Item 3. Legal Proceedings.
As previously reported in the Company's Report on Form 10-Q for the quarter ended September 30, 1996, in November 1981, the Company filed a third amended complaint against Louis Wilcox and other former officers of USLIFE Savings and Loan Association, a former subsidiary of the Company, for indemnification, injunctive relief and accounting (USLIFE Savings and Loan Association v. Louis Wilcox, et al., Superior Court of the State of California for the County of Riverside). In April 1984, defendant Louis M. Wilcox filed a cross complaint against the Company seeking general damages of $1 million, punitive damages of $10 million and special damages. In 1986, Wilcox's causes of action for malicious prosecution and abuse of process were dismissed. On appeal, the dismissal of the cause of action for malicious prosecution was reversed while the dismissal of the abuse of process claim was upheld. Pursuant to the Company's request, the case was bifurcated for trial. In July, 1993, the trial court, after hearing evidence on the issue, without a jury, decided that the Company had probable cause to sue Wilcox in 1981. That ruling was dispositive of the claim for malicious prosecution and, thus, the Court dismissed Wilcox's only remaining claim against the Company. A judgment in the Company's favor was entered in late 1993. Wilcox appealed from this judgment and in November 1996, the Court of Appeals issued a decision reversing the trial court's dismissal of Wilcox's claim. The Company has petitioned the California Supreme Court for review which if rejected, will result in the case being returned to the trial court for a jury trial. No contingent loss has been accrued for this litigation because the amount of loss, if any, cannot be reasonably estimated.
As previously reported in the Company's Report on Form 10-K for the year ended December 31, 1995, on November 17, 1994, a purported class action (Smith, et al. v. USLIFE Credit Life Insurance Company, et al.) was filed against three subsidiaries of the Company in the United States District Court for the Northern District of Illinois. The Complaint alleges that in connection with purchases by plaintiffs of single premium term life insurance from mortgage lenders in connection with second mortgage loans, defendants misrepresented the type of insurance offered as credit life insurance and sold the term life insurance at premiums in excess of those permitted for credit life insurance. The Complaint further alleges that upon prepayment of mortgage loans plaintiffs did not receive refunds of unearned premiums, which they would have been entitled to receive had they purchased credit life insurance. On July 27, 1995, the parties filed a Stipulation of Dismissal of plaintiffs' claims against USLIFE Credit Life Insurance Company and Security of America Life Insurance Company, leaving the matter pending against only All American Life Insurance Company. The parties have agreed to a settlement of all claims asserted and the settlement was given tentative approval by the Court on December 20, 1995. Under the terms of the Settlement Agreement, class members will be notified of their right to file claims for partial premium refunds. The settlement would resolve all claims against the Company's subsidiaries in this lawsuit as well as the claims asserted by plaintiffs in two cases previously reported in the Company's Report on Form 10-Q for the quarter ended September 30, 1995, which have been terminated without prejudice (Hoban v. USLIFE Credit Life Insurance Company, All American Life Insurance Company and Security of America Life Insurance Company, and Grant, et al. v. USLIFE Credit Life Insurance Company and Security of America Life Insurance Company). A list of potential class members is being compiled. In the opinion of management, the ultimate resolution of this action in accordance with the terms of the Settlement Agreement will not result in a material additional liability on the part of the Company.
As previously reported in the Company's Report on Form 10-K for the year ended December 31, 1995, on March 16, 1995, a purported class action (Dana Galloway v. USLIFE Credit Life Insurance Company) was filed in the Circuit Court of Fayette County, Alabama. The complaint alleges that defendant, a subsidiary of the Company, issued insurance contracts in an amount sufficient to cover the gross amount of indebtedness, rather than the net amount of indebtedness, contrary to Alabama law. The complaint contains claims of fraud and breach of contract based on allegations that defendant misrepresented the amount of insurance needed. Plaintiffs seek compensatory and punitive damages. In a similar case, McCullar v. Universal Underwriters, the Alabama Supreme Court recently ruled that as a matter of law, providing gross credit life insurance coverage was at most, an innocent fraud and would not support an award of punitive damages. Defendant contends that its sale of insurance covering the gross amount of indebtedness was done in reliance on regulations promulgated by the Insurance Department of the State of Alabama and is aggressively defending the case. No contingent loss has been accrued for this litigation because the amount of loss, if any, cannot be reasonably estimated.
In March, 1997, a purported class action was commenced in the Supreme Court of the State of New York, in which USLIFE Corporation and its directors were named defendants. The complaint generally alleges a purported breach of fiduciary duty and other unspecified claims arising out of the signing of a definitive merger agreement by the Company and American General Corporation. The complaint seeks an injunction to prevent the Company from consummating the merger, rescission if the merger is completed, compensatory damages and attorneys' and other fees. The defendants are not yet required to answer the complaint but contend that this lawsuit has no merit.
Two purported class action lawsuits have recently been filed against the Company or its subsidiaries. The first lawsuit filed against the Company and a subsidiary asserts claims related to sales practices of certain life insurance products. The second lawsuit filed against two subsidiaries (and 28 other insurance companies) asserts claims related to policy issuance procedures. These lawsuits are in their very early stages, it is premature to evaluate their materiality and these cases are being vigorously defended.
In addition to the aforementioned legal proceedings, the Company and its subsidiaries are parties to various routine legal proceedings incidental to the conduct of their business. Based on currently available information, in the opinion of management, it is not probable that the ultimate resolution of these suits will result in a material liability on the part of the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
USLIFE's Common Stock is traded on the New York, Chicago, Pacific and London Stock Exchanges. Dividends for the years ended December 31, 1996 and 1995 have been declared and paid quarterly to Common Stockholders at the annual rates of $.95 and $.91 respectively. As of February 27, 1997 there were approximately 8,100 record holders of the Common Stock. The following table sets forth the high and low sales prices for the Common Stock as reported in the consolidated transaction system for each quarterly period during the years indicated.
MARKET PRICE RANGES (low to high)
1996 1995 ____ ____
First quarter...... 29.00 - 33.25 22.58 - 25.58 Second quarter..... 26.88 - 33.25 24.67 - 27.67 Third quarter...... 28.88 - 32.88 26.17 - 31.58 Fourth quarter..... 29.63 - 33.50 26.88 - 32.00
See Note 18 of Notes to Financial Statements and Management's Discussion and Analysis of "Liquidity" herein, for information concerning regulatory restrictions upon payment of dividends by the Life Insurance Subsidiaries to the Company.
During the quarter ended December 31, 1996, the Company issued 126 shares (in the aggregate) of its common stock, in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, to the Company's non-employee Directors in connection with their retainer and meeting compensation.
Item 8.

Item 8. Financial Statements and Supplementary Data.
See separate Index to Financial Statements and Financial Statement Schedules on page 66. See Note 21 of Notes to Financial Statements as to condensed quarterly results of operations.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
Executive Officers of the Registrant
The executive officers of USLIFE are listed below. The executive officers, after their initial election, are elected at USLIFE's annual Board of Directors meeting to serve, unless removed, until the next such annual meeting.
(1) Mr. Crosby has served as Chairman of USLIFE Corporation since March 21, 1967 and as Chief Executive Officer from June 6, 1971 to December 31, 1994. Mr. Crosby served as President of USLIFE Corporation from November 1966 to June 1971; from October 1974 to March 1976; from January 1984 to November 1987; from December 1988 to May 1993; and from April 1994 to December 1994.
All of USLIFE's executive officers devote their full time to the business of USLIFE or its subsidiaries.
Messrs. Bushey, Forte, Chouinard, Faulkner, and Hendricks have served in their present positions for more than five years.
Mr. Henderson was elected Vice Chairman and Chief Executive Officer in February 1996. He previously served as Vice Chairman and Chief Financial Officer since 1983.
Mr. Ruisi was elected President and Chief Operating Officer in February 1996. He previously served as Vice Chairman and Chief Administrative Officer from May 1993 until that date and has been a Director since November 1992. Prior to May 1993, he served as Senior Executive Vice President - Administration since 1990.
Mr. Simpson was elected President and Chief Executive Officer of Old Line Life in April 1996. He previously served as President and Chief Executive Officer of USLIFE Corporation from January 1995 until February 1996 and as President-Life Insurance Division from that date to April 1996, serving as a Director since March 1990. He served as President and Chief Executive Officer of All American Life from April 1990 to October 1994 and as President - Chief Operating Officer of the life insurance division of USLIFE Corporation from April 1994 to December 1994.
Mr. Schlomann was elected Senior Executive Vice President-Chief Financial Officer in November 1996. He previously served as Executive Vice President- Finance from February 1996. Prior to that date, he served as Executive Vice President-Financial Operations since joining USLIFE Corporation in October 1993. Previously, he served as Senior Vice President and Controller with Frank B. Hall & Co., Inc. since 1986.
Mr. Addiego was elected Executive Vice President - Financial Actuary in February 1997. He previously served as Senior Vice President - Financial Actuary since May 1994, and prior to that date as Vice President - Financial Actuary since joining USLIFE in September 1992. Prior to joining USLIFE, Mr. Addiego was Vice President - Actuary with Mutual Benefit Life Insurance Company since 1990.
Mr. Dicke has served as Executive Vice President - Product Actuary since April 1992. He previously served as Vice President and Actuary for The Equitable Life Assurance Society since April 1991, and as Consultant and Actuary with Tillinghast, a Towers Perrin Company, from 1988 to 1991.
Mr. Gavrity was elected Executive Vice President - Chief Actuary in February 1997. He previously served as Executive Vice President - Financial Actuary since 1991.
Mr. LeFante was elected Executive Vice President - Administration in February 1996. He previously served as Senior Vice President - Audit and Control since September 1991. Prior to that date, he served as Vice President - - Audit and Control since 1990.
Mr. Stern was elected Executive Vice President - Controller in February 1997. He previously served as Senior Vice President - Controller since January 1996, as Senior Vice President Accounting since May 1993 and as Vice President - - Accounting since 1984.
Mr. Hohn has served as Senior Vice President - Investor Relations, Secretary and Counsel since October 1994. He previously served as Senior Vice President - Corporate Secretary and Counsel since May 1993, and as Vice President - Corporate Secretary since April 1991. Prior to that date, he served as consultant to the Life Insurance Council of New York, Inc., a trade association of New York life insurance companies, since 1990.
Mr. Auriemmo has served as Senior Vice President and Treasurer since May 1995. He previously served as Vice President and Treasurer since 1984.
Mr. Bickler has served as President and Chief Executive Officer of All American Life since May 1995. He previously served as President - Chief Operating Officer of All American Life since October 1994. Prior to that date, he served as Executive Vice President - Marketing with that subsidiary since 1990.
Mr. Cargiulo has served as President and Chief Executive Officer of United States Life since May 1993. He previously served as President- Chief Operating Officer of United States Life since October 1991. Prior to that date, he served as Executive Vice President for individual underwriting and insurance services of that subsidiary since 1990.
Mr. Keeler has served as President and Chief Executive Officer of USLIFE Credit Life since May 1995. He previously served as Senior Executive Vice President - Marketing of that subsidiary since May 1994. Prior to joining USLIFE Credit Life at that time, he served as President - Chief Operating Officer of Consolidated Insurance Group of America, Inc. from August 1992. He previously served as Executive Vice President - Chief Operating Officer of Domestic Insurance Operations and a member of the board of directors of AVCO Financial Services from 1989 to 1992.
Directors of the Registrant
Information regarding directors of the Registrant is set forth below.
NAME, PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS DIRECTOR AND OTHER INFORMATION, AGE SINCE ________________________________ __________
DR. KENNETH BLACK, JR. 11/30/73
Regents' Professor Emeritus of Insurance and Dean Emeritus, College of Business Administration, Georgia State University, Atlanta, GA; Vice Chairman, International Insurance Society, Inc., Tuscaloosa, AL; Director, SwissRe America, SwissRe Life Company America, Swiss Reinsurance America Corporation, NY, NY, reinsurance; Trustee, Scudder Variable Life Investment Fund, Boston, MA, investment company. Former Director: Haverty Furniture Companies, Inc., Atlanta, GA, retail furniture stores; Alexander and Alexander Services, Inc., insurance broker; Computone Systems, Inc., Atlanta, GA, computer systems and services; Paul Manners & Associates, Inc., Atlanta, GA, management consultants; Cousins Properties, Inc., Atlanta, GA, real estate developers. Age 72. (1)
DR. WILLIAM J. CATACOSINOS 5/17/94
Chairman of the Board and Chief Executive Officer, Long Island Lighting Company, Hicksville, NY, public utility. Director: First National Bank of Long Island, Glen Head, NY, commercial bank; Edison Electric Institute, Washington, DC, electric utility company trade association; Long Island Association, Commack, NY, regional chamber of commerce; Business Alliance for a New, New York Inc., NY, NY. Member: Advisory Committee, Leadership Huntington, Huntington, NY, non-profit civic program for existing and emerging leaders; Engineering 2000 Industrial Advisory Board, Stony Brook, NY, advancement of SUNY College of Engineering. Age 66. (2)
GORDON E. CROSBY, JR. 11/15/66
Chairman of the Board and Chairman of the Executive Committee, USLIFE Corporation; Chairman of the Board, USLIFE Corporation subsidiaries; Chairman of the Board, USLIFE Income Fund, Inc., NY, NY, diversified, closed-end management investment company. Member: Tax Data Base Subcommittee of the Steering Committee on Federal Taxation, American Council of Life Insurance, Washington, DC. Formerly, Chairman of the Board, President and Chief Executive Officer, USLIFE Corporation; Former Member, National Advisory Board, Chase Manhattan Bank, NY, NY, commercial bank; Former Director: Thomas J. Lipton, Inc., Englewood Cliffs, NJ, manufacturer of food products; The United Kingdom Fund, Inc., NY, NY, diversified, closed-end management investment company; Health Insurance Association of America, Washington, DC; American Council of Life Insurance, Washington, DC; Life Insurance Council of New York, Inc., NY, NY. Former Trustee, Pace University, NY, NY. Age 76. (3)(4)
AUSTIN L. D'ALTON 2/26/91
Retired Executive Vice President, Leland Distributing Co., St. Louis, MO, Seiko watches. Formerly: Executive Vice President, Renfield Corporation, NY, NY, liquor importer; Vice President, Sheaffer Pen Co., Ft. Madison, IA, writing instruments; Executive Vice President, the Marschalk Company, advertising agency, part of the Interpublic Group, NY, NY; Director, The United States Life Insurance Company In the City of New York, NY, NY, insurance. Age 70. (2)
CHARLES A. DAVIS 5/17/94
Senior Director and Limited Partner, Goldman, Sachs & Co., NY, NY, investment banking; Director and Member of the Executive Committee, Lechters, Inc., Harrison, NJ, retailer of kitchenware; Director and Chairman of the Audit Committee, Media General, Inc., Richmond, VA, diversified communications company; Director, Merchants Bancshares, Inc., Burlington, VT, retail bank; Trustee: Charles and Marna Davis Foundation, NY, NY, private charitable foundation; Boys and Girls Club of Greenwich, CT; Director and Member of the Executive Committee, Heilig-Meyers, Richmond, VA, home furnishings retailer; Director and Member of the Audit Committee, The Progressive Corporation, Mayfield, OH, insurance; Former General Partner, Goldman, Sachs & Co. Age 48. (1)(4)
DR. WILLIAM C. FREUND 3/26/96
New York Stock Exchange Professor of Economics and Director of the Center for the Study of Equity Markets, Lubin Graduate School of Business, Pace University, NY, NY; Chief Economist Emeritus, New York Stock Exchange, Inc., NY, NY. Formerly: Chief Economist and Director of Investment Research, The Prudential Insurance Company of America, Newark, NJ, insurance; Director, Ecogen, Inc., Langhorne, PA, agricultural biotechnology research and development; Economic Adviser (pro bono) to four Governors of the State of New Jersey. Age 70. (1)
JOHN R. GALVIN 2/28/95
Dean, Fletcher School of Law & Diplomacy, Tufts University, Medford, MA; Director: Raytheon Company, Lexington, MA, high technology; J & W Seligman & Co., NY, NY, investment banking; Chairman of the American Council on Germany; Member of the Board: the Atlantic Council; the Center for Creative Leadership and the National Committee on United States-China Relations. Member, Board of Trustees, Institute for Defense Analyses. Formerly: Distinguished Policy Analyst, The Mershon Center, The Ohio State University, Columbus, OH; Four-Star General, U.S. Army and Supreme Allied Commander, Europe, NATO: Brussels, Belgium and Commander-in-Chief, United States European Command, Stuttgart, Germany; U.S. Ambassador and Envoy to assist with peace negotiations in Bosnia; Olin Distinguished Professor of National Security, United States Military Academy, West Point, NY; Former Consultant to several corporations, including Grumman Aerospace and Thomson CSF. Age 67. (1)
ROBERT E. GRANT 2/28/95
Retired Chairman of the Executive Committee and Former Director, American Bakeries Company, Chicago, IL, wholesale baking company; Director, The Northland Company, St. Paul, MN, casualty insurance. Formerly: President, Grant Capital Management Corporation, Providence, RI, venture capital; Group Vice President, Textron, Inc., Providence, RI, diversified manufacturer; Financial Vice President, Plough, Inc. (now Schering-Plough, Inc.), Memphis, TN, pharmaceuticals manufacturer. Former Director: The Outlet Company, Providence, RI, retailer with broadcast properties; Pyle-National, Chicago, IL, electronic parts company; Interstate United, Chicago, IL, food service company. Consultant to various companies, Lake Placid, NY. Age 72. (2)
GREER F. HENDERSON 2/22/83
Vice Chairman and Chief Executive Officer, USLIFE Corporation; Director: The United States Life Insurance Company In the City of New York, NY, NY, insurance; other USLIFE Corporation subsidiaries; USLIFE Income Fund, Inc., NY, NY, diversified, closed-end management investment company. Formerly, Vice Chairman and Chief Financial Officer, USLIFE Corporation. Age 65. (3)
ROBERT H. OSBORNE 2/28/95
Retired President and Chief Executive Officer, Osborne, Post & Kurtz, Inc., a division of Minet International Professional Indemnity Group, NY, NY, professional liability insurance. Formerly: Member of Minet London -- International Management Committee; Senior Vice President, Minet Professional Indemnity Corporation, London, England, professional liability insurance. Age 65. (1)
JOHN W. RIEHM 11/22/77
Chairman, R/G Ventures, Inc., Fort Lee, NJ, investments and venture capital; Retired Director: The United States Life Insurance Company In the City of New York, NY, NY, insurance; Unilever United States, Inc., NY, NY, manufacturer of consumer products; Retired Senior Vice President-Administration, Secretary and Director, Thomas J. Lipton, Inc., Englewood Cliffs, NJ, manufacturer of food products. Age 76. (1)(3)
CHRISTOPHER S. RUISI 11/17/92
President and Chief Operating Officer, USLIFE Corporation; Executive Vice President-Administration and Director, The United States Life Insurance Company In the City of New York, NY, NY, insurance. Formerly: Vice Chairman and Chief Administrative Officer, USLIFE Corporation; Senior Executive Vice President-Administration, USLIFE Corporation; Senior Vice President-Administration, The United States Life Insurance Company In the City of New York. Age 47.
FRANKLIN R. SAUL 10/23/90
Director and Retired President, Emigrant Savings Bank, NY, NY, savings bank; Former Director: The United States Life Insurance Company In the City of New York, NY, NY, insurance; USLIFE Income Fund, Inc., NY, NY, diversified, closed-end management investment company. Treasurer and Chairman of the Investment Committee, The Children's Aid Society. Age 67. (2)
ROBERT L. SHAFER 3/24/87
Former Vice President-Public Affairs, Pfizer Inc., NY, NY, manufacturer of pharmaceuticals and chemicals; Director: Seligman Capital Fund, Inc.; Seligman Cash Management Fund, Inc.; Seligman Common Stock Fund, Inc.; Seligman Growth Fund, Inc.; Seligman Income Fund, Inc.; Liberty Cash Management Fund, Inc.; Seligman Communications and Information Fund, Inc.; Seligman Frontier Fund, Inc.; Seligman Tax-Exempt Fund Series, Inc., open-end investment companies; Tri-Continental Corporation, closed-end investment fund. Trustee: Seligman California Tax-Exempt Fund Series; Seligman High Income Fund Series, open-end investment funds. Member, Nomination Committee and Executive Committee, The Seligman Funds. Age 64. (2)(5)(3)
DR. WILLIAM G. SHARWELL 5/17/77
Director: American Biogenetic Sciences, Inc., Notre Dame, IN, genetic engineering and biochemical research and development; Equitable Capital Partners, L.P. and Equitable Capital Partners (Retirement Fund) L.P., NY, NY, business development and investments; TII Industries, Inc., Copiague, NY, manufacturer of telecommunications equipment and specialized electronic devices. Formerly: President, Chief Executive Officer and Trustee, Pace University, NY, NY; Senior Vice President, American Telephone & Telegraph Co., NY, NY, electronic communications; Director, The United States Life Insurance Company In the City of New York, NY, NY, insurance. Age 76. (2)(5)(3)
WILLIAM A. SIMPSON 3/28/90
President and Chief Executive Officer, The Old Line Life Insurance Company of America, Milwaukee, WI, insurance; Director: The United States Life Insurance Company In the City of New York, NY, NY, insurance; Life Insurance Marketing and Research Association, Hartford, CT. Formerly: President -- Life Insurance Division, USLIFE Corporation; President and Chief Executive Officer, USLIFE Corporation; Vice Chairman and Chief Executive Officer, All American Life Insurance Company, Chicago, IL, insurance; President and Chief Operating Officer -- Life Insurance Division, USLIFE Corporation; President, Chief Executive Officer and Director, All American Life Insurance Company; Director, USLIFE Income Fund, Inc., NY, NY, diversified, closed-end management investment company. Age 58.
DR. BERYL W. SPRINKEL 1/24/89
Consulting economist, B.W. Sprinkel Economics; Former Chairman, Council of Economic Advisers and Cabinet Member under President Ronald W. Reagan; Currently: Board of Senior Advisors, Novecon Corp., Washington, DC, business development and investments for Eastern and Central European countries; Consultant, Financial Investors, Inc., NY, NY, registered investment adviser; Board of Directors, Duff & Phelps Utilities Income Inc., Chicago, IL, closed- end diversified management investment company. Formerly: Under Secretary of the Treasury for Monetary Affairs; Executive Vice President and Economist, Harris Trust and Savings Bank, Chicago, IL; Chairman, Economic Advisory Committee of the American Bankers Association; Member of the Board of Directors, United States Chamber of Commerce; Member of the Board of Economists, Time Magazine; Consultant to various government agencies and congressional committees. Age 73. (2)
(1) Member of the Audit Committee.
(2) Member of the Executive Compensation and Nominating Committee.
(3) Member of the Executive Committee.
(4) Committee Chairman.
(5) Committee Co-Chairman.
Section 16(a) Beneficial Ownership Reporting Compliance
The Corporation notes that James A. Griffin, formerly President and Chief Executive Officer of The Old Line Life Insurance Company of America, sold shares of common stock in four separate transactions in 1996 but inadvertently failed to timely file a report on Form 4 for the transactions as required by Section 16(a).
Item 11.

Item 11. Executive Compensation.
Directors' Compensation
Directors who are also officers of the Corporation or its subsidiaries serve on the Board and committees thereof without additional compensation. The other members of the Corporation's Board of Directors receive $750 for each Board meeting attended in addition to an annual retainer of $20,000, of which $5,000 is paid in shares of common stock. Committee members receive $750 for each committee meeting attended and committee chairmen receive $850 for each committee meeting attended. Directors may elect to receive all or part of the cash portion of their compensation in shares of the Corporation's common stock. Pursuant to the Non-Employee Directors' Stock Option Plan, which was approved by the shareholders at the 1994 Annual Meeting, each year non-employee directors are automatically granted options to purchase 3,000 shares of the Corporation's common stock (as adjusted for the Corporation's 3-for-2 stock split effective September 1, 1995) at a purchase price equal to 100% of the stock's fair market value on the grant date. Only non-statutory options not entitled to special tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), may be granted under the Plan. The full purchase price must be paid in cash when an option is exercised. Options vest and become exercisable one year after the date of their grant and expire 10 years after such date. An option may not be transferred except by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. All options contain special provisions limiting the time during which they may be exercised following the death of the optionee or termination of the optionee's service as a director under certain circumstances.
The Corporation provides each non-employee director with Group Life, Accidental Death and Dismemberment and Business Travel Accident insurance. The coverage for each of these benefits is $50,000. The estimated average cost per director is $1,000 per year. Upon retirement the $50,000 coverage is reduced to $45,000 and remains at that level for the first year of retirement, thereafter declining $5,000 a year in the next four years to a minimum of $25,000 in the fifth retirement year, with said minimum $25,000 coverage to continue for the director's lifetime. Non-employee directors are also eligible to participate in the Corporation's Individual Discount Insurance Program, and in the Corporation's Matching Gift Program, whereby the Corporation matches gifts by directors to educational institutions and certain charities of up to $1,000 per year.
Under the Corporation's Non-Employee Directors' Deferred Compensation Plan, non-employee directors may elect to defer payment of all or part of their annual compensation until termination of their services as directors. Deferred amounts currently accrue an interest equivalent calculated at the rate of 1.4375% quarterly, unless the director has elected to have his deferred amounts treated as though invested in the Company's common stock. Such rate is reviewed annually by the Board of Directors and is subject to change by a vote thereof. Participating directors may elect to receive distribution of deferred fees and accrued interest in one payment or in equal annual installments (not to exceed ten) after ceasing to be a director of the Corporation. Payment of any such distribution (either the first installment or the single payment, and/or share distribution if so elected) is to be made on or about the first business day of the month following the month in which a director ceases to be a director of the Corporation with any subsequent installments to be paid on or about the first business day of each succeeding calendar year.
Amounts deferred under the plan, plus accumulated interest, together with all shares of common stock deferred thereunder shall be immediately payable to each participating director (or his beneficiary or estate, as the case may be) in a single lump sum in the event of a Change in Control, which means (i) a merger or consolidation to which USLIFE is a party and for which the approval of any shareholders of USLIFE is required; (ii) certain parties becoming the beneficial owner of securities of USLIFE representing 25% or more of the combined voting power of USLIFE's outstanding securities; (iii) a sale or transfer of substantially all of the assets of USLIFE; (iv) a liquidation or reorganization of USLIFE; or (v) the occurrence of any Flip Over Transaction or Event, as defined in the Amended and Restated Rights Agreement (hereinafter, "Change in Control"). The Corporation, to meet its obligations under the Non- Employee Directors' Deferred Compensation Plan, including any payments thereunder resulting from a Change in Control, has entered into a trust agreement with Chase Manhattan Bank, which has been funded with a standby letter of credit with a bank, currently in the amount of $3,000,000. Notwithstanding the establishment of the trust, the Corporation continues to be primarily liable for the benefits payable under the Non-Employee Directors' Deferred Compensation Plan and will be obligated to make such payments to the extent the trust does not.
Under the Retirement Plan for Outside Directors ("Directors' Retirement Plan") non-employee directors with at least five years of Board service and who are at least age 65 receive benefits payable on retirement from the Board equal to 5% of the director's last annual retainer multiplied by the number of years of the director's Board service (not to exceed 20). Payments are made for a period of years equal to the number of years of Board service up to a maximum of ten. Retirement benefits cease upon the death of a director. The Corporation, to meet its obligations under the Directors' Retirement Plan, including any increases in accrued benefits resulting from a Change in Control, has entered into a trust agreement with Chase Manhattan Bank which has been funded with a standby letter of credit with a bank, currently in the amount of $1,200,000. Notwithstanding the establishment of the trust, the Corporation continues to be primarily liable for the benefits payable under the Directors' Retirement Plan and will be obligated to make such payments to the extent the trust does not.
Executive Compensation and Other Information
The following tables set forth information concerning all compensation paid to the Chief Executive Officer and each of the four most highly compensated executive officers of the Corporation during the 1994, 1995 and 1996 fiscal years for services rendered in all capacities to the Corporation and its subsidiaries. All stock and stock-based figures in the following tables have been adjusted, where applicable, for the Corporation's 3-for-2 split on its common stock effective September 1, 1995.
(1) The number and market value of the aggregate restricted stock holdings of the named executive officers at December 31, 1996 were: Mr. Crosby -- 66,945 shares ($2,225,921); Mr. Henderson -- 48,281 shares ($1,605,343); Mr. Ruisi - - 33,668 shares ($1,119,461); Mr. Simpson -- 65,308 shares ($2,171,491); and Mr. Chouinard -- 37,800 shares ($1,256,850).
(2) Amounts listed as All Other Compensation are attributable to: (a) mandatory distributions under the Corporation's Retirement Plan ("Retirement Plan"), (b) premiums paid by the Corporation for group life insurance ("life insurance"), and (c) deferred matching contributions by USLIFE under the Corporation's Employee Savings and Investment Plan ("SIP") and Supplemental Employee Savings and Investment Plan ("SSIP"), as follows:
(3) $680,000 of Mr. Crosby's bonus was paid to him in 1994 pursuant to his employment contract with the Corporation in respect of his performance in 1993 and the remaining $749,000 was paid to him in 1995 under the Corporation's Annual Incentive Plan based on the profitability of the Corporation's core individual lines of business in 1994. For 1995 and all subsequent years, Mr. Crosby is only eligible to receive a bonus under the Annual Incentive Plan.
(1) The number of Shares represents shares of stock awarded under the USLIFE Restricted Stock Plan. Shares awarded under the Plan are generally subject to forfeiture in the event that, for any calendar year during the restricted period, the Company's earnings per share from continuing operations do not exceed the Company's threshold earnings per share as of the vesting date of the awards. Threshold earnings per share is defined as the average of the Company's earnings per share from continuing operations for the three preceding calendar years. Dividends for each calendar year paid on the Restricted Shares listed in the table above are held by the Company on account for the Plan participant until (a) the Executive Compensation and Nominating Committee certifies the attainment of the performance goal and (b) the shares begin to vest, and are subject to forfeiture in the event the performance goal is not met. All shares vest, regardless of the level of earnings per share, upon a Change in Control or retirement.
The number of Units represents units awarded under the USLIFE Book Unit Plan. The value of each unit is the amount by which the book value per share of the Corporation's common stock as of its award date has increased or decreased between the award date of a unit and the unit's valuation date. Book Units have a valuation date of the earlier of: (a) a five-year period, or (b) the December 31st preceding the occurrence of certain events, such as retirement or certain circumstances involving a change in control of the Corporation. Upon the latter occurrence, the value of all units awarded shall be paid to each plan Participant or his beneficiaries as soon as practicable thereafter. The Corporation has established a trust with Chase Manhattan Bank to assist in meeting its obligations under the Book Unit Plan, which has been funded with a standby letter of credit with a bank, currently in the amount of $5,000,000. Notwithstanding the establishment of the trust, the Corporation continues to be primarily liable for the amounts payable under the Book Unit Plan and will be obligated to make such payments to the extent the trust does not.
(2) The performance periods for Shares listed in the table above reflect the aggregate vesting period for each grant. Shares listed in the table above vest over a three-year period, or upon the occurrence of certain events, such as retirement or a Change in Control. Individual vesting periods, and the number of shares vesting at the end of each period, are as follows:
Mr. Crosby -- 1,719 shares awarded July 1, 1996 vest 1,146 shares on July 1, 1998 and 573 shares on July 1, 1999.
Mr. Henderson -- 6,656 shares awarded July 1, 1996 vest 4,437 shares on July 1, 1998 and 2,219 shares on July 1, 1999.
Mr. Ruisi -- 1,062 shares awarded April 1, 1996 vest 708 shares on April 1, 1998 and 354 shares on April 1, 1999; 2,425 shares awarded July 1, 1996 vest 1,616 shares on July 1, 1998 and 809 shares on July 1, 1999.
Mr. Chouinard -- 2,100 shares awarded July 1, 1996 vest 1,400 shares on July 1, 1998 and 700 shares on July 1, 1999; 2,400 shares awarded on October 1, 1996 vest 1,600 shares on October 1, 1998 and 800 shares on October 1, 1999.
(3) Neither the Book Unit Plan nor the Restricted Stock Plan includes thresholds or maximum payouts.
(4) Actual target amounts for Units are not determinable until the valuation date of the awards. The amounts listed are representative amounts based on the book unit value as of December 31, 1996.
(1) All options listed in the Option/SAR Grants table were granted under the Corporation's 1991 Stock Option Plan ("Plan"), which provides for the automatic grant of a reload option to a participant upon exercise of an option provided the participant uses previously-owned shares to pay for the option shares. A reload option will be for the number of previously- owned shares delivered upon exercise of the original option and the option price of a reload option is the fair market value per share of the common stock on the exercise date of the original option. Reload options vest three years from the date of their grant and thereafter are exercisable for three years.
(2) Options listed in the table above vest as follows:
Greer F. Henderson: 20,000 shares granted 4/23/96 vest 25% per year over four years on the anniversary of grant date; 7,756 shares granted 6/24/96 vest 100% on third anniversary of grant date.
Christopher S. Ruisi: 3,367 shares granted 1/26/96 vest 100% on third anniversary of grant date; 15,000 shares granted 4/23/96 vest 25% per year over four years on anniversary of grant date; 659 shares granted 5/9/96 vest 100% on third anniversary of grant date; 2,481 shares granted 5/24/96 vest 100% on third anniversary of grant date.
Richard J. Chouinard: 8,750 shares granted 4/23/96 vest 25% per year over four years on the anniversary of grant date.
Upon an individual's retirement after age 65, and before age 65 with the consent of the Compensation Committee, any requirement of additional service is waived and options can be exercised as though the participant remained in the employ of the Company.
The Plan also provides that in the event of a Change in Control, as that term is defined under the section entitled "Directors Compensation," all outstanding options which have been held by the optionee for at least six months from the date of their grant shall vest and become immediately exercisable.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing executive stock options. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised, so that there is no assurance the value realized by an executive will be at or near the value estimated by the Black-Scholes model. The estimated values under that model are based on the following assumptions:
- Stock Price: Grants expiring 4/23/06 - $29.125, grant expiring 6/24/02 - $31.50, grant expiring 1/26/02 - $32.875, grant expiring 5/9/02 - $28.75, grant expiring 5/24/02 - $30.50; equal to the stock's fair market value at date of grant.
- Exercise price: Grants expiring 4/23/06 - $29.125, grant expiring 6/24/02 - $31.50, grant expiring 1/26/02 - $32.875, grant expiring 5/9/02 - $28.75, grant expiring 5/24/02 - $30.50; equal to the stock's fair market value at date of grant.
- Volatility: 22.48; based on the monthly closing stock prices from 1/31/90 to 12/31/96 (applicable to all grants).
- Risk free interest rate: Grants expiring 4/23/06 - 6.39%, equal to the asking yield of a U.S. Treasury Strip maturing May, 2002; grant expiring 6/24/02 - 6.79%, equal to the asking yield of a U.S. Treasury Strip maturing August, 2002; grant expiring 1/26/02 - 5.44%, equal to the asking yield of a U.S. Treasury Strip maturing February, 2002; grant expiring 5/9/02 - 6.67%, equal to the asking yield of a U.S. Treasury Strip maturing May, 2002; grant expiring 5/24/02 - 6.48%, equal to the asking yield of a U.S. Treasury Strip maturing May, 2002;
- Dividend yield: 3.10%; equal to the annualized dividends at the date of grant divided by the exercise or base price (applicable to all grants).
- No adjustments were made for non-transferability.
- Term: assumes a six year option term (applicable to all grants).
A high dividend yield decreases the Black-Scholes model's estimated value since high dividends are often accompanied by lower rates of stock price appreciation. An increase in the term of the option would increase the model's estimated value since a ten year option is viewed as more valuable than a five year option. A highly volatile stock would also have a higher Black-Scholes' value than a more stable stock since the probability of an increase in stock price would be greater with a volatile stock.
Pension Plan Table
The following table sets forth the estimated annual retirement benefits (exclusive of social security payments) payable to participants in the specified compensation and years-of-service categories, assuming continued active service until normal retirement age and assuming that the USLIFE Corporation Retirement Plan ("Retirement Plan") is in effect at such time. The Retirement Plan provides retirement benefits based upon the individual participant's years of service and final average annual earnings as defined by the Retirement Plan. Final average annual compensation is the average annual compensation (subject to an earnings limitation imposed by the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"), currently $160,000) for the three highest complete consecutive calendar years prior to termination of employment. Participants in the Retirement Plan will have a fully vested and nonforfeitable interest in their accrued retirement benefits in the event of a Change in Control as defined under the section entitled "Directors' Compensation." The Corporation, to meet its obligations under the Retirement Plan with respect to any increases in accrued benefits resulting from a Change in Control, has entered into a trust agreement with Chase Manhattan Bank that has been funded with a standby letter of credit with a bank.
The credited years of service for the Chief Executive Officer and each of the four most highly compensated executive officers of the Corporation are: G.E. Crosby, Jr., 38; G.F. Henderson, 22; C.S. Ruisi, 23; W.A. Simpson, 7; and R.J. Chouinard, 23.
The Internal Revenue Code limits the maximum annual retirement benefits payable to a participant under the Retirement Plan. Currently, the limit is $120,000 per person. Annual retirement benefits in excess of such limit (and those attributable to compensation in excess of the annual limit referred to above) are provided under the USLIFE Corporation Supplemental Retirement Plan and not under the Retirement Plan. The benefits provided under the Corporation's Supplemental Retirement Plan are included in the amounts shown in the above table. Participation in the Supplemental Retirement Plan is limited to certain highly compensated individuals, including the named executive officers. The Supplemental Retirement Plan provides that benefits shall fully vest in the event of the occurrence of a Change in Control. During the 1996 plan year, the Supplemental Retirement Plan was amended among other things, to change the definition of the term Change in Control appearing therein to that set forth under the section entitled "Directors' Compensation", to count all service from a participant's date of hire as credited service, and to provide for a lump sum settlement provision. The Corporation, to meet its obligations under the Supplemental Retirement Plan, including any increases in accrued benefits resulting from a Change in Control, has entered into a trust agreement with Chase Manhattan Bank which has been funded with standby letters of credit with a bank, currently in the amount of $66,000,000. In addition, the Corporation also entered into an Investment Management and Custody Agreement with The Bank of Boston to provide funds to meet its Supplemental Retirement Plan obligations. This agreement was also designed to operate as a "rabbi trust" and contained assets totaling approximately $16,200,000 as of December 31, 1996. Notwithstanding the establishment of the trust, the Corporation continues to be liable for the benefits payable under the Supplemental Retirement Plan and will be obligated to make such payments to the extent the trusts do not.
Compensation Committee Interlocks and Insider Participation
There are none.
Employment Agreements, Termination of Employment and Change in Control Arrangements
On April 1, 1989, Messrs. Crosby, Henderson and Ruisi entered into five- year employment contracts with the Corporation which provide for automatic one- year extensions thereafter occurring on each anniversary of the contract unless one party has given prior notice to the contrary. Effective April 16, 1990, Mr. Simpson entered into a similar contract with the Corporation. Effective May 1, 1996, the minimum annual compensation as set forth in these employment contracts was as follows: Mr. Crosby, $1,070,000; Mr. Henderson, $725,000; Mr. Ruisi, $675,000; and Mr. Simpson, $650,000. In addition, these contracts provide for the payment of a bonus under the Annual Incentive Plan for Selected Key Officers of the Corporation ("Annual Incentive Plan") if certain performance goals based on levels of income attributable to the Corporation's core life insurance businesses are satisfied, such bonus not to exceed 75% of base salary in the case of Mr. Crosby nor 40% of such salary in the case of Messrs. Henderson, Ruisi and Simpson. The term "base salary" is defined in these contracts as the officer's actual base salary in effect on January 1, 1996.
On November 14, 1995 the Board of Directors approved and the Corporation entered into Key Executive Employment Protection Agreements ("KEEPAs") with Messrs. Crosby, Henderson, Ruisi, and Simpson which are in addition to the employment contracts described above and which become effective in the event of a Change of Control defined as (i) a merger or consolidation to which the Corporation is a party and for which the approval of any shareholders of the Corporation is required; (ii) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becoming the beneficial owner, directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities or (iii) a sale or transfer of substantially all of the assets of the Corporation. These Key Executive Employment Protection Agreements provide protection for three years following a Change of Control and a lump sum severance benefit equal to three times the sum of (i) the executive's then current annual base salary, and (ii) the greater of (x) the highest annual bonus payable to the executive with respect to either of the last two fiscal years of the Corporation ended immediately prior to a Change of Control or (y) the executive's target bonus for the year in which the Change of Control occurs, if the executive is terminated without Cause, or terminates his employment for Good Reason, as set forth in the Agreement. In addition, these executive officers may voluntarily terminate their employment, within 180 days of the Change of Control and receive this severance benefit. On November 14, 1995, the Board of Directors also approved and the Corporation entered into a Key Executive Employment Protection Agreement with Mr. Chouinard which provides for a lump sum severance benefit equal to twice the sum of this executive's (i) then current base salary and (ii) highest annual bonus actually paid in respect of either of the prior two fiscal years of the Corporation ended immediately prior to a Change of Control, if he is terminated without Cause or terminates his employment for Good Reason, as set forth in the Agreement, within one year after the occurrence of a Change of Control. This Key Executive Employment Protection Agreement with Mr. Chouinard as well as the other Key Executive Employment Protection Agreements with Messrs. Crosby, Henderson, Ruisi and Simpson also provide such additional payments as are necessary to compensate the executive officer for the effects of any Federal excise and related tax resulting from the severance payments.
In the event of a Change in Control (as defined in the section entitled "Directors' Compensation"), the employment contracts are suspended and the rights of the covered executives are determined pursuant to the terms and conditions of the KEEPAs described above. The Corporation has established a trust with Chase Manhattan Bank to assist in making any payments due under KEEPAs, which has been funded with two standby letters of credit with certain banks, currently in the aggregate amount of $43,800,000. Notwithstanding the establishment of the trust, the Corporation continues to be primarily liable for the benefits payable under the KEEPAs and will be obligated to make such payments to the extent the trust does not.
Under the Deferred Compensation Plan, each of the named executive officers may elect to defer up to a maximum of 25% of such officers' annual base salary and all or a portion of any bonus awarded under the Annual Incentive Plan or book unit award under the Corporation's Book Unit Plan until the date of their retirement or such earlier date as they may elect. Deferred amounts currently accrue an interest equivalent calculated at the rate of 1.4375% quarterly. Such rate is reviewed annually by the Executive Compensation and Nominating Committee and is subject to change by a vote thereof. Participating officers may elect to receive distribution of amounts deferred under the Deferred Compensation Plan plus accumulated interest in a single lump sum payment or in a number of approximately equal annual installments. Amounts deferred under the Deferred Compensation Plan plus accumulated interest shall be immediately paid to each participating officer (or his beneficiary or estate, as the case may be) in a single lump sum in the event of a Change in Control of the Corporation, as defined in the section entitled "Directors' Compensation." The Corporation, to meet its obligations under the Deferred Compensation Plan, including any payments thereunder resulting from a Change in Control, has entered into a trust agreement with Chase Manhattan Bank. This trust, commonly known as a "rabbi trust," may be funded with Corporation funds or a standby letter of credit with a bank, currently in the amount of $900,000. Notwithstanding the establishment of the trust, the Corporation continues to be primarily liable for the benefits payable under the Deferred Compensation Plan and will be obligated to make such payments to the extent the trust does not.
The Corporation's severance allowance policy which applies in cases involving a company-prompted termination of the Chief Executive Officer and/or the four most highly compensated executive officers provides for the payment of an enhanced severance allowance (two weeks pay for every year of service not exceeding 30 weeks) in connection with any company-prompted termination which either (i) results from, and occurs within 18 months after, the discontinuance of division or company operations, the relocation of departments or divisions of the Corporation or a subsidiary, reductions in the workforce or the sale of a subsidiary, or, (ii) which occurs within 18 months after the occurrence of certain circumstances involving a change in control of the Corporation. An enhanced severance allowance will also be paid in connection with any termination, whether initiated by the Corporation or the officer, after the occurrence of such circumstances if (a) the termination occurs within 18 months after the expiration of the officer's employment contract or Key Executive Employment Protection Agreement, or, (b) the officer receives any payment in connection with his employment contract or Key Executive Employment Protection Agreement. In all cases, severance allowances are in addition to compensation owed for any unused earned vacation or compensation owed or paid in connection with an employment contract or Key Executive Employment Protection Agreement and an officer who receives a payment under any such agreement will also be paid an enhanced severance allowance. On January 23, 1996 the Corporation's severance allowance policy was amended so that a change in control of the Corporation means the occurrence of a Change in Control as defined in the section entitled "Directors' Compensation".
Under the Corporation's Employee Savings and Investment Plan that was adopted in 1981 and which now includes 401(k) provisions, the Chief Executive Officer and the four most highly compensated executive officers as well as all other Corporation and subsidiary employees may contribute up to 12% of their annual base salary and any annual incentive bonus to an investment trust and the Corporation will match up to 3% of such salary and bonus amounts on a pre- tax basis in the form of USLIFE common stock. The officer contributions vest immediately while the Corporation's contributions vest 20% for each year of employment so as to be fully vested after five years of employment; provided, however, that the Corporation's contributions will be 100% vested in the event of a Change in Control as defined in the section entitled "Directors' Compensation".
On January 1, 1993, the Corporation adopted the Supplemental Employee Savings and Investment Plan in order to enable officers of the Corporation who were participating in the Corporation's Employee Savings and Investment Plan but were not receiving the full company matching contribution under such plan due to the $150,000 earnings limitation imposed by Section 401(a)(17) of the Code to receive the full matching contribution. The Supplemental Employee Savings and Investment Plan which is in the form of an unfunded deferred compensation plan is intended to make up for the loss in company matching contributions under the Corporation's Employee Savings and Investment Plan to officers earning in excess of $150,000 a year because of said limitation and provides that such contributions fully vest after the occurrence of certain events involving a Change in Control. The Corporation, to meet its obligations under the Supplemental Employee Savings and Investment Plan, including any increases in accrued benefits resulting from a Change in Control, entered into a trust agreement with Chemical Bank, (now known as Chase Manhattan Bank) on March 1, 1994. Upon a Change in Control this trust, commonly known as a "rabbi trust", may be funded with Corporation funds or a standby letter of credit with a bank, currently in the amount of $2,100,000. Notwithstanding the establishment of the trust, the Corporation continues to be liable for the benefits payable under the Supplemental Employee Savings and Investment Plan and will be obligated to make such payments to the extent the trust does not. On January 23, 1996 the trust agreement was amended to change the definition of the term Change in Control therein to that set forth in the section entitled "Directors' Compensation".
USLIFE has adopted the above-described change of control provisions and policies to minimize the uncertainty created by a change of control of the Corporation which might result in the loss or distraction of its executive officers to the detriment of the Corporation and its shareholders. The Board of Directors considers the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of USLIFE and its shareholders. The Board also believes that when a change of control is perceived as imminent, or is occurring, the Corporation should be able to receive and rely on disinterested service from senior executive officers regarding the best interests of the Corporation and its shareholders, without concern that such officers might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring change of control. In addition, the Board believes that it is consistent with USLIFE's employment practices and policies and in the best interests of the Corporation and its shareholders to treat fairly its employees whose employment terminates in connection with or following a change of control.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Management
Directors and officers, as a group, beneficially owned 2,212,356 shares or 6.4% of USLIFE common stock and USLIFE preferred stock on February 27, 1997. This number includes options to purchase 571,952 shares currently exercisable or exercisable within 60 days. This number also includes 288,208 shares of common stock granted under the Corporation's Restricted Stock Plan, which shares have not vested under the terms of the Plan as of February 27, 1997. No director, officer or nominee has the right to acquire beneficial ownership of USLIFE stock except as described in the Summary Compensation Table, the Option / SAR Grants Table, the Aggregated Option / SAR Exercises Table and the section entitled "Directors' Compensation" under Item 11.
The following table sets forth information relating to any class of USLIFE's voting securities beneficially owned by the Chief Executive Officer, each of the four most highly compensated executive officers of the Corporation and all directors and nominees as of February 27, 1997.
* Unless otherwise indicated, each executive officer and director has direct ownership of, and sole voting and investment power with respect to, the shares indicated.
** With the exception of Mr. Crosby, no percentages of share ownership are indicated since the number of shares owned by individual executive officers and directors constitutes less than 1% of the class outstanding.
(1) Mr. Crosby's share holdings include options currently exercisable or exercisable within 60 days under the Corporation's Stock Option Plans to purchase 228,860 shares. Also included are 66,945 shares awarded pursuant to the USLIFE Restricted Stock Plan which have not yet vested pursuant to the terms of the Plan, 22,327 shares held pursuant to the Corporation's Employee Savings and Investment Plan, 437,971 shares held by the Gordon E. Crosby, Jr. Trust of which Mr. Crosby is a trustee and 5,170 shares held by Mr. Crosby's wife, as to which shares he disclaims beneficial ownership.
(2) Mr. Henderson's share holdings include options currently exercisable or exercisable within 60 days under the Corporation's Stock Option Plans to purchase 152,466 shares. Also included are 48,281 shares awarded pursuant to the USLIFE Restricted Stock Plan which have not yet vested pursuant to the terms of the Plan and 26,250 shares held pursuant to the Corporation's Employee Savings and Investment Plan.
(3) Mr. Ruisi's share holdings include options currently exercisable or exercisable within 60 days under the Corporation's Stock Option Plans to purchase 3,750 shares. Also included are 39,156 shares awarded pursuant to the USLIFE Restricted Stock Plan which have not yet vested pursuant to the terms of the Plan, 5,382 shares held pursuant to the Corporation's Employee Savings and Investment Plan, and 2,028 shares held by Mr. Ruisi as custodian for his minor children, as to which shares he disclaims beneficial ownership.
(4) Mr. Simpson's share holdings include options currently exercisable or exercisable within 60 days under the Corporation's Stock Option Plans to purchase 19,729 shares. Also included are 65,308 shares awarded pursuant to the USLIFE Restricted Stock Plan which have not yet vested pursuant to the terms of the Plan, 2,962 shares held pursuant to the Corporation's Employee Savings and Investment Plan, and 79,442 shares held by the Simpson Family Trust of which Mr. Simpson is a trustee.
(5) Mr. Chouinard's share holdings include options currently exercisable or exercisable within 60 days under the Corporation's Stock Option Plans to purchase 2,187 shares. Also included are 40,800 shares awarded pursuant to the USLIFE Restricted Stock Plan which have not yet vested pursuant to the terms of the Plan, and 5,622 shares held pursuant to the Corporation's Employee Savings and Investment Plan.
(6) Dr. Black's share holdings include 3,404 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares and 1,801 shares held by the Kenneth & Mabel Black Revocable Trust of which Dr. Black is a trustee.
(7) Dr. Catacosinos' share holdings include 1,061 stock units which were credited pursuant to the Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(8) Mr. D'Alton's share holdings include 401 shares held by his wife, as to which shares he disclaims beneficial ownership, and 3,777 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non- Employee Directors' Stock Option Plan to purchase 6,000 shares.
(9) Mr. Davis' share holdings include 2,905 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(10) General Galvin's share holdings include 498 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 3,000 shares.
(11) Mr. Grant's share holdings include 500 shares held by his wife, as to which shares he disclaims beneficial ownership and 357 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non- Employee Directors' Stock Option Plan to purchase 3,000 shares.
(12) Mr. Osborne's share holdings include 357 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 3,000 shares.
(13) Mr. Riehm's share holdings include options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(14) Mr. Saul's share holdings include 2,437 shares held by his wife, as to which shares he disclaims beneficial ownership. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(15) Mr. Shafer's share holdings include 747 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(16) Dr. Sharwell's share holdings include 7,337 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares.
(17) Dr. Sprinkel's share holdings include 3,909 stock units which were credited pursuant to the Non-Employee Directors' Deferred Compensation Plan and which do not confer any voting rights. Also included are options exercisable within 60 days under the Corporation's Non-Employee Directors' Stock Option Plan to purchase 6,000 shares and 955 shares held by the Beryl W. Sprinkel Trust of which Dr. Sprinkel is a trustee.
Security Ownership of Certain Beneficial Holders
The following table sets forth information relating to persons who, to the best knowledge of USLIFE, are known to be the beneficial owners of more than 5% of any class of USLIFE's voting securities as of February 5, 1997, except that the securities holdings for Sanford C. Bernstein & Co., Inc. are as of January 30, 1997.
* Unless otherwise indicated, each beneficial owner, to the best knowledge of the Corporation, has direct ownership of, and sole voting and investment power with respect to, the shares indicated.
(1) Sanford C. Bernstein & Co., Inc. has sole voting power with respect to 1,456,059 of these shares and its clients have appointed an independent voting agent with instructions to vote 494,421 of these shares in the same manner as Sanford C. Bernstein & Co., Inc. Sanford C. Bernstein & Co., Inc. exercises sole investment power with respect to all 3,128,883 shares.
USLIFE knows of no other person owning beneficially 5% or more of any class of its outstanding voting securities.
Item 13.

Item 13. Certain Relationships and Related Transactions.
In 1986, a condominium apartment was purchased in an arm's length transaction from The Landings, Ltd. by John W. Riehm, a director of the Corporation. The purchase price of $233,780 was financed by a $200,000 first mortgage loan from USLIFE Realty Corporation bearing an 8.5% interest rate for the initial 12-month period of the mortgage, adjusted annually thereafter to a rate equal to the previous 12-month average of the United States 1-year Treasury bill rate plus 2.5%. As of February 1, 1997, the balance of the loan was $176,744, with an annual rate of interest of 8.375%. The purchase of this unit and its financing were on the same terms as were offered to all eligible buyers at the time of purchase.
Goldman, Sachs & Co. serves as a financial advisor to USLIFE. Charles A. Davis, a director of the Corporation, is a senior director and limited partner of Goldman, Sachs & Co.
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement Schedules of USLIFE and Subsidiaries.
See separate Index to Financial Statements and Financial Statement Schedules on page 66.
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the Registrant's Registration Statements on Form S-8 Nos. 33-40793 (filed June 23, 1991), 33-13999 (filed May 11, 1987) and 2- 77278 (filed April 30, 1982):
Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(a) 3. Exhibits.
3 (i) (a) - Restated Certificate of Incorporation, as amended, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
(i) (b) - Certificate of Amendment of the Certificate of Incorporation, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
(ii) - By-laws, as amended and restated, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, SEC File No. 1-5683.
4 (i) - See Exhibit 3(i).
(ii) - Indenture dated as of October 1, 1982 (6.75% Notes due January 15, 1998, and 6.375% Notes due June 15, 2000) incorporated herein by reference to USLIFE's Registration Statement No. 2-79559 on Form S-3.
Agreements or instruments with respect to long-term debt which are not filed as exhibits hereto do not in total exceed 10% of USLIFE's consolidated total assets and USLIFE agrees to furnish a copy thereof to the Commission upon request.
(iii) - Amended and Restated Rights Agreement, dated as of September 27, 1994, as amended February 13, 1997, between USLIFE Corporation and Chase Manhattan Bank, formerly known as Chemical Bank (successor by merger to Manufacturers Hanover Trust Company), as Rights Agent, relating to Common Stock Purchase Rights issued by USLIFE on July 10, 1986, incorporated herein by reference to USLIFE's Report on Form 8-K dated October 12, 1994 and USLIFE's Report on Form 8-K dated February 21, 1997, SEC File No. 1-5683.
10 * (i) - Employment contract dated as of April 1, 1989 between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, SEC File No. 1- 5683.
* (ii) - First Amendment dated as of May 1, 1989 to employment contract dated as of April 1, 1989 between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, SEC File No. 1-5683.
* (iii) - Second Amendment dated as of May 1, 1990 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, SEC File No. 1- 5683.
* (iv) - Third Amendment dated as of May 1, 1991 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, SEC File No. 1- 5683.
* (v) - Fourth Amendment dated as of May 1, 1992 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, SEC File No. 1- 5683.
* (vi) - Fifth Amendment dated as of February 1, 1993 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1992, SEC File No. 1-5683.
* (vii) - Sixth Amendment dated as of May 1, 1993 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 1- 5683.
* (viii) - Seventh Amendment dated as of May 1, 1994 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, SEC File No. 1-5683.
* (ix) - Eighth Amendment dated as of May 1, 1995 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1- 5683.
* (x) - Ninth Amendment dated as of May 1, 1996 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Gordon E. Crosby, Jr., incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1- 5683.
* (xi) - Employment contract dated as of April 1, 1989 between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, SEC File No. 1- 5683.
* (xii) - First Amendment dated as of May 1, 1989 to employment contract dated as of April 1, 1989, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, SEC File No. 1-5683.
* (xiii) - Second Amendment dated as of May 1, 1990 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, SEC File No. 1- 5683.
* (xiv) - Third Amendment dated as of May 1, 1991 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, SEC File No. 1- 5683.
* (xv) - Fourth Amendment dated as of May 1, 1992 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, SEC File No. 1- 5683.
* (xvi) - Fifth Amendment dated as of May 1, 1993 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 1- 5683.
* (xvii) - Sixth Amendment dated as of May 1, 1994 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, SEC File No. 1- 5683.
* (xviii) - Seventh Amendment dated as of May 1, 1995 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1-5683.
* (xix) - Eighth Amendment dated as of May 1, 1996 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Greer F. Henderson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1- 5683.
* (xx) - Employment contract dated as of April 1, 1989 between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989, SEC File No. 1- 5683.
* (xxi) - First Amendment dated as of May 1, 1989 to employment contract dated as of April 1, 1989 between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, SEC File No. 1-5683.
* (xxii) - Second Amendment dated as of May 1, 1990 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, SEC File No. 1- 5683.
* (xxiii) - Third Amendment dated as of May 1, 1991 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, SEC File No. 1- 5683.
* (xxiv) - Fourth Amendment dated as of May 1, 1992 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, SEC File No. 1- 5683.
* (xxv) - Fifth Amendment dated as of May 1, 1993 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 1- 5683.
* (xxvi) - Sixth Amendment dated as of May 1, 1994 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, SEC File No. 1- 5683.
* (xxvii) - Seventh Amendment dated as of May 1, 1995 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1-5683.
* (xxviii) - Eighth Amendment dated as of May 1, 1996 to employment contract dated as of April 1, 1989, as amended, between USLIFE Corporation and Christopher S. Ruisi, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xxix) - Employment contract dated as of April 16, 1990 between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, SEC File No. 1- 5683.
* (xxx) - First Amendment dated as of May 1, 1991 to employment contract dated as of April 16, 1990 between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991, SEC File No. 1-5683.
* (xxxi) - Second Amendment dated as of May 1, 1992 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, SEC File No. 1- 5683.
* (xxxii) - Third Amendment dated as of October 1, 1992 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, SEC File No. 1-5683.
* (xxxiii) - Third Amendment dated as of May 1, 1993 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, SEC File No. 1- 5683.
* (xxxiv) - Fourth Amendment dated as of May 1, 1994 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, SEC File No. 1- 5683.
* (xxxv) - Fifth Amendment dated as of January 1, 1995 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1-5683.
* (xxxvi) - Sixth Amendment dated as of May 1, 1995 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1- 5683.
* (xxxvii) - Seventh Amendment dated as of May 1, 1996 to employment contract dated as of April 16, 1990, as amended, between USLIFE Corporation and William A. Simpson, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xxxviii) - Form of Key Executive Employment Protection Agreement dated November 14, 1995, between USLIFE Corporation and Gordon E. Crosby, Jr., Greer F. Henderson, Christopher S. Ruisi, and William A. Simpson, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (xxxix) - Form of Employment and Key Executive Employment Protection Agreement dated November 14, 1995, between USLIFE Corporation and Wesley E. Forte, A. Scott Bushey, Arnold A. Dicke, James M. Schlomann and John D. Gavrity, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (xl) - Form of Key Executive Employment Protection Agreement dated November 14, 1995, between USLIFE Corporation and Frank J. Auriemmo, Jr., Richard J. Chouinard, and Richard G. Hohn, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (xli) - Form of Key Executive Employment Protection Agreement dated November 27, 1995, between All American Life Insurance Company and James A. Bickler, USLIFE Real Estate Services Corporation and Philip G. Faulkner, USLIFE Insurance Services Corporation and Thomas L. Hendricks, USLIFE Credit Life Insurance Company and William M. Keeler, and dated January 24, 1996, between The United States Life Insurance Company In the City of New York and Ralph J. Cargiulo, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (xlii) - Employment and Key Executive Employment Protection Agreement dated May 1, 1996 between USLIFE Corporation and Michael LeFante, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xliii) - Key Executive Employment Protection Agreement dated May 23, 1996 between USLIFE Corporation and Ronald M. Chernoff, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xliv) - First Amendment to Employment and Key Executive Employment Protection Agreement dated as of May 1, 1996, to the Agreement dated November 14, 1995, between USLIFE Corporation and A. Scott Bushey, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xlv) - First Amendment to Employment and Key Executive Employment Protection Agreement dated as of May 1, 1996, to the Agreement dated November 14, 1995, between USLIFE Corporation and Arnold A. Dicke, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xlvi) - First Amendment to Employment and Key Executive Employment Protection Agreement dated as of May 1, 1996, to the Agreement dated November 14, 1995, between USLIFE Corporation and Wesley E. Forte, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xlvii) - First Amendment to Employment and Key Executive Employment Protection Agreement dated as of May 1, 1996, to the Agreement dated November 14, 1995, between USLIFE Corporation and John D. Gavrity, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
* (xlviii) - First Amendment to Employment and Key Executive Employment Protection Agreement dated as of May 1, 1996, to the Agreement dated November 14, 1995, between USLIFE Corporation and James M. Schlomann, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, SEC File No. 1-5683.
(il) - Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1986, SEC File No. 1-5683.
(l) - Amendment to Lease dated August 31, 1988 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 1-5683.
(li) - Second Amendment to Lease dated November 16, 1988 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 1-5683.
(lii) - Third Amendment to Lease dated May 10, 1989 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1-5683.
(liii) - Fourth Amendment to Lease dated April 14, 1995 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, SEC File No. 1-5683.
(liv) - Fifth Amendment to Lease dated as of December 26, 1995 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
(lv) - Sixth Amendment to Lease dated as of December 26, 1995 to Lease dated as of December 30, 1986 between The United States Life Insurance Company In the City of New York and RREEF USA Fund-III for the lease of a portion of 125 Maiden Lane, New York, New York, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
(lvi) - Lease dated May 21, 1987 between The United States Life Insurance Company In the City of New York and Commercial Realty & Resources Corp. for the lease of premises at the Jumping Brook Corporate Office Park in Neptune, New Jersey, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 1-5683.
(lvii) - February 9, 1989 Amendment to Lease dated May 21, 1987 between The United States Life Insurance Company In the City of New York and Commercial Realty & Resources Corp. for the lease of premises at the Jumping Brook Corporate Office Park in Neptune, New Jersey, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1988, SEC File No. 1-5683.
* (lviii) - 1981 Stock Option Plan, as amended, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, SEC File No. 1-5683.
* (lix) - USLIFE Corporation Non-Employee Directors' Deferred Compensation Plan, as amended January 28, 1997.
* (lx) - USLIFE Corporation Book Unit Plan, as amended effective September 1, 1995, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, SEC File No. 1-5683.
* (lxi) - USLIFE Corporation Retirement Plan for Outside Directors (as amended January 23, 1996), incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (lxii) - USLIFE Corporation Restricted Stock Plan, as amended effective February 13, 1997.
* (lxiii) - USLIFE Corporation 1991 Stock Option Plan, as amended effective September 1, 1995, incorporated herein by reference to USLIFE's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, SEC File No. 1-5683.
* (lxiv) - USLIFE Corporation Non-Employee Directors' Stock Option Plan, incorporated herein by reference to Exhibit 4(a) to USLIFE's Registration Statement No. 33-53265 on Form S-8 dated April 25, 1994.
* (lxv) - Annual Incentive Plan, as amended October 25, 1994, for Selected Key Officers of USLIFE Corporation and its Subsidiaries, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1994, SEC File No. 1-5683.
* (lxvi) - USLIFE Corporation Executive Officer Deferred Compensation Plan (as amended January 23, 1996), incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (lxvii) - USLIFE Corporation 1993 Long-Term Incentive Award Guidelines, as amended, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1994, SEC File No. 1-5683.
* (lxviii) - USLIFE Corporation Supplemental Employee Savings and Investment Plan (as amended January 23, 1996), incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (lxix) - USLIFE Corporation Supplemental Retirement Plan (as amended October 22, 1996).
* (lxx) - Trust Agreement made as of November 22, 1996, among USLIFE Corporation, Chase Manhattan Bank and KPMG Peat Marwick LLP (as independent contractor) establishing a trust to fund certain employment contracts, the Book Unit Plan and the USLIFE Corporation Deferred Compensation Plan.
* (lxxi) - Trust Agreement made as of March 1, 1994, as amended, effective January 23, 1996, among USLIFE Corporation, Chemical Bank (now known as Chase Manhattan Bank) and KPMG Peat Marwick LLP (as independent contractor) establishing a trust to fund the USLIFE Corporation Supplemental Retirement Plan and the Supplemental Employee Savings and Investment Plan, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (lxxii) - Trust Agreement made as of March 1, 1994, as amended, effective January 23, 1996, among USLIFE Corporation, Chemical Bank (now known as Chase Manhattan Bank) and KPMG Peat Marwick LLP (as independent contractor) establishing a trust to fund the USLIFE Corporation Retirement Plan for Outside Directors and the USLIFE Corporation Deferred Compensation Plan for Outside Directors, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* (lxxiii) - Form of Employment and Key Executive Employment Protection Agreement dated March 14, 1997 between USLIFE Corporation and James Addiego and Neal M. Stern.
(lxxiv) - Agreement and Plan of Merger by and among American General Corporation, Texas Stars Corporation and USLIFE Corporation, dated as of February 12, 1997, incorporated herein by reference to USLIFE's Report on Form 8-K dated February 21, 1997, SEC File No. 1-5683.
12 - Computations of ratios of earnings to fixed charges.
21 - List of Subsidiaries, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
23 - Consent of Independent Certified Public Accountants (see page 63).
27 - Financial Data Schedule (electronic filing only).
99 (i) - Annual Report on Form 11-K of USLIFE Corporation Employee Savings and Investment Plan for the plan year ended December 31, 1996 (to be filed within 180 days of fiscal year end of Plan).
99 (ii) - Trust Agreement made as of December 6, 1990 among USLIFE Corporation, Manufacturers Hanover Trust Company (predecessor to Chemical Bank, now known as Chase Manhattan Bank), and KPMG Peat Marwick LLP (as independent contractor) establishing a trust to fund the USLIFE Corporation Retirement Plan, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1990, SEC File No. 1-5683.
99 (iii) - Amendment, effective January 23, 1996, to the Trust Agreement made as of December 6,1990 among USLIFE Corporation, Manufacturers Hanover Trust Company (predecessor to Chemical Bank, now known as Chase Manhattan Bank), and KPMG Peat Marwick LLP (as independent contractor) establishing a trust to fund the USLIFE Corporation Retirement Plan, incorporated herein by reference to USLIFE's Annual Report on Form 10-K for the year ended December 31, 1995, SEC File No. 1-5683.
* Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No Current Report on Form 8-K has been filed for the last quarter of the fiscal year ended December 31, 1996.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders USLIFE Corporation:
We consent to the incorporation by reference in Registration Statements Nos. 33-8489, 33-58944, 33-29934, 33-17126, 33-67344 and 33-9159 on Form S-3 relative to Debt Securities and common stock; the post effective amendment to Registration Statement No. 33-29934 on Form S-3 relative to Debt Securities; the post effective amendment to Registration Statement No. 33-9159 on Form S-3 relative to common stock; the post effective amendments to Registration Statement Nos. 2-93655 and 33-11019 on Form S-3 relative to the General Agents Incentive Compensation Plan; Registration Statement No. 33-45377 on Form S-3 relative to the United States Life Insurance Company Retirement Plan for General Agents and Producers; the post effective amendments to Registration Statement No. 33-17126 relative to Debt Securities; Registration Statement No. 33-40793 on Form S-3 relative to the 1991 Stock Option Plan; Registration Statement No. 33-53265 on Form S-8 relative to the USLIFE Corporation Non- Employee Directors' Stock Option Plan; and the post effective amendment to Registration Statement Nos. 2-63159, 2-32606 and 2-77278 on Form S-8 relative to the Stock Option Plans and Registration Statement Nos. 2-75011 and 33-13999 on Form S-8 relative to the Employee Savings and Investment Plan of USLIFE Corporation of our report dated February 12, 1997, relating to the consolidated balance sheets of USLIFE Corporation and subsidiaries as of December 31, 1996 and 1995 and the related statements of consolidated income, equity capital, and cash flows for each of the years in the three-year period ended December 31, 1996 which report appears in this December 31, 1996 Annual Report on Form 10-K of USLIFE Corporation. Our report refers to a change in accounting to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
/s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP
March 18, 1997 345 Park Avenue New York, New York
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
USLIFE Corporation (Registrant)
Dated: March 18, 1997
By: /s/ Gordon E. Crosby, Jr. _____________________________ (Gordon E. Crosby, Jr., Chairman of the Board)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders USLIFE Corporation:
We have audited the accompanying consolidated balance sheets of USLIFE Corporation and subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated income, equity capital, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of USLIFE Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for debt and equity securities in 1994 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
/s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP
February 12, 1997 345 Park Avenue New York, New York
USLIFE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and include the accounts of USLIFE Corporation and all of its subsidiaries (the "Company"). GAAP differs from the statutory accounting practices used by the Company's operating subsidiaries to report to insurance regulatory authorities. All subsidiaries are wholly owned. All material intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Changes in Accounting and Reporting Standards
Effective as of January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, entitled "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement requires that long-lived assets such as property and equipment, and certain intangible assets, be reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. When recoverability standards specified in the Statement are not met, a writedown of the covered assets may be required. The Statement does not apply to various classes of assets including the Company's investment securities and deferred policy acquisition costs, which will continue to be evaluated based on previously established accounting standards. The adoption of this Statement did not have a material impact on the Company's reported financial position or results of operations.
In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 ("SFAS 123") entitled "Accounting for Stock-Based Compensation." The Statement introduced standards for computing the "fair value" of stock options using a mathematical model, as well as expense charges over the related service period based on this calculated value. However, as permitted by SFAS 123, the Company has elected to continue to use the "intrinsic value" approach specified by Accounting Principles Board Opinion No. 25 ("APB 25"), the previous accounting standard, for financial statement purposes. Under APB 25 standards, stock options such as those granted by the Company (with option price set equal to market price at date of grant) do not require income statement charges, although the outstanding options are considered in earnings per share calculations. As a result, the implementation of SFAS 123 had no impact on the Company's reported financial position or results of operation. In accordance with SFAS 123, supplemental disclosure is provided to show the pro-forma effect of using the new measurement standards.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 ("SFAS 114"), entitled "Accounting by Creditors for Impairment of a Loan," as modified by SFAS 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These Statements require a writedown, as defined by SFAS 114, for certain mortgage loans and similar investments where impairment results in a change in repayment terms. The adoption of these Statements did not have a material impact on the Company's reported financial position or results of operations.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"), entitled "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires that debt securities which may be sold as part of the Company's asset/liability management strategy be classified as "available for sale" and carried at fair value in the Consolidated Balance Sheets, commencing with the date of adoption of the Statement. The Company's portfolio of debt securities had been similarly classified as "available for sale" prior to the adoption of SFAS 115, but was carried at lower of aggregate adjusted cost or fair value pursuant to previous accounting standards. The Company's equity securities portfolio had been carried at fair value in accordance with previous accounting standards prior to the adoption of SFAS 115 and continues to be carried at fair value as required by the Statement.
As required by SFAS 115, the net impact of the initial adjustment to fair value of these securities, less corresponding adjustments to deferred policy acquisition costs (required where fair value differs from cost for certain securities), certain policyholder liabilities, and deferred income taxes, was recorded through a direct credit to "Net unrealized gains (losses) on securities" included in Equity Capital as follows:
(Amounts in Thousands) ___________
Impact of adoption of SFAS 115:
Unrealized gain on debt securities at January 1, 1994......... $380,343 Less: Adjustment of deferred policy acquisition costs............. 99,889 Increase in certain policyholder liabilities................ 16,706
________
Adjustment to Equity Capital before federal income tax........ 263,748 Adjustment of deferred federal income tax liability........... (92,312) ________
Net adjustment to Equity Capital at January 1, 1994........... $171,436 ========
SFAS 115 requires that unrealized gains and losses on available-for-sale securities, other than those relating to a reduction in value determined to be other than temporary, be recorded as direct charges and credits to "Net unrealized gains (losses) on securities" included in Equity Capital. Consequently, the recognition of these unrealized gains and losses (including the required adjustments of deferred policy acquisition costs, certain policyholder liabilities, and deferred income taxes) has no impact on net income.
Under both SFAS 115 and previous accounting standards, valuation reserves (established through income statement charges) are maintained as an adjustment to cost for investments, including "available for sale" securities, with a reduction in value determined to be other than temporary. The cost and fair value of the Company's investments in securities are presented in Note 3.
Future Accounting Changes
In June 1996, FASB issued Statement of Financial Accounting Standards No. 125, entitled "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Statement establishes standards for determining whether transfers of "financial assets" such as securities are to be accounted for as sales, or alternatively, as secured borrowings. The Statement, which applies to transactions in 1997 and thereafter, is not expected to have a material impact on the Company's financial position or results of operations.
Investments
The Company's investment management policies include continual monitoring and evaluation of securities market conditions and circumstances relating to its investment holdings which may result in the selection of investments for sale prior to maturity. Securities may also be sold as part of the Company's asset/liability management strategy in response to changes in interest rates, resultant prepayment risk, and similar factors. Accordingly, the Company's entire fixed maturity portfolio (bonds and redeemable preferred stocks) is classified as "available for sale" and is carried in the accompanying consolidated balance sheets at fair value. The Company's investments in non- redeemable preferred stocks and common stocks ("equity securities") are carried at fair value in the accompanying consolidated balance sheets. Fair values for fixed maturities and equity securities are based on quoted market prices or dealer quotes.
Mortgage loans are carried at the aggregate of unpaid principal balances, net of unamortized discount and applicable reserves and writedowns. Mortgage loans are considered impaired when it is determined to be probable that the Company will not collect all amounts due under the contractual terms of the loan agreement, and are evaluated based on present value of estimated future cash flows discounted at the contractual rate of the loan. Mortgage loans that are more than 60 days delinquent or in foreclosure are carried at the lower of amortized cost or estimated net realizable value of the underlying collateral.
Real estate is carried at the lower of depreciated cost or estimated net realizable value. Depreciation is calculated on a straight line basis with useful lives varying based on the type of building.
Policy loans are stated at the aggregate of unpaid principal balances. Other long term investments, except for certain securities held in a retirement trust which is included in this category, are stated at the lower of cost or their estimated net realizable value. Fixed maturities and equity securities included in the aforementioned retirement trust are classified as "available for sale" and carried at fair value. Short term investments are carried at cost, which approximates fair value.
Realized gains and losses are included in net income based on specific identification of investments disposed.
Securities with a reduction in value determined to be other than temporary are adjusted to net realizable value through income statement charges which are included in realized gains or losses. Adjustments to cost for mortgage loans, real estate, and other investments with other than temporary reductions in value are also recognized by income statement charges included in realized gains and losses.
Unrealized gains and losses on available-for-sale securities, other than those relating to a reduction in value determined to be other than temporary, are recorded through direct charges and credits to Equity Capital.
Life Insurance
Traditional Individual Contracts; Group and Credit Insurance
The Company's traditional individual life insurance products, including term insurance, whole life insurance, and immediate annuities, generally provide fixed premiums and guaranteed benefits. Premiums on these policies, as well as group and credit life and health insurance contracts, are recognized when due. Appropriate provisions are made for future policy benefits or unearned premiums. Policy claims are charged to expense when incurred.
Liabilities for future policy benefits relating to traditional life insurance policies have been computed by the net level premium method based on estimated future investment yield, mortality and termination experience. Interest rate assumptions for most non-interest sensitive life insurance have ranged from 2-1/2 to 3-1/2 percent on issues of 1959 and prior, to 5-1/2 to 6- 3/4 percent on issues of 1967 and subsequent years. (On certain products, the rate ranges as high as 8-3/4 percent.) Mortality has been calculated principally on an experience multiple applied to select and ultimate tables in common usage in the industry. Estimated terminations have been determined principally based on industry tables.
Universal Life-Type and Investment Contracts
Universal life insurance policies permit the policyholder to vary the timing and amount of premium payments, within contractual limits. Revenues for universal life insurance, other interest-sensitive life insurance, and investment contracts include policy charges for administration and cost of insurance, and surrender charges assessed against policyholder account balances during the period. These charges are subject to periodic adjustment by the Company. Premiums received on these products are treated as policyholder deposits rather than revenues. The liability for policyholder account balances represents the accumulated amounts which accrue to the benefit of policyholders, and reflects interest credited at rates which are subject to periodic adjustment. Charges to expense relating to these policies and contracts include such interest credited as well as benefits during the period in excess of related policy account balances.
Deferred Policy Acquisition Costs
The costs of acquiring new business (principally commissions) and certain costs of issuing policies (such as medical examinations and inspection reports) and certain agency and marketing expenses, all of which vary with and are primarily related to the production of new business, have been deferred.
For most policies other than universal life-type contracts, these costs are being amortized over the premium-paying periods of the related policies in proportion to the ratio of the annual premium revenue to the total anticipated premium revenue. Anticipated premium revenue was estimated using the same assumptions which were used for computing liabilities for future policy benefits.
For universal life-type contracts, these costs are being amortized over the lives of the policies in relation to the incidence of gross profits arising principally from investment, mortality and expense margins. Additionally, as required by SFAS 115, the carrying amount of these costs is adjusted at each balance sheet date as if the unrealized gains or losses on securities associated with these contracts had been realized and included in the gross profits used to determine required amortization.
Deferred policy acquisition costs are reviewed at least annually to determine that the unamortized portion of such costs does not exceed recoverable amounts, after considering anticipated investment income.
Participating Policies
Participating policies subject to profit limitations approximate 7.2 percent of the individual life insurance in force at December 31, 1996 and 12.1 percent of individual life insurance premium income in 1996. The portion of earnings therefrom that inures to the benefit of the participating policyholders is not available to shareholders. Undistributed earnings payable to participating policyholders are included as a liability in the Consolidated Balance Sheets.
All participating policies approximate 7.3 percent of the total individual life insurance in force at December 31, 1996 and 12.2 percent of individual life insurance premium income in 1996. The provisions for dividends to policyholders in the statements of consolidated income include dividends paid or payable on participating policies.
Liability for Unpaid Claims
The liability for unpaid claims and claim adjustment expenses is based on the estimated amount payable on claims reported prior to the balance sheet date which have not yet been settled, claims reported subsequent to the balance sheet date which have been incurred during the period then ended, and an estimate (based on prior experience) of incurred but unreported claims relating to such period.
Liability for Guaranty Fund Assessments
The Company's life insurance subsidiaries may be required, under the solvency or guaranty laws of the various states in which they are licensed, to pay assessments up to prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies. Certain states permit these assessments, or a portion thereof, to be recovered as an offset to future premium taxes. Assessments are recognized based on notification of liability by regulatory authorities, including provision for certain future amounts payable, and, when subject to credit against future premium taxes and judged to be recoverable, may be capitalized and amortized on a basis consistent with the credits to be realized under applicable state law.
Reinsurance
Amounts paid for or recoverable under reinsurance contracts are included in total assets as reinsurance receivable or recoverable amounts. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.
Other Assets
Included in other assets is the unamortized portion of goodwill, representing the excess of cost over the value of net assets acquired in subsidiary acquisitions accounted for by the purchase method. Such amounts are being amortized by straight-line basis charges to income over forty year periods which began at the respective dates of acquisition of the acquired subsidiaries. Amortization of goodwill amounted to approximately $2 million for each of the three years ended December 31, 1996.
Income Taxes
Deferred income taxes arise as a result of applying enacted statutory tax rates to the temporary differences between the financial statement carrying value and the tax basis of assets and liabilities. Such differences result primarily from amounts capitalized for policy acquisition costs and calculated for future policy benefit liabilities.
The Company and its subsidiaries file a consolidated Federal income tax return and have elected to include the life insurance and non-life insurance subsidiaries in the consolidated tax return. Taxes on income for life insurance and non-life insurance subsidiaries are recorded in the individual income accounts of the subsidiaries and are remitted to the Company on a separate return basis. The provision for taxes in the Statements of Consolidated Income represents the tax for all companies on a consolidated return basis.
Income Per Share
Income per share was computed by dividing the income applicable to common and common equivalent shares by the weighted average number of common and common equivalent shares outstanding during each year. The weighted average number of common and common equivalent shares was determined by using the average number of common shares outstanding during each year, net of reacquired (treasury) shares from the date of acquisition; by converting the shares of the Series A and Series B Preferred Stock to their equivalent common shares, and by calculating the number of shares issuable on exercise of those common stock options with exercise prices lower than the market price of the common stock, reduced by the number of shares assumed to have been purchased with the proceeds from the exercise of the options. Fully diluted income per share is the same as income per share data indicated.
Standby and Permanent Financing Commitments
In the ordinary course of investment operations, the life insurance subsidiaries may, in return for commitment fees, extend standby commitments which represent contingent obligations to replace certain borrowings in the event of default by unaffiliated borrowers. The life insurance subsidiaries historically have not provided permanent financing on the major portion of such commitments. The life insurance subsidiaries also may extend permanent financing commitments for investments in mortgage loans, with specified closing dates typically within 90 to 120 days after approval and interest rates and other terms (based on the credit policies utilized for investments in mortgage loans) determined at the commitment date. There were no outstanding standby commitments at December 31, 1996.
Note 2. Nature of Operations and Segment Information
USLIFE Corporation is a life insurance-based holding company whose principal subsidiaries engage in the life insurance business. USLIFE operates nationwide through four life insurance companies and offers a broad portfolio of individual life insurance and annuity policies as well as group and credit insurance. The individual life and annuity product line, which includes universal life, term life, whole life, and deferred annuity products as well as income attributed to capital and surplus, accounts for the major portion of USLIFE's pre-tax income and total revenues. These individual products are sold primarily through independent general agencies who are compensated on a commission basis and usually sell products of other companies in addition to those of USLIFE. Other product lines include group life and health insurance, sold principally through employers and associations, and credit life and disability products which are sold primarily to customers of financial institutions through USLIFE's credit insurance group.
The only reportable industry segment of the Company is "Life Insurance" and the related information is presented below:
Supplementary information for product groups included in the Life Insurance industry segment is presented below:
(a) Includes income from capital and surplus.
On January 29, 1996, the Company announced that its subsidiary, The United States Life Insurance Company, would discontinue new sales of traditional indemnity major medical products. Further, it would only offer major medical coverage through managed care plans in selected markets where it has both a significant presence and an appropriate managed care network in place, while continuing to provide full support and service to all existing indemnity customers regardless of location. Concurrently, the Company announced that it would carefully monitor persistency experience of its group insurance lines in order to determine whether financial statement adjustments would become necessary.
Recoverability of deferred policy acquisition costs depends on future revenues and gross profits from the business to which it relates. Evaluation of this asset, as well as the reserve for policy benefits, requires assumptions as to the amount and timing of these future revenues and gross profits. The Company's continuing study disclosed that persistency on this business deteriorated to a point that a revision in assumptions was necessary.
During the second quarter of 1996, the Company recorded a pre-tax charge of $49.6 million to recognize revised assumptions reflecting current experience on its traditional indemnity group major medical and related products, including group life insurance cases sold in tandem with these major medical policies. The charge includes a $37.2 million writedown of deferred policy acquisition costs on this block of business and a related adjustment of the reserve for policy benefits amounting to $12.4 million which is included in "Benefits to policyholders and beneficiaries" in the accompanying statements of consolidated income. The charge, on an after-tax basis, amounts to $32.3 million or 93 cents per share. The impact of this charge on 1996 pre-tax results of the Employer / association group life and Employer / association group health lines was $6.2 million and $43.4 million, respectively.
Note 3. Investments
The investments of the Company at December 31, 1996 are summarized as follows:
Based on balance sheet carrying value, assets categorized as "non-income producing" for the 12 months ended December 31, 1996 included in fixed maturities, mortgage loans, real estate investment properties, and real estate acquired in satisfaction of debt amounted to $3.8 million, $300 thousand, $1.7 million and $1.5 million, respectively.
At December 31, 1996, consolidated invested assets included approximately $237 million (based on adjusted cost) of less than investment grade corporate securities, based on ratings assigned by recognized rating agencies and insurance regulatory authorities. Such investments had an aggregate fair value of approximately $238 million at December 31, 1996 and, based on fair value, represent approximately 3% of consolidated total assets at that date. Approximately $4 million (at fair value) of these investments (adjusted cost, $3 million) represented securities in default at December 31, 1996. Also at December 31, 1996, the carrying value of mortgage loans included in consolidated total assets which were 60 days or more delinquent or in foreclosure was approximately $700 thousand, and the book value of property acquired through foreclosure of mortgage loans was approximately $23 million.
The adjusted cost and fair value of the Company's consolidated investments in equity securities and debt securities at December 31, 1996 and 1995 are as follows:
Equity Capital at December 31, 1996 and 1995 includes net unrealized gains and losses on available-for-sale securities as follows:
December 31 ________________________
1996 1995 __________ __________
(Amounts in Thousands)
Fixed maturities:
Fair value........................................ $5,864,687 $6,006,864 Adjusted cost..................................... 5,674,366 5,559,322 __________ __________
Unrealized gain ............................... 190,321 447,542 __________ __________
Equity securities:
Fair value........................................ 3,786 4,717 Adjusted cost..................................... 3,997 4,918 __________ __________
Unrealized loss................................ (211) (201) __________ __________ Unrealized gain on securities in retirement trust.................................. 922 -- __________ __________
Total unrealized gain............................... 191,032 447,341 __________ __________
Related adjustments:
Deferred policy acquisition costs................. (82,106) (135,926) Policyholder liabilities.......................... (4,140) (10,721) Deferred federal income tax liability............. (36,677) (105,244) __________ __________
(122,923) (251,891) __________ __________
Net unrealized gain on securities included in Equity Capital.................................... $ 68,109 $ 195,450 ========== ==========
Changes in net unrealized gains and losses on available-for-sale securities were as follows:
Realized gains and losses on the Company's consolidated investments in fixed maturities and equity securities for the three years ended December 31, 1996 are summarized as follows:
Pre-tax realized gains and losses shown above reflect provisions for valuation of certain investments with decline in value determined to be other than temporary.
Pre-tax realized gains and losses on fixed maturities and equity securities are reconciled to consolidated realized gains and losses on investments as follows:
1996 1995 1994 __________ __________ __________
(Amounts in Thousands) Realized gains (losses):
Fixed maturities.............. $ (7,526) $ 3,629 $ (630) Equity securities............. (202) 262 (923) __________ __________ __________
(7,728) 3,891 (1,553)
Real estate, mortgage loans, and other investments....... 2,735 2,497 173
__________ __________ __________
Total......................... $ (4,993) $ 6,388 $ (1,380) ========== ========== ==========
The adjusted cost and fair value of debt securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
December 31, 1996 ______________________
Adjusted Fair Cost Value __________ __________
(Amounts in Thousands)
Due in one year or less...................... $ 245,215 $ 247,436 Due after one year through five years........ 1,320,522 1,359,472 Due after five years through ten years....... 1,462,075 1,509,899 Due after ten years.......................... 2,751,683 2,853,009 __________ __________
Total debt securities........................ $5,779,495 $5,969,816 ========== ==========
Proceeds from disposals of investments in debt securities (excluding short term investments) during 1996, 1995 and 1994 were $890.1 million, $437.7 million, and $1.072 billion, respectively. During 1996, gross gains of $11.2 million and gross losses of $18.7 million were realized on such disposals. During 1995, gross gains of $12.5 million and gross losses of $8.9 million were realized on such disposals. During 1994, gross gains of $31.3 million and gross losses of $31.9 million were realized on such disposals.
The details of consolidated net investment income for the three years ended December 31, 1996 follow:
Note 4. Deferred Policy Acquisition Costs
Details with respect to consolidated deferred policy acquisition costs for the three years ended December 31, 1996 are as follows:
The balance of deferred policy acquisition costs is allocated to product lines as follows:
Note 5. Notes Payable
Notes payable at December 31, 1996 includes $150 million borrowings under a revolving credit agreement between the Company and The Bank of New York (as agent) which expires in April 1999, at which time all borrowings thereunder must mature. The credit agreement provides for term borrowings in segments of up to six months with interest indexed to the LIBOR borrowing rate or based on certain alternative interest rates at the option of the Company. USLIFE has the option to prepay amounts borrowed under the credit agreement, in whole or in part, and to reborrow loans thereunder provided the total amount of outstanding borrowings does not exceed $150 million.
Also included in this item are short term borrowings against bank lines of credit or pursuant to certain bank revolving credit agreements, and other short term bank borrowings. The Company has lines of credit of $53 million with 4 banks and a revolving short term bank credit agreement which provide term loan borrowing facilities up to a maximum of $100 million. The lines of credit provide for annual review and renewal at the option of each bank. The interest rates and terms of loans under the lines of credit and the revolving credit agreements are determined bilaterally on the date of borrowing.
The following table sets forth summary information with respect to short term borrowings of the Company for the three years ended December 31, 1996.
(a) The average amounts of short term borrowings were computed by determining the arithmetic average of months' end short term borrowings.
(b) The weighted average interest rates were determined by dividing interest expense related to short term borrowings by the average amounts of such borrowings.
Note 6. Long Term Debt
At December 31, 1996 and 1995, consolidated long term debt consists of the following:
The contractual maturities of the Company's long term debt are as follows:
Parent Company and Consolidated _______________________________
December 31, December 31, 1996 1995 ____________ ____________
(Amounts in Thousands)
1998....................... $149,928 $149,861 1999....................... - 50,000 2000....................... 149,707 149,632 ________ ________
Total............... $299,635 $349,493 ======== ========
None of the Company's debt issues are or have been in default.
Note 7. Federal Income Taxes
Federal income tax expense relating to operations of the Company for 1996, 1995 and 1994 is comprised of the following components:
Total tax expense differs from the amount computed by applying the Federal income tax rate of 35 percent in 1996, 1995 and 1994, to income before tax for the following reasons:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below:
December 31 ______________________
1996 1995 ____ ____
(Amounts in Thousands)
Deferred Tax Assets:
Future policy benefits.......................... $ 149,827 $ 152,158 Tax net operating loss carryforward............. 28,652 26,161 Capital gains and losses........................ 21,001 40,211 Capitalization of policy acquisition costs, net of amortization, for tax return purposes.. 77,323 66,859 Sale and leaseback transactions................. 175 873 Allowance for uncollectible receivables......... 75 2,496 Resisted claim liability........................ 4,000 2,840 Employee retirement benefits.................... 30,782 29,740 Unearned interest............................... 1,390 1,451 Accrual of interest payable..................... 3 353 Differences between tax and accounting for reinsurance............................... -- 926 Other........................................... 1,952 2,510 _________ _________
Total gross deferred tax assets................. 315,180 326,578
Total valuation allowance....................... (16,368) (16,368) _________ _________
Net deferred tax assets......................... 298,812 310,210 _________ _________
Deferred Tax Liabilities: _________________________
Deferral of policy acquisition costs, net of amortization, for accounting purposes......... (303,533) (299,028) Net unrealized gain on securities............... (36,675) (105,244) Basis differences between tax and accounting for joint ventures............................ (2,599) (4,499) Basis differences between tax and accounting for securities................................ (4,962) (4,920) Depreciation.................................... (5,615) (5,387) Prepaid expenses................................ (2,938) (3,055) Differences between tax and accounting for reinsurance............................... (1,143) -- Other........................................... (5,473) (10,853) _________ _________
Total gross deferred tax liabilities............ (362,938) (432,986)
_________ _________
Net deferred tax asset (liability).............. $ (64,126) $(122,776) ========= =========
Federal income tax returns have been examined and settled for all years through 1988. The Company believes that its recorded income tax liabilities are adequate for all open years.
Under the provisions of prior tax law applicable to life insurance companies, one half of the excess of the gain from operations of a life insurance company over its taxable investment income was not taxed but was set aside in a special "Policyholders' Surplus Account". Under provisions of the Tax Reform Act of 1984, this account is "frozen" as of December 31, 1983 and is subject to tax under conditions set forth pursuant to prior tax law. Policyholder Surplus may be taxable at the time of its distribution to the company's shareholders or under certain other specified conditions. The Company does not believe that any significant portion of the amount in this account will be taxed in the foreseeable future. However, should the balance at December 31, 1996 become taxable, the tax computed at present rates would be approximately $47.8 million.
At December 31, 1996, the Company has nonlife net operating loss carryforwards for Federal income tax purposes of approximately $81.9 million which are available to offset future Federal taxable income, if any, through 2011.
Note 8. Liability for Unpaid Claims
Activity in the liability for unpaid claims and claim adjustment expenses for the Company's health and disability coverages is summarized as follows:
1996 1995 1994 ________ ________ ________ (Amounts in Thousands)
Balance at January 1................. $ 77,840 $ 73,627 $ 81,638 Less: reinsurance recoverables....... 5,107 4,115 4,021 ________ ________ ________ Net balance at January 1............. 72,733 69,512 77,617 ________ ________ ________
Amount incurred (a).................. 318,548 301,344 334,699
Amount paid, related to: Prior years (b).................. 119,472 102,099 94,083 Current year..................... 186,972 196,024 248,721 ________ ________ ________ Total...................... 306,444 298,123 342,804 ________ ________ ________
Net balance at December 31........... 84,837 72,733 69,512 Plus: reinsurance recoverables....... 4,859 5,107 4,115 ________ ________ ________ Balance at December 31............... $ 89,696 $ 77,840 $ 73,627 ======== ======== ========
(a) Substantially all of the Company's incurred claims and claim adjustment expenses relate to the respective current year.
(b) Includes current year incurred amount on certain claims originating prior to respective current year.
Note 9. Retirement Plans
The Company and its subsidiaries have a qualified noncontributory defined benefit pension plan covering substantially all employees. Benefits are generally based on years of service, the employee's compensation during the last three years of employment, and an average of Social Security covered wage bases. It is the Company's policy to fund pension costs in accordance with the requirements of the Employee Retirement Income Security Act of 1974. Based on such standards, contributions amounting to $5.2 million, $4.2 million and $4.5 million were made for the years ended December 31, 1996, 1995 and 1994, respectively. Substantially all of the Plan assets are invested in the general investment account of a life insurance subsidiary of the Company through a deposit administration insurance contract. As a result of factors including compensation and benefit limitations under Federal tax law applicable to the Company's qualified defined benefit pension plan, the "excess" portion of the pension benefits for certain employees is provided under an unfunded Supplemental Retirement Plan. The unfunded Supplemental Retirement Plan was amended during the 1996 plan year to provide for a lump sum payment provision. Additionally, the Company has an unfunded Retirement Plan for Outside Directors which provides pension benefits to non-employee Directors of USLIFE Corporation subject to specified eligibility requirements. Benefits are based on years of service and the annual retainer at time of retirement.
Pension expense for all of the above pension plans amounted to $12.625 million, $7.724 million and $7.848 million in 1996, 1995 and 1994, respectively. The net periodic pension cost for these plans in 1996, 1995 and 1994 included the following components:
The funded status is reconciled to accrued pension cost included in the Company's consolidated balance sheets as of December 31, 1996 and 1995 as follows:
The unrecognized net asset relating to the qualified pension plan is being recognized over a 14 year period which began January 1, 1987. Under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," an additional minimum pension liability is required for the Company's non- qualified plans to reflect the excess of the accumulated benefit obligations over the liability already recognized as unfunded accrued pension cost. Statement No. 87 also permits offsetting of this liability with an intangible asset, based on provisions of the Statement. The unrecognized net loss and unrecognized prior service cost relating to the Company's pension plans are subject to amortization on a straight-line basis over the estimated average future service period of active employees expected to receive benefits under the plan. Assumptions used in the actuarial computations for the Company's pension plans were as follows:
In addition to providing pension benefits, the Company and its subsidiaries provide certain health care and life insurance benefits to retired employees under a defined benefit plan. Employees may become eligible for these benefits if they have accumulated ten years of service and reach normal or early retirement age while working for the Company. The plan provides benefits supplemental to Medicare after retirees are eligible for Medicare benefits. The postretirement benefit plan contains cost-sharing features such as deductibles and coinsurance, and contributions of certain retirees are subject to annual adjustment. Additionally, the Plan provides for a maximum dollar cap on amounts to be paid by the Company for future increases in the cost of retiree health benefits. It is the Company's current policy to fund these benefits, which are provided through an insurance contract with a life insurance subsidiary of the Company, on a "pay as you go" basis.
Net periodic postretirement benefit cost for 1996, 1995 and 1994 included the following components:
The funded status of the non-pension postretirement benefit program as of December 31, 1996 and 1995 is reconciled to accrued postretirement benefit cost as follows:
Excess gains or losses and unrecognized changes in prior service cost resulting from Plan amendments are being amortized over the average remaining service period to full eligibility for benefits of the active participants.
For measurement purposes, an 8 percent annual rate of increase in the per- capita cost of covered health benefits (ie., health care cost trend rate) was assumed for 1996; the rate was assumed to decrease to 6 percent in the year 1997 and remain at that level thereafter. A 7 percent annual rate of increase in claims reimbursed by Medicare for retirees over age 65 was assumed for 1996; the rate was assumed to decrease to 6 percent in the year 1997 and remain at that level thereafter. The assumed health care cost trend rate does not have a significant effect on the amounts reported in accordance with Statement of Financial Accounting Standards No. 106 ("Employers' Accounting for Postretirement Benefits Other Than Pensions") due to the maximum dollar cap noted above. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $192 thousand and the aggregate of the service and interest cost components of 1996 net periodic postretirement benefit cost by $13 thousand. The discount rate used in determining the accumulated postretirement benefit obligation was 7.6% at December 31, 1996, 7.0% at December 31, 1995 and 8.25% at December 31, 1994.
Note 10. Capital Stock
Non-Redeemable Preferred Stocks
The $4.50 Series A Convertible Preferred Stock ($1.00 par value; authorized and issued as of December 31, 1996, 4,332 shares; December 31, 1995, 4,480 shares; December 31, 1994, 4,653 shares) is carried at involuntary liquidating value of $100 per share in the financial statements; is entitled to cumulative annual dividends of $4.50 per share; may be redeemed in whole or in part at the option of the Company at $100 per share; and is convertible at any time into Common Stock at a conversion price which at December 31, 1996 was $8.33 per share (each share of Series A Stock valued at $100), subject to adjustment under a formula intended to protect against dilution in certain events. Holders are entitled to vote together with the Common Stock and Series B Convertible Preferred Stock as one class on the basis of one vote per share and to vote as a class upon the election of two directors during any period in which four quarterly dividends (whether or not consecutive) are in default.
The $5.00 Series B Convertible Preferred Stock ($1.00 par value; authorized and issued as of December 31, 1996, 1,689 shares; December 31, 1995, 1,852 shares; December 31, 1994, 2,003 shares) is carried at involuntary liquidating value of $50 per share in the financial statements; is entitled to cumulative annual dividends of $5.00 per share; may be redeemed in whole or in part at the option of the Company at $100 per share; and is convertible at any time into Common Stock at a conversion price which at December 31, 1996 was $8.34 per share (each share of Series B Stock valued at $100), subject to adjustment under a formula intended to protect against dilution in certain events. Voting rights are the same as those of holders of Series A Stock.
The Preferred Stock, undesignated ($1.00 par value; authorized as of December 31, 1996, 10,793,979 shares, issued none), may be issued by authorization of the Board of Directors without further approval of shareholders. The Board has broad powers to fix the terms of such issues subject to the limit that the aggregate of all amounts which may be paid to holders of all of the series of Preferred Stock upon the involuntary liquidation, dissolution or winding up of the Company cannot exceed $100 times the number of such shares plus accrued unpaid dividends.
Common Stock
The outstanding shares of Common Stock (par value $1.00 per share; authorized, as of December 31, 1996, 120,000,000 shares; December 31, 1995 and 1994, 60,000,000 shares; issued, including treasury shares, as of December 31, 1996, 57,472,605 shares; December 31, 1995, 57,468,882 shares; December 31, 1994, 57,465,735 shares) entitle each holder to one vote per share in the election of directors and on all other matters submitted to a vote of shareholders and to such dividends and distributions as may be declared by the Board of Directors out of funds legally available. At December 31, 1996, 72,235 shares of Common Stock were reserved for issuance upon conversion of Preferred Stock. The Company sponsors, through certain of its life insurance subsidiaries, savings plans for selected general agents and producers (the "Agents Plans") providing for distribution of Common shares to participants if specified qualification and vesting requirements are satisfied. As of December 31, 1996, participant interests relating to 40,136 Common shares had vested under the Agents Plans. On July 10, 1986 the Company issued, to shareholders of record on that date, one Common Stock Purchase Right (a "Right") for each share of Common Stock owned on that date. Until the Rights become exercisable they will be represented by the stock certificates for all outstanding Common Stock including newly issued shares. Upon the occurrence of certain events specified in a Rights Agreement dated as of June 24, 1986 and amended and restated as of September 27, 1994 between the Company and Chase Manhattan Bank, formerly known as Chemical Bank (successor by merger to Manufacturers Hanover Trust Company) as Rights Agent, the Rights will become exercisable, separate certificates representing the Rights will be issued, and each Right will entitle the holder to purchase one half of a share of the Common Stock for $107. Under certain circumstances specified in the Rights Agreement each Right will entitle the holder to purchase, for one half of its then market value, publicly traded common stock of any corporation which acquires the Company; each Right will also entitle the holder, with certain exceptions specified in the Rights Agreement, to purchase $150 worth of the Common Stock for $75. As of December 31, 1996, the Rights had not become exercisable. See Note 22 relating to subsequent event.
The Company also sponsors a Dividend Reinvestment and Stock Purchase Plan which enables holders of the Company's Common Stock to invest cash dividends and optional cash payments in additional shares of the Common Stock. In 1996, 1995 and 1994, respectively, 32,955, 37,208 and 39,861 shares of the Common Stock had been sold pursuant to the Dividend Reinvestment and Stock Purchase Plan.
Treasury Stock
At December 31, 1996, there were 23,070,016 shares of Common Stock held in treasury. During 1996, 329,251 Common shares were acquired (including 232,000 shares purchased under a repurchase program and 97,251 shares relating to benefit plans), at an aggregate cost of $9.7 million, and 256,928 Common shares, with an aggregate cost of $3.2 million, were utilized for certain employee, director, and agent benefit plans and for the Dividend Reinvestment and Stock Purchase Plan of USLIFE Corporation. At December 31, 1995, treasury stock consisted of 22,997,693 Common shares. Common shares outstanding, net of treasury shares, as of December 31, 1996 and 1995 are as follows:
December 31 ________________________
1996 1995 ____ ____
Common shares issued.............. 57,472,605 57,468,882 Treasury shares................... 23,070,016 22,997,693 __________ __________
Net outstanding common shares..... 34,402,589 34,471,189 ========== ==========
Note 11. Stock Options and Long-Term Incentive Plans
In May, 1991, the Company adopted a stock option plan (the "1991 Stock Option Plan") for key employees to replace the previous stock option plan under which options could no longer be granted. Under the 1991 Stock Option Plan, a maximum of 1,575,000 shares of the Company's common stock may be issued upon the exercise of stock options which may be granted pursuant to the Plan. The 1991 Stock Option Plan also provides for "Reload" options, which are automatically granted to a participant upon the exercise of an option if the participant uses previously owned shares to pay for the option shares. Reload options will be for the number of previously-owned shares delivered upon the employee's exercise of an option. Under the 1991 Stock Option Plan, the purchase price of shares subject to each option will be not less than 100% of their fair market value at the time of the grant of the option. The Plan limits the number of options that may be granted to any one individual during any one-year period to 112,500. No options may be granted under the 1991 Stock Option Plan after May 20, 2001.
In May 1994, the Company adopted a stock option plan (the "Non-Employee Director Stock Option Plan") for directors of USLIFE who are not employees of the Company or its subsidiaries or affiliates. The Plan provides that on the date of each Annual Meeting of Shareholders, each eligible director will automatically be granted options to purchase 3,000 shares of USLIFE common stock. A maximum of 375,000 shares of the Company's common stock may be issued upon the exercise of stock options which may be granted under the Non-Employee Director Stock Option Plan. No options may be granted under this Plan after May 17, 2004.
No option granted under the Company's stock option plans is exercisable in whole or in part in less than six months from the date of grant. Each option may be exercisable in one or more installments as provided therein. To the extent such options are not exercised, installments accumulate to the total granted and are exercisable in whole or in part at any time during the term of the option. This term is set forth in the option but in no event is an option exercisable, in whole or in part, after the expiration of ten years from the date of grant. The 1991 Stock Option Plan provides that in the event of a Change in Control (as defined in the Plan), all outstanding options granted under that Plan which have been held for at least six months from the date of grant shall become immediately exercisable. Common shares may be issued under the Company's stock option plans from shares in treasury or authorized but unissued shares.
A summary of activity under all stock option plans for the three years ended December 31, 1996 is presented below:
Number Average of Option Price Shares Per Share ______ ___________
Outstanding, December 31, 1993........ 1,557,667 $ 20.73 Granted.......................... 117,000 25.47 Exercised........................ 128,823 17.91 Terminated....................... 41,625 23.68 _________ ________
Outstanding, December 31, 1994........ 1,504,219 21.26 Granted.......................... 108,456 25.71 Exercised........................ 214,028 19.18 Terminated....................... 6,547 24.69 _________ ________
Outstanding, December 31, 1995........ 1,392,100 21.91 Granted.......................... 193,648 29.71 Exercised........................ 167,063 20.44 Terminated....................... 5,250 24.92 _________ ________
Outstanding, December 31, 1996........ 1,413,435 $ 23.15 ========= ========
Exercise prices for options outstanding at December 31, 1996, range from a minimum of approximately $16 per share to a maximum of approximately $33 per share. The average remaining maximum term of options outstanding is approximately 5 years.
As of December 31, 1996, 1995 and 1994, options for 984,515 shares, 904,525 shares and 1,386,657 shares were exercisable under all stock option plans, respectively, at average prices of $21.32, $20.28 and $18.92 per share. As of December 31, 1996, up to 2,241,573 common shares could be issued under the Company's stock option plans.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), introduced standards for computing "fair value" of stock options using a mathematical model, as well as expense charges over the related service period based on this calculated value. However, as permitted by SFAS 123, the Company has elected to continue to use the "intrinsic value" approach specified by Accounting Principles Board Opinion No. 25 ("APB 25"), the previous accounting standard, for financial statement purposes. Under APB 25 standards, stock options such as those granted by the Company (with option price set equal to market price at date of grant) do not require income statement charges, although the outstanding options are considered in earnings per share calculations.
If the Company had elected to recognize compensation based on the fair value of the options granted at grant date as prescribed by SFAS 123, net income and net income per share would have been reduced to the pro forma amounts indicated in the table below:
1996 1995
__________ __________
(Amounts in thousands except per share data)
Net income - as reported................. $ 76,027 $105,414 Net income - pro forma................... 75,774 105,351 Net income per share - as reported....... 2.18 3.03 Net income per share - pro forma......... 2.17 3.03
Stock-based compensation costs reduced pro-forma net income in the above calculations by $253 thousand and $63 thousand in 1996 and 1995, respectively. The pro-forma effect on net income for 1996 and 1995 is not representative of the pro-forma effect of stock options on net income in future years because it considers only options granted in 1995 and thereafter as required by SFAS 123. Since stock options are generally awarded each year, their impact on pro-forma net income for future years would be expected to increase as more stock options are included in these calculations.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
1996 1995
__________ __________
Expected life (years).................... 6 6 Interest rate............................ 6.40% 6.58% Volatility............................... 22.48% 22.34% Dividend Yield........................... 3.10% 3.41%
The weighted average fair value of options granted was $7.39 and $6.21 in 1996 and 1995, respectively.
The Company has a Book Unit Plan for certain key employees. Under the terms of the Plan, the Board of Directors may award, at its sole discretion, one or more units to employees it has selected to become participants in the Plan. No more than 900,000 units shall be outstanding under the Plan at any time. The value of units granted prior to 1994 shall be the amount by which the book value per share, as of the award date, has been increased or decreased by (a) the sum of the increases or decreases in the book value per share of the Company's common stock, excluding the impact of "mark-to-market" adjustments required by FASB Statement No. 115 to recognize unrealized gains and losses on debt and equity securities, plus (b) dividend equivalents for subsequent years up to and including the valuation date. In May 1994, the Plan was amended to limit the number of book units that may be granted to any one individual during a one-year period to no more than 112,500 and further, to eliminate the inclusion of cumulative dividends paid to shareholders in calculating the value of book units awarded in 1994 and thereafter. Accordingly, approximately $1.6 million, $1.3 million, and $1.7 million were charged to expense in 1996, 1995 and 1994, respectively.
A summary of units outstanding under the Book Unit Plan follows:
The Company also has a Restricted Stock Plan for selected key employees. Under the terms of the Plan, a committee of the Board of Directors may award restricted shares of common stock of the Company, up to an aggregate maximum of 1,575,000 shares, to designated Participants. The shares, when awarded, are initially non-transferable and subject to forfeiture in the event that the Participant ceases to be an employee of USLIFE or any of its subsidiaries other than by reason of death, permanent disability, retirement, or certain other specified circumstances. These restrictions generally terminate with respect to 20% of the number of shares awarded on March 1 of each of the five calendar years following the year of award, at which time the appropriate number of unrestricted shares are distributed to the Participant. For certain awards, restrictions terminate with respect to one-third of the number of shares awarded on the first, second, and third anniversaries of the award date, with similar distribution. In the event of a Change in Control, as defined in the Plan, restrictions would terminate as to previously awarded but unvested shares. The Plan limits the number of shares that may be granted to any one individual during any one-year period to 112,500, and provides for forfeiture of awards to certain key officers under the Plan in the event that performance goals based on the Company's "Earnings Per Share from Continuing Operations," as defined in the Plan, are not satisfied. Upon award of shares under the Plan, deferred compensation equivalent to the market value of the shares on the award date is charged to Equity Capital. Such deferred compensation is subsequently amortized by means of charges to expense over the period during which the restrictions lapse. During 1996, a total of 27,393 shares were awarded under the plan. During 1995, a total of 126,699 shares were awarded under the Plan. During 1994, a total of 306,411 shares were awarded under the Plan, and 7,998 previously awarded shares were forfeited pursuant to the terms of the Plan. As of December 31, 1996, there were 278,247 previously awarded shares outstanding under the Plan as to which the restrictions had not yet lapsed. Expense charges recognized in 1996, 1995 and 1994 relating to these awards amounted to approximately $3.2 million, $2.6 million and $2.0 million, respectively.
In May 1994, the Company adopted an Annual Incentive Plan (the "Incentive Plan") for certain key executive officers. Under the Incentive Plan, annual bonuses for participating key officers will depend on the attainment of performance goals based on levels of income from the Company's core life insurance businesses, as defined in the Plan. The Incentive Plan is administered by the Executive Compensation and Nominating Committee, which may authorize awards of up to 75% of a Participant's base salary based on attainment of performance goals established by the Committee. These awards are payable in cash no later than April 30 after each plan year, following certification by the Committee that the performance goals have been met. The Incentive Plan provides that in the event of a Change in Control (as defined in the Plan), the amount of awards will be calculated as if all performance targets have been met to produce the maximum award and payment of the awards will be accelerated to the date on which the Change in Control occurs.
Note 12. Leases
A subsidiary of the Company leases a portion of a building located at 125 Maiden Lane, New York, New York, which houses the subsidiary's principal executive offices as well as the headquarters of the Company and several other subsidiaries. The lease expires in 2006 and provides a renewal option based on fair rental value at time of renewal. Additionally, several subsidiaries lease office space at other locations generally for periods ranging from five to fifteen years, and certain subsidiaries utilize leased furniture and office equipment. Certain of the operating leases for office premises provide for renewal options for periods ranging from five to twenty years based on fair rental value at time of renewal, and further options relating to rental of additional office space. The minimum rental commitments for all such non- cancelable operating leases as of December 31, 1996 approximate $11.8 million in 1997, $11.2 million in 1998, $10.1 million in 1999, $9.5 million in 2000, $8.9 million in 2001, and a total of $29.7 million from 2002 to 2007. Total rental expense amounted to approximately $10.9 million, $12.5 million and $13.1 million for the years ended December 31, 1996, 1995 and 1994, respectively.
Note 13. Contingent Liabilities and Commitments
The Company has entered into Key Executive Employment Protection Agreements with selected key employees, which provide for certain contingent severance benefits, based on compensation, in the event of a Change in Control (as defined in the agreements). The Company has outstanding Standby Letters of Credit with three banks representing contingent obligations to fund various trusts established in connection with certain employment contracts of management employees, inclusive of the Key Executive Employment Protection Agreements, as well as certain employee and Director benefit plans, in the event of a Change in Control (as defined in the trust agreements), totalling $122 million as of December 31, 1996. See Note 22 relating to subsequent event. Additionally, in connection with the application by a life insurance subsidiary for an additional state license to transact business, USLIFE Corporation has agreed to guarantee that subsidiary's maintenance of the state's minimum capital and surplus requirements (amounting to $4.4 million at December 31, 1996) for a ten year period commencing at the effective date of such license. The Company has also agreed to guarantee the payment and performance of two real estate leases which expire December 31, 2006 and June 30, 2007, respectively, for two of its subsidiaries, which represent gross minimum rents for the remaining term of the leases totalling, as of December 31, 1996, $17.6 million and $14.9 million, respectively, plus additional rents representing any increase in operating expenses and real estate taxes over the base year (defined in the leases as calendar year 1995 and 1997, respectively).
As of December 31, 1996, the life insurance subsidiaries had outstanding an aggregate $25.6 million of permanent financing commitments for investments in mortgage loans based on the credit policies and terms typically utilized for these investments. The major portion of these commitments are anticipated to be funded within 120 days of that date.
The Company and certain of its subsidiaries are involved in litigation, which originated in 1981, with a former officer of a former subsidiary of the Company. Allegations in the former officer's lawsuit included a claim for malicious prosecution. In 1993 a judgment was rendered in favor of the Company on this claim, which was the only remaining claim in the former officer's lawsuit. That judgment was appealed and in November, 1996, the Court of Appeals reversed the trial court's dismissal of the claim. The Company has petitioned the California Supreme Court for review which if rejected, will result in the case being returned to the trial court for a jury trial. No contingent loss has been accrued for this litigation because the amount of loss, if any, cannot be reasonably estimated.
In November, 1994, a purported class action was filed against three of the Company's subsidiaries alleging that in connection with purchases by plaintiffs of single premium term life insurance from mortgage lenders, defendants misrepresented the type of insurance offered as credit life insurance and sold the term life insurance at premiums in excess of those permitted for credit life insurance. The parties have agreed to a settlement of all claims asserted and the settlement was given tentative approval by the Court in December, 1995. Under the terms of the Settlement Agreement, class members will be notified of their right to file claims for partial premium refunds. In the opinion of management, the ultimate resolution of this action in accordance with the terms of the Settlement Agreement will not result in a material additional liability on the part of the Company.
In March, 1995, a purported class action was filed alleging that a subsidiary of the Company issued insurance contracts in an amount sufficient to cover the gross amount of indebtedness, rather than the net amount of indebtedness, contrary to Alabama law. The complaint contains claims of fraud and breach of contract based on allegations that defendant misrepresented the amount of insurance needed. In a similar case, the Alabama Supreme Court recently granted a motion to dismiss all punitive damage claims. Defendant is continuing to aggressively defend the lawsuit. Plaintiffs seek compensatory and punitive damages. No contingent loss has been accrued for this litigation because the amount of loss, if any, cannot be reasonably estimated.
In addition to the aforementioned legal proceedings, the Company and its subsidiaries are parties to various routine legal proceedings incidental to the conduct of their business. Based on currently available information, in the opinion of management it is not probable that the ultimate resolution of these suits will result in a material liability on the part of the Company.
Note 14. Financial Instruments and Concentrations of Credit Risk
The following methods and assumptions were used to estimate the fair value of the indicated classes of financial instruments:
Cash and Short-term Investments
The carrying amounts of these assets approximate their fair value.
Fixed Maturities and Equity Securities
Fair values are based on quoted market prices or dealer quotes.
Mortgage Loans
The fair value of mortgage loans, other than those which are more than 60 days delinquent or in foreclosure, is estimated by discounting the expected future cash flows. The rates used for this purpose are the estimated current rates that would be applied to the loans in a purchase or sale transaction, on an aggregate or bulk basis grouped by maturity range, considering the creditworthiness of the borrowers and the general characteristics of the collateral. For purposes of this calculation, the fair value of loans with stated interest rates greater than the estimated applicable market rate was adjusted to reflect the impact of prepayment options or other contractual terms upon market value. For mortgage loans which are classified as delinquent or are in foreclosure, fair value is based on estimated net realizable value of the underlying collateral.
Policyholder Account Balances Relating to Investment Contracts
The fair value of the Company's liabilities under investment contracts, primarily deferred annuities, is estimated using discounted cash flow calculations based on interest rates being offered by the Company for similar contracts at the balance sheet date.
Long-term Debt
The fair value of the Company's long-term debt is estimated based on rates believed to be currently available to the Company for borrowings with terms similar to the remaining maturities of the outstanding debt. For outstanding debt securities with fixed interest rates in excess of current market rates, repayment on call dates prior to stated maturity was assumed for purposes of fair value estimation.
The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
In accordance with the requirements of Statement No. 107 of the Financial Accounting Standards Board ("Disclosures about Fair Value of Financial Instruments"), the financial instruments presented above exclude accounts relating to the Company's insurance contracts and certain other classes of assets and liabilities. The Company has not utilized derivative financial instruments such as futures, forward, swap, or option contracts as defined in Statement of Financial Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," for periods presented herein.
The estimated fair values of the Company's policy loan assets at December 31, 1996 and 1995 are not materially different from the respective carrying values at those dates.
It should be noted that fair value estimates based on assumed discount rates and assumptions and estimates of the timing and amount of future cash flows are significantly affected by the assumptions used.
Concentrations of Credit Risk
The Company's investments in fixed maturities and equity securities are comprised of a diverse portfolio represented by approximately 600 issuers, with no issuer accounting for more than 1% of the Company's total investment in these securities, based on fair value, at December 31, 1996.
The geographical distribution of the collateral for the Company's mortgage loans at December 31, 1996, by United States region and based on book value, is as follows:
New England.......................... 5% Middle Atlantic states............... 18 North-central states................. 20 South Atlantic states................ 18 South-central states................. 13 Mountain states...................... 10 Pacific states....................... 16 _____
100% =====
The distribution of the Company's mortgage loans at December 31, 1996 by type of collateral, based on book value, is as follows:
Office buildings..................... 34% Industrial / warehouse properties.... 20 Retail............................... 35 Apartments........................... 1 One to four family residential....... 2 Hotel / motel, medical, and other.... 8 _____
100% =====
The Company's reinsurance receivables and other recoverable amounts at December 31, 1996 relate to approximately 130 reinsurers. Two major United States insurance companies, rated "A+" (superior) and "A" (excellent) respectively by A. M. Best Company, a recognized insurance rating agency, each account for approximately 15% of the total reinsurance receivable and recoverable amount at that date. Other than these companies, no single reinsurer accounts for more than 6% of the total reinsurance receivable and recoverable amount at December 31, 1996. The Company monitors the financial condition of its reinsurers in order to minimize its exposure to loss from reinsurer insolvencies.
Note 15. Reinsurance
The life insurance subsidiaries reinsure with other companies portions of the risks they underwrite and assume portions of risks on policies underwritten by other companies. The life insurance subsidiaries generally reinsure risks over $1.5 million as well as selected risks of lesser amounts. In this connection, $14.3 billion, representing 8 percent of total life insurance in force as of December 31, 1996, was ceded to other carriers. Reinsurance contracts do not relieve the Company from its obligations to policyholders, and the Company is contingently liable with respect to insurance ceded in the event any reinsurer is unable to meet the obligations which have been assumed.
The effect of reinsurance on premiums, other considerations, and benefits to policyholders and beneficiaries, is as follows:
A summary of reinsurance activity for the three years ended December 31, 1996 is presented below:
The estimated amounts of reinsurance recoverable on paid and unpaid claims included in the Consolidated Balance Sheets as of December 31, 1996 and 1995 are as follows:
The amount included in the consolidated balance sheets at December 31, 1996 and 1995 for "Other reinsurance recoverable" includes the estimated amounts recoverable on unpaid claims as indicated above as well as prepaid reinsurance premiums.
Note 16. Income Per Share
The following table sets forth the computations of income per share for the three years ended December 31, 1996:
Note 17. Statement of Cash Flows Information
For the years ended December 31, 1996, 1995 and 1994, respectively, interest paid amounted to $39.4 million, $38.2 million, and $34.8 million, and Federal income taxes paid amounted to $31.3 million, $55.7 million and $60.5 million. The major portion of the disposals of fixed maturity investments relate to securities sold or redeemed prior to their maturity dates. The $890 million disposals of fixed maturity investments by the Company for the year ended December 31, 1996 included approximately $124 million (adjusted cost) of securities which were called for redemption by the respective issuers prior to maturity. On a similar basis, redemptions of fixed maturities included in total disposals amounted to $115 million and $209 million in 1995 and 1994, respectively.
Note 18. Statutory Financial Information; Dividend Paying Capability of Life Insurance Subsidiaries
Net income and equity capital of the life insurance subsidiaries, as reported on a regulatory basis and as included in USLIFE's consolidated financial statements in accordance with GAAP, are as follows:
(a) Statutory accounting practices require acquisition costs on new business (including commissions and underwriting and issue costs) to be charged to expense when incurred. Regulatory net income includes income (loss) attributed to participating policyholders of approximately $(14) million, $(21) million, and $200 thousand in 1996, 1995, and 1994, respectively, with the 1995 and 1996 losses primarily a result of higher levels of sales of participating term insurance products. Regulatory equity capital includes capital attributed to participating policyholders of approximately $5 million, $20 million, and $30 million at December 31, 1996, 1995 and 1994, respectively. Capital attributed to participating policyholders is not available for payment of dividends to shareholders.
(b) Regulatory net income includes after-tax capital losses of $9 million, $8 million, and $10 million in 1996, 1995, and 1994, respectively. GAAP net income includes after-tax capital gains (losses) of $(3) million, $4 million and $(1) million in those years, respectively.
The dividend paying capability of the life insurance subsidiaries is generally limited by after-tax income and equity capital as reported on a regulatory basis. As a result of the appropriate adjustments, including deferral and amortization of policy acquisition costs and fair value accounting for fixed maturities under GAAP, equity capital of the life insurance subsidiaries prepared in accordance with GAAP exceeds regulatory equity capital as indicated above. Notice to or approval by regulatory authorities is frequently required for dividends paid by insurance companies. Loans to or advances from the life insurance subsidiaries to the parent company may also be subject to regulatory approval requirements or limitations. At December 31, 1996, the portion of the aggregate $1.708 billion GAAP equity capital of the life insurance subsidiaries which was not available for transfer to the parent company by dividend, loan, or advance or available for such transfer only with regulatory approval ("Restricted Net Assets"), as a result of insurance laws and regulations, amounted to $1.643 billion. Cash dividends paid by all consolidated subsidiaries to the parent company totalled $70 million, $42 million and $46 million in 1996, 1995 and 1994, respectively. The 1995 cash dividends included $6.5 million remitted by an inactive life insurance subsidiary and then contributed to another life subsidiary in connection with the earlier combination of the two companies' operations.
Note 19. Supplementary Insurance Information
Supplementary data relating to the life insurance industry segment of the Company for the three years ended December 31, 1996 is presented below.
Note 21. Condensed Quarterly Results of Operations (Unaudited)
The quarterly results of consolidated operations for the two years ended December 31, 1996 are presented below (in thousands of dollars except per share amounts):
Note 22. Subsequent Events
On February 12, 1997, The Company and American General Corporation, of Houston, Texas, entered into a definitive merger agreement. Under this agreement, USLIFE Corporation shareholders will exchange each share of USLIFE common stock for $49 worth of American General common stock. The exchange ratio will be based on an average trading price of American General common stock prior to closing, subject to a minimum of approximately 1.09 shares and a maximum of approximately 1.29 shares of American General common stock. The merger is intended to be a tax-free transaction and to qualify for pooling of interest accounting treatment. The transaction, which is subject to approval by American General and USLIFE shareholders and to requisite regulatory approvals, is expected to close by June 30, 1997.
In connection with this transaction, also in February 1997, the Company amended its Amended and Restated Rights Agreement under which it has issued Common Stock Purchase Rights as described in Note 10. This amendment will effectively prevent the Rights from becoming exercisable as a result of the merger with American General or other transactions contemplated by the merger agreement, and provides that all outstanding Rights will expire immediately prior to the effective time of the merger.
In connection with the merger, USLIFE plans to call for redemption of all outstanding shares of Series A Preferred Stock and Series B Preferred Stock.
It is anticipated that the merger, upon consummation, will satisfy the definitions of Change in Control contained in certain employment contracts of management employees and retirement plans as described in Note 13.
American General Corporation is a diversified financial services organization. Its principal businesses are life insurance, retirement services, and consumer finance.
Note 23. Events Subsequent to Date of Auditors' Report
Subsequent to February 12, 1997, the Company and its subsidiaries were notified of certain litigation matters, as follows.
Two purported class action lawsuits have recently been filed against the Company or its subsidiaries. The first lawsuit filed against the Company and a subsidiary asserts claims related to sales practices of certain life insurance products. The second lawsuit filed against two subsidiaries (and 28 other insurance companies) asserts claims related to policy issuance procedures. These lawsuits are in their very early stages, it is premature to evaluate their materiality and these cases are being vigorously defended.
In March, 1997, a purported class action was commenced in the Supreme Court of the State of New York, in which USLIFE Corporation and its directors were named defendants. The complaint generally alleges a purported breach of fiduciary duty and other unspecified claims arising out of the signing of a definitive merger agreement by the Company and American General Corporation. The complaint seeks an injunction to prevent the Company from consummating the merger, rescission if the merger is completed, compensatory damages and attorneys' and other fees. The defendants are not yet required to answer the complaint but contend that this lawsuit has no merit.