interest rates change. The Company believes that an insurance company's share-owners' equity per share may be difficult to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. without disclosing the effects of recording accumulated other comprehensive income, including unrealized gains (losses) on investments.
RECONCILIATION OF SHARE-OWNERS' EQUITY PER SHARE EXCLUDING
ACCUMULATED OTHER COMPREHENSIVE INCOME PER SHARE
($ per common share outstanding as of June 30, 2006)
Total share-owners' equity per share $29.23
Less: Accumulated other comprehensive income per share (2.14)
---------
Total share-owners' equity per share
excluding accumulated other comprehensive income $31.37
=========
Operating income return on average equity and net income return on average equity are measures used by management to evaluate the Company's performance. Operating income return on average equity for the twelve months ended June 30, 2006 is calculated by dividing operating income for this period by the average ending balance of share-owners' equity (excluding accumulated other comprehensive income) for the five most recent quarters. Net income return on average equity for the twelve months ended June 30, 2006, is calculated by dividing net income for this period by the average ending balance of share-owners' equity (excluding accumulated other comprehensive income) for the five most recent quarters.
CALCULATION OF OPERATING INCOME RETURN ON AVERAGE EQUITY
ROLLING TWELVE MONTHS ENDED JUNE 30, 2006
($ in thousands)
Numerator:
Rolling
Three Months Ended Twelve
------------------------------------ Months
Ended
Sept. 30, Dec. 31, March 31, June 30, June 30,
2005 2005 2006 2006 2006
--------- ------- ------- ------- --------
Net income $69,891 $68,562 $72,137 $66,941 $277,531
Net of:
Realized investment
gains (losses), net of
income tax
Investments 2,347 1,704 (113) 4,222 8,160
Derivatives 4,980 (3,772) 9,092 (3,556) 6,744
Related amortization of
deferred policy
acquisition costs,
net of income tax benefit (105) (684) --- (1,007) (1,796)
Add back:
Derivative gains related
to Corp. debt and
investments net of
income tax 1,805 1,281 865 437 4,388
--------- ------- ------- ------- --------
Operating Income $64,474 $72,595 $64,023 $67,719 $268,811
========= ======= ======= ======= ========
Denominator:
Share-Owners'
Accumulated Equity Excluding
Other Accumulated Other
Share-Owners' Comprehensive Comprehensive
Equity Income Income
------------- ------------- ----------------
June 30, 2005 $2,299,265 $339,778 $1,959,487
September 30, 2005 2,200,866 184,511 2,016,355
December 31, 2005 2,183,660 105,220 2,078,440
March 31, 2006 2,104,270 (35,242) 2,139,512
June 30, 2006 2,043,711 (149,324) 2,193,035
Total $10,386,829
================
Average $2,077,366
================
Operating Income Return on Average Equity 12.9%
CALCULATION OF NET INCOME RETURN ON AVERAGE EQUITY
ROLLING TWELVE MONTHS ENDED JUNE 30, 2006
($ in thousands)
Numerator:
Net income - three months ended September 30, 2005 $69,891
Net income - three months ended December 31, 2005 68,562
Net income - three months ended March 31, 2006 72,137
Net income - three months ended June 30, 2006 66,941
-----------
Net income - rolling twelve months ended June 30, 2006 $277,531
===========
Denominator: Share-Owners'
Accumulated Equity Excluding
Other Accumulated Other
Share-Owners' Comprehensive Comprehensive
Equity Income Income
------------- ------------- --------------
June 30, 2005 2,299,265 339,778 $1,959,487
September 30, 2005 2,200,866 184,511 2,016,355
December 31, 2005 2,183,660 105,220 2,078,440
March 31, 2006 2,104,270 (35,242) 2,139,512
June 30, 2006 2,043,711 (149,324) 2,193,035
--------------
Total $10,386,829
==============
Average $2,077,366
==============
Net Income Return on Average Equity 13.4%
FORWARD-LOOKING STATEMENTS forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This release and the supplemental financial information provided includes "forward-looking statements" which express expectations of future events and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and the Company cannot give assurance that such statements will prove to be correct. The factors which could affect the Company's future results include, but are not limited to, general economic conditions and the following known trends and uncertainties: the Company is exposed to the risks of natural disasters, malicious Involving malice; characterized by wicked or mischievous motives or intentions. An act done maliciously is one that is wrongful and performed willfully or intentionally, and without legal justification. DESERTION, MALICIOUS. and terrorist acts that could adversely affect the Company's operations; the Company operates in a mature, highly competitive industry, which could limit its ability to gain or maintain its position in the industry; a ratings downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. could adversely affect the Company's ability to compete; the Company's policy claims fluctuate from period to period, and actual results could differ from its expectations; the Company's results may be negatively affected should actual experience differ from management's assumptions and estimates; the use of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. introduces variability in the Company's statements of income; the Company could be forced to sell investments at a loss to cover policyholder Policyholder An individual who owns an insurance policy. withdrawals; interest rate fluctuations could negatively affect the Company's spread income or otherwise impact its business; equity market volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the could negatively impact the Company's business; a deficiency A shortage or insufficiency. The amount by which federal Income Tax due exceeds the amount reported by the taxpayer on his or her return; also, the amount owed by a taxpayer who has not filed a return. in the Company's systems could result in over or underpayments of amounts owed to or by the Company and/or errors in the Company's critical assumptions or reported financial results; insurance companies are highly regulated reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. and subject to numerous legal restrictions and regulations; the Company is exposed to potential risks from recent legislation requiring companies to evaluate their internal controls over financial reporting; changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products; financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. companies are frequently the targets of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , including class action litigation, which could result in substantial judgments; the financial services industry is sometimes the target of law enforcement investigations and the focus of increased regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. scrutiny Scrutiny (Fr. scrutin, Late Lat. scrutinium, from scrutari, to search or examine thoroughly) is a careful examination or inquiry (as though there was a mistake). ; the Company's ability to maintain low unit costs is dependent upon the level of new sales and persistency of existing business; the Company's investments are subject to market and credit risks; the Company may not realize its anticipated financial results from its acquisitions strategy; the Company is dependent on the performance of others; the Company's reinsurers could fail to meet assumed obligations, increase rates, or be subject to adverse developments that could affect the Company; computer viruses or network security breaches could affect the data processing data processing or information processing, operations (e.g., handling, merging, sorting, and computing) performed upon data in accordance with strictly defined procedures, such as recording and summarizing the financial transactions of a systems of the Company or its business partners; the Company's ability to grow depends in large part upon the continued availability of capital; and new accounting rules or changes to existing accounting rules could negatively impact the Company. Please refer to Exhibit 99 of the Company's most recent Form 10-K/10-Q for more information about these factors which could affect future results. |
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