UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number: 1-11917
FBL Financial Group, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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: 16,720,856 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of July 31, 1997.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1997 - $689,193; 1996 - $709,168) ....... $ 674,731 $ 694,351
Available for sale, at market (amortized
cost: 1997 - $1,637,031; 1996 - $1,542,748) ...... 1,669,944 1,573,944
Equity securities, at market (cost: 1997 - $51,952;
1996 - $74,792) .................................. 60,660 86,991
Held in inventory, at estimated fair value
(amortized cost: 1997 - $3,018; 1996 - $10,621) .. 3,289 15,899
Mortgage loans on real estate .......................... 309,943 293,777
Investment real estate, less allowances for depreciation
of $2,328 in 1997 and $1,930 in 1996 ............. 27,970 28,391
Policy loans ........................................... 121,177 118,996
Other long-term investments ............................ 8,369 8,388
Short-term investments ................................. 52,746 68,358
---------- ----------
Total investments ........................................... 2,928,829 2,889,095
Cash and cash equivalents ................................... 4,101 3,583
Securities and indebtedness of related parties .............. 35,878 37,213
Accrued investment income ................................... 35,870 33,537
Accounts and notes receivable ............................... 1,896 2,235
Amounts receivable from affiliates .......................... 6,959 4,439
Reinsurance recoverable ..................................... 36,567 38,919
Deferred policy acquisition costs ........................... 178,864 166,912
Value of insurance in force acquired ........................ 18,269 19,928
Property and equipment, less allowances for depreciation
of $49,002 in 1997 and $46,824 in 1996 ................. 69,490 62,510
Current income taxes recoverable ............................ 9,656 4,002
Goodwill, less accumulated amortization of $2,481 in 1997
and $2,172 in 1996 ..................................... 9,417 9,726
Other assets ................................................ 17,132 17,050
Assets held in separate accounts ............................ 110,073 79,043
---------- ----------
Total assets ........................................ $3,463,001 $3,368,192
========== ==========
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Universal life and annuity products ..................................... $1,488,583 $1,471,983
Traditional life insurance and accident and health products ............. 697,809 678,674
Unearned revenue reserve ................................................ 23,046 22,215
Other policy claims and benefits ........................................... 9,737 10,737
Reserves on property-casualty policies ..................................... 43,961 43,189
Unearned premiums on property-casualty policies ............................ 29,836 26,774
---------- ----------
2,292,972 2,253,572
Other policyholders' funds:
Supplementary contracts without life contingencies ......................... 131,144 125,581
Advance premiums and other deposits ........................................ 86,228 86,410
Accrued dividends .......................................................... 12,785 14,243
---------- ----------
230,157 226,234
Long-term debt ............................................................... 24,580 24,581
Amounts payable to affiliates ................................................ 10,531 10,910
Deferred income taxes ........................................................ 29,176 40,612
Other liabilities ............................................................ 114,900 89,915
Liabilities related to separate accounts ..................................... 110,073 79,043
---------- ----------
Total liabilities ................................................. 2,812,389 2,724,867
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock of subsidiary trust . 97,000 --
Other ........................................................................ 4,803 4,803
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares
in 1997 and 5,000,000 Series A shares in 1996 ............................. 3,000 100,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 16,720,256 shares in 1997 and 17,666,810 shares
in 1996 ................................................................... 41,741 43,773
Class B common stock, without par value - authorized 1,500,000 shares,
issued and outstanding 1,192,990 shares ................................... 7,567 7,567
Net unrealized investment gains .............................................. 25,991 27,858
Retained earnings ............................................................ 470,510 459,324
---------- ----------
Total stockholders' equity ............................................... 548,809 638,522
---------- ----------
Total liabilities and stockholders' equity ........................ $3,463,001 $3,368,192
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Universal life and annuity product charges ........................... $ 11,910 $ 11,140 $ 23,206 $ 22,457
Traditional life insurance and accident and health premiums .......... 26,853 27,460 49,401 49,243
Property-casualty premiums ........................................... 11,895 4,629 23,102 8,927
Net investment income ................................................ 56,033 52,208 110,841 104,636
Realized gains (losses) on investments ............................... 2,116 1,515 23,953 (583)
Other income ......................................................... 6,976 5,988 13,357 11,580
------------ ------------ ------------ ------------
Total revenues .................................................. 115,783 102,940 243,860 196,260
Benefits and expenses:
Universal life and annuity benefits .................................. 31,942 29,678 62,361 60,031
Traditional life insurance and accident and health benefits .......... 15,477 13,924 29,656 26,020
Increase in traditional and accident and health future policy benefits 8,178 10,065 13,699 15,359
Distributions to participating policyholders ......................... 6,939 6,919 13,647 13,394
Property-casualty losses and loss adjustment expenses ................ 9,650 3,594 18,552 6,805
Underwriting, acquisition and insurance expenses ..................... 17,876 15,399 36,207 31,179
Interest expense ..................................................... 389 146 765 373
Other expenses ....................................................... 4,980 4,633 9,464 8,560
------------ ------------ ------------ ------------
Total benefits and expenses ..................................... 95,431 84,358 184,351 161,721
------------ ------------ ------------ ------------
20,352 18,582 59,509 34,539
Income taxes .............................................................. (6,515) (5,798) (19,653) (11,487)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily redeemable preferred stock
of subsidiary trust ............................................... (404) -- (404) --
Other ................................................................ (88) -- (177) (268)
Equity income (loss), net of related income taxes ......................... (507) 791 116 1,680
------------ ------------ ------------ ------------
Net income ................................................................ 12,838 13,575 39,391 24,464
Dividends on Series A and B preferred stock ............................... (846) -- (2,096) --
------------ ------------ ------------ ------------
Net income applicable to common stock ..................................... $ 11,992 $ 13,575 $ 37,295 $ 24,464
============ ============ ============ ============
Net income per common share ............................................... $ 0.66 $ 0.57 $ 2.00 $ 1.03
============ ============ ============ ============
Weighted average common shares outstanding ................................ 18,265,088 23,859,800 18,678,299 23,859,800
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK AND NET
CLASS A CLASS B ADDITIONAL UNREALIZED TOTAL
PREFERRED COMMON COMMON PAID-IN INVESTMENT RETAINED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL GAINS EARNINGS EQUITY
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 ... $ -- $ -- $ -- $ 146,481 $ 37,807 $ 380,010 $ 564,298
Recapitalization and
conversion of common
stock................ -- 139,157 7,324 (146,481) -- -- --
Net income for six
months ended June
30, 1996............ -- -- -- -- -- 24,464 24,464
Change in net unrealized
investment
gains/losses........ -- -- -- -- (27,489) -- (27,489)
Adjustment resulting
from capital
transaction of
equity investee..... -- 4,616 243 -- -- -- 4,859
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1996 ..... $ -- $ 143,773 $ 7,567 $ -- $ 10,318 $ 404,474 $ 566,132
========= ========= ========= ========= ========= ========= =========
Balance at January 1, 1997 ... $ 100,000 $ 43,773 $ 7,567 $ -- $ 27,858 $ 459,324 $ 638,522
Net income for six
months ended June
30, 1997............ -- -- -- -- -- 39,391 39,391
Change in net unrealized
investment
gains/losses........ -- -- -- -- (1,867) -- (1,867)
Purchase of Series A
preferred stock..... (100,000) -- -- -- -- -- (100,000)
Issuance of Series B
preferred stock..... 3,000 -- -- -- -- -- 3,000
Purchase of 965,370
shares of common
stock............... -- (2,402) -- -- -- (22,432) (24,834)
Issuance of 18,816
shares of common
stock under stock
option plan,
including related
income tax benefit.. -- 370 -- -- -- -- 370
Dividends on preferred
stock............... -- -- -- -- -- (2,096) (2,096)
Dividends on common stock -- -- -- -- -- (3,677) (3,677)
--------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 ..... $ 3,000 $ 41,741 $ 7,567 $ -- $ 25,991 $ 470,510 $ 548,809
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................................ $ 39,391 $ 24,464
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances ....................................... 51,360 50,828
Charges for mortality and administration .................................... (24,050) (22,938)
Deferral of unearned revenues ............................................... 1,149 875
Amortization of unearned revenue reserve .................................... (305) (394)
Provision for depreciation and amortization ....................................... 9,007 8,431
Net gains and losses related to investments held in inventory ..................... (1,280) (3,501)
Realized (gains) losses on investments ............................................ (23,953) 583
Increase in traditional, accident and health and property-casualty benefit accruals 17,296 34,760
Policy acquisition costs deferred ................................................. (20,073) (16,805)
Amortization of deferred policy acquisition costs ................................. 7,924 5,460
Provision for deferred income taxes ............................................... (10,430) 3,665
Other ............................................................................. 14,273 4,553
--------- ---------
Net cash provided by operating activities ................................................. 60,309 89,981
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ............................................ 19,767 20,893
Fixed maturities - available for sale ............................................. 154,748 127,152
Equity securities ................................................................. 81,066 14,938
Held in inventory ................................................................. 7,418 7,003
Mortgage loans on real estate ..................................................... 17,867 11,380
Investment real estate ............................................................ 745 1,389
Policy loans ...................................................................... 14,502 13,311
Other long-term investments ....................................................... 14 428
Short-term investments - net ...................................................... 15,612 --
--------- ---------
311,739 196,494
Acquisition of investments:
Fixed maturities - held for investment ............................................ (49) (53,643)
Fixed maturities - available for sale ............................................. (248,452) (198,453)
Equity securities ................................................................. (29,160) (20,580)
Held in inventory ................................................................. (1,313) (4,900)
Mortgage loans on real estate ..................................................... (34,622) (18,450)
Investment real estate ............................................................ (400) (1,997)
Policy loans ...................................................................... (16,683) (15,280)
Other long-term investments ....................................................... -- (3)
Short-term investments - net ...................................................... -- (7,471)
--------- ---------
(330,679) (320,777)
</TABLE>
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Proceeds from disposal, repayments of advances and other distributions from equity investees $ 4,562 $ 17,141
Investments in and advances to equity investees ............................................ (3,623) (5,939)
Net purchases of property and equipment and other .......................................... (10,972) (4,627)
--------- ---------
Net cash used in investing activities ...................................................... (28,973) (117,708)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to policyholder account balances ........ 124,563 123,905
Return of policyholder account balances on interest sensitive products ..................... (124,443) (94,423)
Repayments of long-term debt ............................................................... (1) (1,487)
Dividends on company-obligated mandatorily redeemable preferred stock of subsidiary trust .. (404) --
Other distributions to minority interests .................................................. (268) (268)
Purchase of common stock ................................................................... (24,834) --
Issuance of common stock under stock option plan ........................................... 329 --
Dividends paid ............................................................................. (5,760) --
--------- ---------
Net cash provided by (used in) financing activities ........................................ (30,818) 27,727
--------- ---------
Increase in cash and cash equivalents ...................................................... 518 --
Cash and cash equivalents at beginning of period ........................................... 3,583 --
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 4,101 $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ............................................................................ $ 731 $ 300
Income taxes ........................................................................ 35,759 5,272
</TABLE>
See accompanying notes.
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
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 six-month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and notes thereto for the year ended December
31, 1996 included in the Company's annual report on Form 10-K.
2. MINORITY INTEREST AND STOCKHOLDERS' EQUITY
On May 30, 1997, FBL Financial Group Capital Trust (the "Trust"), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5.0% Preferred
Securities to the Company's majority stockholder, the Iowa Farm Bureau
Federation. In connection with the Trust's issuance of the 5.0% Preferred
Securities and the related purchase by the Company of all of the Trust's common
securities, the Company issued to the Trust $100.0 million principal amount of
its 5.0% Subordinated Deferrable Interest Notes, due June 30, 2047 (the "Debt
Securities"). The sole assets of the Trust are and will be the Debt Securities
and any interest accrued thereon. The interest payment dates on the Debt
Securities correspond to the distribution dates on the 5.0% Preferred
Securities. The 5.0% Preferred Securities, which have a liquidation value of
$1,000.00 per share plus accrued and unpaid distributions, mature simultaneously
with the Debt Securities. As of June 30, 1997, 97,000 shares of 5.0% Preferred
Securities were outstanding, all of which are unconditionally guaranteed by the
Company.
Concurrent with the issuance of 5.0% Preferred Securities, the Company purchased
from the Iowa Farm Bureau Federation, 5,000,000 shares of the Company's Series A
preferred stock at its liquidation value of $100.0 million. In addition, the
Company issued 5,000,000 shares of Series B preferred stock to the Iowa Farm
Bureau Federation for $3.0 million. Each share of Series B preferred stock has a
liquidation preference of $0.60 and voting rights identical to that of Class A
common stock. The Series B preferred stock pays cumulative annual cash dividends
of $0.03 per share, payable quarterly, and is redeemable by the Company, at the
option of the Company, at $0.60 per share plus unpaid dividends if the stock
ceases to be beneficially owned by a Farm Bureau organization.
The purchase of Series A preferred stock and simultaneous issuance of Series B
preferred stock and 5.0% Preferred Securities were treated as noncash
transactions for purposes of the statement of cash flows.
On March 18, 1997, the Company's Board of Directors approved a plan to
repurchase up to 1,000,000 unregistered shares of Company's Class A common
stock. On April 4, 1997, the Company purchased 965,370 shares of Class A common
stock under this plan at $25.725 per share ($24.8 million), the average of the
closing prices over the prior ten days of trading on the New York Stock
Exchange. The purchase amount was allocated partly to Class A common stock based
on the average common stock balance per share on the acquisition date with the
remainder allocated to retained earnings.
3. INVESTMENT OPERATIONS
Fixed maturity securities, comprised of 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
<PAGE>
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, comprised
of common and non-redeemable preferred stocks, are reported at market value. The
change in unrealized appreciation and depreciation of equity securities is
included directly in stockholders' equity, net of any related deferred income
taxes.
Net unrealized investment gains as reported were comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity
securities available for sale ........................... $ 41,621 $ 43,395
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs .................. (2,218) (2,021)
Value of insurance in force acquired ............... 189 1,104
Unearned revenue reserve ........................... 395 382
Provision for deferred income taxes ....................... (13,996) (15,002)
-------- --------
Net unrealized investment gains ........................... $ 25,991 $ 27,858
======== ========
</TABLE>
In March 1997, the Company sold equity investments in two affiliates to Farm
Bureau Mutual Insurance Company, another affiliate, at their estimated fair
value. The Company recorded $9.7 million in realized gains on these sales.
4. CREDIT ARRANGEMENTS
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $43.9 million from the FHLB as of June 30, 1997. The Company had
no outstanding debt under this credit arrangement as of June 30, 1997 or
December 31, 1996.
5. 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 June 30, 1997, 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 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 reinsurance recoverable since all amounts are
deemed to be collectible.
In connection with an investment in a real estate limited partnership, the
Company has agreed to pay any cash flow deficiencies of a medium-sized shopping
center owned by the partnership through January 1, 2001. At June 30, 1997, the
Company assessed the probability and amount of future cash flows from the
property and determined that no accrual was necessary. The limited partnership
has a $5.4 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual Insurance Company.
<PAGE>
Assessments are, from time to time, levied on the insurance subsidiaries of the
Company by 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. Because the Company is not able to
reasonably estimate the potential amounts of future assessments, the Company
recognizes its obligation for guaranty fund assessments when it receives notice
that an amount is payable to a guaranty fund. Expenses incurred for guaranty
fund assessments were $0.3 million and $0.4 million during the six months ended
June 30, 1997 and 1996, respectively.
<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).
Property-casualty business written by Utah Insurance is pooled with business
written by four 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. Effective January 1, 1997, Western Agricultural Insurance Company and
Western Farm Bureau Mutual Insurance Company, two affiliates of the Company,
became full participants in the reinsurance pool and Utah Insurance's pool
participation percentage decreased from 20% to 18%. Accordingly, the
property-casualty results included in the statement of operations for the six
months ended June 30, 1996 include that amount applicable to 8% of the
reinsurance pool. The property-casualty results included in the statement of
operations for the six months ended June 30, 1997 include that amount applicable
to 18% of the reinsurance pool, with the exception of development on loss and
loss adjustment expense reserves incurred prior to January 1, 1997, of which
Utah Insurance's participation remains at the rate in effect when the underlying
claims were incurred. In addition, effective January 1, 1997, the reinsurance
pool no longer includes reinsurance assumed from reinsurance intermediaries and
certain other insurance companies. As a result, beginning January 1, 1997, Utah
Insurance has eliminated its exposure to coastal catastrophes.
Utah Insurance's premium volume in 1997 has not been and is not expected to be
significantly impacted by the decrease in reinsurance pool participation from
20% to 18% or the elimination of certain reinsurance assumed business from the
pool due to the increase in the size of the pool with the addition of Western
Agricultural Insurance Company and Western Farm Bureau Mutual Insurance Company.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
A summary of the Company's premiums and product charges is as follows:
SIX MONTHS ENDED JUNE 30,
-----------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
Premiums and product charges:
Universal life and annuity product charges ......... $23,206 $22,457
Traditional life insurance and accident and
health premiums ................................... 49,401 49,243
Property-casualty premiums ......................... 23,102 8,927
------- -------
Total ........................................... $95,709 $80,627
======= =======
Premiums and product charges increased $15.1 million, or 18.7%, to $95.7 million
for the 1997 period compared to $80.6 million for the 1996 period. Universal
life and annuity product charges increased $0.7 million, or 3.3%, due to an
increase in the volume and age of business in force, partially offset by
decreases in cost of insurance rates ranging from 4% to 12% which took effect
March 14, 1996. Traditional life and accident and health insurance premiums
increased $0.2 million, or 0.3%, to $49.4 million for the 1997 period.
Management believes the sale of traditional life insurance products were
relatively flat due to a marketing emphasis placed on the sale of variable
universal life insurance products. Premiums collected on variable universal life
insurance products increased 26.1% to $16.0 million in the 1997 period from
$12.7 million in the 1996 period. Property-casualty premiums increased $14.2
million, or 158.8%, due to the changes in Utah Insurance's reinsurance pool
participation. The impact on
<PAGE>
premiums of an 11% to 12% rate decrease on workers' compensation insurance in
Iowa and Minnesota on January 1, 1997 was offset by modest growth in the volume
of business in force.
Beginning August 1, 1997, new and renewal premium rates will decrease
approximately 5.5%, on average, for private passenger auto business written in
Iowa, Minnesota, South Dakota and Utah. Management believes the rate decreases
will reduce property-casualty premiums approximately $1.0 million on an annual
basis without any corresponding decrease in the amount of policy claims or
expenses. Over the long term, management believes the reduction in auto rates
will enhance revenue and profitability as the lower rates will attract a broader
base of customers and strengthen the Company's ability to sell its other
property-casualty and life insurance products.
Net investment income increased $6.2 million, or 5.9%, to $110.8 million for the
1997 period compared to $104.6 million for the 1996 period. The increase
resulted principally from a 7.4% increase in average invested assets, excluding
invested assets of FBL Ventures of South Dakota, Inc. (FBL Ventures), a venture
capital subsidiary, to $2,889.4 million in the 1997 period from $2,689.2 million
in the 1996 period, and a six basis point increase in the annualized yield
earned on average invested assets (excluding yield attributable to FBL Ventures)
to 7.73% in the 1997 period from 7.67% in the 1996 period. The increase in
average invested assets is attributable to net positive cash flows from
operating activities totaling $116.1 million during the 12-month period ended
June 30, 1997 and to net gains on investments during the same period. Offsetting
the increase in net investment income was a $2.3 million decrease in the net
investment income of FBL Ventures to $1.1 million in the 1997 period from $3.4
million in the 1996 period. See "Adjusted Operating Income".
Realized gains (losses) on investments increased $24.6 million to a gain of
$24.0 million for the 1997 period compared to a loss of $0.6 million for the
1996 period. The increase resulted primarily from a $24.3 million gain from
sales of one equity security during the 1997 period. In addition, the Company
had other realized gains, primarily from the sale of equity securities, that
were more than offset by $19.4 million in realized losses resulting from
writedowns of investments that became other-than-temporarily impaired during the
1997 period. These writedowns are attributable primarily to three equity
securities and are the result of sustained operating losses, rejection of
product design by regulatory authorities and various other economic factors that
became evident in the 1997 period. The level of realized gains (losses) 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 increased $1.8 million, or 15.3%, to $13.4 million for the 1997
period compared to $11.6 million for the 1996 period due primarily to an
increase in the level of leasing, management and financial services provided to
affiliates and third parties.
A summary of the Company's policy benefits is as follows:
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
Policy benefits:
Universal life and annuity benefits ................. $ 62,361 $ 60,031
Traditional life insurance and accident and
health benefits .................................... 29,656 26,020
Increase in traditional and accident and health
future policy benefits ............................. 13,699 15,359
Distributions to participating policyholders ........ 13,647 13,394
Property-casualty losses and loss adjustment expenses 18,552 6,805
-------- --------
Total ............................................ $137,915 $121,609
======== ========
Policy benefits increased $16.3 million, or 13.4%, to $137.9 million for the
1997 period compared to $121.6 million for the 1996 period. Included in this
increase is a $2.3 million increase in universal life and annuity benefits
consisting of a $1.6 million increase in universal life death benefits in excess
of related account balances and a $0.7 million increase in interest credited to
these contracts. The increase in interest credited is attributable to a larger
volume of business in force partially offset by a decrease in interest crediting
rates on these contracts. The weighted
<PAGE>
average crediting rate for the Company's universal life liabilities decreased to
6.28% for the 1997 period from 6.66% for the 1996 period, and the weighted
average crediting rate for the Company's annuity liabilities decreased to 6.28%
for the 1997 period from 6.55% for the 1996 period. The decrease in interest
crediting rates was greater than the decrease (nine basis points) in the
annualized yield on the types of invested assets supporting universal life and
annuity liabilities due to the Company's initiatives (decreases to interest
crediting rates) to increase interest rate spreads and profitability on this
business. Traditional life and accident and health benefits increased $2.0
million, or 4.8%, consisting of a $4.1 million increase in death and surrender
benefits, a $1.7 million decrease in the change in the reserves on these
products and a $0.4 million net decrease in other benefits. Distributions to
policyholders increased $0.3 million to $13.6 million due to an increase in the
amount and age of the participating business in force partially offset by a
decrease in the average dividend rate credited to these policies to 6.19% from
6.36%. Losses and loss adjustment expenses incurred on property-casualty
policies increased $11.8 million, or 172.6%, to $18.6 million for the 1997
period from $6.8 million for the 1996 period due to the changes in Utah
Insurance's reinsurance pool participation, resulting in $11.3 million of
additional losses and loss adjustment expenses. The loss and loss adjustment
expense ratio increased in the 1997 period to 80.3% from 76.2% in the 1996
period.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
SIX MONTHS ENDED JUNE 30,
--------------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ............ $ 4,619 $ 5,015
Amortization of deferred policy acquisition costs 7,924 5,460
Other underwriting, acquisition and insurance
expenses, net of deferrals .................... 23,664 20,704
------- -------
Total ...................................... $36,207 $31,179
======= =======
Commission expense decreased $0.4 million, or 7.9%, to $4.6 million for the 1997
period compared to $5.0 million for the 1996 period. This decrease occurred
despite a 4.5% increase in direct life insurance premiums collected during the
1997 period. During the 1996 period, first year commissions totaling $0.2
million were charged to expense rather than capitalized due to marginal profits
on products no longer sold by the Company. In addition, commissions decreased
due to multi-tiered commission structures on certain life insurance products
whereby renewal commission rates decline over the life of the underlying
policies.
Amortization of deferred policy acquisition costs increased $2.4 million, or
45.1%, to $7.9 million for the 1997 period compared to $5.5 million for the 1996
period due to the increase in Utah Insurance's reinsurance pool participation
which resulted in $2.7 million of additional amortization during the 1997
period. Amortization attributable to life operations decreased $0.3 million.
Other underwriting, acquisition and insurance expenses increased $3.0 million,
or 14.3%, to $23.7 million for the 1997 period compared to $20.7 million for the
1996 period. This increase is principally attributable to a $1.8 million
increase in property-casualty expenses resulting primarily from the change in
Utah Insurance's reinsurance pool participation. In addition, amortization of
value of insurance in force acquired increased $0.7 million in the 1997 period
compared to the 1996 period due to the impact of realized gains and losses on
investments backing the related policyholder liabilities.
Interest expense was $0.8 million for the 1997 period compared to $0.4 million
for the 1996 period due primarily to an increase in the average debt outstanding
to $24.6 million for the 1997 period from $11.8 million for the 1996 period.
Other expenses increased $0.9 million, or 10.6%, to $9.5 million for the 1997
period compared to $8.6 million for the 1996 period due principally to an
increase in the level of leasing, management and financial services provided to
affiliates and third parties.
<PAGE>
Pretax income before minority interest and equity income increased $25.0
million, or 72.3%, to $59.5 million for the 1997 period compared to $34.5
million for the 1996 period. All of the pretax income in the 1997 period is
attributable to life operations as the property-casualty segment experienced a
pretax loss of $0.2 million. In the 1996 period the property-casualty segment
experienced pretax income of $0.5 million. The increase in pretax income from
life operations is primarily the result of the impact of realized gains on
investments.
Income taxes increased $8.2 million, or 71.1%, to $19.7 million for the 1997
period compared to $11.5 million for the 1996 period. The effective tax rate for
the 1997 period was 33.0% compared to 33.3% for the 1996 period. The effective
tax rates were lower than the federal statutory rate of 35% due primarily to tax
exempt interest and dividend income partially offset by state income taxes. In
addition, during the 1997 period the Company realized a tax benefit associated
with the payment of dividends on mandatorily redeemable preferred stock of
subsidiary trust. See "Liquidity and Capital Resources - FBL Financial Group,
Inc." and Note 2 to the consolidated financial statements.
Equity income (loss), net of related income taxes, decreased $1.6 million, or
93.1%, to $0.1 million during the 1997 period compared to $1.7 million for the
1996 period. Equity income (loss) includes the Company's proportionate share of
gains and losses on investments owned by the underlying partnerships and joint
ventures. The level of these gains and losses is subject to fluctuation from
period to period depending on the prevailing economic environment and the timing
of the sale of investments held by the partnerships and joint ventures.
Net income applicable to common stock increased $12.8 million, or 52.4%, to
$37.3 million for the 1997 period compared to $24.5 million for the 1996 period.
The increase was primarily the result of the changes in pretax income, the
effective tax rate and equity income discussed above. Partially offsetting the
increase in net income was $2.1 million in dividends paid during the 1997 period
to the Company's preferred stockholder arising from the exchange of five million
shares of Class A common stock for five million shares of Series A preferred
stock on July 18, 1996. Dividend payments on the parent company's preferred
stock will decrease to $37,500 per quarter as a result of the purchase of the
Series A preferred stock and issuance of Series B preferred stock on May 30,
1997. This decrease will be offset by an increase in dividends on the
company-obligated mandatorily redeemable preferred stock of subsidiary trust.
See "Liquidity and Capital Resources - FBL Financial Group, Inc." and Note 2 to
the consolidated financial statements.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
A summary of the Company's premiums and product charges is as follows:
THREE MONTHS ENDED JUNE 30,
-----------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
Premiums and product charges:
Universal life and annuity product charges $11,910 $11,140
Traditional life insurance and accident and
health premiums ......................... 26,853 27,460
Property-casualty premiums ................ 11,895 4,629
------- -------
Total ................................ $50,658 $43,229
======= =======
Premiums and product charges increased $7.5 million, or 17.2%, to $50.7 million
for the second quarter of 1997 compared to $43.2 million for the second quarter
of 1996. Universal life and annuity product charges increased $0.8 million, or
6.9%, due to an increase in the volume and age of business in force. Traditional
life insurance and accident and health premiums decreased $0.6 million, or 2.2%,
to $26.9 million for the second quarter of 1997. Management believes the sale of
traditional life insurance products was down slightly due to a marketing
emphasis placed on the sale of variable life insurance products. Premiums
collected on variable universal life insurance products increased 27.6% to $8.8
million in the second quarter of 1997 from $6.9 million in the second quarter of
1996. Property-casualty premiums increased $7.3 million, or 157.0%, due to the
changes in Utah Insurance's reinsurance pool participation. The impact on
premiums of an 11% to 12% rate decrease on workers' compensation
<PAGE>
insurance in Iowa and Minnesota on January 1, 1997 was offset by modest growth
in the volume of business in force.
Net investment income increased $3.8 million, or 7.3%, to $56.0 million for the
second quarter of 1997 compared to $52.2 million for the second quarter of 1996.
The increase resulted principally from a 7.5% increase in average invested
assets, excluding invested assets of FBL Ventures, to $2,905.1 million in the
1997 quarter from $2,703.3 million in the 1996 quarter and a 14 basis point
increase in the annualized yield earned on average invested assets (excluding
yield attributable to FBL Ventures) to 7.84% in the 1997 quarter from 7.70% in
the 1996 quarter. The increase in average invested assets is attributable to net
positive cash flows from operating activities totaling $116.1 million during the
12-month period ended June 30, 1997 and to net gains on investments during the
same period. The increase in annualized yield is primarily the result of
investing a majority of these positive cash flows and cash from investing
activities in securities in which the market interest rates were higher than the
average effective yield of the investment portfolio during the 12-month period
ended June 30, 1997. Offsetting the increase in net investment income was a $1.0
million decrease in the net investment income of FBL Ventures to $0.6 million in
the second quarter of 1997 from $1.6 million in the second quarter of 1996. See
"Adjusted Operating Income".
Realized gains on investments increased $0.6 million to $2.1 million for the
second quarter of 1997 compared to $1.5 million for the second quarter of 1996.
Realized gains in the second quarter of 1997 are net of $1.7 million in realized
losses resulting from writedowns of two investments that became
other-than-temporarily impaired during the 1997 period. The writedowns are the
result of sustained operating losses and various other economic factors that
became evident in the 1997 period. 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 increased $1.0 million, or 16.5%, to $7.0 million for the second
quarter of 1997 compared to $6.0 million for the second quarter of 1996 due
primarily to an increase in the level of leasing, management and financial
services provided to affiliates and third parties.
A summary of the Company's policy benefits is as follows:
THREE MONTHS ENDED JUNE 30,
-----------------
1997 1996
------- -------
(DOLLARS IN THOUSANDS)
Policy benefits:
Universal life and annuity benefits .................. $31,942 $29,678
Traditional life insurance and accident and health
benefits ........................................... 15,477 13,924
Increase in traditional and accident and health future
policy benefits .................................... 8,178 10,065
Distributions to participating policyholders ......... 6,939 6,919
Property-casualty losses and loss adjustment expenses 9,650 3,594
------- -------
Total .......................................... $72,186 $64,180
======= =======
Policy benefits increased $8.0 million, or 12.5%, to $72.2 million for the
second quarter of 1997 compared to $64.2 million for the second quarter of 1996.
Included in this increase is a $2.3 million increase in universal life and
annuity benefits consisting of a $0.9 million increase in universal life death
benefits in excess of related account balances and a $1.4 million increase in
interest credited to these contracts. As discussed in the section regarding the
six month periods, the increase in interest credited is attributable to a larger
volume of business in force partially offset by a decrease in interest crediting
rates on these contracts. Traditional life and accident and health benefits
decreased $0.3 million, or 1.4%, consisting of a $2.0 million increase in death
and surrender benefits, a $1.9 million decrease in the change in the reserves on
these products and a $0.4 million net decrease in other benefits. Distributions
to policyholders totaled $6.9 million during the second quarter of 1997 and
1996. Increases in dividends attributable to an increase in the amount and age
of the participating business in force were offset by a decrease in the average
dividend rate credited to these policies to 6.19% from 6.36%. Losses and loss
adjustment expenses incurred on property-casualty policies increased $6.1
million, or 168.5%, to $9.7 million for the second
<PAGE>
quarter of 1997 from $3.6 million for the second quarter of 1996 due primarily
to the changes in Utah Insurance's reinsurance pool participation, resulting in
$5.9 million of additional losses and loss adjustment expenses. The loss and
loss adjustment expense ratio increased in the second quarter of 1997 to 81.1%
from 77.6% in the second quarter of 1996.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
THREE MONTHS ENDED JUNE 30,
------------------
1997 1996
-------- -------
(DOLLARS IN THOUSANDS)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ............ $ 2,447 $ 2,572
Amortization of deferred policy acquisition costs 3,680 2,775
Other underwriting, acquisition and insurance
expenses, net of deferrals .................... 11,749 10,052
-------- -------
Total ...................................... $ 17,876 $15,399
======== =======
Commission expense decreased $0.2 million, or 4.9%, to $2.4 million for the
second quarter of 1997 compared to $2.6 million for the second quarter of 1996
despite a 4.0% increase in direct life insurance premiums collected during the
1997 quarter. The decrease is due to multi-tiered commission structures on
certain life insurance products whereby renewal commission rates decline over
the life of the underlying policies and a decrease in commissions earned by
agency managers.
Amortization of deferred policy acquisition costs increased $0.9 million, or
32.6%, to $3.7 million for the second quarter of 1997 compared to $2.8 million
for the second quarter of 1996 principally due to the increase in Utah
Insurance's reinsurance pool participation which resulted in $1.3 million of
additional amortization during the 1997 quarter. Amortization attributable to
life operations decreased $0.4 million due primarily to revised estimates as to
the timing of the emergence of profits on the underlying life insurance
business.
Other underwriting, acquisition and insurance expenses increased $1.6 million,
or 16.9%, to $11.7 million for the second quarter of 1997 compared to $10.1
million for the second quarter of 1996. This increase is principally
attributable to a $1.0 million increase in property-casualty expenses resulting
primarily from the changes in Utah Insurance's reinsurance pool participation.
In addition, amortization of value of insurance in force acquired increased $0.3
million in the second quarter of 1997 compared to the second quarter of 1996 due
to the impact of realized gains and losses on investments backing the related
policyholder liabilities.
Interest expense was $0.4 million for the second quarter of 1997 compared to
$0.1 million for the second quarter of 1996 due primarily to an increase in the
average debt outstanding to $24.6 million for the 1997 quarter from $11.4
million for the 1996 quarter.
Other expenses increased $0.4 million, or 7.5%, to $5.0 million for the second
quarter of 1997 compared to $4.6 million for the second quarter of 1996 due
principally to an increase in the level of leasing, management and financial
services provided to affiliates and third parties.
Pretax income before minority interest and equity income (loss) increased $1.8
million, or 9.5%, to $20.4 million for the second quarter of 1997 compared to
$18.6 million for the second quarter of 1996. All of the pretax income in the
1997 quarter is attributable to life operations as the property-casualty segment
experienced a pretax loss of $0.1 million. In the second quarter of 1996 the
property-casualty segment experienced pretax income of $0.2 million. The
increase in pretax income from life operations is primarily the result of an
increased spread on interest sensitive products, increased operations of the
noninsurance support subsidiaries and the impact of realized gains on
investments.
Income taxes increased $0.7 million, or 12.4%, to $6.5 million for the second
quarter of 1997 compared to $5.8 million for the second quarter of 1996. The
effective tax rate for the second quarter of 1997 was 32.0% compared to
<PAGE>
31.2% for the second quarter of 1996. The effective tax rates were lower than
the federal statutory rate of 35% due primarily to tax exempt interest and
dividend income partially offset by state income taxes. In addition, during the
1997 period the Company realized a tax benefit associated with the payment of
dividends on mandatorily redeemable preferred stock of subsidiary trust. See
"Liquidity and Capital Resources - FBL Financial Group, Inc." and Note 2 to the
consolidated financial statements.
Equity income (loss), net of related income taxes, decreased $1.3 million, or
164.1%, to a loss of $0.5 million for the second quarter of 1997 compared to a
gain of $0.8 million for the second quarter of 1996. Equity income (loss)
includes the Company's proportionate share of gains and losses on investments
owned by the underlying partnerships and joint ventures. The level of these
gains and losses is subject to fluctuation from period to period depending on
the prevailing economic environment and the timing of the sale of investments
held by the partnerships and joint ventures.
Net income applicable to common stock decreased $1.6 million, or 11.7%, to $12.0
million for the second quarter of 1997 compared to $13.6 million for the second
quarter of 1996. Contributing to the decrease in net income applicable to common
stock was $0.8 million in preferred dividends during the 1997 quarter arising
from the exchange of five million shares of Class A common stock for five
million shares of Series A preferred stock on July 18, 1996. In the future,
dividend payments on the parent company's preferred stock will decrease to
$37,500 per quarter as a result of the purchase of the Series A preferred stock
and issuance of Series B preferred stock on May 30, 1997. This decrease will be
offset by an increase in dividends on the company-obligated mandatorily
redeemable preferred stock of subsidiary trust. See "Liquidity and Capital
Resources - FBL Financial Group, Inc." and Note 2 to the consolidated financial
statements.
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, unearned revenue reserve, value of
insurance in force acquired and income taxes attributable to such gains) and net
income from a venture capital investment company subsidiary.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income applicable to common stock .............. $ 11,992 $ 13,575 $ 37,295 $ 24,464
Adjustments:
Net realized gains on investments ............. (1,374) (1,098) (15,345) (98)
Net income from FBL Ventures .................. (397) (1,145) (723) (2,230)
-------- -------- -------- --------
Adjusted operating income applicable to common stock $ 10,221 $ 11,332 $ 21,227 $ 22,136
======== ======== ======== ========
Adjusted operating income per common share ......... $ 0.56 $ 0.47 $ 1.14 $ 0.93
======== ======== ======== ========
</TABLE>
FBL Ventures was a wholly owned investment company subsidiary of Farm Bureau
Life which invested in start-up and mezzanine level venture capital investments
in various sectors. Operating results of FBL Ventures were recognized in
accordance with accounting principles for investment companies and, as such,
unrealized and realized gains and losses on investments were included in net
investment income. Because of the venture capital nature of the underlying
investments, the results of FBL Ventures tended to fluctuate significantly from
year to year and needed to be evaluated over a much longer period of time.
Therefore, the net income attributable to FBL Ventures was not included in
adjusted operating income.
In 1996, the Company began selling the venture capital investments owned by FBL
Ventures in an attempt to exit most aspects of the venture capital investment
business. On June 30, 1997, the remaining investments of FBL
<PAGE>
Ventures (five venture capital securities with a total carrying value of $7.8
million) were transferred to Farm Bureau Life and FBL Ventures was dissolved.
The transfer of investments had no impact on net income.
PENDING ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share".
Statement 128, which is effective for the Company for the first quarter of 1998,
establishes standards for computing and presenting earnings per share (EPS).
Under the Statement, primary and fully diluted EPS are replaced by basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed similarly to primary EPS
pursuant to APB Opinion 15. If Statement 128 were effective, basic and diluted
net income per common share would have been $0.67 and $0.66, respectively, for
the second quarter of 1997 and $2.03 and $2.00, respectively, for the six months
ended June 30, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" and Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information". Statement 130 establishes standards for reporting comprehensive
income and its components which include net income and items currently recorded
directly in equity such as unrealized gains and losses on fixed maturity
securities available for sale. Statement 131 establishes standards for reporting
information about operating segments, products and markets. Both of these
statements are effective for interim and annual periods beginning after December
15, 1997. The impact of these statements, which the Company plans to adopt in
the first quarter of 1998, is not expected to be material to the Company.
In December 1996, the American Institute of Certified Public Accountants issued
an exposure draft of a proposed Statement of Position (SOP) entitled "Accounting
by Insurance and Other Enterprises for Guaranty-Fund and Certain other
Insurance-Related Assessments". The provisions of the exposure draft include (1)
guidance for determining when an insurance enterprise should recognize a
liability for guaranty fund and other assessments, (2) guidance on how to
measure the liability and (3) criteria for when an asset may be recognized for a
portion or all of the assessment liability or paid assessment that can be
recovered through premium tax offsets or policy surcharges. The Company is
currently analyzing the impact of this proposed SOP should it be approved. The
impact is not expected to be material to the Company.
LIQUIDITY AND CAPITAL RESOURCES
FBL FINANCIAL GROUP, INC.
Parent company cash inflows from operations consists primarily of dividends from
subsidiaries, if declared and paid, and fees which it charges the various
subsidiaries and affiliates for management of their operations. Cash outflows
are principally for salaries and other expenses related to providing such
management services and for interest on holding company debt. In addition, the
parent company will on occasion enter into capital transactions such as the
acquisition of its common stock.
On May 30, 1997, FBL Financial Group Capital Trust (the "Trust"), a consolidated
wholly-owned subsidiary of the Company, issued $97.0 million of 5.0% Preferred
Securities to the Company's majority shareholder, the Iowa Farm Bureau
Federation. In connection with the Trust's issuance of the 5.0% Preferred
Securities and the related purchase of all of the Trust's common securities, the
parent company issued to the Trust $100.0 million principal amount of its 5.0%
Subordinated Deferrable Interest Notes, due June 30, 2047 (the "Debt
Securities"). Concurrent with the issuance of the Debt Securities, the Company
purchased from the Iowa Farm Bureau Federation 5,000,000 shares of the parent
company's Series A preferred stock at its liquidation value of $100.0 million.
In addition, the parent company issued 5,000,000 shares of Series B preferred
stock to the Iowa Farm Bureau Federation for $3.0 million.
The purchase of Series A preferred stock and simultaneous issuance of Series B
preferred stock and 5.0% Preferred Securities were noncash transactions. Except
for the maturity of the Debt Securities on June 1, 2047, the parent
<PAGE>
company's future cash flow requirements were not changed significantly by the
aforementioned transactions. See Note 2 to the consolidated financial statements
for additional information.
On April 4, 1997, the parent company purchased 965,370 shares of its Class A
common stock under a stock repurchase plan for $24.8 million. The shares were
purchased from certain Farm Bureau property-casualty insurance companies which
had a concentration of their investments in the Company. The concentrations
arose principally due to the appreciation of the Company's stock price which
caused the investments to exceed statutory or internal guidelines.
During the six months ended June 30,1997, the parent company paid common and
preferred stock dividends totaling $5.8 million. No dividends were paid during
the corresponding 1996 period. It is anticipated dividend requirements for the
remainder of 1997 will be $0.10 per quarter per common share and $0.0075 per
quarter per preferred share, or approximately $3.7 million. In addition,
interest payments on the Debt Securities are estimated to be $2.5 million for
the remainder of 1997. FBL Financial Group, Inc. relies primarily on dividends
from the Life Companies to make any dividend payments to its stockholders and
interest payments on its Debt Securities. 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 by insurance
regulatory authorities of the State of Iowa for Farm Bureau Life and the 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 December 31 of the
preceding year. For the remainder of 1997, the maximum amount legally available
for distribution to FBL Financial Group, Inc. without further regulatory
approval is approximately $5.2 million from Farm Bureau Life and $8.2 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 or its
anticipated dividends.
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, dividends 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 to meet the need for future policy benefit payments and for writing new
business. The Life Companies' liquidity positions continued to be favorable in
the six-month period ended June 30, 1997, 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. The liquidity position
of Utah Insurance continued to be favorable in the six-month period ended June
30, 1997, 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' continuing
operations and financing activities relating to interest sensitive products
provided funds amounting to $59.6 million and $90.6 million in the six-month
periods ended June 30, 1997 and 1996, respectively. These funds were primarily
used to increase the insurance companies' fixed maturity investment portfolios.
<PAGE>
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 and asset-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 a borrowing capacity of $43.9 million as of June 30, 1997.
Interest is payable at the current market rate on the date of issuance. As of
June 30, 1997, no line of credit agreement was open and there were no borrowings
outstanding.
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 and asset-backed
securities, mortgage loans and its insurance products, are adequate to meet the
Company's anticipated 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 June 30, 1997, the Company had no material commitments
for capital expenditures.
INVESTMENTS
The Company's total investment portfolio increased $39.7 million, or 1.4%, to
$2,928.8 million at June 30, 1997 compared to $2,889.1 million at December 31,
1996. This increase is primarily the result of positive cash flows from
operations offset, in part, by the acquisition of 965,370 shares of Class A
common stock for $24.8 million during the second quarter of 1997.
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. Management
continually reviews the returns on invested assets and changes the mix of
invested assets as deemed prudent under the current market environment to help
maximize current income.
<PAGE>
The Company's investment portfolio is summarized in the table below:
JUNE 30, 1997 DECEMBER 31, 1996
-------------------- --------------------
CARRYING CARRYING
VALUE PERCENT VALUE PERCENT
---------- ------- ---------- -------
Fixed maturities: ............ (DOLLARS IN THOUSANDS)
Public .................. $1,737,109 59.3% $1,734,849 60.0%
144A private placement .. 335,747 11.5 230,446 8.0
Private placement ....... 271,819 9.3 303,000 10.5
---------- ------- ---------- -------
Total fixed maturities .. 2,344,675 80.1 2,268,295 78.5
Equity securities ........... 60,660 2.1 86,991 3.0
Held in inventory (1) ....... 3,289 0.1 15,899 0.5
Mortgage loans on real estate 309,943 10.6 293,777 10.2
Investment real estate:
Acquired for debt ....... 1,656 0.1 2,007 0.1
Investment .............. 26,314 0.9 26,384 0.9
Policy loans ................ 121,177 4.1 118,996 4.1
Other long-term investments . 8,369 0.3 8,388 0.3
Short-term investments ...... 52,746 1.7 68,358 2.4
---------- ------- ---------- -------
Total investments $2,928,829 100.0% $2,889,095 100.0%
========== ======= ========== =======
- -----------
(1) Held in inventory included equity securities owned by FBL Ventures
totaling $13.8 million at December 31, 1996.
As of June 30, 1997, 93.8% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, defined as being in the
highest two National Association of Insurance Commissioners (NAIC) designations.
Non-investment grade debt securities generally provide higher yields and involve
greater risks 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 designations 3 through
6). As of June 30, 1997, the Company's investment in non-investment grade debt
was 6.2% of fixed maturity securities. At that time no single non-investment
grade holding exceeded 0.3% of total investments.
The following table sets forth the credit quality, by NAIC designation and
Standard & Poors (S & P) rating equivalents, of fixed maturity securities:
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
JUNE 30, 1997
------------------------
NAIC DESIGNATION EQUIVALENT S&P RATINGS (1) CARRYING VALUE PERCENT
- ---------------- ------------------------- -------------- -------
(DOLLARS IN THOUSANDS)
1 (AAA, AA, A) ............... $1,548,882 66.1%
2 (BBB) ...................... 650,847 27.7
---------- -----
Total investment grade ..... 2,199,729 93.8
3 (BB) ....................... 128,942 5.5
4 (B) ........................ 13,691 0.6
5 (CCC, CC, C) ............... 275 --
6 In or near default ......... 2,038 0.1
---------- -----
Total below investment grade 144,946 6.2
---------- -----
Total fixed maturities ..... $2,344,675 100.0%
========== =====
- -----------
<PAGE>
(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.
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at June 30, 1997:
HELD FOR INVESTMENT
------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Bonds:
Corporate securities ..... 5,008 823 (8) 5,823
Mortgage-backed securities 669,723 19,302 (5,655) 683,370
-------- -------- -------- --------
Total fixed maturities .......... $674,731 $ 20,125 $ (5,663) $689,193
======== ======== ======== ========
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
United States Government and agencies $ 130,192 $ 416 $ (2,557) $ 128,051
State, municipal and other governments 44,196 1,251 (103) 45,344
Public utilities ..................... 190,854 5,333 (1,930) 194,257
Corporate securities ................. 838,943 32,490 (11,553) 859,880
Mortgage and asset-backed securities . 408,619 9,754 (2,486) 415,887
Redeemable preferred stock ............. 24,227 2,304 (6) 26,525
---------- ---------- ---------- ----------
Total fixed maturities ................. $1,637,031 $ 51,548 $ (18,635) $1,669,944
========== ========== ========== ==========
Equity securities ...................... $ 51,952 $ 15,753 $ (7,045) $ 60,660
========== ========== ========== ==========
</TABLE>
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at June 30, 1997, by contractual maturity, are shown
below.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less .............. $ -- $ -- $ 31,144 $ 31,186
Due after one year through five years -- -- 187,163 191,609
Due after five years through ten years -- -- 320,594 329,487
Due after ten years .................. 5,008 5,823 665,284 675,250
---------- ---------- ---------- ----------
5,008 5,823 1,204,185 1,227,532
Mortgage and asset-backed securities . 669,723 683,370 408,619 415,887
Redeemable preferred stocks .......... -- -- 24,227 26,525
---------- ---------- ---------- ----------
$ 674,731 $ 689,193 $1,637,031 $1,669,944
========== ========== ========== ==========
</TABLE>
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. These securities were purchased at a time
when, management believes, these types of investments provided superior
risk-adjusted returns compared to returns of more conventional investments such
as corporate bonds and mortgage loans. These securities are diversified as to
collateral types, cash flow characteristics and maturity. At June 30,
<PAGE>
1997, the Company held $621.0 million (21.2% of total investments) in
residential mortgage-backed securities, $277.7 million (9.5% of total
investments) in commercial mortgage-backed securities and $186.9 million (6.4%
of total investments) in other asset-backed securities.
At June 30, 1997, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $566.3 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 (e.g., 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 repayments of principal do not occur until the
previous tranches are paid off. As of June 30, 1997, 73.3% of the Company's CMO
investments are in PAC and sequential pay securities. The Company does not
purchase certain types of collateralized mortgage obligations which it believes
subjects the investment portfolio to greater than average risk. These include,
but are not limited to, interest only, principal only, floater, inverse floater,
PAC II, Z and support tranches.
At June 30, 1997, the Company held $309.9 million or 10.6% 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
June 30, 1997, mortgages more than 60 days delinquent accounted for 0.2% 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 June 30,
1997 include: Pacific (24%) which includes California, Oregon and Washington;
and Mountain (20%) which includes Arizona, Colorado, Idaho, New Mexico, Utah and
Wyoming. Mortgage loans on real estate have also been analyzed by collateral
types with office buildings (49%) and retail facilities (31%) representing the
largest holdings at June 30, 1997.
The Company's investment portfolio at June 30, 1997, also included $52.7 million
of short-term investments and $234.3 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
duration and cash flow characteristics consistent with the duration and cash
flow characteristics of the Company's insurance liabilities. At June 30, 1997,
the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 9.2 years. Based on the
fixed income analytical system utilized by the Company, including its mortgage
backed prepayment assumptions, the effective duration of the fixed income
portfolio was 4.9 as of June 30, 1997.
OTHER ASSETS
Deferred policy acquisition costs increased $12.0 million, or 7.2%, due
principally to the capitalization of costs incurred with new sales. Assets held
in separate accounts increased $31.0 million, or 39.3%, to $110.1 million at
June 30, 1997 due primarily to net transfers to the separate accounts resulting
from sales of the Company's variable products. At June 30, 1997, the Company had
total assets of $3,463.0 million, a 2.8% increase from total assets at December
31, 1996.
LIABILITIES AND MINORITY INTEREST
Policy liabilities and accruals increased $39.4 million, or 1.7%, due primarily
to an increase in the volume of business in force. At June 30, 1997, the Company
had total liabilities of $2,812.4 million, a 3.2% increase from total
liabilities at December 31, 1996. Minority interest in subsidiaries increased
$97.0 million to $101.8 million at June 30, 1997, as a result of the issuance of
5.0% Preferred Securities during May 1997. See "Liquidity and Capital Resources
- - FBL Financial Group, Inc." and Note 2 to the consolidated financial statements
for more information regarding this transaction.
<PAGE>
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $89.7 million, or 14.1%, to $548.8 million at
June 30, 1997 compared to $638.5 million at December 31, 1996. This decrease is
principally attributable to a $97 million decrease in preferred stock. On May
30, 1997, the Company purchased $100.0 million of Series A preferred stock from
and issued $3.0 million of Series B preferred stock to the Iowa Farm Bureau
Federation. In addition, on April 4, 1997, the Company purchased 965,370 shares
of its Class A common stock under a stock repurchase plan for $24.8 million. See
"Liquidity and Capital Resources - FBL Financial Group, Inc." and Note 2 to the
consolidated financial statements for more information regarding these
transactions.
At June 30, 1997, common stockholders' equity was $545.8 million, or $30.47 per
share, compared to $538.5 million, or $28.55 per share at December 31, 1996.
Included in stockholders' equity per common share is $1.14 and $1.05 at June 30,
1997 and December 31, 1996, respectively, attributable to unrealized investment
gains resulting from marking the Company's fixed maturity securities classified
as available for sale to market value. The change in unrealized appreciation of
fixed maturity and equity securities classified as available for sale reduced
stockholders' equity $1.9 million during the six-month period ended June 30,
1997, after related adjustments to deferred policy acquisition costs, value of
insurance in force acquired, unearned revenue reserve and deferred income taxes.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual shareholders meeting was held on May 21, 1997.
(b) and (c) (i) Election of the following Class A directors to the Company's
Board of Directors:
FOR AGAINST OR WITHHELD
------------- -------------------
Jerry L. Chicoine........... 21,543,141 348,350
John W. Creer............... 21,542,886 348,605
John E. Walker.............. 21,543,141 348,350
(ii) Election of the following Class B directors to the Company's
Board of Directors:
FOR AGAINST OR WITHHELD
------------- -------------------
Kenneth R. Ashby............ 1,192,990 --
Al Christopherson........... 1,192,990 --
Kenny J. Evans.............. 1,192,990 --
V. Thomas Geary............. 1,192,990 --
Thomas R. Gibson............ 1,192,990 --
Gary Hall................... 1,192,990 --
Richard D. Harris........... 1,192,990 --
Karen J. Henry.............. 1,192,990 --
Richard Kjerstad............ 1,192,990 --
David L. McClure............ 1,192,990 --
H. Eldon Merklin............ 1,192,990 --
Roger Bill Mitchell......... 1,192,990 --
Stephen M. Morain........... 1,192,990 --
Bryce P. Neidig............. 1,192,990 --
Howard D. Poulson........... 1,192,990 --
Howard G. Schmid............ 1,192,990 --
John J. Van Sweden.......... 1,192,990 --
Edward M. Wiederstein....... 1,192,990 --
(iii) Approval of the appointment of Ernst & Young LLP as
independent auditors for the Company for the year 1997.
Shareholders cast 23,052,883 votes for and 26,743 votes
against the appointment of Ernst & Young LLP. There were 4,855
abstentions and no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) The following report on Form 8-K was filed during the quarter ended
June 30, 1997:
(i) Report on Form 8-K filed on June 6, 1997 regarding the (1)
issuance of $97.0 million of trust preferred securities, (2)
issuance of $3.0 million of Series B preferred stock and (3)
purchase of $100.0 million of Series A preferred stock.
<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: August 11, 1997
FBL FINANCIAL GROUP, INC.
By /s/ Thomas R. Gibson
Chief Executive Officer
(Principal Executive Officer)
By /s/ James W. Noyce
Chief Financial Officer
(Principal Financial and Accounting
Officer)
EXHIBIT 11
FBL FINANCIAL GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding ..................................... 17,951,306 23,859,800 18,403,043 23,859,800
Net effect of stock options - based on the treasury stock
method using average market price ............................ 313,782 -- 275,256 --
------------ ------------ ------------ ------------
Weighted average primary shares outstanding .................... 18,265,088 23,859,800 18,678,299 23,859,800
============ ============ ============ ============
Net income ..................................................... $ 12,838 $ 13,575 $ 39,391 $ 24,464
Dividends on Series A and B preferred stock .................... (846) -- (2,096) --
------------ ------------ ------------ ------------
Net income applicable to common stock .......................... $ 11,992 $ 13,575 $ 37,295 $ 24,464
============ ============ ============ ============
Net income per primary common and common equivalent share ...... $ 0.66 $ 0.57 $ 2.00 $ 1.03
============ ============ ============ ============
FULLY DILUTED
Average shares outstanding ..................................... 17,951,306 23,859,800 18,403,043 23,859,800
Net effect of stock options-based on the treasury stock
method using period-end market price, if higher than average
market price ................................................. 438,081 -- 441,175 --
------------ ------------ ------------ ------------
Weighted average fully diluted shares outstanding .............. 18,389,387 23,859,800 18,844,218 23,859,800
============ ============ ============ ============
Net income ..................................................... $ 12,838 $ 13,575 $ 39,391 $ 24,464
Dividends on Series A and B preferred stock .................... (846) -- (2,096) --
------------ ------------ ------------ ------------
Net income applicable to common stock .......................... $ 11,992 $ 13,575 $ 37,295 $ 24,464
============ ============ ============ ============
Net income per fully diluted common and common equivalent share $ 0.65 $ 0.57 $ 1.98 $ 1.03
============ ============ ============ ============
</TABLE>
Note: Net income per fully diluted common and common equivalent share is not
disclosed on the face of the Company's Consolidated Statements of Income because
dilution is less than three percent.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,669,944
<DEBT-CARRYING-VALUE> 674,731
<DEBT-MARKET-VALUE> 689,193
<EQUITIES> 60,660
<MORTGAGE> 309,943
<REAL-ESTATE> 27,970
<TOTAL-INVEST> 2,928,829
<CASH> 4,101
<RECOVER-REINSURE> 36,567
<DEFERRED-ACQUISITION> 178,864
<TOTAL-ASSETS> 3,463,001
<POLICY-LOSSES> 2,230,353
<UNEARNED-PREMIUMS> 29,836
<POLICY-OTHER> 32,783
<POLICY-HOLDER-FUNDS> 230,157
<NOTES-PAYABLE> 24,580
0
3,000
<COMMON> 49,308
<OTHER-SE> 496,501
<TOTAL-LIABILITY-AND-EQUITY> 3,463,001
95,709
<INVESTMENT-INCOME> 110,841
<INVESTMENT-GAINS> 23,953
<OTHER-INCOME> 13,357
<BENEFITS> 124,268
<UNDERWRITING-AMORTIZATION> 7,924
<UNDERWRITING-OTHER> 28,283
<INCOME-PRETAX> 59,509
<INCOME-TAX> 19,653
<INCOME-CONTINUING> 39,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,391
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.98
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
