Unum Group – ‘10-Q’ for 9/30/99

On:  Monday, 11/15/99   ·   For:  9/30/99   ·   Accession #:  931763-99-3222   ·   File #:  1-11834

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Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      49    269K 
 2: EX-10.1     Change of Control                                     16     59K 
 3: EX-15       Letter Re: Interim Financial Data                      1      7K 
 4: EX-27.1     Financial Data Schedule                                2      9K 
 5: EX-27.2     Financial Data Schedule                                2     11K 

10-Q   —   Quarterly Report
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D. C. 20549 

FORM 10-Q 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act 
of 1934 for the quarterly period ended September 30, 1999.                      

Commission file number 1-11834  

UNUMPROVIDENT CORPORATION 
(Exact name of registrant as specified in its charter)  

         DELAWARE                                         62-1598430
 (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                         Identification No.)

2211 CONGRESS STREET  
PORTLAND, MAINE 04122 
(Address of principal executive offices)  
(Zip Code)  

207.770.2211  
(Registrant's telephone number, including area code)  

Not Applicable  
(Former name, former address and former fiscal year, if changed   
since last report)  

 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.                                       

Yes    X      No                                                                
-----                                                                 

    Indicate the number of shares outstanding for each of the issuer's classes
of common stock, as of the latest practicable date.                             

        Class                              Outstanding at September 30, 1999
        -----                              ---------------------------------
Common Stock, $0.10 Par Value                             240,027,742           

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UNUMPROVIDENT CORPORATION 

INDEX 

                                                                [Download Table]

                                                                            PAGE
                                                                                
PART I.        FINANCIAL INFORMATION                                            

     Item 1.   Financial Statements (Unaudited):                                

               Condensed Consolidated Statements of Financial                   
                Condition at September 30, 1999 and December 31, 1998          3

               Condensed Consolidated Statements of Operations for the          
                Three and Nine Months Ended September 30, 1999 and 1998        5

               Condensed Consolidated Statements of Stockholders' Equity        
                for the Nine Months Ended September 30, 1999 and 1998          6

               Condensed Consolidated Statements of Cash Flows for the          
                Nine Months Ended September 30, 1999 and 1998                  7

               Notes to Condensed Consolidated Financial Statements            8

               Independent Auditors' Review Report                            27

     Item 2.   Management's Discussion and Analysis of Financial                
                Condition and Results of Operations                           28

     Item 3.   Quantitative and Qualitative Disclosures About Market Risk     44

PART II.       OTHER INFORMATION                                                

     Item 6.   Exhibits and Reports on Form 8-K                               46

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PART I -- FINANCIAL INFORMATION 

Item 1.  Financial Statements                                                   

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                        

UnumProvident Corporation and Subsidiaries                                      

                                                                [Download Table]

                                          September 30         December 31     
                                              1999                1998         
                                              (in millions of dollars)         
                                      -----------------------------------------
                                          (Unaudited)                          
                                                                               
Assets                                                                         
   Investments                                                                 
     Fixed Maturity Securities                                                 
        Available-for-Sale                  $21,447.5            $22,732.2     
        Held-to-Maturity                        325.4                307.0     
     Mortgage Loans                           1,288.0              1,321.2     
     Real Estate                                288.4                309.8     
     Policy Loans                             2,279.5              2,227.2     
     Short-term Investments                     534.4                245.1     
     Other Investments                           57.0                 43.5     
                                            ---------            ---------     
            Total Investments                26,220.2             27,186.0     

   Cash and Bank Deposits                       139.1                111.2     
   Premiums Receivable                          792.8                570.1     
   Reinsurance Receivable                     4,982.5              4,871.0     
   Accrued Investment Income                    557.2                502.5     
   Deferred Policy Acquisition Costs          2,347.0              2,060.5     
   Value of Business Acquired                   544.7                570.5     
   Goodwill                                     739.2                814.7     
   Other Assets                               1,335.2              1,502.7     
   Separate Account Assets                      413.2                413.0     
                                            ---------            ---------     

Total Assets                                $38,071.1            $38,602.2     
                                            =========            =========     

See notes to condensed consolidated financial statements.                       

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - Continued            

UnumProvident Corporation and Subsidiaries                                      

                                                        [Enlarge/Download Table]

                                                             September 30         December 31     
                                                                 1999                1998         
                                                                 (in millions of dollars)         
                                                         -----------------------------------------
                                                             (Unaudited)                          
                                                                                                  
Liabilities and Stockholders' Equity                                                              
   Policy and Contract Benefits                                $ 1,601.0            $ 1,384.9     
   Reserves for Future Policy and Contract Benefits and                                           
     Unearned Premiums                                          23,642.6             22,490.7     
   Other Policyholders' Funds                                    3,490.9              4,102.7     
   Federal Income Tax                                              297.4                969.8     
   Short-term Debt                                                 531.0                323.7     
   Long-term Debt                                                1,216.3              1,225.2     
   Other Liabilities                                             1,640.3              1,246.0     
   Separate Account Liabilities                                    413.2                413.0     
                                                               ---------            ---------     

Total Liabilities                                               32,832.7             32,156.0     
                                                               ---------            ---------     

Commitments and Contingent Liabilities - Note 10                                                  

Company-Obligated Mandatorily Redeemable Preferred                                                
  Securities of Subsidiary Trust Holding Solely Junior                                            
  Subordinated Debt Securities of the Company                      300.0                300.0     
                                                               ---------            ---------     

Stockholders' Equity                                                                              
   Common Stock, $0.10 par                                                                        
       Authorized:  725,000,000 shares                                                            
       Issued:  240,204,037 and 237,802,647 shares                  24.0                 23.8     
   Additional Paid-in Capital                                    1,020.9                959.2     
   Accumulated Other Comprehensive Income                           81.0                914.7     
   Retained Earnings                                             3,821.7              4,279.2     
   Treasury Stock at Cost:  176,295 shares                          (9.2)                (9.2)    
   Deferred Compensation                                               -                (21.5)    
                                                               ---------            ---------     

Total Stockholders' Equity                                       4,938.4              6,146.2     
                                                               ---------            ---------     

Total Liabilities and Stockholders' Equity                     $38,071.1            $38,602.2     
                                                               =========            =========     

See notes to condensed consolidated financial statements.                       

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)                     

UnumProvident Corporation and Subsidiaries                                      

                                                        [Enlarge/Download Table]

                                                               Three Months Ended                 Nine Months Ended         
                                                                  September 30                      September 30            
                                                             1999              1998             1999             1998       
                                                                   (in millions of dollars, except share data)              
                                                       ---------------------------------------------------------------------
                                                                                                                            
Revenue                                                                                                                     
  Premium Income                                          $ 1,736.2         $ 1,560.5        $ 5,105.1        $ 4,559.2     
  Net Investment Income                                       513.4             494.4          1,531.0          1,533.0     
  Net Realized Investment Gains                                77.9              16.4             89.3             30.8     
  Other Income                                                105.6              73.6            254.4            231.1     
                                                          ---------         ---------        ---------        ---------     
Total Revenue                                               2,433.1           2,144.9          6,979.8          6,354.1     
                                                          ---------         ---------        ---------        ---------     

Benefits and Expenses                                                                                                       
  Benefits and Change in Reserves for Future Benefits       2,053.1           1,329.0          5,245.9          3,947.5     
  Commissions                                                 217.6             196.0            679.7            635.6     
  Interest and Debt Expense                                    34.3              32.6            100.8             90.6     
  Deferral of Policy Acquisition Costs                       (182.8)           (152.7)          (603.0)          (500.4)    
  Amortization of Deferred Policy Acquisition Costs           107.4              94.4            332.0            272.6     
  Amortization of Value of Business Acquired                                                                                
    and Goodwill                                               43.4              16.1            103.6             49.9     
  Other Operating Expenses                                    422.9             353.6          1,495.0          1,069.6     
                                                          ---------         ---------        ---------        ---------     
Total Benefits and Expenses                                 2,695.9           1,869.0          7,354.0          5,565.4     
                                                          ---------         ---------        ---------        ---------     

Income (Loss) Before Federal Income Taxes                    (262.8)            275.9           (374.2)           788.7     
Federal Income Taxes (Credit)                                 (45.8)             89.6            (55.3)           264.3     
                                                          ---------         ---------        ---------        ---------     
Net Income (Loss)                                         $  (217.0)        $   186.3        $  (318.9)       $   524.4     
                                                          =========         =========        =========        =========     

Net Income (Loss) Per Common Share                                                                                          
  Basic                                                   $   (0.91)        $    0.79        $   (1.34)       $    2.21     
  Assuming Dilution                                       $   (0.91)        $    0.77        $   (1.34)       $    2.15     

Dividends Paid Per Common Share                           $    0.15         $    0.15        $    0.43        $    0.43     

See notes to condensed consolidated financial statements.                       

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)           

UnumProvident Corporation and Subsidiaries                                      

                                                        [Enlarge/Download Table]

                                                                  Accumulated                                              
                                                      Additional     Other                                                 
                                  Preferred  Common    Paid-in   Comprehensive  Retained   Treasury    Deferred            
                                    Stock     Stock    Capital      Income      Earnings     Stock   Compensation   Total  
                                                                 (in millions of dollars)                                  
                                  -----------------------------------------------------------------------------------------
                                                                                                                           
Balance at December 31, 1997        $ 156.2   $23.7   $  954.8    $  799.0      $3,797.7     $(1.5)    $(15.8)   $ 5,714.1 

Comprehensive Income, Net of Tax                                                                                           
  Net Income                                                                       524.4                             524.4 
  Change in Net Unrealized                                                                                                 
     Gain on Securities                                              252.7                                           252.7 
  Change in Foreign Currency                                                                                               
     Translation Adjustment                                           (9.6)                                           (9.6)
                                                                                                                 --------- 
Total Comprehensive Income                                                                                           767.5 
                                                                                                                 --------- 

Common Stock Activity                           0.1      (21.0)                               (7.7)       0.7        (27.9)
Preferred Stock Redeemed             (156.2)                                                                        (156.2)
Dividends to Stockholders                                                         (101.9)                           (101.9)
                                    -------   -----   --------    --------      --------     -----     ------    --------- 

Balance at September 30, 1998       $     -   $23.8   $  933.8    $1,042.1      $4,220.2     $(9.2)    $(15.1)   $ 6,195.6 
                                    =======   =====   ========    ========      ========     =====     ======    ========= 

Balance at December 31, 1998        $     -   $23.8   $  959.2    $  914.7      $4,279.2     $(9.2)    $(21.5)   $ 6,146.2 

Comprehensive Loss, Net of Tax                                                                                             
  Net Loss                                                                        (318.9)                           (318.9)
  Change in Net Unrealized Gain                                                                                            
   on Securities                                                    (847.6)                                         (847.6)
  Change in Foreign Currency                                                                                               
   Translation Adjustment                                             13.9                                            13.9 
                                                                                                                 --------- 
Total Comprehensive Loss                                                                                          (1,152.6)
                                                                                                                 --------- 
Common Stock Activity                           0.2       61.7                                           21.5         83.4 
Dividends to Stockholders                                                         (138.6)                           (138.6)
                                    -------   -----   --------    --------      --------     -----     ------    --------- 
Balance at September 30, 1999       $     -   $24.0   $1,020.9    $   81.0      $3,821.7     $(9.2)    $    -    $ 4,938.4 
                                    =======   =====   ========    ========      ========     =====     ======    ========= 

See notes to condensed consolidated financial statements.                       

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                     

UnumProvident Corporation and Subsidiaries                                      

                                                        [Enlarge/Download Table]

                                                                  Nine Months Ended September 30    
                                                                     1999               1998        
                                                                     (in millions of dollars)       
                                                               -------------------------------------
                                                                                                    
Net Cash Provided by Operating Activities                         $ 1,153.2         $ 1,212.2       
                                                                  ---------         ---------       

Cash Flows from Investing Activities                                                                
   Proceeds from Sales of Investments                               3,106.3           1,480.3       
   Proceeds from Maturities of Investments                            946.5           1,292.9       
   Purchase of Investments                                         (4,536.9)         (2,912.7)      
   Net Purchases of Short-term Investments                           (289.7)           (160.0)      
   Disposition of Business                                                -              58.0       
   Other                                                              (54.2)            (50.4)      
                                                                  ---------         ---------       
Net Cash Used by Investing Activities                                (828.0)           (291.9)      
                                                                  ---------         ---------       

Cash Flows from Financing Activities                                                                
   Deposits to Policyholder Accounts                                  156.1             142.7       
   Maturities and Benefit Payments from Policyholder Accounts        (598.5)           (976.5)      
   Net Short-term Borrowings                                          181.7              40.7       
   Issuance of Long-term Debt                                         200.0             650.0       
   Long-term Debt Repayments                                         (183.3)           (763.0)      
   Issuance of Company-Obligated Mandatorily Redeemable                                             
    Preferred Securities                                                  -             300.0       
   Redemption of Preferred Stock                                          -            (156.2)      
   Dividends Paid to Stockholders                                    (103.4)           (105.1)      
   Repurchase of Common Stock                                             -             (72.7)      
   Other                                                               48.1              24.8       
                                                                  ---------         ---------       
Net Cash Used by Financing Activities                                (299.3)           (915.3)      
                                                                  ---------         ---------       

Effect of Foreign Exchange Rate on Cash                                 2.0              (0.4)      
                                                                  ---------         ---------       

Net Increase in Cash and Bank Deposits                                 27.9               4.6       

Cash and Bank Deposits at Beginning of Period                         111.2              94.5       
                                                                  ---------         ---------       

Cash and Bank Deposits at End of Period                           $   139.1         $    99.1       
                                                                  =========         =========       

See notes to condensed consolidated financial statements.                       

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 1--Basis of Presentation                                                   

On June 30, 1999, Unum Corporation (Unum) merged with and into Provident        
Companies, Inc. (Provident) under the name UnumProvident Corporation (the       
Company). The merger was accounted for as a pooling of interests. The historical
financial results presented herein and the condensed consolidated statement of  
financial condition as of December 31, 1998, give effect to the merger as if it 
had been completed at the beginning of the earliest period presented.           

The Company values its available-for-sale fixed maturity and equity securities  
at fair value, with unrealized holding gains and losses reported as a component 
of comprehensive income. Companies are required to also adjust deferred         
acquisition costs and/or certain policyholder liabilities to reflect the changes
that would have been necessary if the unrealized investment gains and losses    
related to the available-for-sale securities had been realized. Prior to the    
merger, Unum adjusted policyholder liabilities and Provident adjusted deferred  
policy acquisition costs (DPAC) and value of business acquired (VOBA) for those 
products where these assets existed. To present financial information in a      
common reporting format, management has determined that the combined entity will
adjust policyholder liabilities rather than DPAC and VOBA. Prior period         
financial statements have been restated to reflect this reclassification. The   
reclassification did not change other comprehensive income, accumulated other   
comprehensive income, or fixed maturity and equity securities. The              
reclassification reflected in the December 31, 1998, condensed consolidated     
statement of financial condition resulted in an increase of $329.7 million in   
DPAC, $1.5 million in VOBA, and, $331.2 million in reserves for future policy   
and contract benefits. Certain additional reclassification adjustments have been
made to conform the companies' presentations in the condensed consolidated      
financial statements.                                                           

The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information 
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.        
Accordingly, they do not include all of the information and footnotes required  
by generally accepted accounting principles for complete financial statements.  
In the opinion of management, all adjustments (consisting of normal recurring   
accruals) considered necessary for a fair presentation have been included.      
Operating results for the three month and nine month periods ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. These results are also not necessarily indicative 
of the results of operations that would have been realized had the merger been  
completed prior to June 30, 1999. For further information, refer to the         
consolidated financial statements and footnotes thereto included in Unum's and  
Provident's reports on Form 10-Q, in each case for the nine months ended        
September 30, 1998, the Company's Form 8-K filed September 2, 1999 for the      
fiscal year ended December 31, 1998 and the three months ended March 31, 1999,  
and the Company's Form 10-Q for the six months ended June 30, 1999.             

Note 2--Merger                                                                  

On June 30, 1999, prior to the completion of the merger, each outstanding share 
of Provident common stock was reclassified and converted into 0.73 of a share of
Provident common stock. Immediately after this reclassification, the merger was 
completed, and each share of Unum common stock issued and outstanding           
immediately prior to the merger was converted into one share of the Company's   
common stock, and the par value was reduced from $1.00 to $0.10 per share. In   
the merger, the shares of Provident common stock were not further affected, but 
thereafter became shares of the Company's common stock. Unum common stock held  
in treasury was retired. Stockholders' equity and per share amounts have been   
adjusted to reflect these items.                                                

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 2--Merger (Continued)                                                      

During the second and third  quarters  of 1999,  the Company  recognized  $310.6
million of before-tax  expenses  related to the merger and the early  retirement
offer to employees. The breakdown of these expenses by quarter is as follows:   

                                                        [Enlarge/Download Table]

                                                                                1999              
                                                                    ------------------------------
                                                                         2/nd/            3/rd/   
                                                                        (in millions of dollars)  
                                                                    ------------------------------
                                                                                                  
Employee related expense                                                $ 45.2          $32.5     
Exit activities related to duplicate facilities/asset abandonments        57.4           10.0     
Investment banking, legal, and accounting fees                            39.6              -     
                                                                        ------          -----     
Subtotal                                                                 142.2           42.5     
Expense related to the early retirement offer to employees               125.9              -     
                                                                        ------          -----     
Subtotal                                                                 268.1           42.5     
Income tax benefit                                                        74.3           14.9     
                                                                        ------          -----     
Total                                                                   $193.8          $27.6     
                                                                        ======          =====     

Employee related expense consists of employee severance costs, change in control
costs, restricted stock costs which fully vested upon stockholder adoption of   
the merger agreement or upon completion of the merger, and outplacement costs to
assist employees who have been involuntarily terminated. Severance benefits and 
change in control costs are $60.2 million, and costs associated with the vesting
of restricted stock are $17.5 million. The Company now estimates that in total  
approximately 1,615 positions will be eliminated over a twelve month period     
beginning June 30, 1999, 215 positions higher than the original estimate of     
1,400. Approximately 1,000 of these positions will be eliminated through the    
early retirement offer. At September 30, 1999, approximately 500 and 160        
positions have been eliminated as a result of the early retirement offer and    
involuntary terminations, respectively, and $13.3 million of the estimated $60.2
million has been paid for severance benefits and change in control costs.       

Exit activities related to duplicate facilities/asset abandonments consist of   
closing of duplicate offices and write-off of redundant computer hardware and   
software. The Company currently expects to close approximately 90 duplicate     
field offices over a period of one year after June 30, 1999, the completion date
of the merger. The cost associated with these office closures is approximately  
$25.6 million, which represents the cost of future minimum lease payments less  
any estimated amounts recovered under subleases. As of September 30, 1999, $2.3 
million of this estimated liability has been paid. Also, certain physical       
assets, primarily computer equipment, redundant systems, and systems incapable  
of supporting the combined entity, have been abandoned as a result of the       
merger. This abandonment resulted in a write-down of the assets' book values by 
approximately $31.8 million during the second quarter of 1999. During the third 
quarter, hardware and software abandonments increased $10.0 million due to the  
identification of additional redundancies. Approximately $27.7 million of assets
were abandoned and removed from service on the date the merger was consummated. 
Of the remaining $14.1 million of identified abandonments, $10.5 million were   
removed from service during the third quarter, and $3.6 million are expected to 
be abandoned during the fourth quarter of 1999.                                 

The expenses related to the merger reduced second quarter 1999 earnings $142.2  
million before tax and $112.0 million after tax ($0.47 per common share). The   
expense related to the early retirement offer reduced earnings $125.9 million   
before tax and $81.8 million after tax ($0.34 per common share). The impact of  
merger related expenses on third quarter 1999 earnings was $42.5 million before 
tax and $27.6 million after tax ($0.12 per common share).                       

Additionally during the second quarter of 1999, 546,362 shares of outstanding   
restricted stock became unrestricted and stock options on 5,301,683 shares      
became immediately exercisable effective with the merger, in accordance with    
Unum's and Provident's restricted stock and stock option plan provisions        
concerning a change in control.                                                 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 2--Merger (Continued)                                                      

The expense related to restricted stock vesting has been included in merger     
related expenses. The Company applies Accounting Principles Board Opinion No.   
25, Accounting for Stock Issued to Employees, and related interpretations in    
accounting for the stock option plans. Accordingly, no compensation cost was    
recognized for stock option vesting.                                            

Generally, because of the effort and time involved, reviews and updates of      
assumptions related to benefit liabilities are periodically undertaken over time
and are reflected in the calculation of benefit liabilities as completed. Many  
factors influence assumptions underlying reserves, and considerable judgment is 
required to interpret current and historical experience underlying all of the   
assumptions and to assess the future factors that are likely to influence the   
ultimate cost of settling existing claims.                                      

Prior to the merger, Unum's process and assumptions used to calculate the       
discount rate for claim reserves of certain disability businesses differed from 
that used by Provident. While Unum's and Provident's methods were both in       
accordance with generally accepted accounting principles, management believed   
that the combined entity should have consistent discount rate accounting        
policies and methods for applying those policies for similar products. Unum's   
former methodology used the same investment strategy for assets backing both    
liabilities and surplus. Provident's methodology, which allows for different    
investment strategies for assets backing surplus than those backing product     
liabilities, was determined by management to be the more appropriate approach   
for the Company. Accordingly, at June 30, 1999 the Company adopted Provident's  
method of calculating the discount rate for claim reserves.                     

The discount rates affected by this change in Unum's methodology were as        
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                                                    June 30, 1999               
                                                                       -----------------------------------------
                                                                          Current Rates        Former Rates     
                                                                       -----------------------------------------
                                                                                                                
Group Long-term Disability (North America)                                    6.75%                7.74%        
Group Long-term Disability and Individual Disability (United Kingdom)         7.45%                8.80%        
Individual Disability (North America)                                         6.88%                7.37%        

The unpaid claim reserves for these disability lines as of June 30, 1999 were   
$5,318.3 million using the former method for determining reserve discount rates 
and $5,559.0 million using the current method. The impact on 1999 second quarter
earnings related to the change in method of calculating the discount rate for   
claim reserves was $240.7 million before tax and $156.5 million after tax ($0.66
per common share).                                                              

Subsequent to the merger date, the Company began to integrate the valuation     
procedures of the two organizations to provide for a more effective linking of  
pricing and reserving assumptions and to facilitate a more efficient process for
adjusting liabilities to emerging trends. Included in this integration activity 
were a review and an update of assumptions that underlie policy and contract    
benefit liabilities. The purpose of the study was to confirm or update the      
assumptions which were viewed as likely to affect the ultimate liability for    
contract benefits. Accordingly, as a result of the merger, the Company          
accelerated the performance of its normal reviews of the assumptions underlying 
reserves to determine the assumptions that the newly merged Company will use in 
the future for pricing, performance management, and reserving.                  

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 2--Merger (Continued)                                                      

The review resulted in an increase in the benefits and reserves for future      
benefits for the Company's domestic and Canadian group long-term disability     
unpaid claim liabilities. As a result of the review, the Company increased its  
policy and contract benefit liabilities $359.2 million, which reduced third     
quarter 1999 earnings $359.2 million before tax and $233.5 million after tax    
($0.97 per common share).                                                       

The increase in policy and contract benefit liabilities primarily resulted from 
revisions to assumptions in the following three key components: claim           
termination rates, incurred but not reported (IBNR) factors, and discount rates.
These components and their effect on the reserve increase are summarized and    
discussed below.                                                                

                                                                [Download Table]

                                                     (in millions)  
                                                    ----------------
                                                                    
Claim termination rates                                 $ 372.6     
Incurred but not reported factors                         101.4     
Discount rates                                           (114.8)    
                                                        -------     
Net change                                              $ 359.2     
                                                        =======     

The assumptions concerning claim termination rates relate to changes in the     
estimated average length of time a claim is open (duration) and the ultimate    
cost of settling claims. Recent trends indicate the duration of a disability    
claim is increasing. Claim termination rates are based on industry experience   
adjusted for Company historical and anticipated experience, which considers     
emerging trends and Company actions that would have a material effect on claim  
termination rates.                                                              

The increase in policy and contract benefit liabilities that results from the   
revised claim termination rates is attributable to two elements. The first      
element is the claim resolution assumption, which is the portion of claim       
terminations related to the disabled returning to work or the expiration of the 
benefit period. The second element is the mortality assumption, which is the    
portion of claim terminations that result from death of the disabled. The effect
of these two elements on the increase in policy and contract benefit liabilities
is discussed below.                                                             

Claim resolution assumptions have been determined considering both external     
trends and the Company's current and planned actions which would have a material
effect on claim resolution rates. Due to the high variability in claim          
resolution rates, considerable judgment is required in setting claim resolution 
assumptions. Revised claim resolution assumptions have been determined after    
consideration of the merger integration plans, including the short-term         
disruption of the claims management process from integration activities. Other  
factors considered included emerging external trends, such as the developing    
trend for some claimants to remain on claim longer, current and historical claim
resolution experience, industry claim resolution experience, and changes in     
planned actions, as well as the anticipated future effectiveness of the claims  
operations in settling existing claims. The revised assumptions for claim       
resolution rates resulted in an increase in benefit liabilities of approximately
$194.8 million. These estimates rely on the Company's ability to complete       
integration and claims processing changes as planned and those changes having   
the anticipated impact on claim recovery rates.                                 

The review also examined assumptions for mortality. Revision of mortality       
assumptions resulted in an increase in benefit liabilities of approximately     
$177.8 million. Mortality is a critical factor influencing the length of time a 
claimant receives monthly disability benefits. Mortality has been improving for 
the general population, and this improvement is now considered permanent. Life  
expectancy has been extended dramatically for individuals suffering from        
acquired immune deficiency syndrome (AIDS). Early observations of this trend and
related medical literature raised questions concerning the long-term            
sustainability of the mortality improvements. The Company also assumed that, if 
the trend did continue, many of the individuals responding positively to        
treatment could be returned to productive employment.                           

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 2--Merger (Continued)                                                      

The previous review of mortality performed by the Company did not indicate a    
need to change mortality assumptions. However, recent analysis indicates that   
the improved mortality trend is sustainable and that rehabilitation of afflicted
individuals to return to work has been minimally successful to date. AIDS       
related disabilities are 2.46 percent of the Company's total disability claims. 
In addition to the AIDS mortality trend, the recent review demonstrates that    
survival from other frequently fatal diseases such as cancer and heart disease  
has improved over recent periods and is now judged to be more permanent due to  
advances in medical sciences and treatments. While the treatment advances have  
lengthened life expectancies, they do not always result in the claimant being   
able to return to work; thus, the ultimate level of payments to be made on a    
disability claim increases. Of the total increase in benefit liabilities for    
revised mortality assumptions, $85.4 million is related to AIDS related         
disabilities and $92.4 million to cancer and other disabilities.                

The second component of the increase in benefit liabilities is the provision for
claims incurred but not yet reported, which resulted in an increase in benefit  
liabilities of $101.4 million. This provision is an estimate of the outstanding 
liability related to claims that have been incurred by individual insureds as of
the valuation date, but the claims have not yet been reported to the Company.   
This liability is affected by the estimate of the number of outstanding claims. 
Because of the long elimination periods, generally 90 to 180 days or longer, the
development of the factors must cover a period of sufficient length to mitigate 
the effects of random fluctuations and to establish the presence of trends.     
Recent trends indicate an increase in new claim rates which results in an       
increase in the estimate of outstanding claims. Another item affecting this     
liability is the estimate of the average cost of each outstanding claim. The    
lengthening of time a claimant receives monthly benefits resulting from the     
factors noted above also results in an increase in the estimate of the average  
cost of each claim.                                                             

The third component of the change in benefit liabilities is the change in the   
rate used to discount claim reserves, including IBNR reserves, which resulted in
a decrease of $114.8 million in benefit liabilities. Subsequent to the merger,  
the Company significantly restructured the investment portfolio backing these   
liabilities with the objective of improving asset and liability management and  
improving yield. As part of this strategy, during the third quarter of 1999, the
Company sold $426.1 million of assets with a book yield of 5.98 percent and     
purchased $546.6 million of assets with a yield of 8.87 percent, improving the  
overall yield on the assets backing liabilities. As a result of this investment 
restructuring and consistent with its policy, the Company increased the rate    
used to discount claim reserves to 7.35 percent, resulting in a decrease of     
$114.8 million in benefit liabilities.                                          

The updated assumptions will be reflected in new and renewal pricing actions,   
and a higher benefit ratio is expected over the next several quarters until the 
effect of pricing actions is reflected in premium income. Actual experience     
could fluctuate from these assumptions, and such fluctuations may have a        
material positive or negative effect on net income.                             

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 2--Merger (Continued)                                                      

The results of operations for the separate companies and the combined amounts   
for the periods prior to the merger were as follows:                            

                                                        [Enlarge/Download Table]


                                  Six Months Ended        Three Months Ended        Nine Months Ended     
                                   June 30, 1999          September 30, 1998       September 30, 1998     
                                                       (in millions of dollars)                           
                              ----------------------------------------------------------------------------
                                                                                                          
Revenue                                                                                                   
  Unum                                 $2,557.8                $1,169.6                  $3,402.2         
  Provident                             1,988.9                   975.3                   2,951.9         
                                       --------                --------                  --------         
  Combined Revenue                     $4,546.7                $2,144.9                  $6,354.1         
                                       ========                ========                  ========         

Net Income (Loss)                                                                                         
  Unum                                 $ (189.7)               $  104.4                  $  296.6         
  Provident                                87.8                    81.9                     227.8         
                                       --------                --------                  --------         
  Combined Net Income (Loss)           $ (101.9)               $  186.3                  $  524.4         
                                       ========                ========                  ========         

Included in Unum's net loss for the six months ended June 30, 1999, is $131.8   
million after tax for expenses related to the merger and the early retirement   
offer to employees and $156.5 million after tax for the reserve discount rate   
change. Unum's net loss for the six months ended June 30, 1999 also includes an 
after-tax first quarter charge of $88.0 million related to its reinsurance      
businesses. Included in Provident's net income for the six months ended June 30,
1999, is $62.0 million after tax for expenses related to the merger and the     
early retirement offer to employees.                                            

Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses               

It is the Company's policy to estimate the ultimate cost of settling claims in  
each reporting period based upon the information available to management at the 
time. Actual claim resolution results are monitored and compared to those       
anticipated in claim reserve assumptions. Claim resolution rate assumptions are 
based upon industry standards adjusted as appropriate to reflect actual Company 
experience as well as Company actions which would have a material impact on     
claim resolutions. Company actions for which plans have been established and    
committed to by management are factors which would modify past experience in    
establishing claim reserves. Adjustments to the reserve assumptions will be made
if expectations change. Given that insurance products contain inherent risks and
uncertainties, the ultimate liability may be more or less than such estimates   
indicate.                                                                       

During the fourth quarter of 1998, the Company recorded a $153.0 million        
increase in the reserve for individual and group disability claims incurred as  
of December 31, 1998. Incurred claims include claims known as of that date and  
an estimate of those claims that have been incurred but not yet reported. Claims
that have been incurred but not yet reported are considered liabilities of the  
Company. These claims are expected to be reported during 1999 and will be       
affected by the claims operations integration activities. The $153.0 million    
claim reserve increase represents the estimated value of cash payments to be    
made to these claimants over the life of the claims as a result of the claims   
operations integration activities.                                              

Management believes the reserve adjustment was required based upon the          
integration plans it had in place and to which it had committed and based upon  
its ability to develop a reasonable estimate of the financial impact of the     
expected disruption to the claims management process. Claims management is an   
integral part of the disability operations. Disruptions in that process can     
create material, short-term increases in claim costs. The merger has had a near-
term adverse impact on the efficiency and effectiveness of the Company's claims 
management function                                                             

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)   

resulting in some delay in claim resolutions and additional claim payments to   
policyholders. Claims personnel have been distracted from normal claims         
management activities as a result of planning and implementing the integration  
of the two companies' claims organizations. In addition, employee turnover and  
additional training have reduced resources and productivity. An important part  
of the claims management process is assisting disabled policyholders with       
rehabilitation efforts. This complex activity is important to the policyholders 
because it can assist them in returning to productive work and lifestyles more  
quickly, and it is important to the Company because it shortens the duration of 
claim payments and thereby reduces the ultimate cost of settling claims.        

Immediately following the announcement of the merger and continuing into        
December of 1998, senior management of the Company worked to develop the        
strategic direction of the Company's claims organization. As part of the        
strategic direction, senior management committed claims management personnel to 
be involved in developing the detailed integration plans and implementing the   
plans during 1999. Knowing that those involved in the claims operations         
integration activities would not be available full time to perform their normal 
claims management functions, management deemed it necessary to anticipate this  
effect on the claim reserves at December 31, 1998. Prior to the merger, during  
the first six months of 1999 approximately 90 claims managers and benefit       
specialists spent nearly 40 percent of their time developing the detailed       
integration plans. Effective with the merger, virtually all claims personnel    
have been involved in the process of implementing the new work processes and    
required training. The implementation and training efforts are estimated to     
require an average of one month of productive time from each of the claims staff
between June 30, 1999 and December 31, 1999. Management now believes that       
implementation and related systems conversions will continue into the second    
quarter of 2000. However, due to actions taken by management to mitigate effects
on resolution rates, the effect on new claim resolution rates is not anticipated
to be material after the end of 1999. Actions by management to mitigate the     
effect on resolution rates include aggressive hiring of new claims staff,       
restrictions on early retirement elections, selective use of personnel for      
integration planning, and significant communications with staff members.        

The reserving process begins with the assumptions indicated by past experience  
and modifies these assumptions for current trends and other known factors. The  
Company anticipated the merger-related developments discussed above would       
generate a significant change in claims department productivity, reducing claim 
resolution rates, a key assumption when establishing reserves. Management       
developed actions to mitigate the impact of the merger on claims department     
productivity, including the hiring of additional claims staff and the           
restriction of early retirement elections by claims personnel. Where feasible,  
management also planned to obtain additional claims management resources through
outsourcing. All such costs are expensed in the period incurred and are not     
material in relation to results of operations. Management reviewed its          
integration plans and the actions intended to mitigate the impact of the        
integration with claims managers to determine the extent of disruption in normal
activities. Considering all of the above, the revised claim resolution rates, as
a percentage of original assumptions (i.e., before adjusting for the effect of  
the claims operations integration activities), are 90 percent for the first and 
second quarters of 1999, 84 percent for the third quarter, and 89 percent for   
the fourth quarter of 1999. The revised claim resolution rates for the third    
quarter and fourth quarter are lower than the first and second quarters because 
all claims personnel are expected to be involved in the implementation and      
training efforts. The effect of integration activities on new claim resolution  
rates is not expected to be material after December 31, 1999.                   

In order to validate these assumptions, the Company also examined the historical
level and pattern of claims management effectiveness as reflected in claim      
resolution rates for the insurance subsidiaries of The Paul Revere Corporation  
(Paul Revere) which was acquired in 1997. Subsequent to the Paul Revere         
acquisition and integration, management has been able to develop experience     
studies for the Paul Revere business. These studies are prepared for pricing    
purposes and to identify trends or changes in the business.                     

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)   

These studies, which were not available for the Paul Revere business at the time
of the acquisition, allowed management to gain a greater understanding of the   
impact of the claims integration activities on the claim resolution rates of the
Paul Revere business. These studies show that the Paul Revere business          
experienced a decline in its claim resolution rates from a base in 1995 of 100  
percent to 90.4 percent in 1996 and 80.3 percent in 1997. Changes in morbidity  
and other factors were considered and reviewed to determine that a primary cause
of the reduced claim resolution rates was the disruption caused by the change in
the claims management process. Although the circumstances of the merger are very
different from the Paul Revere acquisition, the claims integration activities   
are similar, and the Paul Revere experience is relevant. The primary            
circumstances that created claims disruption for Paul Revere were the initial   
lack of clarity of the organization, process, and structure, the need to plan   
for a significant transition to new claims processes, and the training and      
implementation related to those changes. All of those elements have impacted the
Company as a result of the merger. One primary difference is that the duration  
of the potential disruption in the merger is not expected to be as long as was  
the case with the Paul Revere acquisition. The Company's revised claim          
resolution rates assumed for the first two quarters of 1999 were compared to the
Paul Revere experience in 1996, the period preceding the acquisition. It was    
determined that the revised assumptions appeared to be reasonable. During the   
third and fourth quarters of 1999, the claims integration plans provide for     
increased activity due to training and implementation of new processes. The     
Company's revised claim resolution rates for the third and fourth quarters of   
1999 were compared to the Paul Revere experience in 1997 during the             
implementation and training phase of the Paul Revere claims organization when   
claims resolution rates declined to 80.3 percent of prior levels. Management    
judged that it was reasonable to assume that the impact to the Company would be 
less than it was to Paul Revere since some of the Company's claims management   
practices will not change. The historical experience of Paul Revere provides a  
statistical reference for the expected experience for the Company when adjusted 
for the projected effects of the claims integration plans.                      

In order to evaluate the financial effect of merger-related integration         
activities, the Company projected the ultimate cost of settling all claims      
incurred as of December 31, 1998, using the revised claim resolution rates. This
projection was compared to the projection excluding the adjustment to the claim 
resolution rates to obtain the amount of the charge. The Company reviewed its   
estimates of the financial impact of the claims operations integration          
activities with its actuaries and independent auditors.                         

Claim reserves at December 31, 1998 include $153.0 million as the estimated     
value of projected additional claim payments resulting from these claims        
operations integration activities. This reserve increase was reflected as a     
$142.6 million increase in benefits and reserves for future benefits, and a     
$10.4 million reduction in other income. If claim resolutions emerge as         
expected, there will be no impact to results of operations during 1999. Any     
variance from the assumptions will be reflected in operations in the current    
period. The adverse impact of the claims operations integration activities on   
new claim resolution rates is not expected to be material after the end of 1999.
As part of the periodic review of claim reserves, management will review the    
status and execution of the claims operations integration plans with the claims 
management on a quarterly basis. The review will consider claims operations     
integration activities planned for future periods and evaluate whether the      
future planned activities will result in claim resolution rates consistent with 
those considered in the reserve established at December 31, 1998. The claim     
reserves may require further increases or decreases as facts concerning the     
merger and its effect on benefits to policyholders emerge. Among the factors    
that could affect the reserve assumptions are the level of employee turnover,   
timing and complexity of computer system conversions, and the timing and level  
of training and integration activities of the claims management staff relative  
to the original integration plans of the Company.                               

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)   

Quarterly information concerning the estimated and actual impact of the claims  
operations integration activities is as follows:                                

                                                        [Enlarge/Download Table]

                                                                             1999                              
                                                ---------------------------------------------------------------
                                                       1st            2nd             3rd            4th       
                                                                   (in millions of dollars)                    
                                                ---------------------------------------------------------------
                                                                                                               
Revised Claim Resolution Rates                                                                                 
  at December 31, 1998                                 90%             90%            84%             89%      
Actual Claim Resolution Rates for the Period           89%             90%            84%                      
Estimated Effect of  Lower Claim Resolution                                                                    
  Rates at December 31, 1998                       $ 36.2           $36.2          $47.6           $33.0       
Actual Effect of Lower Claim Resolution                                                                        
  Rates for the Period                             $ 39.2           $36.2          $43.0                       
Further Increases (Decreases) to the Estimated                                                                 
  Liability at December 31, 1998 Recorded                                                                      
  During the Period                                $    -           $   -          $   -                       
Liability Remaining for Claims Operation                                                                       
  Integration Activities at End of Period          $116.8           $80.6          $33.0                       

Management expects the remaining claims operations integration activities to    
impact claim reserves as anticipated at December 31, 1998. The expected         
disruption to the claims management process and the related increase to the     
disability claim reserve was considered in the review and update of assumptions 
underlying the group disability policy and contract benefit liabilities         
completed in the third quarter of 1999. Management will continue to evaluate the
impact of the merger on disability claims experience and the assumptions related
to expected claim resolutions.                                                  

Note 4--Reinsurance Operations                                                  

During the first quarter of 1999, the Company began a comprehensive strategic   
review of its reinsurance operations to determine the appropriateness of their  
fit within the context of the merged entity. These operations include the       
reinsurance management operations of Duncanson & Holt, Inc. (D&H) and the risk  
assumption, which includes reinsurance pool participation; direct reinsurance   
which includes accident and health (A&H), long-term care (LTC), and long-term   
disability coverages; and Lloyd's of London (Lloyd's) syndicate participations. 
In April 1999, the strategic review was completed, and the Company concluded    
that these operations were not solidly aligned with the Company's strength in   
the disability insurance market. The Company decided to exit these operations   
through a combination of a sale, reinsurance, and/or placing certain components 
in run-off.                                                                     

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 4--Reinsurance Operations (Continued)                                      

During the first three quarters of 1999, the Company recognized $325.1 million  
of before-tax charges related to its reinsurance operations. The breakdown of   
these charges by quarter is as follows:                                         

                                                        [Enlarge/Download Table]

                                                                         1999                          
                                                -------------------------------------------------------
                                                     1st       2nd            3rd       Nine Months    
                                                               (in millions of dollars)                
                                                -------------------------------------------------------
                                                                                                       
North American Reinsurance Operations:                                                                 
Loss on Sale of A&H and LTC Reinsurance           $    -      $   -         $ 12.9          $12.9      
  Management Operations (includes write-off of                                                         
  $6.0 million of goodwill)                                                                            
Provision for Loss on Reinsurance of A&H and            -         -           10.0           10.0      
  LTC Risk Participations                                                                              
Provision for Losses on Retained Business            28.6         -           13.5           42.1      
International Reinsurance Operations:                                                                  
Provision for Losses on Lloyd's of London            45.5         -          141.0          186.5      
  Syndicate Participations                                                                             
Provision for Losses on Reinsurance Pool                -         -           21.9           21.9      
  Participations Other than Lloyd's                                                                    
Goodwill Impairment Excluding Amount                                                                   
  Recognized on Sale                                 27.0       2.0           22.7           51.7      
                                                   ------      ----         ------         ------      
     Total Before-Tax Charge                       $101.1      $2.0         $222.0         $325.1      
                                                   ======      ====         ======         ======      

The Company's first quarter charge of $101.1 million before tax and $88.0       
million after tax consisted of the following:                                   

North American Reinsurance Operations:                      

         Provision for Losses on Retained Business - As a result of the review
       performed on the Lloyd's syndicates discussed above and other third
   party publicized reinsurance exposures, the Company undertook a
          periodic review of certain other reinsurance facilities related to new
   information regarding the ultimate cost of settling claims. The
     reinsurance pool business consists of more than 20 different pool
   facilities, the majority of which are managed by the subsidiary
     Duncanson & Holt, Inc. and a few pools which are managed by third
         parties. Reserve assumptions are periodically reviewed to support the
     determination of the ultimate cost of settling claims for certain
    reinsurance pools. During the first quarter of 1999, the Company
       reviewed the actuarial assumptions used to set reserves for certain
          reinsurance facilities based on the most current information available
     from the reinsurance pool managers. The Company also received new
         information pertaining to a reinsurance pool managed by a third party
      that indicated a reserve increase was required. The Company relied
          primarily on the third party pool manager's judgement and recorded its
         portion of the reserve as reflected in the reinsurance pool statement
        from the third party pool manager. The new information received from
 the managed facilities and the third party facility indicated
   deterioration in loss experience, primarily related to a longer
       duration of claims and increased incidence of new claims in certain
    facilities. The result of these reviews was an increase to claim
         reserves of $28.6 million, which was recorded in the first quarter of
         1999. The Company determined that the increase to reserves was needed
          based on revised actuarial assumptions to reflect current and expected
trends in claims experience and expenses.                   

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 4--Reinsurance Operations (Continued)                                      

International Reinsurance Operations:                       

        Provision for Losses on Lloyd's of London Syndicate Participations -
       The periodic method of accounting is followed for Lloyd's syndicate
       participation, which requires the premiums be recognized as revenue
     over the policy term and claims, including the estimate of claims
       incurred but not reported, to be recognized as incurred. During the
          first quarter of 1999, the Company received more information about the
Lloyd's market from various sources, including managing     
        agents/underwriters syndicate reports and published information from
 Moody's Investors Service. The information received indicated
     significant deterioration in the loss experience of open years of
         account primarily related to significant losses in certain syndicates
          (space and aviation, accident and health, and other non-marine classes
   of business) and continued pressure on the pricing of insurance
     coverage provided by the Lloyd's market. In addition, the Company
discussed projected results of the Lloyd's market with the  
        underwriters of the syndicates that are managed through a subsidiary
 of the Company. These projected results also indicated future
          deterioration of the open years of account. Using this information and
      recent experience with prior revisions of estimated losses in this
 business, the Company performed a review of its claim reserve
liabilities related to its open years of account.           

          The review of estimates related to open years of account was performed
    based on a periodic review of these estimates as information was
        received from the Lloyd's syndicates. The review resulted in revised
        best estimates of the expected ultimate profit or loss for each open
        year of account, which were significantly below the levels estimated
    in 1998. The resulting charge to earnings in the amount of $44.0
         million was reflected in the Company's income in the first quarter of
        1999 for the open years of account 1996 through 1999. In addition to
        the risk participation charge, the Company recorded a charge of $1.5
     million, which represented the reduction of previously recognized
profit commissions related to the Lloyd's management company
operations.                                                 

Goodwill Impairment:                                        

     When an event or change in circumstance occurs that indicates the
   recoverability of an asset should be assessed for impairment, a
      recoverability test is performed to determine if an impairment has
         occurred. Following the poor results of the reinsurance operations in
the first quarter of 1999, the Company updated the goodwill 
         recoverability test using the most current results and forecasts. The
          goodwill recoverability test used the held for use model that compares
        the undiscounted cash flows of these operations to determine whether
          those cash flows can recover the unamortized goodwill. After factoring
     in the first quarter results and current revised forecasts due to
          recent poor performance for these operations, future undiscounted cash
  flows were insufficient to recover the entire goodwill amount,
      indicating that the goodwill was impaired. Goodwill recoverability
     testing of these operations performed prior to March 31, 1999 had
indicated that the goodwill was not impaired.               

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 4--Reinsurance Operations (Continued)                                      

       As a result of the impairment, the Company calculated the estimated
     fair value of these operations. In estimating the fair value, two
       valuation techniques were utilized, a discount free cash flow model
     and a multiple of earnings model. The Company believed that these
      valuation techniques were appropriate for this type of business as
    these techniques were what the Company would use in evaluating a
          potential acquisition of this type of business. The results of the two
          valuation techniques created a range of fair values from $47.0 million
        to $64.0 million. The Company evaluated the range of values produced
          by the valuation techniques and using internal management judgement of
    the potential liquidation value, the Company determined its best
      estimate of fair value of its investment to be the midpoint of the
          range, or $55.0 million. The estimated fair value of $55.0 million was
         compared to $82.0 million of book value for the investment, resulting
     in a write-down of goodwill in the amount of $27.0 million in the
first quarter of 1999.                                      

In the second quarter of 1999, the Company stated its intent to sell its        
reinsurance management operations, assuming the transaction would achieve the   
Company's financial objectives. The Company estimated the fair value of the     
operations using the held-for-sale model, which compares the carrying value of  
the asset with the fair value less costs to sell the asset. This resulted in an 
additional write-down of goodwill in the amount of $2.0 million before and after
tax.                                                                            

During the third quarter of 1999, the Company continued its efforts to sell its 
reinsurance management operations. No potential buyers expressed interest in    
acquiring the entire domestic and international reinsurance management          
operations. However, in early October, the Company entered into an agreement to 
sell the reinsurance management operations of its A&H and LTC reinsurance       
facilities and to reinsure the Company's risk participation in these facilities.

Because of the limited interest expressed by potential buyers in the reinsurance
management operations, the Company reevaluated its strategy to exit the         
reinsurance operations. The Company decided to continue to operate its North    
America long-term disability reinsurance operation and to refocus it with the   
objective of improving profitability. With respect to Lloyd's, the Company      
decided to implement a strategy which attempts to limit participation in year   
2000 underwriting risks, ceases participation in Lloyd's underwriting risks     
after year 2000, and manages the run-off of its risk participation in open years
of account of Lloyd's reinsurance syndicates. The Company has also decided to   
discontinue its accident reinsurance business in London beginning in year 2000. 
During the third quarter, the Company recognized a charge of $222.0 million     
before tax and $204.3 million after tax ($0.85 per common share) related to its 
strategy for the reinsurance operations. The charge consisted of the following: 

North American Reinsurance Operations:                      

       Loss on Sale of A&H and LTC Reinsurance Management Operations - The
   Company has entered into an agreement with American United Life
         Insurance Company (AUL) to sell the reinsurance management operations
 of its A&H and LTC reinsurance facilities and to reinsure the
   Company's risk participation in these facilities. Certain risks
          related to prior operations have not been assumed by AUL. The terms of
         the sale require the Company to continue to participate in certain of
          the reinsurance facilities in year 2000, thereby assuming underwriting
         risks. The transaction is expected to close by the end of 1999 and is
          subject to regulatory approval. A before-tax loss of $12.9 million was
recognized in the third quarter of 1999 based upon the terms

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 4--Reinsurance Operations (Continued)                                      

     and conditions of the definitive agreement. The loss includes the
        write-off of $6.0 million of goodwill related to this portion of the
operations.                                                 

          Provision for Loss on Reinsurance of A&H and LTC Risk Participations -
       The Company entered into a separate indemnity reinsurance agreement
with AUL whereby AUL will assume the Company's existing risk
         participation in the A&H and LTC reinsurance facilities. As a result,
   the Company recognized a third quarter before-tax loss of $10.0
million.                                                    

       Provision for Losses on Retained Business - The Company updated its
         review of reserves related to the retained pool participations. Based
         upon the most recent information available, the Company increased its
   reserves by $10.5 million, principally related to the long-term
        disability business. Also included in this provision is $3.0 million
          to recognize the estimated cost of potential uncollectible reinsurance
       recoveries for two reinsurers who reinsure certain of the Company's
      reinsurance facilities and who, as the losses have increased, have
experienced financial difficulties.                         

International Reinsurance Operations:                       

          Provision for Losses on Lloyd's of London Syndicate Participations -No
    potential buyers expressed an interest in purchasing the Lloyd's
       management company operation and in assuming the Company's existing
        syndicate underwriting risk participation. The Company is pursuing a
         strategy to reduce its syndicate underwriting risk assumption for the
        year 2000 by selling its non-managed syndicate risk participation in
      the auction market and by seeking to have new capital providers to
participate in syndicate underwriting risk for future years.

         Market conditions related to open syndicate years of account continue
     to deteriorate. During the third quarter of 1999, underwriters of
      syndicates provided to Lloyd's updated estimates of their expected
          ultimate profit or loss for each open year of account. These estimates
         were significantly below earlier estimates. Market conditions are not
expected to improve dramatically in the near term.          

      Consistent with overall market trends, the loss estimates received
      from the underwriters of syndicates managed by a subsidiary of the
         Company indicated significant deterioration in the loss experience of
        open years of account from their previous estimate. This information
         was discussed with underwriters and used by the Company to update its
         review of liabilities related to its open syndicate years of account.
          The review resulted in revised estimates of the expected ultimate loss
          for each open year of account, which were significantly worse than the
       levels estimated in the first quarter of 1999. The resulting $141.0
       million charge for the open syndicate years of account 1997 through
        1999 was reflected in the Company's before-tax earnings in the third
quarter of 1999.                                            

     During the third quarter of 1999, the Company entered into a non-
  binding agreement to sell one of its managed syndicates, and a
          definitive agreement is being negotiated. Unamortized goodwill of $2.4
        million was written off in connection with this planned transaction.
   Under the terms of the agreement, the new owner will manage the
       syndicate for year 2000 and will manage the open syndicate years of
        account. The Company retains the underwriting risk on open syndicate
years                                                       

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 4--Reinsurance Operations (Continued)                                      

    and agreed to provide up to $24.7 million ((pound)15 million) of
          capacity for year 2000, down from $36.2 million ((pound)22 million) in
1999.                                                       

         The Company intends to manage the run-off of the open syndicate years
of account for the remaining managed syndicates and to cease
  participating in underwriting risk assumption related to these
syndicates after year 2000.                                 

      Provision for Losses on Reinsurance Pool Participations Other than
       Lloyd's - In connection with the development of the cost of exiting
          the reinsurance operations, the Company updated its review of reserves
         related to non Lloyd's reinsurance operations as well as future costs
          associated with managing the run-off of the retained reinsurance pools
      liabilities. Based upon the most recent information available, the
      Company increased reserves related to its participation in certain
    managed and non-managed reinsurance facilities by $21.9 million.

Goodwill Impairment:                                        

     Prior to the third quarter 1999 charge, the Company's unamortized
        goodwill related to its reinsurance operations was $53.7 million. Of
         the $31.0 million unamortized balance attributable to the A&H and LTC
        business being sold, $6.0 million was determined to be unrecoverable
        and was written off in the third quarter and is included in the loss
          on sale reported above. The balance of $25.0 million will be recovered
  through the sales proceeds when the sale closes. The remaining
       unamortized balance of $22.7 million (including the balance of $2.4
          million related to one of the Lloyd's syndicates for which the Company
has entered into an agreement to sell) was determined to be 
         unrecoverable based on revised earnings forecasts for the reinsurance
     operations and was also written off in the third quarter of 1999.

Retained Risks:                                             

   The Company has provided its best estimate of the cost of known
         losses. Under this exit strategy, the Company retained certain risks,
          including the exposure associated with the recent arbitration decision
       disclosed in the second quarter (see Note 10). Presently, it is not
          reasonably possible to determine the liability for the retained risks.

Note 5--Debt                                                                    

On December 4, 1997, the Company borrowed $168.3 million through a private      
placement. Under the terms of the agreement, the investor exercised the right to
redeem the private placement at par value during the second quarter of 1999. The
Company refinanced this debt by issuing $200.0 million of variable rate medium- 
term notes in June of 1999 due in June of 2000.                                 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 6--Federal Income Taxes                                                    

A portion of the losses recognized in the first three quarters of 1999 relating 
to the Company's reinsurance operations does not receive a tax benefit, which   
unfavorably impacted the effective tax rate. Additionally, a portion of the     
second quarter 1999 expenses related to the merger was non-deductible for       
federal income tax purposes, resulting in a tax rate that was less than the U.S.
federal statutory tax rate of 35 percent.                                       

In the second quarter of 1999, the Company reached a settlement agreement with  
the Internal Revenue Service (IRS) related to an issue in dispute for the 1992  
tax year. The Company recorded a tax benefit of $5.1 million and related        
interest of $1.4 million.                                                       

In the third quarter of 1999, the Company recorded a refund from the IRS        
relating to the final settlement of remaining issues for the 1986 through 1992  
tax years. The refund of taxes was $25.3 million and interest on the refund was 
$31.5 million. The Company increased its tax liability $16.6 million            
attributable to tax years subsequent to 1992. Overall, including interest       
received and the tax provision thereon, third quarter of 1999 results increased 
$29.2 million due to the refund.                                                

As of September 30, 1999, UnumProvident Corporation (formerly Provident         
Companies, Inc.), Provident Life and Accident Insurance Company, Provident Life 
and Casualty Insurance Company, and Provident National Assurance Company have   
tax years through 1992 closed to further assessments by the IRS. The Paul Revere
Corporation and subsidiaries have tax years through 1990 closed to further IRS  
assessments. The subsidiaries of Unum Holding Company have tax years closed     
through 1991, Colonial Life and Accident Insurance Company has tax years closed 
through 1993, and Duncanson & Holt, Inc. and its subsidiaries have tax years    
closed through July 30, 1992. No additional federal tax liabilities can be      
assessed for these closed years.                                                

Note 7--Stockholders' Equity and Earnings Per Common Share                      

In accordance with the restated certificate of incorporation, the Company has   
25,000,000 shares of preferred stock authorized with a par value of $0.10 per   
share. At September 30, 1999, no preferred stock had been issued.               

Net income (loss) per common share is determined as follows:                    

                                                        [Enlarge/Download Table]

                                               Three Months Ended            Nine Months Ended        
                                                  September 30                  September 30          
                                               1999          1998            1999         1998        
                                                  (in millions of dollars, except share data)         
                                           -----------------------------------------------------------
                                                                                                      
Numerator                                                                                             
   Net Income (Loss)                         $ (217.0)     $  186.3         $ (318.9)    $  524.4     
   Preferred Stock Dividends                        -             -                -          1.9     
                                             --------      --------         --------     --------     
                                             $ (217.0)     $  186.3         $ (318.9)    $  522.5     
                                             ========      ========         ========     ========     
Denominator (000s)                                                                                    
   Weighted Average Common Shares - Basic     239,740       237,033          238,670      236,895     
   Dilutive Securities                              -         5,271                -        5,731     
                                             --------      --------         --------     --------     
   Weighted Average Common Shares -                                                                   
     Assuming Dilution                        239,740       242,304          238,670      242,626     
                                             ========      ========         ========     ========     

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 7--Stockholders' Equity and Earnings Per Common Share (Continued)          

In computing earnings per share assuming dilution, only potential common shares 
that are dilutive (those that reduce earnings per share) are included. Potential
common shares are not used when computing earnings per share assuming dilution  
if the result would be antidilutive, such as when a net loss is reported or if  
options are out-of-the-money. In-the-money options to purchase approximately 2.4
million and 3.7 million common shares for the three and nine month periods ended
September 30, 1999, were not considered dilutive due to net losses being        
reported for the periods. Approximately 5.4 million and 2.0 million options for 
the three and nine month periods ended September 30, 1999, respectively, were   
not considered dilutive due to the options being out-of-the-money. Approximately
2.1 million options for the three month period ended September 30, 1998 were not
considered dilutive due to the options being out-of-the-money. Out-of-the-money 
options for the nine months ended September 30, 1998 were immaterial.           

Note 8--Comprehensive Income (Loss)                                             

The components of other comprehensive income, net of deferred tax, are as       
follows:                                                                        

                                                                [Download Table]

                                           September 30          December 31    
                                               1999                 1998        
                                                (in millions of dollars)        
                                         ---------------------------------------
                                                                                
Net Unrealized Gain on Securities              $121.8               $969.4      
Foreign Currency Translation Adjustment         (40.8)               (54.7)     
                                               ------               ------      
Accumulated Other Comprehensive Income         $ 81.0               $914.7      
                                               ======               ======      

The components of comprehensive income (loss) and the related deferred tax are  
as follows:                                                                     

                                                        [Enlarge/Download Table]

                                                               Three Months Ended         Nine Months Ended    
                                                                  September 30              September 30       
                                                                1999         1998         1999         1998    
                                                                         (in millions of dollars)              
                                                           ----------------------------------------------------
                                                                                                               
Net Income (Loss)                                             $(217.0)      $186.3      $  (318.9)    $524.4   
                                                              -------       ------      ---------     ------   

Change in Net Unrealized Gain on Securities:                                                                   
  Change Before Reclassification Adjustment                    (194.2)       182.0       (1,168.7)     408.6   
  Reclassification Adjustment for Net Realized Investment                                                      
    Gains Included in Net Income (Loss)                         (77.9)       (16.4)         (89.3)     (30.8)  
Change in Foreign Currency Translation Adjustment                 4.6         (5.3)          19.7      (14.6)  
                                                              -------       ------      ---------     ------   
                                                               (267.5)       160.3       (1,238.3)     363.2   
Change in Deferred Tax                                          (83.2)        49.7         (404.6)     120.1   
                                                              -------       ------      ---------     ------   
Other Comprehensive Income (Loss)                              (184.3)       110.6         (833.7)     243.1   
                                                              -------       ------      ---------     ------   

Comprehensive Income (Loss)                                   $(401.3)      $296.9      $(1,152.6)    $767.5   
                                                              =======       ======      =========     ======   

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 9--Segment Information                                                     

Selected data by segment is as follows:                                         

                                                        [Enlarge/Download Table]

                                                   Three Months Ended              Nine Months Ended       
                                                      September 30                    September 30         
                                                   1999            1998            1999           1998     
                                                                 (in millions of dollars)                  
                                              -------------------------------------------------------------
                                                                                                           
Premium Income                                                                                             
   Employee Benefits                             $  984.8        $  859.0        $2,898.8       $2,492.6   
   Individual                                       439.6           419.8         1,300.0        1,256.7   
   Voluntary Benefits                               172.4           167.4           516.7          498.7   
   Other                                            139.4           114.3           389.6          311.2   
                                                 --------        --------        --------       --------   
                                                  1,736.2         1,560.5         5,105.1        4,559.2   
Net Investment Income and Other Income                                                                     
   Employee Benefits                                186.4           164.7           546.7          492.9   
   Individual                                       231.4           227.5           692.7          670.2   
   Voluntary Benefits                                28.1            26.9            81.5           76.8   
   Other                                            133.5           141.7           409.9          500.2   
   Corporate                                         39.6             7.2            54.6           24.0   
                                                 --------        --------        --------       --------   
                                                    619.0           568.0         1,785.4        1,764.1   
Total Revenue (Excluding Net Realized                                                                      
  Investment Gains and Losses)                                                                             
   Employee Benefits                              1,171.2         1,023.7         3,445.5        2,985.5   
   Individual                                       671.0           647.3         1,992.7        1,926.9   
   Voluntary Benefits                               200.5           194.3           598.2          575.5   
   Other                                            272.9           256.0           799.5          811.4   
   Corporate                                         39.6             7.2            54.6           24.0   
                                                 --------        --------        --------       --------   
                                                  2,355.2         2,128.5         6,890.5        6,323.3   
Benefits and Expenses                                                                                      
   Employee Benefits                              1,384.5           871.1         3,540.6        2,548.2   
   Individual                                       579.1           568.0         1,773.1        1,687.8   
   Voluntary Benefits                               168.3           158.9           503.4          481.9   
   Other                                            449.1           231.5         1,029.1          730.2   
   Corporate                                        114.9            39.5           507.8          117.3   
                                                 --------        --------        --------       --------   
                                                  2,695.9         1,869.0         7,354.0        5,565.4   
Income (Loss) Before Net Realized Investment                                                               
  Gains and Losses and Federal Income Taxes                                                                
   Employee Benefits                               (213.3)          152.6           (95.1)         437.3   
   Individual                                        91.9            79.3           219.6          239.1   
   Voluntary Benefits                                32.2            35.4            94.8           93.6   
   Other                                           (176.2)           24.5          (229.6)          81.2   
   Corporate                                        (75.3)          (32.3)         (453.2)         (93.3)  
                                                 --------        --------        --------       --------   
                                                   (340.7)          259.5          (463.5)         757.9   
Net Realized Investment Gains                        77.9            16.4            89.3           30.8   
                                                 --------        --------        --------       --------   
Income (Loss) Before Federal Income Taxes          (262.8)          275.9          (374.2)         788.7   
Federal Income Taxes (Credit)                       (45.8)           89.6           (55.3)         264.3   
                                                 --------        --------        --------       --------   
Net Income (Loss)                                $ (217.0)       $  186.3        $ (318.9)      $  524.4   
                                                 ========        ========        ========       ========   

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 9--Segment Information (Continued)                                         

                                                                [Download Table]

                         September 30       December 31    
                             1999               1998       
                             (in millions of dollars)      
                       ------------------------------------
                                                           
Assets                                                     
   Employee Benefits       $ 9,636.4         $ 9,275.7     
   Individual               15,459.2          15,887.7     
   Voluntary Benefits        2,138.8           2,057.3     
   Other                     9,491.5           9,610.2     
   Corporate                 1,345.2           1,771.3     
                           ---------         ---------     
                           $38,071.1         $38,602.2     
                           =========         =========     

The Employee Benefits segment includes group long-term and short-term disability
insurance, group life insurance, accidental death and dismemberment coverages,  
group long-term care, and the results of managed disability. The Individual     
segment includes results from the individual disability, individual life, and   
individual long-term care lines of business. The Voluntary Benefits segment     
includes the results of products sold to employees through payroll deduction at 
the work site. These products include life insurance and health products,       
primarily disability, accident and sickness, and cancer. The Other operating    
segment includes results from products no longer actively marketed, including   
corporate-owned life insurance, group pension, health insurance, individual     
annuities, and reinsurance pools and management. The Corporate segment includes 
investment earnings on corporate assets not specifically allocated to a line of 
business, corporate interest expense, amortization of goodwill, and certain     
corporate expenses not allocated to a line of business.                         

Note 10--Commitments and Contingent Liabilities                                 

In 1997 two alleged class action lawsuits were filed in Superior Court in       
Worcester, Massachusetts (Superior Court) against the Company--one purporting to
represent all career agents of subsidiaries of Paul Revere whose employment     
relationships ended on June 30, 1997 and were offered contracts to sell         
insurance policies as independent producers and the other purporting to         
represent independent brokers who sold certain Paul Revere individual disability
income policies with benefit riders. Motions filed by the Company to dismiss    
most of the counts in the complaints, which allege various breach of contract   
and statutory claims, have been denied, but the cases remain at a preliminary   
stage. To date no class has been certified in either lawsuit. However, a hearing
to determine class certification has been set for December 20, 1999 in          
Massachusetts state court. The Company has filed a conditional counterclaim in  
each action which requests a substantial return of commissions should the       
Superior Court agree with the plaintiff's interpretation of the contracts. The  
Company believes that it has strong defenses to both lawsuits and plans to      
vigorously defend its position and resist certification of the classes. In      
addition, the same plaintiff's attorney who has filed the purported class action
lawsuits has filed 44 individual lawsuits on behalf of current and former Paul  
Revere sales managers alleging various breach of contract claims. The Company   
has filed a motion in federal court to compel arbitration for 16 of the         
plaintiffs who are licensed by the National Association of Securities Dealers   
and have executed the Uniform Application for Registration or Transfer in the   
Securities Industry (Form U-4). The federal court has denied those motions,     
except for two plaintiffs where the issue is still pending. The Company is      
appealing the court's ruling on the remaining 14 plaintiffs. Motions to dismiss 
in the state court have been denied, but the Company is seeking interlocutory   
appeal on one issue. The Company believes that it has strong defenses and plans 
to vigorously defend its position in these cases. Although the alleged class    
action lawsuits and individual lawsuits are in the early stages, management does
not currently expect these suits to materially affect the financial position or 
results of operations of the Company.                                           

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                

UnumProvident Corporation and Subsidiaries                                      

September 30, 1999                                                              

Note 10--Commitments and Contingent Liabilities (Continued)                     

During September and October 1999, the Company and several of its officers were 
named as defendants in five class action lawsuits filed in the United States    
District Court for the District of Maine. The complaints assert a variety of    
virtually identical claims under the Securities Exchange Act of 1934, as        
amended, and the Securities Act of 1933, as amended, on behalf of a putative    
class of shareholders who purchased or otherwise acquired stock in the Company  
or Unum between February 4, 1998 and August 2, 1999. The complaints allege that 
the defendants made false and misleading public statements concerning, among    
other things, Unum's and the Company's reserves for disability insurance,       
Provident's and the Company's disability insurance claims and pending lawsuits  
concerning certain of those claims, and the Company's merger costs and the      
adequacy of the due diligence reviews performed in connection with the merger.  
The complaints seek money damages on behalf of all persons who purchased or     
otherwise acquired Company or Unum securities in the class period or who were   
issued Company securities pursuant to the merger. To date, no class has been    
certified, and no defendant has answered the complaints. The Company disputes   
the claims alleged in the complaints and plans to vigorously contest them.      

Recent information indicates that in certain reinsurance pools associated with  
the Company's reinsurance businesses there are disputes among the pool members  
and reinsurance participants concerning the scope of their obligations and      
liabilities within the complex pool arrangements, including a pool for which a  
subsidiary of the Company acted as pool underwriting agent and another          
subsidiary is a pool member. It is likely that the Company's agent subsidiary   
will be brought into a dispute, arbitration, or litigation with other pool      
members or reinsurers of the pool for which it acted as agent and which have    
been subject to a recent arbitration proceeding, but it is unclear what exposure
the Company's subsidiary may ultimately have to share in losses of pool members 
or reinsurers because of the subsidiary's activities as agent in placing        
reinsurance.                                                                    

Various other lawsuits against the Company have arisen in the normal course of  
its business. Contingent liabilities that might arise from such other litigation
are not deemed likely to materially affect the financial position or results of 
operations of the Company.                                                      

Note 11--Changes in Accounting Principles and Accounting Pronouncement          
Outstanding                                                                     

Effective January 1, 1999, the Company adopted the provisions of Statement of   
Position 97-3 (SOP 97-3), Accounting by Insurance and Other Enterprises for     
Insurance-Related Assessments. SOP 97-3 provides guidance for determining when  
an entity should recognize a liability or an asset for insurance-related        
assessments and how to measure these items. The Company fully adopted the       
provisions of Statement of Position 98-1 (SOP 98-1), Accounting for the Costs of
Computer Software Developed for or Obtained for Internal Use, effective January 
1, 1999. SOP 98-1 requires the capitalization of certain costs incurred in      
connection with developing or obtaining software for internal use. The effect of
the adoptions of SOP 97-3 and SOP 98-1 on the Company's financial position and  
results of operations was immaterial.                                           

In June 1999, Statement of Financial Accounting Standards No. 137 (SFAS 137),   
Accounting for Derivative Instruments and Hedging Activities - Deferral of the  
Effective Date of FASB Statement No. 133 was issued. SFAS 137 defers for one    
year the effective date of Statement of Financial Accounting Standards No. 133  
(SFAS 133), Accounting for Derivative Instruments and Hedging Activities. The   
Company plans to adopt the provisions of SFAS 133 effective January 1, 2001. At 
this time the Company has not determined the effects that adoption of SFAS 133  
will have on its financial statements.                                          

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Independent Auditors' Review Report 

Board of Directors and Shareholders                                             
UnumProvident Corporation                                                       

We have reviewed the accompanying condensed consolidated statement of financial 
condition of UnumProvident Corporation and Subsidiaries as of September 30,     
1999, the related condensed consolidated statements of operations for the three 
and nine month periods ended September 30, 1999 and 1998, and the condensed     
consolidated statements of stockholders' equity and cash flows for the nine     
month periods ended September 30, 1999 and 1998. These financial statements are 
the responsibility of the Company's management.                                 

We were furnished with the report of other accountants on their review of the   
interim information of the former Unum Corporation and Subsidiaries whose total 
assets as of September 30, 1999, and whose revenues for the three month and nine
month periods then ended constituted 42 percent, 56 percent, and 56 percent,    
respectively, of the related consolidated totals.                               

We conducted our reviews in accordance with standards established by the        
American Institute of Certified Public Accountants. A review of interim         
financial information consists principally of applying analytical procedures to 
financial data, and making inquiries of persons responsible for financial and   
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed  
for the full year with the objective of expressing an opinion regarding the     
financial statements taken as a whole. Accordingly, we do not express such an   
opinion.                                                                        

Based on our reviews and the report of other accountants, we are not aware of   
any material modifications that should be made to the accompanying financial    
statements for them to be in conformity with generally accepted accounting      
principles.                                                                     

We have previously audited, in accordance with generally accepted auditing      
standards, the consolidated statement of financial condition of UnumProvident   
Corporation as of December 31, 1998, and the related consolidated statements of 
income, stockholders' equity, and cash flows for the year then ended not        
presented herein, and in our report dated August 2, 1999, we expressed an       
unqualified opinion on those consolidated financial statements. We did not audit
the financial statements of the former Unum Corporation which statements reflect
total assets and total revenues constituting 39 percent and 54 percent,         
respectively, in 1998 of the related consolidated totals. Those statements were 
audited by other auditors whose report has been furnished to us, and our        
opinion, in so far as it relates to data included for the former Unum           
Corporation, is based solely on the report of other auditors. In our opinion,   
the information set forth in the accompanying condensed consolidated statement  
of financial condition as of December 31, 1998, is fairly stated, in all        
material respects, in relation to the consolidated statement of financial       
condition from which it has been derived.                                       

                     /s/ ERNST & YOUNG LLP

Chattanooga, Tennessee                                                          
November 12, 1999                                                               

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS                                                                   

Cautionary Statement Regarding Forward-Looking Statements                       

The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe-
harbor" for forward-looking statements which are identified as such and are     
accompanied by the identification of important factors which could cause actual 
results to differ materially from the forward-looking statements. UnumProvident 
Corporation (the Company) claims the protection afforded by the safe harbor in  
the Act. Certain information contained in this discussion, or in any other      
written or oral statements made by the Company, is or may be considered as      
forward-looking. Examples of disclosures that contain such information include, 
among others, sales estimates, income projections, reserves and related         
assumptions, and the year 2000 date conversion. Forward-looking statements are  
those not based on historical information, but rather relate to future          
operations, strategies, financial results, or other developments. These         
statements may be made directly in this document or may be made part of this    
document by reference to other documents filed with the Securities and Exchange 
Commission by the Company, which is known as "incorporation by reference." You  
can find many of these statements by looking for words such as "may," "should," 
"believes," "expects," "anticipates," "estimates," "intends," "projects,"       
"goals," "objectives," or similar expressions in this document or in documents  
incorporated herein.                                                            

These forward-looking statements are subject to numerous assumptions, risks, and
uncertainties. Factors that may cause actual results to differ materially from  
those contemplated by the forward-looking statements include, among others, the 
following possibilities:                                                        

.    Competitive pressures in the insurance industry may increase     
significantly through industry consolidation, competitor    
demutualization, or otherwise.                              
  .    General economic or business conditions, both domestic and foreign,
        whether relating to the economy as a whole or to particular sectors,
          may be less favorable than expected, resulting in, among other things,
         lower than expected revenues, and the Company could experience higher
      than expected claims or claims with longer duration than expected.
    .    Insurance reserve liabilities can fluctuate as a result of changes in
         numerous factors, and such fluctuations can have material positive or
negative effects on net income.                             
  .    Costs or difficulties related to the integration of the business of
  the Company following the merger may be greater than expected,
        including costs or difficulties related to the management of claims.
    .    Legislative or regulatory changes may adversely affect the businesses
in which the Company is engaged.                            
 .    Necessary technological changes, including changes to address year
        2000 data systems issues, may be more difficult or expensive to make
 than anticipated, and year 2000 issues at other companies may
adversely affect operations.                                
.    Adverse changes may occur in the securities market.              
   .    Changes in the interest rate environment may adversely affect profit
margins and the Company's investment portfolio.             
.    The rate of customer bankruptcies may increase.                  
.    Incidence and recovery rates may be influenced by, among other   
          factors, the emergence of new diseases, new trends and developments in
          medical treatments, and the effectiveness of risk management programs.
    .    Retained risks in the Company's reinsurance operations are influenced
     by many factors and can fluctuate as a result of changes in these
         factors, and such fluctuations can have material positive or negative
effects on net income.                                      

For further discussion of risks and uncertainties which could cause actual      
results to differ from those contained in the forward-looking statements, see   
"Forward-Looking Information" in Unum Corporation's Form 10-K/A and "Cautionary 
Statement Regarding Forward-Looking Statements" and "Risk Factors" in Provident 
Companies Inc.'s Form 10-K/A, in each case for the fiscal year ended December   
31, 1998.                                                                       

All subsequent written and oral forward-looking statements attributable to the  
Company or any person acting on its behalf are expressly qualified in their     
entirety by the cautionary statements contained or referred to in this section. 
The Company does not undertake any obligation to release publicly any revisions 
to such forward-looking statements to reflect events or circumstances after the 
date of this document or to reflect the occurrence of unanticipated events.     

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Introduction                                                                    

On June 30, 1999, Unum Corporation (Unum) merged with and into Provident        
Companies, Inc. (Provident) under the name UnumProvident Corporation. The merger
was accounted for as a pooling of interests. The historical financial results   
discussed herein give effect to the merger as if it had been completed at the   
beginning of the earliest period presented. See Notes 1 and 2 of the "Notes to  
Condensed Consolidated Financial Statements" for further discussion.            

The following should be read in conjunction with the condensed consolidated     
financial statements and notes thereto contained herein and with the discussion,
analysis, and consolidated financial statements and notes thereto in Exhibits   
99.1, 99.2, and 99.3 of the Company's Form 8-K for the fiscal year ended        
December 31, 1998.                                                              

This discussion of consolidated operating results and operating results by      
segment excludes net realized investment gains and losses from revenue and      
income before taxes. The Company's investment focus has been on investment      
income to support its insurance liabilities as opposed to the generation of     
realized investment gains. Due to the nature of the Company's business, a long- 
term focus is necessary to maintain profitability over the life of the business.
The realization of investment gains and losses will impact future earnings      
levels as the underlying business is long-term in nature and requires that the  
Company be able to sustain the assumed interest rates in its liabilities.       
However, income excluding realized investment gains and losses does not replace 
net income as a measure of the Company's profitability.                         

Management believes that the trends in new annualized sales in the Employee     
Benefits, Individual, and Voluntary Benefits segments are important for         
investors to assess in their analysis of the Company's results of operations.   
The trends in new sales are indicators of the Company's potential for growth in 
its respective markets and the level of market acceptance of price changes and  
new products. The Company has closely linked its various incentive compensation 
plans for management and employees to the achievement of its goals for new      
sales. The Company's long-term financial objectives, which balance growth and   
profitability, are to achieve sales growth of 10 to 12 percent per year and to  
maintain premium growth of approximately 10 percent.                            

Accounting Policy Changes, Financial Statement Reclassifications, and Merger    
Expenses                                                                        

As a result of the merger, certain accounting policy changes and                
reclassification adjustments have been made. The following summarizes these     
changes and reclassifications as well as the expenses related to the merger and 
the early retirement offer to employees.                                        

The Company values its available-for-sale fixed maturity and equity securities  
at fair value, with unrealized holding gains and losses reported as a component 
of comprehensive income. Companies are required to also adjust deferred         
acquisition costs and/or certain policyholder liabilities to reflect the changes
that would have been necessary if the unrealized investment gains and losses    
related to the available-for-sale securities had been realized. Prior to the    
merger, Unum adjusted policyholder liabilities and Provident adjusted deferred  
policy acquisition costs (DPAC) and value of business acquired (VOBA) for those 
products where these assets existed. To present financial information in a      
common reporting format, management has determined that the combined entity will
adjust policyholder liabilities rather than DPAC and VOBA. Prior period         
financial statements have been restated to reflect this reclassification. The   
reclassification did not change other comprehensive income, accumulated other   
comprehensive income, or fixed maturity and equity securities. The              
reclassification reflected in the December 31, 1998, condensed consolidated     
statement of financial condition resulted in an increase of $329.7 million in   
DPAC, $1.5 million in VOBA, and $331.2 million in reserves for future policy and
contract benefits.                                                              

Generally, because of the effort and time involved, reviews and updates of      
assumptions related to benefit liabilities are periodically undertaken over time
and are reflected in the calculation of benefit liabilities as completed. Many  
factors influence assumptions underlying reserves, and considerable judgment is 
required to interpret current and historical experience underlying all of the   
assumptions and to assess the future factors that are likely to influence the   
ultimate cost of settling existing claims.                                      

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Prior to the merger, Unum's process and assumptions used to calculate the       
discount rate for claim reserves of certain disability businesses differed from 
that used by Provident. While Unum's and Provident's methods for calculating the
discount rate for disability claim reserves were both in accordance with        
generally accepted accounting principles, management believed that the combined 
entity should have consistent discount rate accounting policies and methods for 
applying these policies for similar products. The previous Unum methodology used
the same investment strategy for assets backing both liabilities and surplus.   
Provident's methodology, which allows for different investment strategies for   
assets backing surplus than those backing product liabilities, was determined by
management to be the more appropriate approach for the combined entity.         
Accordingly, Unum adopted Provident's method of calculating the discount rate   
for claim reserves. The impact on 1999 second quarter earnings related to the   
change in method of calculating the discount rate for claim reserves was $240.7 
million before tax and $156.5 million after tax. The charge was reflected in the
Employee Benefits, Individual, and Other segments as an increase in benefits to 
policyholders of $191.7 million, $38.9 million, and $10.1 million, respectively.

Subsequent to the merger date, the Company began to integrate the valuation     
procedures of the two organizations to provide for a more effective linking of  
pricing and reserving assumptions and to facilitate a more efficient process for
adjusting liabilities to emerging trends. Included in this integration activity 
were a review and an update of assumptions that underlie policy and contract    
benefit liabilities. The purpose of the study was to confirm or update the      
assumptions which were viewed as likely to affect the ultimate liability for    
contract benefits. Accordingly, as a result of the merger, the Company          
accelerated the performance of its normal reviews of the assumptions underlying 
reserves to determine the assumptions that the newly merged Company will use in 
the future for pricing, performance management, and reserving.                  

The review resulted in an increase in the benefits and reserves for future      
benefits for the Company's domestic group long-term disability unpaid claim     
liabilities. As a result of the review, the Company increased its policy and    
contract benefit liabilities $359.2 million, which reduced third quarter 1999   
results $359.2 million before tax and $233.5 million after tax. See Note 2 of   
the "Notes to Condensed Consolidated Financial Statements" for further          
discussion of the second and third quarter charges and "Liquidity and Capital   
Resources" for a discussion of capital and financing needs.                     

The Company also completed its review of the methodology and assumptions used   
for the capitalization and amortization of the costs of acquiring new business. 
The result of the review was immaterial and was reflected in current period     
operating earnings. The Company's before-tax results were increased $5.9 million
during the third quarter to reflect the application of the revised estimate. The
change in estimate will be applied to amounts capitalized in 1999 and future    
years and will reflect the combined entity's practices and pricing assumptions. 
There was not a need to adjust amounts capitalized in years prior to 1999, as   
those amounts are believed to be recoverable from the related policies. A key   
element in the ability to recover amounts capitalized in prior periods is the   
persistency of the business. The Company monitors persistency and reflects      
adverse changes in persistency in the current year's amortization of deferred   
acquisition costs. Actual persistency experience for both Unum and Provident    
compares favorably with expected experience to date.                            

On the date the merger was completed, the Company recorded before-tax expenses  
related to the merger of approximately $142.2 million ($112.0 million after tax)
for severance and related costs, exit costs for duplicate facilities and asset  
abandonments, and investment banking, legal, and accounting fees. The Company   
also recorded in the second quarter a before-tax expense of approximately $125.9
million ($81.8 million after tax) related to the early retirement offer to the  
Company's employees. During the third quarter, the Company recorded additional  
before-tax expenses of $42.5 million ($27.6 after tax) related to the merger.   
These expenses are reported in the Corporate segment as other operating expenses
and are further discussed in the section "Corporate Segment Operating Results." 
Additionally, in the three and nine months ended September 30, 1999 the Company 
expensed $4.7 million and $24.7 million, respectively, ($3.1 million and $16.1  
million after tax) of incremental costs associated with the merger. These       
incremental costs consist primarily of compensation, training, integration, and 
licensing costs.                                                                

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Consolidated Operating Results                                                  

                                                        [Enlarge/Download Table]

(in millions of dollars)                                                                                  
                                     Three Months Ended September 30       Nine Months Ended September 30 
                                    1999         1998       % Change     1999          1998      % Change 
                                    ----         ----       --------     ----          ----      -------- 
                                                                                                          
Premium Income                    $1,736.2     $1,560.5         11.3%  $5,105.1      $4,559.2        12.0%
Net Investment Income                513.4        494.4          3.8    1,531.0       1,533.0        (0.1)
Other Income                         105.6         73.6         43.5      254.4         231.1        10.1 
                                  --------     --------                --------      --------             
Total Revenue                      2,355.2      2,128.5         10.7    6,890.5       6,323.3         9.0 
Benefits and Expenses              2,695.9      1,869.0         44.2    7,354.0       5,565.4        32.1 
                                  --------     --------                 -------      --------             
Income (Loss) Before Federal                                                                              
   Income Taxes and Net Realized                                                                          
   Investment Gains                 (340.7)       259.5          N.M.    (463.5)        757.9        N.M. 
Federal Income Taxes (Credit)        (73.1)        83.9          N.M.     (86.6)        253.8        N.M. 
                                  --------     --------                --------      --------             
Income (Loss) Before Net                                                                                  
  Realized Investment Gains         (267.6)       175.6          N.M.    (376.9)        504.1        N.M. 
Net Realized Investment Gains         50.6         10.7          N.M.      58.0          20.3        N.M. 
                                  --------     --------                --------      --------             
Net Income (Loss)                 $ (217.0)    $  186.3          N.M.  $ (318.9)     $  524.4        N.M. 
                                  ========     ========                ========      ========             

N.M. = not a meaningful percentage                                              

In addition to the third quarter increase in benefit liabilities of $359.2      
million and the third quarter merger-related expenses of $42.5 million discussed
in the previous section, the Company recognized $222.0 million of before-tax    
charges related to its reinsurance operations. During the first three quarters  
of 1999, the Company has recognized $325.1 million of before-tax charges for its
reinsurance operations. The breakdown of these charges by quarter is as follows:

                                                        [Enlarge/Download Table]

                                                                         1999                          
                                                -------------------------------------------------------
                                                   1st           2nd            3rd        Nine Months 
                                                                 (in millions of dollars)              
                                                -------------------------------------------------------
                                                                                                       
North American Reinsurance Operations:                                                                 
Loss on Sale of A&H and LTC Reinsurance              $    -       $   -        $ 12.9          $ 12.9  
  Management Operations (includes write-off of                                                         
  $6.0 million of goodwill)                                                                            
Provision for Loss on Reinsurance of A&H and            -             -          10.0            10.0  
  LTC Risk Participations                                                                              
Provision for Losses on Retained Business              28.6           -          13.5            42.1  
International Reinsurance Operations:                                                                  
Provision for Losses on Lloyd's of London              45.5           -         141.0           186.5  
  Syndicate Participations                                                                             
Provision for Losses on Reinsurance Pool                -             -          21.9            21.9  
  Participations Other than Lloyd's                                                                    
Goodwill Impairment Excluding Amount                                                                   
  Recognized on Sale                                   27.0         2.0          22.7            51.7  
                                                     ------       -----        ------          ------  
     Total Before-Tax Charge                         $101.1       $ 2.0        $222.0          $325.1  
                                                     ======       =====        ======          ======  

See "Other Segment Operating Results" and Note 4 of the "Notes to Condensed     
Consolidated Financial Statements" for further discussion of the Company's      
reinsurance operations.                                                         

A portion of the losses recognized in the first three quarters of 1999 relating 
to the Company's reinsurance operations does not receive a tax benefit, which   
unfavorably impacted the effective tax rate. Additionally, a portion of the     
second quarter 1999 expenses related to the merger was non-deductible for       
federal income tax purposes, resulting in a tax rate that was less than the U.S.
federal statutory tax rate of 35 percent.                                       

In the third quarter of 1999, the Company recorded a refund from the Internal   
Revenue Service relating to the final settlement of remaining issues for the    
1986 through 1992 tax years. The refund of taxes was $25.3 million and interest 
on the refund was $31.5 million. The Company increased its tax liability $16.6  
million attributable to tax                                                     

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years subsequent to 1992. Overall, including interest received and the tax      
provision thereon, third quarter of 1999 results increased $29.2 million as a   
result of the refund.                                                           

In the following discussion of operating results by segment, "revenue" includes 
premium income, net investment income, and other income. "Income" or "loss"     
excludes net realized investment gains and losses and federal income taxes.     

Employee Benefits Segment Operating Results                                     

                                                        [Enlarge/Download Table]

(in millions of dollars)                                                                                  
                                       Three Months Ended September 30     Nine Months Ended September 30 
                                       1999         1998      % Change     1999         1998     % Change 
                                       -----        ----      --------     ----         ----     -------- 
                                                                                                          
Premium Income                                                                                            
   Group Long-term Disability        $  514.7     $  457.1       12.6%  $ 1,511.8     $1,331.3       13.6%
   Group Short-term Disability          120.6         93.3       29.3       347.7        269.4       29.1 
   Group Life                           290.6        253.7       14.5       866.4        733.1       18.2 
   Accidental Death & Dismemberment      48.0         47.7        0.6       141.9        138.1        2.8 
   Group Long-term Care                  10.9          7.2       51.4        31.0         20.7       49.8 
                                     --------     --------              ---------     --------            
Total Premium Income                    984.8        859.0       14.6     2,898.8      2,492.6       16.3 
Net Investment Income                   152.3        134.8       13.0       445.0        403.9       10.2 
Other Income                             34.1         29.9       14.0       101.7         89.0       14.3 
                                     --------     --------              ---------     --------            
Total Revenue                         1,171.2      1,023.7       14.4     3,445.5      2,985.5       15.4 
Benefits and Expenses                 1,384.5        871.1       58.9     3,540.6      2,548.2       38.9 
                                     --------     --------              ---------     --------            
Income (Loss) Before Federal                                                                              
   Income Taxes and Net Realized                                                                          
   Investment Gains                  $ (213.3)    $  152.6        N.M.  $   (95.1)    $  437.3       N.M. 
                                     ========     ========              =========     ========            

The Employee Benefits segment includes group long-term and short-term disability
insurance, group life insurance, accidental death and dismemberment coverages,  
group long-term care, and the results of managed disability.                    

The increases in premium income result from strong sales trends over the past   
several quarters as well as an emphasis on renewal of existing business.        
However, the rate of growth in new annualized group disability and group life   
sales decreased in the third quarter, and management expects that the growth    
rate will be lower in the fourth quarter of 1999 as compared to the fourth      
quarter of 1998. Several factors have contributed to the decrease in sales,     
including rate increases, turnover in the sales force, and merger-related       
activities (training, office relocation, and new processes and systems). The    
Company has a number of initiatives underway to help restore sales momentum,    
including targeted incentive plans, organizational changes to create a greater  
focus on the customer, and enhanced communication with producers. The Company   
expects that these actions will favorably impact future sales growth, but       
management intends to maintain pricing discipline to balance sales growth and   
profitability which will likely lead to lower long-term sales growth than       
historically experienced by the Company. Employee Benefits new annualized sales 
decreased 11.1 percent to $212.4 million in the third quarter of 1999 from      
$238.9 million in the third quarter of 1998. New annualized sales for this      
segment increased 15.5 percent to $723.3 million for the first nine months of   
1999 from $626.2 million in the same period of 1998.                            

Revenue from the managed disability line of business, which includes GENEX      
Services, Inc. and Options and Choices, Inc., totaled $27.2 million in the third
quarter of 1999 compared to $24.2 million in the third quarter of 1998. On a    
year-to-date basis, this revenue was $80.4 million in 1999 compared to $71.9    
million in 1998.                                                                

Group Disability                                                                

Group disability revenue increased to $764.0 million in the third quarter of    
1999 compared to $666.2 million in 1998. Premium income growth was driven by    
prior period sales and persistency, which was favorable and remains well within 
expectations. However, as discussed above, new sales for the quarter decreased. 
New annualized sales for group long-term disability were $91.9 million in the   
third quarter of 1999 compared to $112.6 million in the same period of 1998. New
annualized sales for group short-term disability were $32.9 million in the third
quarter of 1999 as compared to $37.1 million in the third quarter of 1998. A    
critical part of the Company's strategy for group disability during the         
remainder of 1999 and 2000 involves executing an aggressive renewal program and 
managing persistency, both of which management expects will have a positive     
impact on future premium growth and                                             

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profitability. The Company is implementing pricing changes in the group         
disability line. Prices will increase or decrease by market segment, as         
appropriate, to respond to current claim experience and various other factors   
and assumptions.                                                                

Group disability reported a loss of $277.8 million for the third quarter of     
1999, as compared with $95.3 million of income for the same period in 1998. As  
discussed in the preceding "Accounting Policy Changes, Financial Statement      
Reclassifications, and Merger Expenses," in the third quarter of 1999 the       
Company revised the underlying assumptions and changed the estimate of the      
ultimate cost of unpaid group long-term disability claims, resulting in a $359.2
million decrease in income. Excluding the effect of the third quarter charge,   
this line reported a higher benefit ratio for its domestic business in the third
quarter of 1999 as compared with the second quarter of 1999 and the third       
quarter of 1998, primarily due to lower claim resolutions. The new claim        
incidence rates in the third quarter of 1999 improved relative to levels        
experienced in the second quarter of 1999 and the third quarter of 1998. Small  
case business continues to perform well, and large case and mid-size business   
showed improvement in the third quarter of 1999. The health services sector     
continues to experience higher incidence levels than average, but improved in   
the third quarter of 1999. Incidence levels for the manufacturing sector also   
improved, declining to the levels experienced prior to the third quarter of     
1998. The level of claim incidence is being taken into account in the pricing of
new business and the renewal of existing cases. Also, as explained in more      
detail below, the actual increase in claims durations was greater than assumed  
in the fourth quarter of 1998 claims disruption charge, resulting in a negative 
impact on the third quarter 1999 benefit ratio. Additionally, the 1998 benefit  
ratio was positively impacted by the updated factors used in calculating social 
security offset amounts.                                                        

Group disability reported a loss of $281.9 million for the first nine months of 
1999, as compared with $291.4 million of income for the same period in 1998. The
loss was the result of the $191.7 million second quarter 1999 charge resulting  
from lowering the discount rate used to calculate certain of Unum's disability  
claim reserves to conform with Provident's process and assumptions and the      
$359.2 million third quarter 1999 charge resulting from the revision in the     
underlying assumptions used to estimate the ultimate cost of unpaid group long- 
term disability claims. New annualized sales for the first nine months of 1999  
were $298.9 million and $127.8 million for group long-term and short-term       
disability, respectively, compared to $288.1 million and $115.1 million for the 
comparable period in 1998.                                                      

Results for group disability increased $0.6 million in the third quarter and    
nine months of 1999 due to the change in estimates used for the capitalization  
and amortization of the costs of acquiring new business. Increased investment   
income and a slight improvement in the operating expense ratio also positively  
impacted third quarter and nine months 1999 group disability results.           

In the fourth quarter of 1998, the Company recorded a $50.3 million charge for  
the group long-term disability line of business in the Employee Benefits segment
for the expected increase in claims durations due to management's expectation   
that productivity in the claims organization will be impacted as a result of    
planning, consolidation, and integration efforts related to the merger.         
Management expects the claims integration efforts to have some benefits,        
primarily related to claims incurred in future periods, as well as the potential
for improved customer satisfaction and lower ultimate claim costs as best       
practices in return-to-work and claims management are implemented. As benefits  
related to the integration become known, reserve assumptions will be revised, if
appropriate. Insurance policies that are impacted by the temporary change in    
claim resolution rates will not perform as anticipated when priced. However,    
since the cause of the additional claim cost is of a temporary nature, it is not
anticipated to have an effect on future policy pricing. The $50.3 million       
reserve increase is not considered material from a capital adequacy position.   

During the first nine months of 1999, those claim operations integration        
activities progressed as assumed. At December 31, 1998, management assumed the  
revised group disability claim resolution rates for the first, second, and third
quarters of 1999 to be 90, 90, and 81 percent of assumptions, before adjusting  
for the impact of the claim operations integration activities. The actual       
experience was 89 percent for the first quarter of 1999, 90 percent for the     
second quarter, and 67 percent for the third quarter. If the impact of merger-  
related claim operations integration activities on claim durations had not been 
anticipated at December 31, 1998, the third quarter and nine months 1999 loss   
for the group long-term disability line of business would have been negatively  
impacted by $15.5 million and $39.1 million, respectively. However, the         
shortfall of the actual third quarter experience below that assumed resulted in 
a negative effect on results in the current quarter of $11.8 million. As        
discussed in Note 2 of the "Notes to Condensed Consolidated Financial           
Statements," claim resolution assumptions underlying existing claim reserves    
were revised in the third quarter of 1999, resulting in an increase in benefit  
liabilities of $194.8 million. In selecting                                     

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the revised claim resolution assumptions, consideration was given to claims     
operations integration activities referenced here as well as other factors      
expected to impact the future effectiveness of the claims operations. See Notes 
2 and 3 of the "Notes to Condensed Consolidated Financial Statements" for       
further discussion.                                                             

As discussed under "Cautionary Statement Regarding Forward-Looking Statements," 
certain risks and uncertainties are inherent in the Company's business.         
Components of claims experience, including but not limited to, incidence levels 
and claims duration, may continue for some period of time at or above the higher
levels experienced in 1998. Therefore, management continues to monitor claims   
experience in group disability and responds to changes by periodically adjusting
prices, refining underwriting guidelines, changing product features, and        
strengthening risk management policies and procedures. The Company expects to   
price new business and re-price existing business, at contract renewal dates, in
an attempt to mitigate the effect of these and other factors, including interest
rates, on new claim liabilities. However, given the competitive market          
conditions for the Company's disability products, it is uncertain whether       
pricing actions can mitigate the entire effect.                                 

Group Life, Accidental Death and Dismemberment, and Long-term Care              

Group life, accidental death and dismemberment, and long-term care reported     
income of $63.3 million in the third quarter of 1999 compared to $55.8 million  
in the third quarter of 1998. The increase resulted from the growth in premium  
income, which was driven by strong prior period sales, and a lower third quarter
1999 operating expense ratio. The results also benefited from higher net        
investment income and a higher volume of business. New annualized sales         
decreased slightly to $87.6 million in the third quarter of 1999 compared to    
$89.2 million in the year ago quarter. Year-to-date 1999 income was $182.8      
million compared to $142.1 million in 1998. The increase resulted from increased
premium income as well as a 72.7 percent benefit ratio in 1999 compared to 73.2 
percent in 1998. Year-to-date new annualized sales were $296.6 million in 1999  
compared to $223.0 million in 1998. Income for this line increased $0.5 million 
in the third quarter of 1999 due to the change in estimates used for the        
capitalization and amortization of the costs of acquiring new business.         

Individual Segment Operating Results                                            

                                                        [Enlarge/Download Table]

(in millions of dollars)                                                                              
                                      Three Months Ended September 30  Nine Months Ended September 30 
                                        1999       1998      % Change    1999       1998     % Change 
                                        ----       ----      --------    ----       ----     -------- 
                                                                                                      
Premium Income                                                                                        
   Individual Disability              $393.7     $ 382.7         2.9%  $1,168.9   $1,147.9       1.8% 
   Individual Life                      21.5        21.4         0.5       65.9       65.4       0.8  
   Individual Long-term Care            24.4        15.7        55.4       65.2       43.4      50.2  
                                      ------     -------               --------   --------            
Total Premium Income                   439.6       419.8         4.7    1,300.0    1,256.7       3.4  
Net Investment Income                  218.6       208.3         4.9      650.6      613.3       6.1  
Other Income                            12.8        19.2       (33.3)      42.1       56.9     (26.0) 
                                      ------     -------               --------   --------            
Total Revenue                          671.0       647.3         3.7    1,992.7    1,926.9       3.4  
Benefits and Expenses                  579.1       568.0         2.0    1,773.1    1,687.8       5.1  
                                      ------     -------               --------   --------            
Income Before Federal Income Taxes                                                                    
   and Net Realized Investment Gains  $ 91.9     $  79.3        15.9%  $  219.6   $  239.1      (8.2)%
                                      ======     =======               ========   ========            

The Individual segment includes results from the individual disability,         
individual life, and individual long-term care lines of business.               

Individual Disability                                                           

New annualized sales in the individual disability income line of business were  
$27.9 million in the third quarter of 1999 and $31.3 million in the third       
quarter of 1998. Year-to-date new annualized sales were $93.2 million, a 3.9    
percent increase over the comparable period of 1998. The persistency of existing
individual disability income business continued to be favorable. Management     
expects that premium income in the individual disability income line will grow  
on a year-over-year basis as the product transition produces increasing levels  
of new sales of individual disability products and as a result of the sales     
initiatives discussed under "Employee Benefits Segment Operating Results."      

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Income in the individual disability income line of business increased to $81.7  
million in the third quarter of 1999 from $74.6 million in the third quarter of 
1998. On a year-to-date basis, income was $188.5 million in 1999 and $215.7     
million in 1998. As discussed in the preceding "Accounting Policy Changes,      
Financial Statement Reclassifications, and Merger Expenses," in the second      
quarter of 1999 the Company lowered the discount rate used to calculate certain 
of Unum's disability claim reserves to conform with Provident's process and     
assumptions, which decreased individual disability income by $38.9 million for  
the second quarter and nine months of 1999.                                     

This line reported an increase in the benefit ratio in the third quarter of 1999
compared to the third quarter of 1998, but the benefit ratio has improved from  
the previous two quarters. The claim resolution rate compares unfavorably with  
the third quarter 1998, but when compared to the prior three quarters, the claim
resolution rate has remained at a consistent level. Individual disability       
experienced a decline in new claim levels for the second consecutive quarter,   
but the level of new claims remained above that experienced in the third quarter
of 1998. This line benefited from higher net investment income and a favorable  
operating expense ratio for the third quarter of 1999 as compared to the third  
quarter of 1998. Income for individual disability increased $4.0 million in the 
third quarter of 1999 due to the change in estimates used for the capitalization
and amortization of the costs of acquiring new business.                        

As noted in the "Employee Benefits Segment Operating Results," claim resolution 
rates were revised downward in the fourth quarter of 1998 for claim operations  
integration activities related to the merger. The Company recorded a $100.3     
million charge in the fourth quarter of 1998 in the Individual segment related  
to the revised claim resolution rates for individual disability. At December 31,
1998, management assumed the revised individual disability claim resolution     
rates for the first, second, and third quarters of 1999 to be 90, 90, and 85    
percent of assumptions, before adjusting for the impact of the claim operations 
integration activities. The actual experience for the Company was 89 percent in 
the first quarter, 90 percent in the second quarter, and 93 percent in the third
quarter of 1999. If the impact of merger-related claim operations integration   
activities on claim durations had not been anticipated at December 31, 1998,    
third quarter and year-to-date 1999 income for the individual disability line of
business would have been negatively impacted by $31.5 million and $79.1 million,
respectively. In addition, the excess of the actual third quarter experience    
over that assumed resulted in a positive effect on income of $16.4 million. The 
$100.3 million reserve increase in the Individual segment is not considered     
material from a capital adequacy position. See Note 3 of the "Notes to Condensed
Consolidated Financial Statements" for further discussion.                      

Individual Life and Long-term Care                                              

The individual long-term care line of business reported increased premium income
for the quarter and year-to-date, primarily due to new sales growth. New        
annualized sales were $10.0 million and $28.1 million for the quarter and year- 
to-date, an increase of 66.7 percent and 109.7 percent, respectively. The       
Company expects the strong sales momentum in individual long-term care to       
continue.                                                                       

Income in the individual life and long-term care lines of business increased to 
$10.2 million in the third quarter of 1999 from $4.7 million in the third       
quarter of 1998. The primary reason was an unfavorable benefit ratio for both   
individual life and long-term care in the third quarter of 1998. Year-to-date   
income was $31.1 million or 32.9 percent higher than the first nine months of   
1998, due primarily to the increase in premium income and an improvement in the 
individual life benefit ratio. The change in estimates used for the             
capitalization and amortization of the costs of acquiring new business decreased
income in this line by $1.2 million in the third quarter of 1999.               

Voluntary Benefits Segment Operating Results                                    

                                                        [Enlarge/Download Table]

(in millions of dollars)                                                                              
                                      Three Months Ended September 30   Nine Months Ended September 30
                                        1999       1998      % Change     1999       1998     % Change
                                        ----       ----      --------     ----       ----     --------
                                                                                                      
Premium Income                        $172.4      $167.4         3.0%   $516.7     $498.7        3.6% 
Net Investment Income                   26.7        25.0         6.8      76.8       70.4        9.1  
Other Income                             1.4         1.9       (26.3)      4.7        6.4      (26.6) 
                                      ------      ------                ------     ------             
Total Revenue                          200.5       194.3         3.2     598.2      575.5        3.9  
Benefits and Expenses                  168.3       158.9         5.9     503.4      481.9        4.5  
                                      ------      ------                ------     ------             
Income Before Federal Income Taxes                                                                    
   and Net Realized Investment Gains  $ 32.2      $ 35.4        (9.0)%  $ 94.8     $ 93.6        1.3% 
                                      ======      ======                ======     ======             

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The Voluntary Benefits segment includes the results of products sold to         
employees through payroll deduction at the work site. These products include    
life insurance and health products, primarily disability, accident and sickness,
and cancer.                                                                     

Revenue in the Voluntary Benefits segment increased to $200.5 million in the    
third quarter of 1999 from $194.3 million in the third quarter of 1998. On a    
year-to-date basis, revenue for 1999 was $598.2 million compared to $575.5      
million in 1998. Sales growth and favorable persistency were the primary factors
contributing to the increase in premium income. New annualized sales in this    
segment were $52.0 million in the third quarter of 1999 and $53.8 million in the
comparable period of 1998. For the nine months, new annualized sales were $169.1
million in 1999 and $158.0 million in 1998. However, these sales are not        
necessarily indicative of the levels that may be attained in the future. Income 
in the Voluntary Benefits segment in the third quarter of 1999 was $32.2 million
versus $35.4 million in 1998. For the first nine months, income was $94.8       
million in 1999 and $93.6 million in 1998. The increase in income for the nine  
months is primarily due to the increase in premium income in all of the product 
lines, partially offset by a slightly higher benefit ratio in the life and the  
accident, sickness, and disability product lines. Income for this segment       
increased $2.0 million in the third quarter of 1999 due to the change in        
estimates used for the capitalization and amortization of the costs of acquiring
new business.                                                                   

Other Segment Operating Results                                                 

                                                        [Enlarge/Download Table]

(in millions of dollars)                                                                         
                                  Three Months Ended September 30  Nine Months Ended September 30
                                    1999       1998      % Change    1999       1998     % Change
                                    ----       ----      --------    ----       ----     --------
                                                                                                 
Premium Income                    $ 139.4     $114.3        22.0%  $  389.6    $311.2       25.2%
Net Investment Income               110.6      119.3        (7.3)     338.6     422.1      (19.8)
Other Income                         22.9       22.4         2.2       71.3      78.1       (8.7)
                                  -------     ------               --------    ------            
Total Revenue                       272.9      256.0         6.6      799.5     811.4       (1.5)
Benefits and Expenses               449.1      231.5        94.0    1,029.1     730.2       40.9 
                                  -------     ------               --------    ------            
Income (Loss) Before Federal                                                                     
   Income Taxes and Net Realized                                                                 
   Investment Gains               $(176.2)    $ 24.5         N.M.  $ (229.6)   $ 81.2       N.M. 
                                  =======     ======               ========    ======            

The Other operating segment includes results from reinsurance pools and         
management and other products no longer actively marketed, including corporate- 
owned life insurance, group pension, and individual annuities. It is expected   
that revenue and income in this segment will decline over time as these business
lines wind down. Management expects to reinvest the capital supporting these    
lines of business in the future growth of the Employee Benefits, Individual, and
Voluntary Benefits segments. The closed blocks of business have been segregated 
for reporting and monitoring purposes. During the third quarter of 1999, the    
Company recognized a charge of $193.3 million in the Other segment related to   
its decision to exit the reinsurance operations.                                

Reinsurance Pools and Management                                                

Premium income increased $28.2 million and $87.2 million for the three and nine 
months, respectively, to $114.1 million and $317.6 million due primarily to     
increased participation in the Lloyd's of London syndicates. The reinsurance    
pools and management reported a loss of $191.6 million in the third quarter of  
1999 compared to income of $0.8 million in the third quarter of 1998. The       
reinsurance pools and management reported a loss of $278.3 million in the first 
nine months of 1999 compared to income of $10.6 million in 1998. Year-to-date   
income in the reinsurance pools and management line decreased $267.4 million due
to the first quarter charge of $74.1 million and the third quarter charge of    
$193.3 million.                                                                 

During the first quarter of 1999, the Company began a comprehensive strategic   
review of its reinsurance operations to determine the appropriateness of their  
fit within the context of the merged entity. These operations include the       
reinsurance management operations of Duncanson & Holt, Inc. (D&H) and the risk  
assumption, which includes reinsurance pool participation; direct reinsurance   
which includes accident and health (A&H), long-term care (LTC), and long-term   
disability coverages; and Lloyd's of London (Lloyd's) syndicate participations. 
In April 1999, the strategic review was completed, and the Company concluded    
that these operations were not solidly aligned with the Company's strength in   
the disability insurance market. The Company decided to exit these operations   
through a combination of a sale, reinsurance, and/or placing certain components 
in run-off. The Company recorded a first quarter charge of $74.1 million in the 
Other segment.                                                                  

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During the third quarter of 1999, the Company continued its efforts to sell its 
reinsurance management operations. No potential buyers expressed interest in    
acquiring the entire domestic and international reinsurance management          
operations. However, in early October, the Company entered into an agreement to 
sell the reinsurance management operations of its A&H and LTC reinsurance       
facilities and to reinsure the Company's risk participation in these facilities.

Because of the limited interest expressed by potential buyers in the reinsurance
management operations, the Company reevaluated its strategy to exit the         
reinsurance operations. The Company decided to continue to operate its North    
America long-term disability reinsurance operation and to refocus it with the   
objective of improving profitability. With respect to Lloyd's, the Company      
decided to implement a strategy which limits participation in year 2000         
underwriting risks, ceases participation in Lloyd's underwriting risks after    
year 2000, and manages the run-off of its risk participation in open years of   
account of Lloyd's reinsurance syndicates. The Company has also decided to      
discontinue its accident reinsurance business in London beginning in year 2000. 
During the third quarter, the Company recognized a charge of $193.3 million in  
the Other segment and $28.7 million in the Corporate segment related to the     
write-off of goodwill. See Note 4 of the "Notes to Condensed Consolidated       
Financial Statements" for further discussion of the 1999 charges related to the 
reinsurance businesses.                                                         

As discussed in the preceding "Accounting Policy Changes, Financial Statement   
Reclassifications, and Merger Expenses," the Company lowered the discount rate  
used to calculate certain of Unum's disability claim reserves to conform with   
Provident's process and assumptions, which decreased group long-term disability 
reinsurance second quarter and nine months 1999 income by $10.1 million.        

In the fourth quarter of 1998, the Company recorded a $2.4 million charge       
related to the revised claim resolution rates for group long-term disability    
reinsurance. If the impact of merger-related claim operations integration       
activities on claim duration had not been anticipated at December 31, 1998,     
third quarter and nine months 1999 income for the reinsurance pools and         
management line of business would have been negatively impacted by $0.6 million 
and $1.8 million, respectively. See Note 3 of the "Notes to Condensed           
Consolidated Financial Statements" for further discussion.                      

Corporate-Owned Life                                                            

Income from this line of business decreased to $7.5 million in the third quarter
of 1999 compared to $9.6 million in the same period of 1998. Income was $21.7   
million in the first nine months of 1999 versus $20.6 million in 1998. The nine 
month results reflect slightly higher premium income and wider spreads between  
interest earned and credited rates.                                             

Group Pension                                                                   

Income in the group pension line of business was $7.3 million in the third      
quarter of 1999 and $7.7 million in the third quarter of 1998. For the first    
nine months, income was $21.9 million in 1999 compared to $22.0 million in 1998.
On a year-to-date basis, the 1998 results were lower due to a $1.9 million      
charge for guaranty fund assessments. The run-off of the group pension line     
results in a decline in assets under management and, in turn, a continued       
decline in the net investment income produced by the assets.                    

Individual Annuities                                                            

In the second quarter of 1998, the Company closed the sale of Provident's in-   
force individual and tax-sheltered annuity business to affiliates of American   
General Corporation (American General). The sale was effected by reinsurance in 
the form of 100 percent coinsurance agreements. The in-force business sold      
consisted primarily of individual fixed annuities and tax-sheltered annuities.  
In addition, American General acquired a number of miscellaneous group pension  
lines of business sold in the 1970s and 1980s which were no longer actively     
marketed. The sale did not include Provident's block of guaranteed investment   
contracts or group single premium annuities, which will continue in a run-off   
mode. In consideration for the transfer of the approximately $2.4 billion of    
statutory reserves, American General paid the Company a ceding commission of    
approximately $58.0 million. The before-tax gain included in other income for   
the second quarter and nine months of 1998 was $12.2 million.                   

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Other                                                                           

Effective January 1, 1998, the Company entered into an agreement with           
Connecticut General Life Insurance Company (Connecticut General) for Connecticut
General to reinsure, on a 100 percent coinsurance basis, its in-force medical   
stop-loss insurance coverages sold to clients of CIGNA Healthcare and its       
affiliates (CIGNA). This reinsured block constitutes substantially all of the   
Company's medical stop-loss insurance business. The small portion remaining     
consists of medical stop-loss coverages sold to clients other than those of     
CIGNA. The medical stop-loss business produced revenue of $14.1 million in 1998.

Corporate Segment Operating Results                                             

The Corporate segment includes investment income on corporate assets not        
specifically allocated to a line of business, corporate interest expense,       
amortization of goodwill, and certain corporate expenses not allocated to a line
of business.                                                                    

Revenue in the Corporate segment was $39.6 million in the third quarter of 1999 
and $7.2 million in the third quarter of 1998. For the first nine months,       
revenue was $54.6 million in 1999 and $24.0 million in 1998. Included in the    
third quarter and nine months 1999 revenue is $31.5 million of interest income  
on an accrued refund of taxes from the Internal Revenue Service relating to the 
final settlement of remaining issues for the 1986 through 1992 tax years, as    
previously discussed under "Consolidated Operating Results."                    

The Corporate segment reported a loss of $75.3 million in the third quarter of  
1999 compared to a loss of $32.3 million in the third quarter of 1998. On a     
year-to-date basis, the losses were $453.2 million for 1999 and $93.3 million   
for 1998. Interest and debt expense increased to $34.3 million and $100.8       
million for the third quarter and nine months of 1999 compared to $27.7 million 
and $82.7 million for the comparable periods of 1998 due to a higher average    
debt balance. In addition, the Company recorded write-downs of goodwill of $27.0
million, $2.0 million, and $28.7 million in the 1999 first, second, and third   
quarters, respectively, related to its reinsurance operations. See previous     
discussions under "Consolidated Operating Results," "Other Segment Operating    
Results," and Note 4 of the "Notes to Condensed Consolidated Financial          
Statements."                                                                    

As discussed in the preceding "Accounting Policy Changes, Financial Statement   
Reclassifications, and Merger Expenses," during the second and third quarters of
1999, the Company recognized $310.6 million of before-tax expenses related to   
the merger and the early retirement offer to employees. The breakdown of these  
expenses by quarter is as follows:                                              

                                                        [Enlarge/Download Table]

                                                                              1999           
                                                                    -------------------------
                                                                       2nd           3rd     
                                                                    (in millions of dollars) 
                                                                    -------------------------
                                                                                             
Employee related expense                                             $  45.2         $ 32.5  
Exit activities related to duplicate facilities/asset abandonments      57.4           10.0  
Investment banking, legal, and accounting fees                          39.6              -  
                                                                     -------         ------  
Subtotal                                                               142.2           42.5  
Expense related to the early retirement offer to employees             125.9              -  
                                                                     -------         ------  
Subtotal                                                               268.1           42.5  
Income tax benefit                                                      74.3           14.9  
                                                                     -------         ------  
Total                                                                $ 193.8         $ 27.6  
                                                                     =======         ======  

Employee related expense consists of employee severance costs, change in control
costs, restricted stock costs which fully vested upon stockholder adoption of   
the merger agreement or upon completion of the merger, and outplacement costs to
assist employees who have been involuntarily terminated. Severance benefits and 
change in control costs are $60.2 million, and costs associated with the vesting
of restricted stock are $17.5 million. The Company now estimates that in total  
approximately 1,615 positions will be eliminated over a twelve month period     
beginning June 30, 1999, 215 positions higher than the original estimate of     
1,400. Approximately 1,000 of these positions will be eliminated through the    
early retirement offer. At September 30, 1999, approximately 500 and 160        
positions have been eliminated as a result of the early retirement offer and    
involuntary terminations, respectively, and $13.3 million of the estimated $60.2
million has been paid for severance benefits and change in control costs.       

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Exit activities related to duplicate facilities/asset abandonments consist of   
closing of duplicate offices and write-off of redundant computer hardware and   
software. The Company currently expects to close approximately 90 duplicate     
field offices over a period of one year after June 30, 1999, the completion date
of the merger. The cost associated with these office closures is approximately  
$25.6 million, which represents the cost of future minimum lease payments less  
any estimated amounts recovered under subleases. As of September 30, 1999, $2.3 
million of this estimated liability has been paid. Also, certain physical       
assets, primarily computer equipment, redundant systems, and systems incapable  
of supporting the combined entity, have been abandoned as a result of the       
merger. This abandonment resulted in a write-down of the assets' book values by 
approximately $31.8 million during the second quarter of 1999. During the third 
quarter, hardware and software abandonments increased $10.0 million due to the  
identification of additional software redundancies. Approximately $27.7 million 
of assets were abandoned and removed from service on the date the merger was    
consummated. Of the remaining $14.1 million of identified abandonments, $10.5   
million were removed from service during the third quarter and $3.6 million are 
expected to be abandoned during the fourth quarter of 1999.                     

These expenses are $77.6 million higher on a before-tax basis than the estimated
expenses disclosed in the Joint Proxy Statement/Prospectus of Unum and Provident
dated June 2, 1999. This increase results from approximately 350 more employees 
than estimated accepting the early retirement offer, approximately 215          
additional positions which will be eliminated during the twelve month post-     
merger period, additional change in control costs of $27.4 million recognized in
the third quarter, and the identification of additional software redundancies.  

In addition to the expenses described above, in the three and nine months ended 
September 30, 1999, the Company expensed $4.7 million and $24.7 million,        
respectively, of other incremental costs associated with the merger, $4.7       
million and $21.8 million of which are included in the Corporate segment. These 
expenses consist primarily of compensation, training, integration, and licensing
costs.                                                                          

The financial statements do not reflect any benefit expected from revenue       
enhancements or derived from potential cost savings related to the merger.      
Although management anticipates revenue enhancements and costs savings will     
result from the merger, there can be no assurance that these items will be      
achieved. Economies of scale, the elimination of duplicative expenditures, and  
the consistent use of the best practices of Provident and Unum are expected to  
enable the Company to achieve annual cost savings of approximately $130 million 
in 2000. In the third quarter of 1999 the Company realized expense savings of   
approximately $20.0 million compared to the second quarter of 1999.             

Investments                                                                     

Investment activities are an integral part of the Company's business, and       
profitability is significantly affected by investment results. Invested assets  
are segmented into portfolios, which support the various product lines.         
Generally, the investment strategy for the portfolios is to match the effective 
asset durations with related expected liability durations and to maximize       
investment returns, subject to constraints of quality, liquidity,               
diversification, and regulatory considerations. During the quarter ending       
September 30, 1999, the Company actively pursued its strategy of extending the  
duration of its investments and shifting the mix of assets for approximately    
$2.1 billion of its investments. This program was approximately two-thirds      
complete as of September 30, 1999. Management believes this strategy will reduce
its vulnerability to interest rate risk in the future and anticipates that, as a
result, investment income may increase on an annualized basis approximately $30 
million.                                                                        

Fixed Maturity Securities                                                       

The Company's investment in mortgage-backed securities was approximately $2.3   
billion on an amortized cost basis at September 30, 1999, and $2.1 billion at   
December 31, 1998. At September 30, 1999, the mortgage-backed securities had an 
average life of 12.2 years and effective duration of 10.4 years. The mortgage-  
backed securities are valued on a monthly basis using valuations supplied by the
brokerage firms that are dealers in these securities. The primary risk involved 
in investing in mortgage-backed securities is the uncertainty of the timing of  
cash flows from the underlying loans due to prepayment of principal. The Company
uses models which incorporate economic variables and possible future interest   
rate scenarios to predict future prepayment rates. The Company has not          

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invested in mortgage-backed derivatives, such as interest-only, principal-only  
or residuals, where market values can be highly volatile relative to changes in 
interest rates.                                                                 

Below-investment-grade bonds are inherently more risky than investment-grade    
bonds since the risk of default by the issuer, by definition and as exhibited by
bond rating, is higher. Also, the secondary market for certain below-investment-
grade issues can be highly illiquid. Management does not anticipate any         
liquidity problem caused by the investments in below-investment-grade           
securities, nor does it expect these investments to adversely affect its ability
to hold its other investments to maturity.                                      

The Company's exposure to below-investment-grade fixed maturity securities at   
September 30, 1999, was $1,896.3 million, representing 7.2 percent of invested  
assets, below the Company's internal limit of 10.0 percent of invested assets   
for this type of investment. The Company's exposure to below-investment-grade   
fixed maturities totaled $1,452.6 million at December 31, 1998, representing 5.3
percent of invested assets.                                                     

Mortgage Loans and Real Estate                                                  

The Company's mortgage loan portfolio was $1,288.0 million and $1,321.2 million 
at September 30, 1999, and December 31, 1998, respectively. The Company uses a  
comprehensive rating system to evaluate the investment and credit risk of each  
mortgage loan and to identify specific properties for inspection and            
reevaluation. The Company establishes allowances for probable mortgage loan     
losses based on a review of individual loans and the overall loan portfolio,    
considering the value of the underlying collateral.                             

The mortgage loan portfolio is well diversified geographically and among        
property types. The incidence of new problem mortgage loans and foreclosure     
activity has remained low in 1999 and 1998, reflecting improvements in overall  
economic activity and improving real estate markets in the geographic areas     
where the Company has mortgage loans. Management expects the level of           
delinquencies and problem loans to remain low in the future.                    

At September 30, 1999, and December 31, 1998, impaired loans totaled $18.2      
million and $20.7 million, respectively. Included in the impaired loans at      
September 30 were $6.7 million of loans which had a related, specific allowance 
for probable losses of $2.4 million and $11.5 million of loans which had no     
related, specific allowance for probable losses. Impaired mortgage loans are not
expected to have a material impact on the Company's liquidity, financial        
position, or results of operations.                                             

Restructured mortgage loans totaled $9.2 million at September 30, 1999, compared
to $14.5 million at December 31, 1998, and represent loans that have been       
refinanced with terms more favorable to the borrower. Interest lost on          
restructured loans was immaterial for the nine and twelve month periods ended   
September 30, 1999, and December 31, 1998.                                      

Real estate was $288.4 million and $309.8 million at September 30, 1999, and    
December 31, 1998. Investment real estate is carried at cost less accumulated   
depreciation. Real estate acquired through foreclosure is valued at fair value  
at the date of foreclosure and may be classified as investment real estate if it
meets the Company's investment criteria. If investment real estate is determined
to be permanently impaired, the carrying amount of the asset is reduced to fair 
value. Occasionally, investment real estate is reclassified to real estate held 
for sale when it no longer meets the Company's investment criteria. Real estate 
held for sale, which is valued net of a valuation allowance that reduces the    
carrying value to the lower of cost or fair value less estimated cost to sell,  
amounted to $145.9 million at September 30, 1999, and $15.6 million at December 
31, 1998. The Company sold four properties held for sale during the quarter     
ending September 30, 1999 and reasonably expects to sell the remaining held for 
sale properties during the fourth quarter of 1999 or in 2000. These sales are   
not expected to have a material impact on the Company's liquidity, financial    
position, or results of operations.                                             

Allowances for probable losses on mortgage loans and real estate held for sale  
are established based on a review of specific assets as well as on an overall   
portfolio basis, considering the value of the underlying assets and collateral. 
If a decline in value is considered to be other than temporary or if the asset  
is deemed permanently impaired, the investment is reduced to estimated net      
realizable value, and the reduction is recorded as a realized investment loss.  
The allowance for probable losses on mortgage loans and real estate was $32.9   
million and $39.9 million, respectively, at September 30, 1999. Management      
monitors the risk associated with the invested asset portfolio and regularly    
reviews and adjusts the allowance for probable losses.                          

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Other                                                                           

The Company's exposure to non-current investments totaled $21.6 million at      
September 30, 1999, or 0.1 percent of invested assets. These non-current        
investments are foreclosed real estate held for sale and fixed income securities
and mortgage loans that became more than thirty days past due in principal and  
interest payments.                                                              

The Company utilizes forward interest rate swaps, forward treasury purchases,   
and options on forward interest rate swaps or forward treasuries to manage      
duration and increase yield on cash flows expected from current holdings. All   
transactions are hedging in nature and not speculative. Almost all transactions 
are associated with the individual and group disability product portfolio. All  
other product portfolios are periodically reviewed to determine if hedging      
strategies would be appropriate for risk management purposes.                   

Liquidity and Capital Resources                                                 

The Company's liquidity requirements are met primarily by cash flows provided   
from operations, principally in its insurance subsidiaries. Premium and         
investment income, as well as maturities and sales of invested assets, provide  
the primary sources of cash. Cash is applied to the payment of policy benefits, 
costs of acquiring new business (principally commissions) and operating expenses
as well as purchases of new investments. The Company has established an         
investment strategy that management believes will provide for adequate cash     
flows from operations. Cash flows from operations were $1,153.2 million for the 
nine months ended September 30, 1999, as compared to $1,212.2 million in the    
comparable period in 1998.                                                      

The Company believes the cash flows from its operations will be sufficient to   
meet its operating and financial cash flow requirements excluding the strain    
placed on capital as a result of the charges recorded in connection with the    
merger and the early retirement program. As a result of the effect of the second
and third quarter reserve increases, the merger related expenses, and the cost  
of the early retirement program on capital, the Company will need to raise      
approximately $500 million during the fourth quarter of 1999. The Company       
expects to raise the capital for its insurance subsidiaries through the debt    
markets. In early November, the Company increased its bank facility and         
commercial paper program by $500 million and is currently exploring alternative 
financing sources to further increase its financial flexibility. The Company    
intends to file a shelf registration during the first quarter of 2000 in order  
to provide funding flexibility through the issuance of debt or equity           
securities. The funding will be used to refinance, on a long-term basis, the    
capital need referenced above and to fund internal expansion, acquisitions,     
investment opportunities, and the retirement of the Company's debt and equity.  

At September 30, 1999, the Company had short-term and long-term debt totaling   
$531.0 million and $1,216.3 million, respectively. At September 30, 1999,       
approximately $193.8 million was available for additional financing under the   
existing revolving credit facility.                                             

In the fourth quarter of 1997, the Company borrowed $168.3 million through a    
private placement. Under the terms of the agreement, the investor exercised the 
right to redeem the private placement at par value during the second quarter of 
1999. The Company refinanced this debt by issuing $200.0 million of variable    
rate medium-term notes in June of 1999, due in June of 2000. The notes had an   
interest rate of 5.135% at September 30, 1999.                                  

In 1998, the Company rescinded its stock repurchase program as a result of the  
pending merger. As a result, no shares of common stock were repurchased during  
the first nine months of 1999. During the first nine months of 1998, the Company
acquired approximately 1.4 million shares of its common stock in the open market
at an aggregate cost of $72.7 million. At the completion of the merger, Unum    
common stock held in treasury was retired.                                      

Ratings                                                                         

Standard & Poor's Corporation (S&P), Moody's Investors Service (Moody's), and   
A.M. Best Company (AM Best) are among the third parties that provide the Company
assessments of its overall financial position. Ratings from these agencies for  
financial strength are available for the individual U.S. domiciled insurance    
company subsidiaries. Financial strength ratings are based primarily on U.S.    
statutory financial information for the individual U.S. domiciled insurance     
companies. Debt ratings for the Company are based primarily on consolidated     
financial information prepared using generally accepted accounting principles.  
Both financial strength ratings and debt ratings incorporate qualitative        
analyses by rating agencies on an ongoing basis.                                

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The rating agencies reviewed and, in some instances, revised their ratings to   
reflect the completion of the merger. The table below reflects the most recent  
debt ratings for the Company and the financial strength ratings for the U.S.    
domiciled insurance company subsidiaries. On October 12, 1999, Moody's placed   
the ratings on review for possible downgrade. On November 3, S&P placed its     
ratings on CreditWatch with negative implications. On November 4, AM Best placed
a negative rating outlook on its current ratings. Duff & Phelps has removed all 
ratings of the Company from its previous Rating Watch-Up status and reaffirmed  
the ratings at their current levels. Should downgrades occur, the Company does  
not expect that sales will be materially impacted.                              

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------------------
                                              S&P                  Moody's             Duff & Phelps         AM Best    
                                              ---                  -------             -------------         -------    
------------------------------------------------------------------------------------------------------------------------
                                                                                                                        
UnumProvident Corporation                                                                                               
------------------------------------------------------------------------------------------------------------------------
    Senior Debt                            A (Strong)          A2 (Upper Medium              A-             Not Rated   
                                                                    Grade)           (Investment Grade)                 
------------------------------------------------------------------------------------------------------------------------
    Junior Subordinated Debt              BBB+ (Good)          A3 (Upper Medium             BBB+            Not Rated   
                                                                    Grade)           (Investment Grade)                 
------------------------------------------------------------------------------------------------------------------------
    Commercial Paper                      A-1 (Strong)         Prime-1 (Superior         Not Rated          Not Rated   
                                                                   Ability)                                             
------------------------------------------------------------------------------------------------------------------------
U.S. Insurance Subsidiaries                                                                                             
------------------------------------------------------------------------------------------------------------------------
    Provident Life & Accident           AA- (Very Strong)       Aa3 (Excellent)         AA-(Secure/       A+ (Superior) 
                                                                                     Investment Grade)                  
------------------------------------------------------------------------------------------------------------------------
    Provident Life & Casualty               Not Rated              Not Rated             Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------
    Provident National Assurance            Not Rated           Aa3 (Excellent)         AA-(Secure/       A+ (Superior) 
                                                                                     Investment Grade)                  
------------------------------------------------------------------------------------------------------------------------
    Unum Life of America                AA- (Very Strong)       Aa3 (Excellent)          Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------
    First Unum Life                     AA- (Very Strong)       Aa3 (Excellent)          Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------
    Colonial Life & Accident            AA- (Very Strong)       Aa3 (Excellent)          Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------
    Paul Revere Life                    AA- (Very Strong)       Aa3 (Excellent)         AA-(Secure/       A+ (Superior) 
                                                                                     Investment Grade)                  
------------------------------------------------------------------------------------------------------------------------
    Paul Revere Variable                AA- (Very Strong)       Aa3 (Excellent)          Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------
    Paul Revere Protective              AA- (Very Strong)       Aa3 (Excellent)          Not Rated        A+ (Superior) 
------------------------------------------------------------------------------------------------------------------------

Year 2000 Date Conversion                                                       

As are many other businesses in this country and abroad, the Company is affected
in numerous ways, both by its own computer information systems and by third     
parties with which it has business relationships, in the processing of date data
relating to the year 2000 and beyond. Failure to adequately address and         
substantially resolve year 2000 issues could, and as to mission critical systems
in certain circumstances would, have a material adverse effect on the Company's 
business, results of operations, or financial condition. While there can be no  
assurance as to its success, the Company has a project underway which is        
intended and designed to avoid and/or mitigate any such material adverse effect 
from year 2000 issues.                                                          

The Company's program for the year 2000 is organized into a number of phases for
rectifying its internal computer systems, including assessment, code            
remediation, testing and deployment. As of September 30, 1999, the Company had  
completed the assessment and code remediation phases for all of its critical and
non-critical business systems with over 95 percent completing the compliance    
testing phase. Deployment is substantially completed for most critical and non- 
critical systems. As previously discussed in Provident's and Unum's Annual      
Reports on Form 10-K/A, management continues to expect completion of all phases 
by the end of 1999.                                                             

There are numerous instances in which third parties having a relationship with  
the Company have year 2000 issues to address and resolve. These include, among  
others, vendors of hardware and software, holders of group insurance policies,  
issuers of investment securities, financial institutions, governmental agencies,
and suppliers. An aspect of the Company's year 2000 program has been to assess  
its critical external dependencies and, as part of its due diligence efforts, to
contact certain third parties seeking written assurance as to their expectancy  
to be year 2000 compliant. The nature of the Company's follow up to its written 
requests to third parties depends upon its assessment of the response and of the
materiality of the effect of non-compliance by the third party on the Company.  
In some instances the Company is performing site visits to certain third party  
businesses and testing their systems for compliance. In addition, the Company is
testing external electronic interfaces with certain critical business partners. 

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To date, no significant issues from critical external dependencies have been    
identified; however, there can be no guarantee that the computer systems of     
these third parties will be year 2000 compliant. The Company has finalized and  
implemented contingency plans to alleviate the potential business impact of     
third parties not being year 2000 compliant.                                    

The effort of internal business and systems personnel devoted to the project has
been considerable. Temporary personnel and subject matter consultants have been 
utilized, when appropriate, to assist full time personnel in some phases or     
aspects of the project. The Company has utilized compensation programs to retain
project personnel in order to keep the project on schedule. While the project   
has required systems management to more closely scrutinize the prioritization of
information technology projects, it is not believed that any deferral of        
information technology projects has had a material impact on the Company. The   
Company has also had occasional contact with certain peer companies comparing   
approaches to year 2000 issues.                                                 

Given the range of possibilities that may occur in connection with non-         
compliance with year 2000 that could affect the Company, particularly as a      
consequence of third parties, the Company is unable to provide an estimate of   
the impact of such non-compliance on its business, results of operations, or    
financial condition. With regard to non-compliance resulting from the Company's 
systems, which the Company believes to be less likely than that resulting from  
third parties, the Company would devote its financial and personnel resources to
remediate the problem as soon as possible. With regard to non-compliance        
resulting from third party failure, the Company is finalizing appropriate       
contingency arrangements that will minimize such impact; however, given the     
range of possibilities, no assurance can be given that the Company's efforts    
will be successful. In addition, the Company is developing detailed plans for   
activities for managing the year-end rollover period. This includes plans for   
appropriate backup of data, year-end processing schedules, limiting             
installations of new code, and the availability of special response teams tasked
with identifying and resolving any issues which might occur during the rollover 
period. These teams include both information technology and business            
professionals.                                                                  

The foregoing discussion of the year 2000 issue contains forward-looking        
statements relating to such matters as financial performance and the business of
the Company. The Private Securities Litigation Reform Act of 1995 provides a    
safe harbor for forward-looking statements. In order for the Company to comply  
with the terms of the safe harbor, the Company notes that a variety of factors  
could cause the Company's actual results and experience relating to compliance  
with year 2000 to differ materially from the anticipated results or other       
expectations expressed in the Company's forward-looking statements concerning   
year 2000 issues, which involve certain risks and uncertainties. These factors  
include (i) the unanticipated material impact of a system fault of the Company  
relating to year 2000, (ii) the failure to successfully remediate, in spite of  
testing, material systems of the Company, (iii) the time it may take to         
successfully remediate a failure once it occurs, as well as the resulting costs 
and loss of revenues, and (iv) the failure of third parties to properly         
remediate material year 2000 problems.                                          

Since inception of the project, the Company has expensed approximately $30.3    
million through September 30, 1999, in connection with incremental cost of the  
year 2000 project and estimates an additional $2.1 million to complete the      
project. The costs of the project and the date on which the Company plans to    
complete year 2000 modifications are based on management's best estimates,      
derived using numerous assumptions about future events. However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
materially from those plans. See Part II, Item 7 of Provident's and Unum's      
Annual Reports on Form 10-K/A for further discussion of the year 2000 issues.   

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK               

The Company is subject to various market risk exposures including interest rate 
risk and foreign exchange rate risk. The Company employs various derivative     
programs to manage these material market risks. The operations of the Company   
are subject to risk resulting from interest rate fluctuations, primarily long-  
term U.S. interest rates. Changes in interest rates and individuals' behavior   
affect the amount and timing of asset and liability cash flows. Management      
continually models and tests asset and liability portfolios to improve interest 
rate risk management and net yields. Testing the asset and liability portfolios 
under various interest rate and economic scenarios allows management to choose  
the most appropriate investment strategy within acceptable risk tolerances. This
analysis is the precursor to the Company's activities in derivative financial   
instruments. The Company uses interest rate swaps, interest rate forward        
contracts, exchange-traded interest rate futures contracts, and options to hedge
interest rate risks and to match asset durations and cash flows with            
corresponding liabilities.                                                      

The Company is also subject to foreign exchange risk arising from its foreign   
operations and certain foreign dollar denominated investment securities. Foreign
operations represent 6.7 percent and 6.5 percent of total assets at September   
30, 1999 and December 31, 1998, respectively, and 9.2 percent and 8.6 percent of
total revenue for the nine month periods ended September 30, 1999 and 1998,     
respectively. At September 30, 1999, there were no outstanding derivatives      
hedging this foreign currency risk.                                             

For further discussion of the qualitative and quantitative aspects of market    
risk, including derivative financial instrument activity, see Part II, Items 7, 
7A, and 8 of Provident's and Unum's Annual Reports on Form 10-K/A, in each case 
for the fiscal year ended December 31, 1998, and Item 7 of the Company's Form 8-
K filed September 2, 1999 for the fiscal year ended December 31, 1998. During   
the first nine months of 1999, there was no substantive change to the Company's 
market risk.                                                                    

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REVIEW BY INDEPENDENT AUDITORS  

The condensed consolidated financial statements at September 30, 1999, and for  
the three month and nine month periods then ended, have been reviewed, prior to 
filing, by Ernst & Young LLP, the Company's independent auditors, and their     
report is included herein.                                                      

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PART II - OTHER INFORMATION 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

      (a)    Exhibit 10.1    Form of Change in Control Severance Agreement

     Exhibit 15      Letter re unaudited interim financial
information     

           Exhibit 27      Financial data schedules (for SEC use only)

(b)    Reports on Form 8-K                                    

               Form 8-K filed on August 5, 1999, reporting second quarter 1999
financial results.                              

         Form 8-K filed September 2, 1999, in which the historical
                financial results presented therein gave effect to the merger of
         Unum Corporation and Provident Companies, Inc., which was
           completed June 30, 1999, as if it had been completed at the
beginning of the earliest period presented.     

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SIGNATURES  

Pursuant to the requirements 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.                                          

                         UnumProvident Corporation
            (Registrant)

Date: November 12, 1999                                                         
                     /s/J. Harold Chandler
                                        ----------------------------------------
                  J. Harold Chandler
                                        Chairman, President, and Chief Executive
       Officer

Date: November 12, 1999                                                         
                   /s/Thomas R. Watjen
                                        ----------------------------------------
                Thomas R. Watjen
                                     Executive Vice President, Finance and
               Risk Management

Date: November 12, 1999                                                         
                    /s/Robert E. Broatch
                                        ----------------------------------------
                 Robert E. Broatch
                               Senior Vice President and Chief
                 Financial Officer

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SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

EXHIBITS  

to  

FORM 10-Q 

UNUMPROVIDENT CORPORATION 

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INDEX OF EXHIBITS 

EXHIBIT 

Exhibit 10.1  Form of Change in Control Severance Agreement                     

Exhibit 15    Letter re unaudited interim financial information                 

Exhibit 27    Financial data schedules (for SEC use only)                       

49  

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
		1/1/01		26
		12/31/99		8		14			10-K,  5/A,  NT 11-K
		12/20/99		25
Filed on:		11/15/99
		11/12/99		27		47
		10/12/99		42
For Period End:		9/30/99		1		45
		9/2/99		8		46			8-K
		8/5/99		46					8-K,  SC 13G
		8/2/99		26		27			8-K
		6/30/99		8		46			10-Q,  8-A12B/A,  8-K,  S-8
		6/2/99		39					10-K/A,  10-Q/A,  DEFA14A,  S-4
		3/31/99		8		18			10-K,  10-Q,  10-Q/A
		1/1/99		26
		12/31/98		6		44			10-K,  10-K/A
		9/30/98		2		44			10-Q
		2/4/98		26
		1/1/98		38
		12/31/97		6					10-K
		12/4/97		21
		6/30/97		25					10-Q
		7/30/92		22
									List all Filings