<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-11917
FBL Financial Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
5400 University Avenue, West Des Moines, Iowa 50266
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(515) 225-5400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. /X/ Yes / / No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. / / Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 17,666,810 shares of Class A
Common Stock and 1,192,990 shares of Class B Common Stock as of October 30,
1996.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1996 -
$711,101; 1995 - $712,476) $ 705,975 $ 683,149
Available for sale, at market (amortized cost: 1996 -
$1,445,761; 1995 - $1,325,608) 1,458,978 1,393,060
Equity securities, at market (cost: 1996 - $85,076; 1995 -
$77,038) 120,167 83,714
Held in inventory, at estimated fair value (amortized cost:
1996 - $10,473; 1995 - $21,555) 14,273 21,913
Mortgage loans on real estate 287,516 266,623
Investment real estate, less allowances for depreciation of
$1,729 in 1996 and $1,839 in 1995 27,522 28,604
Policy loans 118,625 116,107
Other long-term investments 2,009 2,892
Short-term investments 83,055 50,061
----------------------------
Total investments 2,818,120 2,646,123
Cash and cash equivalents 4,563 -
Securities and indebtedness of related parties 56,412 74,506
Accrued investment income 32,342 32,711
Accounts and notes receivable 3,446 2,009
Amounts receivable from affiliates 8,589 2,422
Reinsurance recoverable 36,947 31,845
Deferred policy acquistion costs 159,340 135,061
Value of insurance in force acquired 19,783 14,449
Property and equipment, less allowances for depreciation of
$46,051 in 1996 and $45,417 in 1995 60,793 60,184
Current income taxes recoverable 550 14,114
Goodwill, less accumulated amortization of $2,017 in 1996
and $1,556 in 1995 9,881 10,342
Other assets 23,774 22,296
Assets held in separate accounts 67,525 44,789
----------------------------
Total assets $ 3,302,065 $ 3,090,851
----------------------------
----------------------------
</TABLE>
2
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products $ 1,456,308 $ 1,394,116
Traditional life insurance and accident and health products 673,257 651,827
Unearned revenue reserve 18,731 17,350
Other policy claims and benefits 10,539 8,149
Reserves and unearned premiums on property-casualty
policies 70,628 45,890
----------------------------
2,229,463 2,117,332
Other policyholders' funds:
Supplementary contracts without life contingencies 125,215 114,471
Advance premiums and other deposits 86,492 87,093
Accrued dividends 12,329 13,678
----------------------------
224,036 215,242
Long-term debt 24,124 12,604
Amounts payable to affiliates 11,474 10,443
Deferred income taxes 38,329 39,645
Other liabilities 97,504 81,995
Liabilities related to separate accounts 67,525 44,789
----------------------------
Total liabilities 2,692,455 2,522,050
Commitments and contingencies
Minority interest in subsidiaries 4,803 4,503
Stockholders' equity:
Preferred stock, without par value, at liquidation value -
authorized 10,000,000 shares, issued and outstanding
5,000,000 Series A shares 100,000 -
Common stock, par value $100.00 per share - authorized
100,000 shares, issued and outstanding 11,929.90 shares
in 1995 - 1,193
Class A Common Stock, without par value - authorized
88,500,000 shares, issued and outstanding 17,666,810
shares in 1996 43,773 -
Class B Common Stock, without par value - authorized
1,500,000 shares, issued and outstanding 1,192,990 shares
in 1996 7,567 -
Additional paid-in capital - 145,288
Net unrealized investment gains 29,507 37,807
Retained earnings 423,960 380,010
----------------------------
Total stockholders' equity 604,807 564,298
----------------------------
Total liabilities and stockholders' equity $ 3,302,065 $ 3,090,851
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Universal life and annuity product charges $ 10,661 $ 10,645 $ 33,118 $ 32,395
Traditional life insurance premiums 19,881 18,541 63,527 57,793
Accident and health premiums 2,556 2,474 8,153 7,575
Property-casualty premiums 12,949 5,120 21,876 14,310
Net investment income 50,706 56,297 155,342 157,158
Realized gains on investments 16,529 4,034 15,946 6,872
Other income 6,522 7,282 18,102 21,721
--------------------------------------------------------
Total revenues 119,804 104,393 316,064 297,824
Benefits and expenses:
Universal life and annuity benefits 29,534 27,748 89,565 82,237
Traditional life insurance and accident and health
benefits 15,167 10,598 41,187 37,196
Increase in traditional life and accident and health future
policy benefits 5,715 4,710 21,074 18,428
Distributions to participating policyholders 6,052 6,220 19,446 19,175
Property-casualty losses and loss adjustment expenses 12,440 4,031 19,245 10,625
Underwriting, acquisition and insurance expenses 17,787 17,322 48,966 55,969
Interest expense 200 142 573 840
Other expenses 4,464 4,181 13,024 12,468
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Total benefits and expenses 91,359 74,952 253,080 236,938
--------------------------------------------------------
28,445 29,441 62,984 60,886
Income taxes (8,692) (10,099) (20,179) (20,760)
Minority interest in earnings of subsidiaries (180) (2) (448) (280)
Equity income, net of related income taxes 913 2,078 2,593 1,680
--------------------------------------------------------
Net income 20,486 21,418 44,950 41,526
Preferred dividend (1,000) - (1,000) -
--------------------------------------------------------
Net income applicable to common stock $ 19,486 $ 21,418 $ 43,950 $ 41,526
--------------------------------------------------------
--------------------------------------------------------
Net income per common and common equivalent share
(after giving effect for 2,000-for-1 stock split):
Weighted average common shares outstanding 19,816,593 23,600,273 22,512,468 23,502,491
--------------------------------------------------------
--------------------------------------------------------
Net income per common and common
equivalent share $ 0.98 $ 0.91 $ 1.95 $ 1.77
--------------------------------------------------------
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</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------------------------
<S> <C> <C>
PREFERRED STOCK
Balance, beginning of period $ - $ -
Exchange of Class A Common Stock for preferred stock 100,000 -
--------------------------
Balance, end of period $ 100,000 $ -
--------------------------
--------------------------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $ 146,481 $ 142,199
Recapitalization, conversion of common stock (146,481) -
Issuance of 400,000 shares common stock for cash - 4,189
--------------------------
Balance, end of period $ - $ 146,388
--------------------------
--------------------------
CLASS A COMMON STOCK
Balance, beginning of period $ - $ -
Recapitalization, conversion of common stock 139,157 -
Exchange of Class A Common Stock for preferred stock (100,000) -
Adjustment resulting from capital transaction of equity investee 4,616 -
--------------------------
Balance, end of period $ 43,773 $ -
--------------------------
--------------------------
CLASS B COMMON STOCK
Balance, beginning of period $ - $ -
Recapitalization, conversion of common stock 7,324 -
Adjustment resulting from capital transaction of equity investee 243 -
--------------------------
Balance, end of period $ 7,567 $ -
--------------------------
--------------------------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance, beginning of period $ 37,807 $ (31,838)
Change in net unrealized investment gains/losses (8,300) 55,782
--------------------------
Balance, end of period $ 29,507 $ 23,944
--------------------------
--------------------------
RETAINED EARNINGS
Balance, beginning of period $ 380,010 $ 320,382
Net income 44,950 41,526
Preferred dividend (1,000) -
--------------------------
Balance, end of period $ 423,960 $ 361,908
--------------------------
--------------------------
TOTAL STOCKHOLDERS' EQUITY $ 604,807 $ 532,240
--------------------------
--------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 44,950 $ 41,526
Adjustments to reconcile net income to net cash provided
by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 76,210 71,914
Charges for mortality and administration (33,799) (33,043)
Deferral of unearned revenues 1,342 1,305
Amortization of unearned revenue reserve (661) (657)
Provision for depreciation and amortization 11,278 12,661
Net gains related to investments held in inventory (1,647) (9,868)
Realized gains on investments (15,946) (6,872)
Increase in traditional, accident and health and property-
casualty benefit accruals 45,823 20,625
Policy acquisition costs deferred (26,266) (18,223)
Amortization of deferred policy acquition costs 10,577 7,762
Provision for deferred income taxes 534 5,401
Other 13,464 (13,130)
--------------------------
Net cash provided by operating activities 125,859 79,401
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment 31,496 14,267
Fixed maturities - available for sale 199,942 179,044
Equity securities 47,785 25,579
Held in inventory 14,533 5,975
Mortgage loans on real estate 16,351 16,460
Investment real estate 5,075 4,325
Policy loans 19,828 18,897
Other long-term investments 712 3,396
Short-term investments-net - 57,685
--------------------------
335,722 325,628
Acquisition of investments:
Fixed maturities - held for investment (53,667) (140,378)
Fixed maturities - available for sale (322,260) (240,680)
Equity securities (25,186) (20,746)
Held in inventory (5,246) (9,301)
Mortgage loans on real estate (36,861) (12,369)
Investment real estate (3,932) (6,281)
Policy loans (22,346) (20,890)
Other long-term investments (3) -
Short-term investments-net (32,994) -
--------------------------
(502,495) (450,645)
</TABLE>
6
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------------------------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Proceeds from disposal, repayments of advances and other
distributions from entities accounted for by the equity
method 20,156 24,597
Investments in and advances to entities accounted for by the
equity method (8,208) (16,797)
Other (7,168) (3,425)
--------------------------
Net cash used in investing activities (161,993) (120,642)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to
policyholder account balances 170,985 155,727
Return of policyholder account balances on interest
sensitive products (140,460) (112,921)
Proceeds from short-term borrowings - 8
Repayment of short-term borrowings - (6,396)
Proceeds from long-term debt 14,000 -
Repayments of long-term debt (2,480) (5,057)
Distributions to minority interests (348) (272)
Issuance of comon stock for cash - 4,189
Preferred dividend (1,000) -
--------------------------
Net cash provided by financing activities 40,697 35,278
--------------------------
Increase (decrease) in cash and cash equivalents 4,563 (5,963)
Cash and cash equivalents at beginning of period - 5,963
--------------------------
Cash and cash equivalents at end of period $ 4,563 $ -
--------------------------
--------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 439 $ 921
Income taxes 7,521 15,782
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes 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- and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the consolidated financial statements and notes thereto for the year ended
December 31, 1995 included in the Company's initial Registration Statement on
Form S-1.
2. RECAPITALIZATION AND PREFERRED STOCK EXCHANGE
On March 12, 1996, the Company's stockholders approved a change to the Company's
capital structure and a related revision to the Company's Articles of
Incorporation (the recapitalization). The restated Articles of Incorporation
authorize the Company to issue 88,500,000 shares of Class A Common Stock,
without par value; 1,500,000 shares of Class B Common Stock, without par value,
and 10,000,000 shares of Preferred Stock. Pursuant to the recapitalization,
each outstanding share of common stock prior to recapitalization was converted
on a pro rata basis to 1,900 shares of Class A Common Stock and 100 shares of
Class B Common Stock.
On April 29, 1996, the Company designated 5,000,000 shares of its preferred
stock as Series A Preferred Stock and on July 18, 1996, such shares were
exchanged for 5,000,000 shares of Class A Common Stock. Each share of Series A
Preferred Stock has a liquidation preference of $20 and voting rights similar to
that of Class A Common Stock. The Series A Preferred Stock pays cumulative
annual cash dividends of $1 per share, payable quarterly, and is redeemable by
the Company, at the option of the Company, at $20 per share plus unpaid
dividends if the stock ceases to be beneficially owned by a Farm Bureau
organization. Dividends paid on preferred stock during the three month period
ended September 30, 1996 represent amounts accrued during the period from
July 18, 1996 through September 30, 1996.
Holders of the Class A Common Stock and Series A Preferred Stock, together as a
group, and Class B Common Stock vote as separate classes on all issues. Only
holders of the Class A Common Stock and Series A Preferred Stock vote for the
election of Class A Directors (three to five) and only holders of the Class B
Common Stock vote for the election of Class B Directors (ten to twenty). Voting
for the Directors is noncumulative. In addition, various ownership aspects of
the Company's Class B Common Stock are governed by a Class B Shareholder
Agreement which results in the Iowa Farm Bureau Federation maintaining control
of the Company. Holders of Class A Common Stock and Class B Common Stock are
entitled to share ratably on a share-for-share basis with respect to common
stock dividends.
8
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. EARNINGS PER SHARE
Net income per common and common equivalent share is based on the weighted
average number of common and common equivalent shares (stock options)
outstanding during the period after restatement to give retroactive effect to
the stock split resulting from the recapitalization. There is no material
difference between primary and fully diluted per share amounts. Income
available for common stockholders is net of dividends on preferred stock. Net
income per common and common equivalent share for the three- and nine-month
periods ended September 30, 1996 would have been $1.02 and $2.18, respectively,
had the preferred stock exchange been effective January 1, 1996 and preferred
dividends accrued since that date.
4. INVESTMENT OPERATIONS
Fixed maturity securities (bonds and redeemable preferred stocks) that the
Company has the positive intent and ability to hold to maturity are designated
as "held for investment". Held for investment securities are reported at cost
adjusted for amortization of premiums and discounts. Changes in the market
value of these securities, except for declines that are other than temporary,
are not reflected in the Company's financial statements. Fixed maturity
securities which may be sold are designated as "available for sale". Available
for sale securities are reported at market value and unrealized gains and losses
on these securities are included directly in stockholders' equity, net of
related adjustments to deferred policy acquisition costs, value of insurance in
force acquired, unearned revenue reserve and deferred income taxes. Equity
securities (common and non-redeemable preferred stocks) are reported at market.
The change in unrealized appreciation and depreciation of marketable equity
securities (net of related deferred income taxes) is included directly in
stockholders' equity.
Net unrealized investment gains as reported were comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------------------
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity
securities available for sale $ 48,308 $ 74,128
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (4,110) (12,700)
Value of insurance in force acquired 712 (4,451)
Unearned revenue reserve 489 1,189
Provision for deferred income taxes (15,892) (20,359)
----------------------------
Net unrealized investment gains $ 29,507 $ 37,807
----------------------------
----------------------------
</TABLE>
In February 1996, an equity investee of the Company completed an initial public
offering which resulted in an increase of $4,859, net of $2,617 in taxes, in the
Company's share of the investee's stockholders' equity. This increase was
credited directly to common stock, allocated proportionately among Class A
Common Stock and Class B Common
9
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. INVESTMENT OPERATIONS (CONTINUED)
Stock based on shares outstanding. As a result of the public offering, the
Company's voting stock interest in the investee declined to an amount less than
20%. Accordingly, the Company discontinued the use of the equity method of
accounting for this investment and, at September 30, 1996, has classified the
investment as equity securities (carrying value $45,953) in the consolidated
balance sheet. At December 31, 1995, the investment had a carrying value of
$4,891 and was classified as securities and indebtedness of related parties in
the balance sheet. During the three months ended September 30, 1996, the
Company sold approximately 43% of its holding in this investment and realized a
gain of $17,002.
5. PROPERTY-CASUALTY REINSURANCE POOL PARTICIPATION
Property-casualty business written by Utah Farm Bureau Insurance Company (Utah
Insurance), a subsidiary of the Company, is pooled with business written by
several property-casualty affiliates. Through December 31, 1995, Utah
Insurance's participation in the reinsurance pool was 8%. On June 30, 1996,
Utah Insurance's share of the pool was increased to 20%, retroactive to
January 1, 1996. In accordance with retrospective accounting for reinsurance
assumed, the property-casualty operating results for the first six months of
1996 attributable to the increase in the reinsurance pool percentage ($779 loss)
has been deferred and is being amortized over the premium paying period of the
underlying policies (generally 6 to 12 months). As a result of the increase in
the reinsurance pool participation percentage, the Company recorded additional
investments ($13,475), deferred policy acquisition costs ($1,618), other assets
($1,381), reserves and unearned premiums on property-casualty policies ($16,845)
and other liabilities ($408) . At September 30, 1996, the deferred loss totaled
$351.
6. STOCK COMPENSATION PLAN
The Company has a 1996 Class A Common Stock Compensation Plan (the Plan) under
which incentive stock options, nonqualified stock options, bonus stock,
restricted stock and stock appreciation rights may be granted to directors,
officers and employees. On July 18, 1996, the Company granted 600,445 incentive
stock options and 197,363 nonqualified stock options with an exercise price
equal to market value of the Class A Common Stock on the date of grant ($17.50
per share). Option shares granted to directors are fully vested upon grant and
option shares granted to officers and employees generally vest over a five year
period contingent upon continued employment with the Company. At September 30,
1996, the Company has 952,192 shares of Class A Common Stock available for grant
as additional awards under the Plan. No options were exercised during the three
month period ended September 30, 1996.
7. CREDIT ARRANGEMENTS
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $48,229 from the FHLB as of September 30, 1996. At
September 30, 1996, the Company had no outstanding borrowings under this credit
arrangement.
10
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. CREDIT ARRANGEMENTS (CONTINUED)
On September 3, 1996, the Company borrowed $14,000 from a bank under a variable
rate (5.73% at September 30, 1996) note due August 20, 1999. Proceeds from the
borrowing, which is secured by rentals to be received from operating leases with
certain of the Company's subsidiaries and affiliates, have been used to support
the increase in Utah Insurance's reinsurance pool participation percentage. An
additional borrowing of up to $10,500 is available under the secured note
agreement.
8. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At September 30, 1996, management is not
aware of any claims for which a material loss is reasonably possible.
The Company seeks to limit its exposure to loss on any single insured or event
and to recover a portion of benefits paid by ceding reinsurance to other
insurance enterprises. Reinsurance contracts do not relieve the Company of its
obligations to its policyholders. To the extent that reinsuring companies are
later unable to meet obligations under reinsurance agreements, the Company's
insurance subsidiaries would be liable for these obligations, and payment of
these obligations could result in losses to the Company. To limit the
possibility of such losses, the Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk. No allowance for
uncollectible amounts has been established against the Company's asset for
reinsurance recoverable since none of the receivables are deemed to be
uncollectible.
In connection with an investment in a limited real estate partnership in
September 1996, the Company has agreed to pay any cash flow deficiencies of a
real estate property owned by the partnership through January 1, 2001. At
September 30, 1996, the Company assessed the probability and amount of future
cash flows from the property and determined that no accrual was necessary.
Assessments are, from time to time, levied on the insurance subsidiaries of the
Company by life and health guaranty associations in most states in which the
subsidiaries are licensed to cover losses of policyholders of insolvent or
rehabilitated companies. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. Assessments have not
been material to the Company's financial statements prior to 1991. However, the
economy and other factors have caused a number of failures of substantially
larger companies since that time. The Company has not been able to reasonably
estimate potential future assessments, so no amounts have been provided for in
the accompanying financial statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE HEREIN. UNLESS NOTED
OTHERWISE, ALL REFERENCES INCLUDED HEREIN TO THE COMPANY INCLUDE ALL OF ITS
DIRECT AND INDIRECT SUBSIDIARIES, INCLUDING ITS PRIMARY LIFE INSURANCE
SUBSIDIARIES, FARM BUREAU LIFE INSURANCE COMPANY (FARM BUREAU LIFE) AND WESTERN
FARM BUREAU LIFE INSURANCE COMPANY (WESTERN LIFE) (COLLECTIVELY, THE LIFE
COMPANIES) AND ITS PROPERTY-CASUALTY INSURANCE SUBSIDIARY, UTAH FARM BUREAU
INSURANCE COMPANY (UTAH INSURANCE).
FROM TIME TO TIME, THE COMPANY MAY PUBLISH FORWARD-LOOKING STATEMENTS RELATING
TO SUCH MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW
PRODUCTS, AND SIMILAR MATTERS. THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 PROVIDES A SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS. IN ORDER 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 EXPERIENCES TO DIFFER MATERIALLY
FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE
OPERATIONS, PERFORMANCE, DEVELOPMENT AND RESULTS OF THE COMPANY'S BUSINESS
INCLUDE THE FOLLOWING:
- CHANGES TO INTEREST RATE LEVELS AND STOCK MARKET PERFORMANCE MAY
IMPACT THE COMPANY'S LAPSE RATES, MARKET VALUE OF INVESTMENT PORTFOLIO
AND THE COMPANY'S ABILITY TO SELL ITS LIFE INSURANCE PRODUCTS,
NOTWITHSTANDING PRODUCT FEATURES TO MITIGATE THE FINANCIAL IMPACT OF
SUCH CHANGES.
- EXTRAORDINARY ACTS OF NATURE OR MAN MAY RESULT IN HIGHER THAN EXPECTED
CLAIM ACTIVITY.
- CHANGES IN FEDERAL AND STATE INCOME TAX LAWS AND REGULATIONS MAY
AFFECT THE RELATIVE TAX ADVANTAGE OF THE COMPANY'S PRODUCTS.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
A summary of the Company's premiums and product charges is as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Premiums and product charges:
Universal life and annuity product charges $ 33,118 $ 32,395
Traditional life insurance premiums 63,527 57,793
Accident and health premiums 8,153 7,575
Property-casualty premiums 21,876 14,310
----------- -----------
Total $ 126,674 $ 112,073
----------- -----------
----------- -----------
Premiums and product charges increased $14.6 million, or 13.0% to $126.7 million
for the 1996 period compared to $112.1 million for the 1995 period. This
increase consisted of a $6.5 million, or 7.2%, increase in traditional life
insurance premiums and universal life and annuity product charges which,
management believes, is principally attributable to implementation of a new
incentive agent compensation program effective January 1, 1996, introduction of
a uniform portfolio of life insurance and annuity products throughout the
Company's marketing territory in March 1996 and more effective and increased
training of its agency force. Cost of insurance charges on universal life
products decreased $22,000 during the 1996 period compared to the 1995 period
despite an increase in business in force as a result of a decrease in cost of
insurance rates ranging from 4% to 12% which took effect March 14, 1996.
Accident and health premiums increased $578,000, or 7.6%, due to new sales of
disability income products coupled with
12
<PAGE>
favorable persistency. Property-casualty premiums increased $7.6 million, or
52.9%, primarily due to an increase in Utah Insurance's reinsurance pool
participation percentage from 8% to 20%, which resulted in $7.8 million of
additional premiums in the third quarter of 1996. See "-- Property-Casualty
Reinsurance Pool Participation." This increase was partially offset by the
Company's nonrenewal of certain unaffiliated reinsurance assumed contracts and
premium rate decreases on workers' compensation insurance. Although the life
and property-casualty insurance industries are competitive, the Company has not
experienced any unusual pricing pressures in its lines of business or in the
states in which it conducts operations.
Net investment income decreased $1.9 million, or 1.2%, to $155.3 million for the
1996 period compared to $157.2 million for the 1995 period. The decrease was
predominately the result of gains recognized on one private equity investment
held by FBL Ventures of South Dakota Inc. (FBL Ventures), a venture capital
subsidiary, during the 1995 period. During the 1996 period, this subsidiary
recognized net investment income of $1.5 million compared to $9.5 million for
the 1995 period. See "-- Adjusted Operating Income." Also contributing to the
decrease was a 43 basis point decline in the annualized yield earned on average
invested assets (excluding yield attributable to FBL Ventures) to 7.60% in the
1996 period from 8.03% in the 1995 period. These decreases were partially offset
by a 10.1% increase in average invested assets, excluding invested assets of
FBL Ventures, to $2,724 million in the 1996 period from $2,475 million in the
1995 period. The increase in average invested assets is primarily attributable
to net positive cash flows from operating activities totaling $152.9 million
during the period from September 30, 1995 to September 30, 1996 and to net
positive cash flows from interest sensitive products totaling $37.7 million
during the same period. The decline in yield on average invested assets is the
result of investing a majority of these positive cash flows and cash from
investing activities in lower yielding securities. The newer securities have
lower yields due principally to market interest rates during the period from
September 30, 1995 to September 30, 1996 being lower than the average effective
yield of the investment portfolio and the average yield on those securities
maturing or repaid during the period.
Realized gains on investments increased $9.0 million, or 132.0%, to $15.9
million for the 1996 period compared to $6.9 million for the 1995 period. The
increase resulted primarily from a $17.0 million gain from sales of a portion of
one equity investment in the third quarter of 1996 and the timing of the sale of
other equity and fixed maturity securities. The level of realized gains is
subject to fluctuation from period to period depending on the prevailing
interest rate and economic environment and the timing of the sale of
investments.
Other income decreased $3.6 million, or 16.7%, to $18.1 million for the 1996
period compared to $21.7 million for the 1995 period due primarily to a $3.3
million decrease in commission income from the sale of unaffiliated insurers'
medical products. Effective January 1, 1996, a majority of these products are
marketed through Farm Bureau Mutual Insurance Company, an affiliate. In
addition, rental and leasing income decreased approximately $269,000 due
principally to a decline in assets being leased.
A summary of the Company's policy benefits is as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Policy benefits:
Universal life and annuity benefits $ 89,565 $ 82,237
Traditional life insurance and accident and
health benefits 41,187 37,196
Increase in traditional life and accident and
health future policy benefits 21,074 18,428
Distributions to participating policyholders 19,446 19,175
Property-casualty losses and loss adjustment
expenses 19,245 10,625
----------- -----------
Total $ 190,517 $ 167,661
----------- -----------
----------- -----------
13
<PAGE>
Policy benefits increased $22.8 million, or 13.6%, to $190.5 million for the
1996 period compared to $167.7 million for the 1995 period. Included in this
increase was a $7.3 million increase in universal life and annuity benefits
consisting of a $5.1 million increase in interest credited to these contracts
and a $2.2 million increase in universal life death benefits. The increase in
interest credited is principally attributable to a larger volume of business in
force as the Company's interest crediting rates decreased during the periods.
The weighted average crediting rate for the Company's universal life liabilities
decreased to 6.59% for the 1996 period from 6.61% for the 1995 period, and the
weighted average crediting rate for the Company's annuity liabilities decreased
to 6.57% from 6.78% for the respective periods. The decrease in interest
crediting rates was less than the decrease (27 basis points) in the annualized
yield on the types of invested assets supporting universal life and annuity
liabilities due primarily to the timing of the Company's adjustments to its
interest crediting rates for fluctuations in portfolio yield. Traditional life
and accident and health benefits increased $6.6 million, or 11.9%, consisting
of a $2.5 million increase in death benefits, a $2.6 million increase in the
change in the reserves on these products, a $1.0 million increase in accident
and health benefits and a $449,000 net increase in other benefits. Distributions
to policyholders increased to $19.4 million from $19.2 million due to an
increase in the amount of participating business in force, partially offset by a
reduction in the average dividend rate credited to these policies to 6.11% from
6.49%. Losses and loss adjustment expenses incurred on property-casualty
policies increased to $19.2 million, or 81.1%, in the 1996 period from $10.6
million in the 1995 period due primarily to the increase in Utah Insurance's
reinsurance pool participation percentage, resulting in $7.6 million of
additional losses and loss adjustment expenses. In addition, less favorable
weather conditions in the 1996 period caused an increase in property losses,
including approximately $800,000 in assumed losses attributable to Hurricane
Fran. The loss and loss adjustment expense ratio increased in the 1996 period
to 88.0% from 74.2% in the 1995 period.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals $ 7,271 $ 5,989
Amortization of deferred policy acquisition costs 10,577 7,762
Other underwriting, acquisition and insurance
expenses,net of deferrals 31,118 42,218
----------- -----------
Total $ 48,966 $ 55,969
----------- -----------
----------- -----------
Commission expense increased $1.3 million, or 21.4%, to $7.3 million for the
1996 period compared to $6.0 million for the 1995 period. This increase is
primarily attributable to a change in the Company's incentive agent compensation
program effective January 1, 1996, under which agency managers are paid
overwrite commissions on first year and renewal premiums rather than a base
salary. Also contributing to the increase in commission expense is a 6.3%
increase in direct life insurance premiums collected in the 1996 period
compared to the 1995 period.
Amortization of deferred policy acquisition costs increased $2.8 million, or
36.3%, to $10.6 million for the 1996 period compared to $7.8 million for the
1995 period principally due to the increase in Utah Insurance's reinsurance pool
participation which resulted in $2.1 million of additional amortization during
the third quarter of 1996. In addition, amortization increased due to a greater
volume of business in force, partially offset by a $1.2 million reduction in
amortization due to the impact of realized gains and losses on investments.
Other underwriting, acquisition and insurance expenses decreased $11.1 million,
or 26.3%, to $31.1 million for the 1996 period compared to $42.2 million for the
1995 period. This decrease is primarily attributable to new marketing
agreements with Farm Bureau property-casualty insurance companies doing business
in the Company's marketing
14
<PAGE>
territory whereby the property-casualty insurance companies develop and manage
the Company's agency force for a fee based on first year life insurance premiums
and annuity deposits. As a result of the agreements, various fixed marketing
costs that were charged to expense in the 1995 period have been replaced by
lower fees ($2.5 million for the 1996 period) which vary based on premium volume
and are deferred and amortized with other policy acquisition costs. In
addition, expense reductions were realized as a result of discontinuing the sale
of unaffiliated insurers' medical products (see discussion regarding other
income above). Also, approximately $3.3 million of the decrease is attributable
to the elimination of an agent bonus program in 1996, one-time severance benefit
payments to certain employees in the 1995 period and a decrease in defined
benefit plan expense allocated to the Company. Furthermore, amortization of
value of insurance in force acquired decreased $704,000 in the 1996 period
compared to the 1995 period due to the impact of realized gains and losses on
investments. Partially offsetting these decreases was a $511,000 increase in
property-casualty underwriting and insurance expenses as a result of the
increase in Utah Insurance's reinsurance pool participation percentage.
Interest expense decreased $267,000, or 31.8%, to $573,000 for the 1996 period
compared to $840,000 for the 1995 period due principally to a decline in the
average long-term debt balance outstanding to $12.9 million during the 1996
period from $15.9 million during the 1995 period.
Other expenses increased $556,000, or 4.5%, to $13.0 million for the 1996 period
compared to $12.5 million for the 1995 period due principally to an increase in
the level of investment advisory and management services provided to affiliates
and other third parties.
Pretax income before minority interest in earnings of subsidiaries and equity
income increased $2.1 million, or 3.4%, to $63.0 million for the 1996 period
compared to $60.9 million for the 1995 period. This increase was primarily the
result of the impact of realized gains on investments offset, in part, by less
favorable mortality and loss experience in the 1996 period compared to the 1995
period.
Income taxes decreased $581,000, or 2.8%, to $20.2 million for the 1996 period
compared to $20.8 million for the 1995 period. The effective tax rate for the
1996 period was 32.0% compared to 34.1% for the 1995 period. The effective tax
rate during both periods was lower than the federal statutory rate of 35% due
primarily to tax exempt interest and dividend income offset, in part, by state
income taxes. The decrease in the effective tax rate in the 1996 period
compared to the 1995 period is primarily attributable to permanent differences
between book and taxable income arising from investment transactions.
Net income applicable to common stock increased $2.5 million, or 5.8%, to $44.0
million for the 1996 period compared to $41.5 million for the 1995 period. The
increase was primarily the result of the changes in pretax income and effective
tax rate discussed above and a $913,000 increase in equity income. The increase
was partially offset by a $1.0 million dividend paid on September 30, 1996 to
the Company's preferred stockholder as a result of the exchange of 5,000,000
shares of Class A Common Stock for 5,000,000 shares of Series A Preferred Stock
on July 18, 1996. See "Stockholders' Equity."
15
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
A summary of the Company's premiums and product charges is as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Premiums and product charges:
Universal life and annuity product charges $ 10,661 $ 10,645
Traditional life insurance premiums 19,881 18,541
Accident and health premiums 2,556 2,474
Property-casualty premiums 12,949 5,120
----------- -----------
Total $ 46,047 $ 36,780
----------- -----------
----------- -----------
Premiums and product charges increased $9.2 million, or 25.2%, to $46.0 million
for the third quarter of 1996 compared to $36.8 million for the third quarter of
1995 due to the reasons cited above for the nine month periods.
Net investment income decreased $5.6 million, or 9.9%, to $50.7 million for the
third quarter of 1996 compared to $56.3 million for the third quarter of 1995.
The decrease resulted principally from an $8.4 million decrease in the net
investment income of FBL Ventures to a loss of $1.9 million in the third quarter
of 1996 from a gain of $6.5 million in the third quarter of 1995. See "--
Adjusted Operating Income." In addition, the Company's annualized yield earned
on average invested assets (excluding yield attributable to FBL Ventures)
declined 26 basis points to 7.79% in the third quarter of 1996 from 8.05% in the
third quarter of 1995. These decreases were partially offset by a 9.0% increase
in average invested assets, excluding invested assets of FBL Ventures, to $2,779
million in the third quarter of 1996 from $2,549 million in the third quarter of
1995. The decline in yield on average invested assets and the increase in
average invested assets are due primarily to the factors described above for the
nine month periods.
Realized gains on investments increased $12.5 million, or 309.7%, to $16.5
million for the third quarter of 1996 compared to $4.0 million for the third
quarter of 1995 for the reasons described above for the nine month periods.
Other income decreased $760,000, or 10.4%, to $6.5 million for the third quarter
of 1996 compared to $7.3 million for the third quarter of 1995 as a result of
the factors described above for the nine month periods.
A summary of the Company's policy benefits is as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Policy benefits:
Universal life and annuity benefits $ 29,534 $ 27,748
Traditional life insurance and accident and
health benefits 15,167 10,598
Increase in traditional life and accident and
health future policly benefits 5,715 4,710
Distributions to participating policyholders 6,052 6,220
Property-casualty losses and loss adjustment
expenses 12,440 4,031
----------- -----------
Total $ 68,908 $ 53,307
----------- -----------
----------- -----------
16
<PAGE>
Policy benefits increased $15.6 million, or 29.3%, to $68.9 million for the
third quarter of 1996 compared to $53.3 million for the third quarter of 1995
due to the same reasons cited above for the nine month periods. The loss and
loss adjustment expense ratio in the third quarter of 1996 increased to 96.1%
from 78.7% in the third quarter of 1995.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals $ 2,256 $ 1,769
Amortization of deferred policy acquisition costs 5,116 2,553
Other underwriting, acquisition and insurance
expenses, net of deferrals 10,415 13,000
----------- -----------
Total $ 17,787 $ 17,322
----------- -----------
----------- -----------
Commission expense increased $487,000, or 27.5%, to $2.3 million for the third
quarter of 1996 compared to $1.8 million for the third quarter of 1995
principally due to the same factors noted above for the nine month periods.
Amortization of deferred policy acquisition costs increased $2.5 million, or
100.4%, to $5.1 million for the third quarter of 1996 compared to $2.6 million
for the third quarter of 1995 principally due to the increase in Utah
Insurance's reinsurance pool participation percentage and a greater volume of
business in force, partially offset by a $208,000 reduction in amortization due
to the impact of realized gains and losses on investments.
Other underwriting, acquisition and insurance expenses decreased $2.6 million,
or 19.9%, to $10.4 million for the third quarter of 1996 compared to $13.0
million for the third quarter of 1995 due principally to the reasons cited above
for the nine month periods.
Interest expense increased $58,000, or 40.8%, to $200,000 for the third quarter
of 1996 compared to $142,000 for the third quarter of 1995. This increase is
attributable to $14 million in additional debt incurred in September 1996 to
support the increase in Utah Insurance's reinsurance pool participation
percentage.
Other expenses increased $283,000, or 6.8%, to $4.5 million for the third
quarter of 1996 compared to $4.2 million for the third quarter of 1995 due
principally to the reasons cited above for the nine month periods.
Pretax income before minority interest in earnings of subsidiaries and equity
income decreased $996,000, or 3.4%, to $28.4 million for the third quarter of
1996 compared to $29.4 million for the third quarter of 1995. This decrease is
primarily attributable to less favorable mortality and loss experience and the
decrease in net investment income from FBL Ventures offset, in part, by the
impact of realized gains on investments.
Income taxes decreased $1.4 million, or 13.9%, to $8.7 million for the third
quarter of 1996. The effective tax rate for the third quarter of 1996 was 30.6%
compared to 34.3% for the third quarter of 1995. The effective tax rate
decreased in the 1996 period compared to the 1995 period and the rates are less
than the federal statutory rate of 35% for the same reasons cited above for the
nine month periods.
Net income applicable to common stock decreased $1.9 million, or 9.0%, to $19.5
million for the third quarter of 1996 compared to $21.4 million in the third
quarter of 1995 due primarily to the factors noted above with respect to pretax
income and income taxes. In addition, equity income decreased $1.2 million and
preferred dividends increased $1.0 million as a result of the exchange of
5,000,000 shares Class A Common Stock for 5,000,000 shares of Series A Preferred
Stock on July 18, 1996. See "Stockholders' Equity."
17
<PAGE>
ADJUSTED OPERATING INCOME
The following table reflects net income adjusted to eliminate certain items
which management believes are not indicative of overall operating trends,
including net realized gains on investments (less that portion of amortization
of deferred policy acquisition costs and value of insurance in force acquired
and income taxes attributable to such gains) and net income (loss) from a
venture capital investment company subsidiary:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income applicable to common stock $ 19,486 $ 21,418 $ 43,950 $ 41,526
Adjustments:
Net realized (gains) losses on investments (1) (10,961) (2,527) (11,059) (3,797)
Net (income) loss from FBL Ventures 1,229 (4,054) (1,001) (5,884)
---------- ---------- ---------- ----------
Adjusted operating income applicable to common stock $ 9,754 $ 14,837 $ 31,890 $ 31,845
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Adjusted operating income per common and common
equivalent share $ 0.49 $ 0.63 $ 1.42 $ 1.35
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(1) Represents realized gains on investments less that portion of amortization
of deferred policy acquisition costs and value of insurance in force
acquired and income taxes attributable to such gains.
FBL Ventures is a wholly owned investment company subsidiary of Farm Bureau Life
which invests in start-up and mezzanine level venture capital investments in
various sectors. Operating results of FBL Ventures are recognized in accordance
with accounting principles for investment companies and, as such, unrealized and
realized gains and losses on investments are included in net investment income.
Because of the venture capital nature of the underlying investments, the results
of FBL Ventures tend to fluctuate significantly from year to year and need to be
evaluated over a much longer period of time. Therefore, the net income (loss)
attributable to FBL Ventures is not included in adjusted operating income. As
of September 30, 1996, FBL Ventures had venture capital investments of $12.3
million, consisting of 16 private equity securities issued by 12 companies. Of
the 12 companies in which FBL Ventures held investments on September 30, 1996, 5
are public and 7 are private. Of the aggregate value of $12.3 million,
investment in publicly traded companies comprised $5.2 million and investment in
non-publicly traded companies comprised $7.1 million. The number and percent of
companies by industry and the value of the investment by industry was as follows
on September 30, 1996:
18
<PAGE>
PERCENT OF
TOTAL
CARRYING CARRYING
INDUSTRY NUMBER VALUE VALUE
- ----------------------------------- --------- --------- ---------
(DOLLARS IN
THOUSANDS)
Health care/services/technology 4 51.9% $ 6,359
Agriculture and biotechnology 3 18.4 2,258
Computer hardware/software 1 15.7 1,920
Communications technology 4 14.0 1,715
During the third quarter of 1996 the Company sold 12 of FBL Venture's
investments to a venture capital subsidiary of Farm Bureau Mutual Insurance
Company at their carrying value ($6.0 million). It is anticipated that during
the fourth quarter of 1996, or early 1997, all or substantially all of the
remaining investments of FBL Ventures will also be sold. The proceeds from the
sales, which do not impact net income as carrying value approximates fair value,
will be invested in fixed maturity securities and mortgage loans. Management
believes the sale of FBL Venture's investments will provide the Company with
more consistent and predictable investment returns and will facilitate the
Company's asset/liability management process.
PROPERTY-CASUALTY REINSURANCE POOL PARTICIPATION
Property-casualty business written by Utah Insurance is pooled with business
written by several property-casualty affiliates. Through December 31, 1995,
Utah Insurance's participation in the reinsurance pool was 8%. On June 30,
1996, Utah Insurance's share of the pool was increased to 20%, retroactive to
January 1, 1996. In accordance with retrospective accounting for reinsurance
assumed, the property-casualty operating results in the consolidated statement
of operations pertaining to the first two quarters of 1996 include that amount
applicable to 8% of the reinsurance pool and the operating results applicable to
the increase in the pooling percentage for that period ($779,000 loss before
income taxes) has been deferred and is being amortized over the premium paying
period of the underlying policies (generally 6 to 12 months). For the third
quarter of 1996, Utah Insurance recorded 20% of the reinsurance pool results,
with the exception of development on loss and loss adjustment expense reserves
relating to claims incurred prior to January 1, 1996, of which Utah Insurance's
participation remains at 8%.
LIQUIDITY AND CAPITAL RESOURCES
FBL FINANCIAL GROUP, INC.
FBL Financial Group, Inc.'s cash flow from operations consists of dividends from
subsidiaries, if declared and paid, and fees which it charges the various
operating subsidiaries and affiliates for management of their operations, offset
by the expenses incurred for salaries and other expenses related to providing
such services.
No common or preferred stock dividends were paid during the nine month periods
ended September 30, 1996 and 1995 by FBL Financial Group, Inc. to its
stockholders except for a $1 million preferred dividend paid to its sole
preferred stockholder, the Iowa Farm Bureau Federation, on September 30, 1996.
Dividend requirements in the future will consist of dividends on common and
preferred stock. It is anticipated dividend requirements for the fourth quarter
of 1996 will be $0.25 per preferred share and $0.07 per common share, or
approximately $2.6 million. In the future, FBL Financial Group, Inc. will rely
primarily on dividends from the Life Companies to make any dividend payments to
its stockholders. The ability of the Life Companies to pay dividends to FBL
Financial Group, Inc. is limited by law to earned profits (statutory unassigned
surplus) as of the date the dividend is paid, as determined in accordance with
accounting practices prescribed or permitted by insurance regulatory authorities
of the State of Iowa for Farm Bureau
19
<PAGE>
Life and State of Colorado for Western Life. In addition, under the Iowa and
Colorado Insurance Holding Company Acts, the Life Companies may not pay an
"extraordinary" dividend without prior notice to and approval by the respective
insurance commissioner. An "extraordinary" dividend is defined under the Iowa
and Colorado Insurance Holding Company Acts as any dividend or distribution of
cash or other property whose fair market value, together with that of other
dividends or distributions made within the preceding 12 months, exceeds the
greater of (i) 10% of policyholders'surplus (total statutory capital stock and
statutory surplus) as of December 31 of the preceding year, or (ii) the
statutory net gain from operations of the insurer for the 12 month period ending
the December 31 of the preceding year. For the remainder of 1996, the maximum
amount legally available for distribution to FBL Financial Group, Inc. without
further regulatory approval is approximately $33.5 million from Farm Bureau Life
and $5.7 million from Western Life. Similar restrictions exist with respect to
the payments of dividends by Utah Insurance. Such restrictions are not
considered to bear significantly on the ability of the Company to meet its
obligations.
INSURANCE OPERATIONS
The Life Companies' cash inflows consist primarily of premium income, deposits
to policyholder account balances, income from investments, sales, maturities and
calls of investments and repayments of investment principal. The Life
Companies' cash outflows are primarily related to withdrawals of policyholder
account balances, investment purchases, payment of policy acquisition costs,
policyholder benefits, income taxes and current operating expenses. Life
insurance companies generally produce a positive cash flow which may be measured
by the degree to which cash inflows are adequate to meet benefit obligations to
policyholders and normal operating expenses as they are incurred. The remaining
cash flow is generally used to increase the asset base to provide funds for
future policy benefit payments and for writing new business. The Life
Companies' liquidity positions continued to be favorable in the nine month
period ended September 30, 1996, with cash inflows at levels sufficient to
provide the funds necessary to meet their obligations.
For property-casualty operations the major sources of cash inflow are premiums
and investment income. Major sources of cash outflow are losses and loss
adjustment expenses paid and other underwriting expenses. As with the Life
Companies, the liquidity position of Utah Insurance continued to be favorable in
the nine month period ended September 30, 1996, with cash inflows at levels
sufficient to provide the funds necessary to meet its obligations.
For all insurance operations, cash outflow requirements for operations are
typically met from the year's normal premium and deposit cash inflows. This has
been the case for all reported periods as the insurance companies' operations
provided funds amounting to $124.6 million and $78.2 million in the nine month
periods ended September 30, 1996 and 1995, respectively. Cash inflows from
financing activities are the result of the significant growth in net deposits to
policyholder account balances for both universal life insurance and annuities
during the nine month periods ended September 30, 1996 and 1995. These funds,
along with the excess operating cash inflows, were primarily used to increase
the insurance companies' fixed maturity investment portfolios.
Matching the investment portfolio maturities to the cash flow demands of the
type of insurance being provided is an important consideration for each type of
life insurance. The Life Companies continually monitor benefit and claim
statistics to provide projections of future cash requirements. As part of this
monitoring process, the Life Companies perform cash flow testing of their assets
and liabilities under various scenarios to evaluate the adequacy of reserves.
In developing their investment strategy, the Life Companies establish a level of
cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities and mortgage loans, are believed adequate to meet
anticipated short-term and long-term benefit and expense payment obligations.
Through its membership in the Federal Home Loan Bank of Des Moines, Farm Bureau
Life is eligible to borrow on a line of credit available to provide it
additional liquidity. The line of credit available is based on the amount of
capital stock of the Federal Home Loan Bank of Des Moines owned by Farm Bureau
Life, which supported borrowing capacity of $48.2 million as of September 30,
1996. Interest is payable at a current rate upon issuance. As of September 30,
1996, no line of credit agreement was open and there were no borrowings
outstanding. In addition, the
20
<PAGE>
Company has additional borrowing capacity of $10.5 million under a floating rate
lease-backed note agreement with a bank.
Management anticipates that funds to meet its short-term and long-term capital
expenditures, cash dividends to stockholders and operating cash needs will come
from existing capital and internally generated funds. Management believes that
the current level of cash and available-for-sale and short-term securities,
combined with expected net cash inflows from operations, maturities of fixed
maturity investments, principal payments on mortgage-backed securities, mortgage
loans and its insurance products, are adequate to meet the Company's anticipated
short-term cash obligations. The Company may from time to time review potential
acquisition opportunities. The Company anticipates that funding for any such
acquisition may be provided from available cash resources, debt or equity
financing. As of September 30, 1996, the Company had no material commitments
for capital expenditures.
INVESTMENTS
The Company's total investment portfolio increased $172.0 million, or 6.5%, to
$2,818.1 million at September 30, 1996 compared to $2,646.1 million at December
31, 1995. This increase is primarily the result of positive cash flows from
operations and net deposits to policyholder account balances offset, in part, by
a $25.8 million decrease in unrealized appreciation on fixed maturity and equity
securities available for sale.
The Company's investment portfolio is managed by its internal investment
professionals. The investment strategy is designed to achieve superior risk-
adjusted returns consistent with the Company's investment philosophy of
maintaining a largely investment grade portfolio and providing adequate
liquidity for expected liability durations and other requirements.
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996 AS OF DECEMBER 31, 1995
CARRYING CARRYING
VALUE PERCENT VALUE PERCENT
------------ -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
Public $ 1,693,928 60.1% $ 1,597,236 60.4%
Private placement 306,372 10.9 335,905 12.7
144A private placement 164,653 5.8 143,068 5.4
------------ -------- ------------ --------
Total fixed maturities 2,164,953 76.8 2,076,209 78.5
Equity securities 120,167 4.3 83,714 3.1
Held in inventory (1) 14,273 0.5 21,913 0.8
Mortgage loans on real estate 287,516 10.2 266,623 10.1
Investment real estate
Acquired for debt 2,025 0.1 2,220 0.1
Investment 25,497 0.9 26,384 1.0
Policy loans 118,625 4.2 116,107 4.4
Other long-term investments 2,009 0.1 2,892 0.1
Short-term investments 83,055 2.9 50,061 1.9
------------ -------- ------------ --------
Total investments $ 2,818,120 100.0% $ 2,646,123 100.0%
------------ -------- ------------ --------
------------ -------- ------------ --------
</TABLE>
(1) Held in inventory includes equity securities owned by FBL Ventures totaling
$12.3 million and $20.1 million at September 30, 1996 and December 31,
1995, respectively.
21
<PAGE>
As of September 30, 1996, 92.4% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, being in the highest two NAIC
designations. Non-investment grade debt securities generally provide higher
yields and involve greater risk than investment grade debt securities because
their issuers typically are more highly leveraged and more vulnerable to adverse
economic conditions than investment grade issuers. In addition, the trading
market for these securities is usually more limited than for investment grade
debt securities. The Company regularly reviews the percentage of its portfolio
which is invested in non-investment grade debt securities (NAIC 3 through 6).
As of September 30, 1996, the Company's investment in non-investment grade debt
was 7.6% of fixed maturity securities. At that time no single non-investment
grade holding exceeded .5% of total investments.
The following table sets forth the credit quality, by NAIC designation and S&P
rating equivalents, of fixed maturity securities:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
AS OF SEPTEMBER 30, 1996
NAIC CARRYING
DESIGNATION EQUIVALENT S&P RATING (1) VALUE PERCENT
- ------------- --------------------------------- ------------- ----------
(DOLLARS IN THOUSANDS)
1 (AAA, AA, A) $ 1,445,356 66.8%
2 (BBB) 554,309 25.6
------------- ----------
Total investment grade 1,999,665 92.4
3 (BB) 97,589 4.5
4 (B) 64,609 2.9
5 (CCC, CC, C) 1,626 0.1
6 In or near default 1,464 0.1
------------- ----------
Total below investment grade 165,288 7.6
------------- ----------
Total fixed maturities $ 2,164,953 100.0%
------------- ----------
------------- ----------
(1) Private placement securities are generally rated by the Securities
Valuation Office of the NAIC. Comparisons between NAIC designations and
S&P ratings are published by the NAIC. S&P has not rated some of the fixed
maturity securities in the Company's portfolio.
22
<PAGE>
The following tables contain amortized cost and market value information on
fixed maturity and equity securities at September 30, 1996:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Bonds:
United States Government and agencies --
mortgage-backed securities
$ 213,887 $ 6,308 $ (1,500) $ 218,695
Industrial and miscellaneous:
Mortgage-backed securities 487,079 9,447 (9,620) 486,906
Other 5,009 500 (9) 5,500
----------- ----------- ----------- -----------
Total fixed maturities $ 705,975 $ 16,255 $ (11,129) $ 711,101
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
Bonds:
United States Government and agencies:
Mortgage-backed securities $ 80,974 $ 3,086 $ (1,008) $ 83,052
Other 169,185 560 (4,225) 165,520
State, municipal and other governments 28,692 677 (194) 29,175
Public utilities 186,332 4,848 (3,118) 188,062
Industrial and miscellaneous:
Mortgage and asset-backed securities 234,145 2,613 (3,277) 233,481
Other 713,060 26,820 (14,944) 724,936
Redeemable preferred stock 33,373 1,537 (158) 34,752
----------- ----------- ----------- -----------
Total fixed maturities $ 1,445,761 $ 40,141 $ (26,924) $ 1,458,978
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Equity securities $ 85,076 $ 50,748 $ (15,657) $ 120,167
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
23
<PAGE>
The carrying value of the Company's portfolio of fixed maturity securities by
contractual maturity are shown below:
REMAINING MATURITY OF FIXED MATURITY SECURITIES
AS OF SEPTEMBER 30, 1996
CARRYING
MATURITY OF FIXED MATURITY SECURITIES VALUE PERCENT
- ---------------------------------------------- ----------- ---------
(DOLLARS IN THOUSANDS)
Due in one year or less $ 48,985 2.3%
Due after one year through five years 191,432 8.8
Due after five years through ten years 272,049 12.6
Due after ten years 600,236 27.7
----------- ---------
1,112,702 51.4
Mortgage and asset-backed securities 1,017,499 47.0
Redeemable preferred stocks 34,752 1.6
----------- ---------
Total $2,164,953 100%
----------- ---------
----------- ---------
Mortgage-backed securities constitute a significant portion of the Company's
portfolio of securities. These mortgage-backed securities are diversified as to
collateral types, cash flow characteristics, and maturity. At September 30,
1996, the Company held $560.6 million (19.9% of total investments) in
residential mortgage-backed securities and $298.4 million (10.6% of total
investments) in commercial mortgage-backed securities.
At September 30, 1996, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $507.6 million as part of
its mortgage-backed securities holdings. CMOs consist of pools of mortgages
divided into sections or "tranches" which provide sequential retirement of the
bonds. To provide call protection and more stable average lives, the Company
invests in planned amortization classes (PACs), which provide more predictable
cash flows within a range of prepayment speeds (the rate of individuals
refinancing their home mortgages at lower rates) by shifting the prepayment
risks to support tranches. The Company also invests in sequential tranches,
which provide stability in that repayment of principal does not occur until the
previous tranches are paid off. As of September 30, 1996, 77.2% of the
Company's CMO investments are in PAC and sequential pay securities. The Company
does not purchase certain types of collateralized mortgage obligations. These
include, but are not limited to, interest only, principal only, floater, inverse
floater, PAC II, Z and support tranches.
At September 30, 1996, the Company held $287.5 million, or 10.2% of invested
assets in mortgage loans. These mortgage loans are diversified as to property
type, location and loan size, and are collateralized by the related properties.
At September 30, 1996, mortgages more than 60 days delinquent accounted for 1.2%
of the carrying value of the mortgage portfolio. The Company's mortgage lending
policies establish limits on the amount that can be loaned to one borrower and
require diversification by geographic location and collateral type. Regions
with the largest concentration of the Company's mortgage loan portfolio at
September 30, 1996 include Mountain (24%) which includes Arizona, Colorado,
Idaho, New Mexico, Nevada, Utah and Wyoming; Pacific (24%) which includes
California and Oregon; and West South Central (19%) which includes Texas and
Oklahoma. Mortgage loans on real estate have also been analyzed by collateral
type with office buildings (44%) and retail facilities (32%) representing the
largest holdings at September 30, 1996.
The Company's investment portfolio at September 30, 1996, also included $83.1
million of short-term investments, plus $248.6 million in carrying value of U.S.
Government and U.S. Government agency-backed securities that could be readily
converted to cash at or near carrying value.
The Company's asset-liability management program includes (i) designing and
developing products which encourage persistency and, as a result, creating a
stable liability structure; and (ii) structuring the investment portfolio with
24
<PAGE>
duration and cash flow characteristics consistent with the duration and cash
flow characteristics of the Company's insurance liabilities. At September 30,
1996, the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 8.2 years. Based on the
fixed income analytical system utilized by the Company, including its mortgage
backed prepayment assumptions, the effective duration of the fixed maturity
portfolio was 4.6 as of September 30, 1996.
OTHER ASSETS
Securities and indebtedness of related parties decreased $18.1 million, or
24.3%, due to the repayment of several lines of credit and the reclassification
of an equity investment resulting from a reduction in the Company's voting stock
interest in the equity investee to an amount less than 20%. Deferred policy
acquisitions costs increased $24.3 million, or 18.0%, due primarily to new sales
and an adjustment ($8.6 million increase) related to the valuation of fixed
maturity securities designated as available for sale. Value of insurance in
force acquired increased $5.3 million, or 36.9%, principally due to an
adjustment ($5.2 million increase) related to the valuation of fixed maturity
securities designated as available for sale. At September 30, 1996, the Company
had total assets of $3,302.1 million, a 6.8% increase from total assets at
December 31, 1995.
LIABILITIES
Policy liabilities and accruals increased $112.1 million, or 5.3%, due
principally to an increase in the volume of business in force and the
increase in Utah Insurance's reinsurance pool participation percentage.
Long-term debt increased $11.5 million to $24.1 million at September 30, 1996
due to $14.0 million in additional debt incurred in September 1996 to support
the increase in Utah Insurance's reinsurance pool participation percentage.
At September 30, 1996, the Company had total liabilities of $2,692.4 million,
a 6.8% increase from total liabilities at December 31, 1995.
STOCKHOLDERS' EQUITY
In March 1996, the Company's stockholders approved a change to the Company's
capital structure and a related revision to the Company's Articles of
Incorporation (the recapitalization). Pursuant to the recapitalization, each
outstanding share of common stock prior to recapitalization was converted on a
pro rata basis to 1,900 shares of Class A Common Stock and 100 shares of Class B
Common Stock.
On April 29, 1996, the Company designated 5,000,000 shares of its preferred
stock as Series A Preferred Stock and on July 18, 1996, such shares were
exchanged for 5,000,000 shares of Class A Common Stock. The preferred stock,
which pays cumulative annual cash dividends of $1 per share, payable quarterly,
is recorded at its liquidation value of $20 per share.
At September 30, 1996, stockholders' equity was $604.8 million, or $26.77 per
common share, compared to $564.3 million, or $23.65 per common share (after
giving effect to stock split) at December 31, 1995. Approximately $1.38 of the
increase in stockholders' equity per common share is attributable to the
exchange of Class A Common Stock for preferred stock. The change in unrealized
appreciation of fixed maturity and equity securities classified as available for
sale reduced stockholders' equity $8.3 million, after related adjustments to
deferred policy acquisition costs, value of insurance in force acquired,
unearned revenue reserve and deferred income taxes. During the 1996 period, a
credit of $4.9 million was posted directly to stockholders' equity as a result
of an initial public offering completed by an equity investee of the Company.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
26
<PAGE>
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.
Date: November 8, 1996 FBL FINANCIAL GROUP, INC.
By/s/ Thomas R. Gibson
---------------------------------------
Executive Vice President, General Manager,
Chief Executive Officer and Director
By/s/ James W. Noyce
---------------------------------------
Vice President, Chief Financial Officer
27
<PAGE>
Exhibit 11
FBL FINANCIAL GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 19,750,211 23,600,273 22,489,937 23,502,491
Net effect of dilutive stock options - based
on the treasury stock method using
average market price 66,382 - 22,531 -
----------- ----------- ----------- -----------
Weighted average primary shares outstanding 19,816,593 23,600,273 22,512,468 23,502,491
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income $ 20,486 $ 21,418 $ 44,950 $ 41,526
Preferred dividend (1,000) - (1,000) -
----------- ----------- ----------- -----------
Net income applicable to common stock $ 19,486 $ 21,418 $ 43,950 $ 41,526
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per primary common and common
equivalent share $ 0.98 $ 0.91 $ 1.95 $ 1.77
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
FULLY DILUTED:
Average shares outstanding 19,750,211 23,600,273 22,489,937 23,502,491
Net effect of dilutive stock options - based
on the treasury stock method using
period-end market price, if higher than
average market price 102,024 - 34,629 -
----------- ----------- ----------- -----------
Weighted average fully diluted shares outstanding 19,852,235 23,600,273 22,524,566 23,502,491
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income $ 20,486 $ 21,418 $ 44,950 $ 41,526
Preferred dividend (1,000) - (1,000) -
----------- ----------- ----------- -----------
Net income applicable to common stock $ 19,486 $ 21,418 $ 43,950 $ 41,526
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per fully diluted common and common
equivalent share $ 0.98 $ 0.91 $ 1.95 $ 1.77
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,458,978
<DEBT-CARRYING-VALUE> 705,975
<DEBT-MARKET-VALUE> 711,101
<EQUITIES> 120,167
<MORTGAGE> 287,516
<REAL-ESTATE> 27,522
<TOTAL-INVEST> 2,818,120
<CASH> 4,563
<RECOVER-REINSURE> 36,947
<DEFERRED-ACQUISITION> 159,340
<TOTAL-ASSETS> 3,302,065
<POLICY-LOSSES> 2,172,609
<UNEARNED-PREMIUMS> 27,584
<POLICY-OTHER> 29,270
<POLICY-HOLDER-FUNDS> 224,036
<NOTES-PAYABLE> 24,124
0
100,000
<COMMON> 51,340
<OTHER-SE> 453,467
<TOTAL-LIABILITY-AND-EQUITY> 3,302,065
126,674
<INVESTMENT-INCOME> 155,342
<INVESTMENT-GAINS> 15,946
<OTHER-INCOME> 18,102
<BENEFITS> 171,071
<UNDERWRITING-AMORTIZATION> 10,577
<UNDERWRITING-OTHER> 38,389
<INCOME-PRETAX> 62,984
<INCOME-TAX> 20,179
<INCOME-CONTINUING> 44,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,950
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
