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, 1998
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
5400 University Avenue, West Des Moines, Iowa 50266-5997
- -------------------------------------------------------------------------------
(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: 31,372,102 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of July 31, 1998.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 1998 - $614,905; 1997 -
$663,315) ........................................................... $ 593,057 $ 639,598
Available for sale, at market (amortized cost: 1998 - $1,671,231; 1997 -
$1,629,950) ......................................................... 1,761,113 1,711,578
Equity securities, at market (cost: 1998 - $46,849; 1997 - $60,500) ...... 43,523 57,736
Mortgage loans on real estate ............................................ 305,741 323,605
Investment real estate, less allowances for depreciation of $3,515 in 1998
and $2,682 in 1997 ..................................................... 41,759 39,942
Policy loans ............................................................. 122,967 121,941
Other long-term investments .............................................. 11,686 14,438
Short-term investments ................................................... 77,386 32,073
---------- ----------
Total investments ........................................................... 2,957,232 2,940,911
Cash and cash equivalents ................................................... 3,418 2,397
Securities and indebtedness of related parties .............................. 66,034 64,442
Accrued investment income ................................................... 32,798 33,894
Accounts and notes receivable ............................................... 1,214 1,401
Amounts receivable from affiliates .......................................... 1,724 3,656
Reinsurance recoverable ..................................................... 7,286 9,789
Deferred policy acquisition costs ........................................... 194,744 181,916
Value of insurance in force acquired ........................................ 15,358 16,044
Property and equipment, less allowances for depreciation of $31,653 in 1998
and $48,847 in 1997 ...................................................... 38,484 63,481
Current income taxes recoverable ............................................ 10,826 11,925
Goodwill, less accumulated amortization of $3,136 in 1998 and $2,792 in
1997 ..................................................................... 10,296 10,640
Other assets ................................................................ 26,444 15,949
Assets of discontinued operations ........................................... -- 106,672
Assets held in separate accounts ............................................ 182,328 138,409
---------- ----------
Total assets ........................................................ $3,548,186 $3,601,526
========== ==========
</TABLE>
2
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products ......................................... $1,560,055 $1,578,794
Traditional life insurance and accident and health products ......... 724,196 711,722
Unearned revenue reserve ............................................ 24,374 23,530
Other policy claims and benefits ....................................... 10,007 13,488
---------- ----------
2,318,632 2,327,534
Other policyholders' funds:
Supplementary contracts without life contingencies ..................... 144,422 137,398
Advance premiums and other deposits .................................... 84,878 85,280
Accrued dividends ...................................................... 12,555 13,801
---------- ----------
241,855 236,479
Long-term debt ........................................................... 24,574 24,577
Amounts payable to affiliates ............................................ 4,389 60
Deferred income taxes .................................................... 42,618 43,592
Other liabilities ........................................................ 70,980 44,939
Liabilities of discontinued operations ................................... -- 79,118
Liabilities related to separate accounts ................................. 182,328 138,409
---------- ----------
Total liabilities ................................................... 2,885,376 2,894,708
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock of subsidiary
trust .................................................................. 97,000 97,000
Other .................................................................... 4,503 4,503
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares .... 3,000 3,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 31,356,736 shares in 1998 and 34,732,448 shares
in 1997 ............................................................... 40,012 42,907
Class B common stock, without par value - authorized 1,500,000 shares,
issued and outstanding 1,192,990 shares ................................ 7,567 7,567
Accumulated other comprehensive income - net unrealized investment
gains .................................................................. 52,344 48,559
Retained earnings ........................................................ 458,384 503,282
---------- ----------
Total stockholders' equity ............................................. 561,307 605,315
---------- ----------
Total liabilities and stockholders' equity .......................... $3,548,186 $3,601,526
========== ==========
</TABLE>
See accompanying notes.
3
<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,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Interest sensitive product charges .................... $ 13,275 $ 11,910 $ 25,753 $ 23,206
Traditional life insurance and accident and health
premiums ............................................ 26,273 26,853 49,291 49,401
Net investment income ................................. 58,603 55,063 114,673 108,945
Realized gains (losses) on investments ................ (4,169) 2,089 (2,857) 23,925
Other income .......................................... 7,396 6,803 15,073 13,088
--------- --------- --------- ---------
Total revenues ...................................... 101,378 102,718 201,933 218,565
Benefits and expenses:
Interest sensitive product benefits ................... 29,508 31,942 61,381 62,361
Traditional life insurance and accident and health
benefits ............................................ 16,019 15,477 29,167 29,656
Increase in traditional life and accident and health
future policy benefits .............................. 7,065 8,178 12,410 13,699
Distributions to participating policyholders .......... 6,723 6,894 13,308 13,565
Underwriting, acquisition and insurance expenses ...... 16,470 14,357 32,040 29,341
Interest expense ...................................... 398 389 768 765
Other expenses ........................................ 6,175 4,980 12,139 9,464
--------- --------- --------- ---------
Total benefits and expenses ......................... 82,358 82,217 161,213 158,851
--------- --------- --------- ---------
19,020 20,501 40,720 59,714
Income taxes ............................................. (5,804) (6,639) (12,829) (19,857)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary trust....... (1,212) (404) (2,425) (404)
Other ................................................. (84) (88) (168) (177)
Equity income (loss), net of related income taxes ........ 950 (507) 648 116
--------- --------- --------- ---------
Income from continuing operations ........................ 12,870 12,863 25,946 39,392
Discontinued operations:
Income (loss) from property-casualty operations, net
of related income taxes ............................. -- (25) 287 (1)
Gain on disposal of property-casualty operations,
net of related income taxes ......................... -- -- 179 --
--------- --------- --------- ---------
Net income ............................................... 12,870 12,838 26,412 39,391
Dividends on Series A and B preferred stock .............. (38) (846) (75) (2,096)
--------- --------- --------- ---------
Net income applicable to common stock .................... $ 12,832 $ 11,992 $ 26,337 $ 37,295
========= ========= ========= =========
Earnings per common share:
Income from continuing operations ..................... $ 0.39 $ 0.33 $ 0.75 $ 1.01
Discontinued operations ............................... -- -- 0.01 --
--------- --------- --------- ---------
Earnings per common share ............................. $ 0.39 $ 0.33 $ 0.76 $ 1.01
--------- --------- --------- ---------
Earnings per common share - assuming dilution:
Income from continuing operations ..................... $ 0.38 $ 0.33 $ 0.73 $ 1.00
Discontinued operations ............................... -- -- 0.01 --
--------- --------- --------- ---------
Earnings per common share - assuming dilution ......... $ 0.38 $ 0.33 $ 0.74 $ 1.00
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B OTHER TOTAL
PREFERRED COMMON COMMON COMPREHENSIVE RETAINED STOCKHOLDERS'
STOCK STOCK STOCK INCOME EARNINGS EQUITY
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ............. $ 100,000 $ 43,773 $ 7,567 $ 27,858 $ 459,324 $ 638,522
Comprehensive income:
Net income for six months
ended June 30, 1997 ........... -- -- -- -- 39,391 39,391
Change in net unrealized
investment gains/losses ....... -- -- -- (1,867) -- (1,867)
---------
Total comprehensive income .......... 37,524
Purchase of Series A preferred
stock ............................ (100,000) -- -- -- -- (100,000)
Issuance of Series B preferred
stock ............................ 3,000 -- -- -- -- 3,000
Purchase of 1,930,740 shares
of common stock .................. -- (2,402) -- -- (22,432) (24,834)
Issuance of 37,632 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
========= ========= ========= ========= ========= =========
Balance at January 1, 1998 ............. $ 3,000 $ 42,907 $ 7,567 $ 48,559 $ 503,282 $ 605,315
Comprehensive income:
Net income for six months
ended June 30, 1998 ........... -- -- -- -- 26,412 26,412
Change in net unrealized
investment gains/losses ....... -- -- -- 3,785 -- 3,785
---------
Total comprehensive income .......... 30,197
Exchange of properties for
2,536,112 shares of common
stock ............................ -- (3,340) -- -- (42,310) (45,650)
Purchase of 961,536 shares of
common stock ..................... -- (1,224) -- -- (23,784) (25,008)
Issuance of 121,936 shares of
common stock under stock
option plan, including related
income tax benefit ............... -- 1,669 -- -- -- 1,669
Dividends on preferred stock ........ -- -- -- -- (75) (75)
Dividends on common stock ............ -- -- -- -- (5,141) (5,141)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 ............... $ 3,000 $ 40,012 $ 7,567 $ 52,344 $ 458,384 $ 561,307
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Continuing operations:
Net income ................................................................... $ 25,946 $ 39,392
Adjustments to reconcile net income to net cash provided by continuing
operations:
Adjustments related to interest sensitive products:
Interest credited to account balances ................................. 53,217 53,193
Charges for mortality and administration .............................. (25,772) (24,050)
Deferral of unearned revenues ......................................... 1,309 1,149
Amortization of unearned revenue reserve .............................. (426) (305)
Provision for depreciation and amortization ............................... 4,158 8,939
Net gains and losses related to investments held by broker-dealer and
investment company subsidiaries ....................................... 77 (1,280)
Realized losses (gains) on investments .................................... 2,857 (23,925)
Increase in traditional life and accident and health benefit accruals ..... 12,348 13,462
Policy acquisition costs deferred ......................................... (16,927) (15,258)
Amortization of deferred policy acquisition costs ......................... 4,455 3,766
Provision for deferred income taxes ....................................... (2,379) (9,701)
Other ..................................................................... (915) 590
--------- ---------
Net cash provided by continuing operations ....................................... 57,948 45,972
Discontinued operations:
Net income ................................................................... 466 (1)
Adjustments to reconcile net income to net cash provided by discontinued
operations ................................................................ 2,006 4,414
--------- ---------
Net cash provided by discontinued operations ..................................... 2,472 4,413
--------- ---------
Net cash provided by operating activities ........................................ 60,420 50,385
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ....................................... 48,071 19,564
Fixed maturities - available for sale ........................................ 177,597 150,033
Equity securities ............................................................ 16,819 81,066
Mortgage loans on real estate ................................................ 33,242 17,867
Investment real estate ....................................................... 150 745
Policy loans ................................................................. 14,467 14,502
Other long-term investments .................................................. 914 7,432
Short-term investments - net ................................................. -- 16,526
--------- ---------
291,260 307,735
</TABLE>
6
<PAGE>
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Acquisition of investments:
Fixed maturities - held for investment ....................................... $ -- $ (49)
Fixed maturities - available for sale ........................................ (219,439) (239,556)
Equity securities ............................................................ (1,381) (29,160)
Mortgage loans on real estate ................................................ (15,460) (34,622)
Investment real estate ....................................................... (2,624) (400)
Policy loans ................................................................. (15,493) (16,683)
Other long-term investments .................................................. (1,714) (1,313)
Short-term investments - net ................................................. (45,313) --
--------- ---------
(301,424) (321,783)
Proceeds from disposal, repayments of advances and other distributions from
equity investees ............................................................. 2,436 4,562
Investments in and advances to equity investees .................................. (2,797) (3,623)
Net purchases of property and equipment and other ................................ (4,438) (10,972)
Investing activities of discontinued operations .................................. (2,474) (4,892)
Net proceeds from sale of discontinued operations ................................ 24,844 --
--------- ---------
Net cash provided by (used in) investing activities .............................. 7,407 (28,973)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to policyholder account
balances ..................................................................... 133,978 137,930
Return of policyholder account balances on interest sensitive products ........... (173,138) (127,886)
Proceeds from long-term debt with affiliate ...................................... 4,171 --
Repayments of long-term debt ..................................................... (3) (1)
Distributions on company-obligated mandatorily redeemable preferred stock of
subsidiary trust ............................................................. (2,425) (404)
Other distributions to minority interests ........................................ (268) (268)
Purchase of common stock ......................................................... (25,008) (24,834)
Issuance of common stock ......................................................... 1,103 329
Dividends paid ................................................................... (5,216) (5,760)
--------- ---------
Net cash used in financing activities ............................................ (66,806) (20,894)
--------- ---------
Increase in cash and cash equivalents ............................................ 1,021 518
Cash and cash equivalents at beginning of period ................................. 2,397 3,583
--------- ---------
Cash and cash equivalents at end of period ....................................... $ 3,418 $ 4,101
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest ..................................................................... $ 744 $ 731
Income taxes ................................................................. 13,059 35,759
</TABLE>
See accompanying notes.
7
<PAGE>
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and notes thereto for the year ended December
31, 1997 included in the Company's annual report on Form 10-K.
2. STOCKHOLDERS' EQUITY
STOCK SPLIT
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. All references to the number of common shares and per share amounts in
this report have been restated as appropriate to reflect the effect of the share
dividend for all periods presented.
As required by the Company's Articles of Incorporation, holders of the Class B
common stock received Class A common shares in payment of the share dividend. In
addition, the 5.0 million shares of Series B preferred stock have non-dilutive
voting rights. As a result, voting rights on these shares increased
proportionately while the number of shares outstanding did not change.
EXCHANGE OF HOME OFFICE PROPERTIES
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation, its majority shareholder. The value of the
transaction, which was structured as a tax-free exchange of a real estate
subsidiary, was $45.7 million, or $18.00 per common share. The book value of the
properties was $24.7 million on the date of the exchange. The transaction was
accounted for as a noncash financing activity for purposes of the statements of
cash flows.
The Company is leasing a portion of the properties back from a wholly-owned
subsidiary of the Iowa Farm Bureau Federation under a 15-year operating lease. A
gain on the transaction of approximately $21.0 million was deferred by the
Company and is being amortized over the term of the operating lease.
STOCK REPURCHASES
During the second quarter of 1998, the Company repurchased 961,536 shares of
Class A common stock, for $25.0 million, in accordance with a stock repurchase
plan approved by the Company's Board of Directors on May 19, 1998. Of the shares
repurchased, 770,736 were unregistered shares owned by eight Farm Bureau
entities. 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. DISCONTINUED OPERATIONS
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, which was
approved by the Company's Board of Directors on March 17, 1998, the Company no
longer has
8
<PAGE>
property-casualty operations. Prior year financial statements have been restated
to reflect the operations of Utah Insurance as discontinued.
The Company received $25.0 million in cash on the date of the sale, resulting in
a $0.2 million gain net of related income taxes. The tax benefit recorded in
connection with the sale ($1.0 million) is greater than the prevailing federal
income tax rate due to the reversal of cumulative temporary differences between
the book and income tax bases of Utah Insurance's assets and liabilities. The
Company may receive additional consideration during each of the five years in
the period ending December 31, 2002, in accordance with an earn-out provision
included in the underlying sales agreement. Under the earn-out arrangement, the
Company and Farm Bureau Mutual will share equally in the dollar amount by which
the incurred losses on Utah Insurance's direct business, net of reinsurance
ceded, is less than the incurred losses assumed in the valuation model used to
derive the initial $25.0 million acquisition price. The earn-out calculation
will be performed and any settlement (subject to a maximum of $2.0 million per
year) will be made on a calendar year basis. The Company has not accrued any
contingent consideration as such amounts, if any, cannot be reasonably estimated
as of June 30, 1998. Any receipts as a result of the earn-out provision will be
recorded as an adjustment to the gain on the disposal of the discontinued
segment.
Revenues from discontinued operations for the six months ended June 30, 1998 and
1997 totaled $12.9 million and $25.3 million, respectively, and for the three
months ended June 30, 1997 totaled $13.1 million. Income tax expense (benefit)
from discontinued operations for the six months ended June 30, 1998 and 1997
totaled $36,000 and $(0.2) million, respectively, and for the three months ended
June 30, 1997 totaled $(0.1) million.
4. 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 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,
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available for
sale ........................................................................... $ 86,556 $ 81,076
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs .............................................. (5,663) (6,019)
Value of insurance in force acquired ........................................... (1,254) (1,061)
Unearned revenue reserve ....................................................... 748 709
Provision for deferred income taxes ................................................ (28,185) (26,146)
-------- --------
52,202 48,559
Proportionate share of net unrealized investment gains of equity investees ......... 142 --
-------- --------
Net unrealized investment gains .................................................... $ 52,344 $ 48,559
======== ========
</TABLE>
9
<PAGE>
5. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income". Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholders'
equity. Statement No. 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income.
During the three months ended June 30, 1998 and 1997, comprehensive income
totaled $14.4 million and $36.4 million, respectively. During the six months
ended June 30, 1998 and 1997, comprehensive income totaled $30.2 million and
$37.5 million, respectively.
6. EARNINGS PER SHARE
The following table sets forth the computation of earnings per common share and
earnings per common share - assuming dilution:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations ................ $ 12,870 $ 12,863 $ 25,946 $ 39,392
Income from discontinued operations .............. -- (25) 466 (1)
------------ ------------ ------------ ------------
Net income ....................................... 12,870 12,838 26,412 39,391
Dividends on Series A and B preferred stock ...... (38) (846) (75) (2,096)
------------ ------------ ------------ ------------
Numerator for earnings per common share-
income available to common
stockholders ................................. $ 12,832 $ 11,992 $ 26,337 $ 37,295
============ ============ ============ ============
Denominator:
Denominator for earnings per common
share - weighted-average shares ................ 33,180,824 35,902,612 34,555,377 36,806,086
Effect of dilutive securities - employee stock
options ........................................ 896,091 627,564 854,646 550,512
------------ ------------ ------------ ------------
Denominator for diluted earnings per
common share - adjusted weighted-
average shares ............................... 34,076,915 36,530,176 35,410,023 37,356,598
============ ============ ============ ============
Earnings per common share:
Income from continuing operations ................ $ 0.39 $ 0.33 $ 0.75 $ 1.01
Discontinued operations .......................... -- -- 0.01 --
------------ ------------ ------------ ------------
Earnings per common share ........................ $ 0.39 $ 0.33 $ 0.76 $ 1.01
============ ============ ============ ============
Earnings per common share - assuming dilution:
Income from continuing operations ................ $ 0.38 $ 0.33 $ 0.73 $ 1.00
Discontinued operations .......................... -- -- 0.01 --
------------ ------------ ------------ ------------
Earnings per common share - assuming
dilution ....................................... $ 0.38 $ 0.33 $ 0.74 $ 1.00
============ ============ ============ ============
</TABLE>
For purposes of the calculation of earnings per common share, dividends on
Series A and B preferred stock are applicable to continuing operations.
10
<PAGE>
7. CREDIT ARRANGEMENTS
The Company has a $10.0 million line of credit with Farm Bureau Mutual in the
form of a revolving demand note. Borrowings on the note, which totaled $4.2
million at June 30, 1998, are being used to acquire assets that will be leased
to certain affiliates, including Farm Bureau Mutual. Interest is payable at a
rate equal to the prime rate of a national bank (8.5% at June 30, 1998).
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $54.0 million from the FHLB as of June 30, 1998. The Company had
no outstanding debt under this credit arrangement as of June 30, 1998 or
December 31, 1997.
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 June 30, 1998, 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.
During the first quarter of 1998, the Company entered into a 15-year operating
lease with the Iowa Farm Bureau Federation for the lease of its home office
properties. Future minimum lease payments under this lease are as follows: 1998
- - $0.8 million; 1999 - $1.7 million; 2000 - $2.1 million; 2001 - $2.1 million;
2002 - $2.1 million; and thereafter, through 2013 - $25.9 million.
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, 1998, 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 $5.3 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual.
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).
On March 17, 1998, the Company's Board of Directors approved a two-for-one
common stock split payable in the form of a 100% stock dividend to stockholders
of record as of April 6, 1998. The additional shares were distributed April 17,
1998. All references to the number of common shares and per share amounts in
this report have been restated as appropriate to reflect the effect of the share
dividend for all periods presented.
On March 31, 1998, the Company sold its wholly-owned subsidiary, Utah Farm
Bureau Insurance Company (Utah Insurance), to Farm Bureau Mutual Insurance
Company (Farm Bureau Mutual), an affiliate. As a result of the sale, which was
approved by the Company's Board of Directors on March 17, 1998, the Company no
longer has property-casualty operations. Results of the property-casualty
operations have been reported separately as "discontinued" and applicable
amounts for the 1997 periods presented herein have been restated.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
A summary of the Company's premiums and product charges is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Premiums and product charges:
Interest sensitive product charges ..................... $13,275 $11,910 $25,753 $23,206
Traditional life insurance and accident and health
premiums ............................................ 26,273 26,853 49,291 49,401
------- ------- ------- -------
Total ............................................... $39,548 $38,763 $75,044 $72,607
======= ======= ======= =======
</TABLE>
Interest sensitive product charges increased $1.4 million, or 11.5%, for the
second quarter of 1998 and $2.5 million, or 11.0%, for the six months ended June
30, 1998 compared to the respective periods in 1997. These increases are due
primarily to increased cost of insurance charges resulting from an increase in
the volume and age of business in force. In addition, mortality and expense
charges have increased as a result of growth in variable product account
balances.
Traditional life insurance and accident and health premiums decreased $0.6
million, or 2.2%, for the second quarter of 1998 and $0.1 million, or 0.2%, for
the six months ended June 30, 1998 compared to the respective periods in 1997.
Management believes the decrease in the sale of traditional life insurance
products is the result of a marketing emphasis placed on the sale of variable
universal life insurance products. Premiums collected on variable universal life
insurance products increased 15.4% to $10.2 million for the 1998 quarter and
increased 16.9 % to $18.7 million for the six months ended June 30, 1998.
Net investment income increased $3.5 million, or 6.4%, for the second quarter of
1998 and $5.7 million, or 5.3%, for the six months ended June 30, 1998 compared
to the respective periods in 1997. These increases are attributable to increases
in invested assets and the yield earned on those investments. The annualized
yield earned on average invested assets was 8.11% for the six months ended June
30, 1998 compared to 7.83% for the six months ended June 30, 1997. Despite a
general decline in market interest rates during the 12-month period ended June
30, 1998, yield on invested assets increased due principally to an increase in
fee income associated with mortgage loan prepayments
12
<PAGE>
and bond calls. Such fee income, which increased $3.7 million for the second
quarter and $5.1 million for the six-month period, is not expected to be a
consistently recurring source of revenue for the Company. The increase in
average invested assets is principally attributable to net positive cash flows
from operating activities.
Realized gains (losses) on investments decreased $6.3 million, or 300.0%, for
the second quarter of 1998 and $26.8 million, or 111.9%, for the six months
ended June 30, 1998 compared to the respective periods in 1997. Included in
realized gains (losses) during the second quarter of 1998 and 1997 were $6.5
million and $1.7 million, respectively, in realized losses resulting from
writedowns of investments that became other-than-temporarily impaired. For the
six-month periods, impairment losses totaled $8.1 million in 1998 and $19.4
million in 1997. These writedowns are the result of sustained operating losses,
non-renewal of sales contracts, rejection of product design by regulatory
authorities and various other economic factors that became evident in the
respective periods. The realized gains recognized during the six months ended
June 30, 1997 resulted primarily from the sale of one equity security. 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 $0.6 million, or 8.7%, for the second quarter of 1998 and
$2.0 million, or 15.2%, for the six months ended June 30, 1998 compared to the
respective periods in 1997. These increases are attributable to an increase in
the level of leasing, investment advisory and other financial services provided
to affiliates and third parties. For the second quarter of 1998, the increase is
partially offset by a $0.7 million decrease in rental income due to the exchange
of home office properties on March 30, 1998. See "Exchange of Home Office
Properties".
A summary of the Company's policy benefits is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Policy benefits:
Interest sensitive product benefits ............... $ 29,508 $ 31,942 $ 61,381 $ 62,361
Traditional life insurance and accident and health
benefits ....................................... 16,019 15,477 29,167 29,656
Increase in traditional life and accident and
health future policy benefits .................. 7,065 8,178 12,410 13,699
Distributions to participating policyholders ...... 6,723 6,894 13,308 13,565
-------- -------- -------- --------
Total .......................................... $ 59,315 $ 62,491 $116,266 $119,281
======== ======== ======== ========
</TABLE>
Interest sensitive product benefits decreased $2.4 million, or 7.6%, for the
second quarter of 1998 and $1.0 million, or 1.6%, for the six months ended June
30, 1998 compared to the respective periods in 1997. Universal life death
benefits in excess of related account balances decreased $2.2 million for the
quarter and $1.0 million for the six-month period. Interest credited to
contracts decreased for the 1998 quarter and was relatively flat for the six
months ended June 30, 1998. The decrease for the quarter is due primarily to
decreases in interest crediting rates. The weighted average annualized crediting
rate for the Company's universal life liabilities decreased to 6.04% for the six
months ended June 30, 1998 from 6.28% for six months ended June 30, 1997, and
the weighted average annualized crediting rate for the Company's annuity
liabilities decreased to 5.83% for the 1998 period from 6.28% for the 1997
period. The Company decreased interest crediting rates on many of its products
during the 12-month period ended June 30, 1998 in response to the general
decline in market interest rates during the same period.
Traditional life insurance and accident and health benefits, including the
related changes in reserves, decreased $0.6 million, or 2.4%, for the second
quarter of 1998 and decreased $1.8 million, or 4.1%, for the six months ended
June 30, 1998 compared to the respective periods in 1997. Death and surrender
benefits on traditional products increased $1.1 million for the second quarter
and decreased $0.6 million for the six-month period. For the second quarter, the
increase in death and surrender benefits was more than offset by a decrease in
related reserves and other benefits. Traditional life insurance and accident and
health benefits can tend to fluctuate from period to period as a result of
changes in mortality and morbidity experience.
13
<PAGE>
Distributions to participating policyholders decreased $0.2 million, or 2.5%,
for the second quarter of 1998 and $0.3 million, or 1.9%, for the six months
ended June 30, 1998 compared to the respective periods in 1997. The impact of a
decrease in the average interest rate used in the dividend formula to 5.97% at
June 30, 1998 from 6.19% at June 30, 1997 was partially offset by growth in the
amount and age of the participating business in force.
A summary of the Company's underwriting, acquisition and insurance expenses is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals .................. $ 2,475 $ 2,447 $ 4,686 $ 4,619
Amortization of deferred policy acquisition costs ..... 2,760 1,613 4,455 3,766
Other underwriting, acquisition and insurance
expenses, net of deferrals ......................... 11,235 10,297 22,899 20,956
------- ------- ------- -------
Total .............................................. $16,470 $14,357 $32,040 $29,341
======= ======= ======= =======
</TABLE>
Commission expense increased $28,000, or 1.1%, for the second quarter of 1998
and $67,000, or 1.5%, for the six months ended June 30, 1998 compared to the
respective periods in 1997. Commission expense was relatively consistent during
the periods as direct life insurance premiums collected increased 1.5% for the
six-month period ended June 30, 1998 compared to the same period in 1997.
Amortization of deferred policy acquisition costs increased $1.1 million, or
71.1%, for the second quarter of 1998 and $0.7 million, or 18.3%, for the six
months ended June 30, 1998 compared to the respective periods in 1997. The
increases are primarily attributable to improved profitability of the underlying
business, partially offset by the impact of realized gains and losses on
investments backing the related policyholder liabilities.
Other underwriting, acquisition and insurance expenses increased $0.9 million,
or 9.1%, for the second quarter of 1998 and $1.9 million, or 9.3%, for the six
months ended June 30, 1998 compared to the respective periods in 1997. During
the first six months of 1998 and 1997, expenses totaling $1.0 million and
$31,000, respectively, were incurred relating to modifying the Company's
computer systems to prepare for the Year 2000 date conversion. Expenses also
increased in the second quarter of 1998 as a result of start-up activities
relating to the sale of variable products through alternative distribution
channels. These increases were partially offset by a $0.9 million decrease in
home office real estate expense due to the exchange of home office properties on
March 30, 1998. See "Impact of Year 2000" and "Exchange of Home Office
Properties".
Other expenses increased $1.2 million, or 24.0%, for the second quarter of 1998
and $2.7 million, or 28.3%, for the six months ended June 30, 1998 compared to
the respective periods in 1997. These increases are attributable to an increase
in the level of leasing, investment advisory and other financial services
provided to affiliates and third parties.
Pretax income before minority interest, equity income and discontinued
operations decreased $1.5 million, or 7.2%, for the second quarter of 1998 and
$19.0 million, or 31.8%, for the six months ended June 30, 1998 compared to the
respective periods in 1997. The decrease in pretax income is primarily the
result of the decrease in realized gains on investments partially offset by an
increase in income earned on invested assets.
Income taxes decreased $0.8 million, or 12.6%, for the second quarter of 1998
and $7.0 million, or 35.4%, for the six months ended June 30, 1998 compared to
the respective periods in 1997. The effective tax rate for the six months ended
June 30, 1998 was 31.5% compared to 33.3% for the respective period in 1997. 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 1998 period the Company realized the full
tax benefit associated with the payment of dividends on mandatorily redeemable
preferred stock of subsidiary trust. Such preferred stock was issued on May 30,
1997.
14
<PAGE>
Equity income (loss), net of related income taxes, increased $1.5 million for
the second quarter of 1998 and $0.5 million for the six months ended June 30,
1998 compared to the respective periods in 1997. Equity income includes, among
other items, the Company's proportionate share of gains and losses on
investments owned by the underlying companies, 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 entities.
Net income applicable to common stock increased $0.8 million, or 7.0%, for the
second quarter of 1998 and decreased $11.0 million, or 29.4%, for the six months
ended June 30, 1998 compared to the respective periods in 1997. The decrease is
primarily the result of the changes in income from continuing operations
discussed above. As discussed in more detail in the section that follows, the
decrease for the six-month period was partially offset by a $0.5 million
increase in income/gain from discontinued operations. A decrease in dividends on
Series A and B preferred stock was offset by an increase in dividends on
company-obligated mandatorily redeemable preferred stock of subsidiary trust.
DISCONTINUED OPERATIONS
The Company recorded a gain of $0.2 million, net of related income taxes, on the
sale of Utah Insurance. In addition, the increase in net unrealized appreciation
on securities classified as available for sale was reduced $1.4 million, net of
related income taxes, as a result of the sale. The gain on the sale may be
increased in future periods in accordance with an earnout provision included in
the related sales agreement. See "Liquidity and Capital Resources - FBL
Financial Group, Inc.".
Income (loss) from discontinued operations for the six months ended June 30,
1998 and 1997 totaled $0.3 million and $(1,000), respectively. Revenues from
discontinued operations for the six months ended June 30, 1998 and 1997 totaled
$12.9 million and $25.3 million, respectively, and for the quarter ended June
30, 1997 totaled $13.1 million.
EXCHANGE OF HOME OFFICE PROPERTIES
On March 30, 1998, the Company exchanged a subsidiary owning its home office
properties for 2,536,112 unregistered shares of Class A common stock owned by
the Iowa Farm Bureau Federation. The Company is leasing a portion of the
properties back from a wholly-owned subsidiary of the Iowa Farm Bureau
Federation under a 15-year operating lease. The value of the transaction, which
was structured as a tax-free exchange of a real estate subsidiary, was $45.7
million, or $18.00 per common share. The book value of the properties was $24.7
million on the date of the exchange. A gain on the transaction of approximately
$21.0 million was deferred by the Company and is being amortized over the term
of the operating lease. The exchange did not have a significant impact on income
from continuing operations for the second quarter of 1998, nor is it expected to
have a significant impact in the future, as the increase in net expense
associated with leasing the properties versus owning them directly is
substantially offset by the amortization of the deferred gain on the
transaction.
15
<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, unearned revenue reserve, value of
insurance in force acquired and income taxes attributable to such gains), loss
on disposal of the property-casualty segment and net income from a venture
capital investment company subsidiary.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income applicable to common stock ........ $ 12,832 $ 11,992 $ 26,337 $ 37,295
Adjustments:
Net realized losses (gains) on
investments ............................ 2,608 (1,374) 1,794 (15,345)
Gain on disposal of property-casualty
operations ............................. -- -- (179) --
Net income from FBL Ventures .............. -- (397) -- (723)
-------- -------- -------- --------
Adjusted operating income applicable to
common stock .............................. $ 15,440 $ 10,221 $ 27,952 $ 21,227
======== ======== ======== ========
Adjusted operating income per common
share ..................................... $ 0.47 $ 0.28 $ 0.81 $ 0.58
======== ======== ======== ========
Adjusted operating income per common
share - assuming dilution ................. $ 0.45 $ 0.28 $ 0.79 $ 0.57
======== ======== ======== ========
</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. On June 30, 1997, FBL Ventures was dissolved.
PENDING ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities". Statement No.
133 requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives are to be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. A provision of
Statement No. 133 allows companies to transfer securities classified as held to
maturity to either the available-for-sale or trading categories in connection
with the adoption of the new standard. The Statement is effective for the
Company in the year 2000, with earlier adoption encouraged. The impact of
adopting Statement No. 133 is not expected to be material to the Company.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information". Statement
No. 131 establishes standards for reporting information about operating
segments, products and markets. Generally, Statement No. 131 requires financial
information to be reported on the basis on which it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Under Statement No. 131, it is anticipated that the Company will
report two primary operating segments: life and property-casualty (as
discontinued). However, the non-insurance support operations, including
investment advisory, marketing and distribution and leasing services, will no
longer be part of the life insurance segment. While each of these non-insurance
operations constitute a separate segment under the new rules, their operations
do not currently meet the statement's quantitative thresholds for separate
segment reporting.
16
<PAGE>
Accordingly, it is anticipated that such non-insurance operations will be
aggregated and disclosed in total. While earlier application is allowed,
Statement No. 131 is effective for and will be adopted in the fourth quarter of
1998.
IMPACT OF YEAR 2000
Many of the Company's computer programs were originally written using two digits
rather than four to define a particular year. As a result, these computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions to operations, including, but not limited
to, a temporary inability to process transactions, send premium notices and
calculate policy reserves and accruals. To a lesser extent, the Company is
dependent on various non-information technology systems, such as telephone
switches. The Year 2000 could also cause these systems to fail or malfunction.
During 1997, the Company completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The plan
consists of the following three phases: (1) identification of all information
technology and non-information technology systems that have time-sensitive
software, (2) modification or replacement of the software/systems and (3)
testing the modified or new software/systems. In addition, the Company has
initiated formal communications with all of its significant vendors to determine
the extent to which the Company's interface systems are vulnerable to those
third parties' failure to remediate their own Year 2000 issues.
The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. With
only a few exceptions, the Company anticipates completing the Year 2000
modifications and testing no later than December 31, 1998. The exceptions are
limited to a few third-party software packages for which the Year 2000 compliant
version will not become available until the first quarter of 1999. It is
anticipated that the Company will complete its system modifications and testing
prior to any material impact on its operating systems. Non-information
technology systems that are not Year 2000 compliant have been replaced or have
been identified and will be replaced by December 31, 1999.
The total incremental cost of the Year 2000 project (those costs which the
Company would not have incurred had the Year 2000 issue not existed) is
estimated to be $3.0 million and is being funded through operating cash flows.
Year 2000 modification costs incurred and charged to expense during the six
months ended June 30, 1998 and year ended December 31, 1997 totaled $1.2 million
(including $0.2 million attributable to discontinued operations) and $1.0
million (including $0.3 million attributable to discontinued operations),
respectively. It is anticipated the project costs to be charged to expense
during the remainder of 1998 and 1999 will total approximately $0.5 million and
$0.3 million, respectively.
Despite the Company's extensive efforts to modify or replace computer programs
and information systems that are time-sensitive, the Company could experience a
disruption to its operations as a result of the Year 2000. The Company is
currently developing a contingency plan to address any critical system that may
malfunction despite the testing being performed. The contingency plan, which is
expected to be completed by December 31, 1998, will provide for the availability
of staff, prioritize tasks and outline procedures to fix any systems that are
malfunctioning.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
17
<PAGE>
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, dividends on outstanding stock and interest on holding
company debt issued to a subsidiary. In addition, the parent company will on
occasion enter into capital transactions such as the sale of a subsidiary and
the acquisition of its common stock.
The Company received $25.0 million in cash on March 31, 1998 in connection with
the sale of Utah Insurance. The Company may receive additional consideration
during each of the five years in the period ending December 31, 2002, in
accordance with an earn-out provision included in the underlying sales
agreement. Under the earn-out arrangement, the Company and Farm Bureau Mutual
will share equally in the dollar amount by which the incurred losses on Utah
Insurance's direct business, net of reinsurance ceded, is less than the incurred
losses assumed in the valuation model used to derive the initial $25.0 million
acquisition price. The earn-out calculation will be performed and any settlement
(subject to a maximum of $2.0 million per year) will be made on a calendar year
basis.
The exchange of home office properties for Class A common stock on March 30,
1998 was structured as a tax-free exchange of a real estate subsidiary. Farm
Bureau Life transferred a subsidiary which owned the buildings to FBL Financial
Group in the form of a dividend. FBL Financial Group then exchanged the real
estate subsidiary's common stock for the Class A common stock. The transaction
was accounted for as a noncash financing activity for purposes of the statements
of cash flows.
During the second quarter of 1998, the Company used the proceeds from the sale
of Utah Insurance to repurchase 961,536 shares of Class A common stock. The
repurchases, which totaled $25.0 million, were made in accordance with a stock
repurchase plan approved by the Company's Board of Directors on May 19, 1998.
During the six months ended June 30, 1998, the parent company paid common and
preferred stock dividends totaling $5.2 million. Common and preferred dividends
totaling $5.8 million were paid during the corresponding 1997 period. It is
anticipated dividend requirements for the remainder of 1998 will be $0.075 per
quarter per common share and $0.0075 per quarter per preferred share, or
approximately $5.0 million. In addition, interest payments on the holding
company debt are estimated to be $2.5 million for the remainder of 1998.
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. 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 1998, the maximum amount legally available for distribution
to FBL Financial Group, Inc. without further regulatory approval is
approximately $8.7 million from Western Life. No such amount is available from
Farm Bureau Life during the remainder of 1998 due to the dividend of the home
office properties. The amount available from Western Life is in excess of
anticipated dividend and interest requirements of the parent company for the
remainder of 1998, which total $7.5 million.
18
<PAGE>
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, 1998, with cash inflows at levels sufficient
to provide the funds necessary to meet their obligations.
For the discontinued property-casualty operations, the major sources of cash
inflow were premiums and investment income. Major sources of cash outflow were
losses and loss adjustment expenses paid and other underwriting expenses. The
liquidity position of Utah Insurance was favorable through the date of its sale,
with cash inflows at levels sufficient to provide the funds necessary to meet
its obligations. Due to the relatively small size of the property-casualty
segment, the disposal of the segment has not had a significant impact on the
liquidity position of the Company.
For the life 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 the reported periods as the Life Companies' continuing
operations and financing activities relating to interest sensitive products
provided funds amounting to $20.3 million and $55.2 million in the six months
ended June 30, 1998 and 1997, respectively. These funds were primarily used to
increase the insurance companies' short-term and 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 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 $54.0 million as of June 30, 1998.
Interest is payable at the current market rate on the date of issuance.
As of June 30, 1998, no borrowings were outstanding on this line of credit.
The Company has a $10.0 million line of credit with Farm Bureau Mutual in the
form of a revolving demand note. Borrowings on the note, which totaled $4.2
million at June 30, 1998, are being used to acquire assets that will be leased
to certain affiliates, including Farm Bureau Mutual. Interest is payable at a
rate equal to the prime rate of a national bank (8.5% at June 30, 1998).
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 for the foreseeable future. Not
withstanding the above, management currently anticipates refinancing the
Company's $24.5 million lease-backed note payable that is due August, 1999.
19
<PAGE>
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, 1998,
the Company had no material commitments for capital expenditures.
INVESTMENTS
The Company's total investment portfolio increased $16.3 million, or 0.6%, to
$2,957.2 million at June 30, 1998 compared to $2,940.9 million at December 31,
1997. This increase is primarily the result of positive cash flows from
operations and an increase in unrealized appreciation on fixed maturity
securities classified as 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. 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.
The Company's investment portfolio is summarized in the table below:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------------- -----------------------------
CARRYING VALUE PERCENT CARRYING VALUE PERCENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities: (DOLLARS IN THOUSANDS)
Public .......................... $1,797,570 60.8% $1,807,240 61.4%
144A private placement .......... 314,497 10.6 276,578 9.4
Private placement ............... 242,103 8.2 267,358 9.1
---------- ---------- ---------- ----------
Total fixed maturities .......... 2,354,170 79.6 2,351,176 79.9
Equity securities ................. 43,523 1.5 57,736 2.0
Mortgage loans on real estate ..... 305,741 10.3 323,605 11.0
Investment real estate:
Acquired for debt ............... 1,060 -- 1,168 --
Investment ...................... 40,699 1.4 38,774 1.3
Policy loans ...................... 122,967 4.2 121,941 4.2
Other long-term investments ....... 11,686 0.4 14,438 0.5
Short-term investments ............ 77,386 2.6 32,073 1.1
---------- ---------- ---------- ----------
Total investments ............ $2,957,232 100.0% $2,940,911 100.0%
========== ========== ========== ==========
</TABLE>
As of June 30, 1998, 94.7% (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, 1998, the Company's investment in non-investment grade debt
was 5.3% of fixed maturity securities. At that time no single non-investment
grade holding exceeded 0.3% of total investments.
20
<PAGE>
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, 1998
------------------------
NAIC DESIGNATION EQUIVALENT S&P RATINGS (1) CARRYING VALUE PERCENT
- ---------------- ---------------------------------- -------------- -------
(DOLLARS IN THOUSANDS)
1 (AAA, AA, A)...................... $ 1,519,104 64.5%
2 (BBB)............................. 710,024 30.2
----------- -------
Total investment grade............ 2,229,128 94.7
3 (BB).............................. 83,426 3.6
4 (B)............................... 35,050 1.5
5 (CCC, CC, C)...................... 3,169 0.1
6 In or near default................ 3,397 0.1
----------- -------
Total below investment grade...... 125,042 5.3
----------- -------
Total fixed maturities............ $ 2,354,170 100.0%
=========== =======
- -----------
(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.
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at June 30, 1998:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds:
Corporate securities ...................... $ 5,007 $ 963 $ (8) $ 5,962
Mortgage-backed securities ................ 588,050 22,378 (1,485) 608,943
---------- ---------- ---------- ----------
Total fixed maturities ........................ $ 593,057 $ 23,341 $ (1,493) $ 614,905
========== ========== ========== ==========
AVAILABLE FOR SALE
-----------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Bonds:
United States Government and agencies ..... $ 86,699 $ 3,280 $ (25) $ 89,954
State, municipal and other governments .... 49,921 1,429 (105) 51,245
Public utilities .......................... 127,785 7,878 (525) 135,138
Corporate securities ...................... 864,043 65,020 (7,522) 921,541
Mortgage and asset-backed securities ...... 518,806 21,085 (1,309) 538,582
Redeemable preferred stock .................... 23,977 735 (59) 24,653
---------- ---------- ---------- ----------
Total fixed maturities ........................ $1,671,231 $ 99,427 $ (9,545) $1,761,113
========== ========== ========== ==========
Equity securities ............................. $ 46,849 $ 1,927 $ (5,253) $ 43,523
========== ========== ========== ==========
</TABLE>
21
<PAGE>
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at June 30, 1998, by contractual maturity, are shown
below.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
---------------------------- -----------------------------
ESTIMATED ESTIMATED
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less ....................... $ -- $ -- $ 28,481 $ 28,936
Due after one year through five years ......... -- -- 157,118 162,515
Due after five years through ten years ........ 5,007 5,962 329,630 349,212
Due after ten years ........................... -- -- 613,219 657,215
---------- ---------- ---------- ----------
5,007 5,962 1,128,448 1,197,878
Mortgage and asset-backed securities .......... 588,050 608,943 518,806 538,582
Redeemable preferred stocks ................... -- -- 23,977 24,653
---------- ---------- ---------- ----------
$ 593,057 $ 614,905 $1,671,231 $1,761,113
========== ========== ========== ==========
</TABLE>
Mortgage and other asset-backed securities constitute a significant portion of
the Company's portfolio of securities. Management believes that at the time of
purchase these securities 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, 1998, the Company held $575.1 million
(19.4% of total investments) in residential mortgage-backed securities, $276.4
million (9.3% of total investments) in commercial mortgage-backed securities and
$275.1 million (9.3% of total investments) in other asset-backed securities.
At June 30, 1998, the Company held residential collateralized mortgage
obligation (CMO) investments with a market value of $558.2 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, 1998, 75.6% 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, 1998, the Company held $305.7 million or 10.3% 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, 1998, 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,
1998 include: West South Central (25%) which includes Oklahoma and Texas; and
Pacific (24%) which includes California and Washington. Mortgage loans on real
estate are also diversified by collateral types with office buildings (37%) and
retail facilities (36%) representing the largest holdings at June 30, 1998.
The Company's investment portfolio at June 30, 1998, also included $77.4 million
of short-term investments and $212.3 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.
22
<PAGE>
The Company's asset-liability management program includes (i) designing and
developing products which encourage persistency and, as a result, create 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, 1998,
the weighted average life of the fixed maturity portfolio, based on market
values excluding convertible bonds, was approximately 6.9 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 4.4 as of June 30, 1998.
OTHER ASSETS
Deferred policy acquisition costs increased $12.8 million, or 7.1%, due
principally to the capitalization of costs incurred with new sales. Property and
equipment decreased $25.0 million, or 39.4% , due principally to the exchange of
home office properties for Class A common stock. Assets of discontinued
operations decreased $106.7 million as a result of the sale of Utah Insurance.
Assets held in separate accounts increased $43.9 million, or 31.7%, to $182.3
million at June 30, 1998 due primarily to net transfers to the separate accounts
resulting from sales of the Company's variable products and appreciation in the
value of separate account investments. At June 30, 1998, the Company had total
assets of $3,548.2 million, a 1.5% decrease from total assets at December 31,
1997.
LIABILITIES AND MINORITY INTEREST
Policy liabilities and accruals decreased $8.9 million, or 0.4%, due primarily
to an increase in the return of policyholder account balances on interest
sensitive products to $173.1 million for the six months ended June 30, 1998 from
$127.9 million for the respective period in 1997. This increase includes a $16.8
million increase in net transfers to separate accounts resulting from continued
popularity of the Company's variable products. In addition, a $14.3 million
pension distribution was made to an affiliate during the second quarter of 1998.
Other liabilities increased $26.0 million, or 57.9%, due primarily to the
deferral of the gain on the exchange of home office properties for Class A
common stock. Liabilities of discontinued operations decreased $79.1 million as
a result of the sale of Utah Insurance. At June 30, 1998, the Company had total
liabilities of $2,885.4 million, a 0.3% decrease from total liabilities at
December 31, 1997.
STOCKHOLDERS' EQUITY
Stockholders' equity decreased $44.0 million, or 7.3%, to $561.3 million at June
30, 1998 compared to $605.3 million at December 31, 1997. This decrease is
principally attributable to the exchange of home office properties for Class A
common stock and stock repurchases which, collectively, resulted in a $70.7
million decrease in equity. These decreases were offset by net income during the
six months ended June 30, 1998 and net unrealized appreciation of securities
classified as available for sale.
At June 30, 1998, common stockholders' equity was $558.3 million, or $17.15 per
share, compared to $602.3 million, or $16.77 per share at December 31, 1997.
Included in stockholders' equity per common share is $1.67 and $1.41 at June 30,
1998 and December 31, 1997, 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 increased
stockholders' equity $3.8 million during the six-month period ended June 30,
1998, after related adjustments to deferred policy acquisition costs, value of
insurance in force acquired, unearned revenue reserve and deferred income taxes.
23
<PAGE>
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.
* Changes in the amount of available resources, and the effect of third
party modification plans and other uncertainties, may impact the ability
of the Company to become Year 2000 compliant on a timely basis.
* Changes in federal and state income tax laws and regulations may affect
the relative tax advantage of the Company's products.
24
<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 19, 1998.
(b) and (c) (i) Election of the following Class A directors to the Company's
Board of Directors (restated to reflect the 100% common
stock dividend):
AGAINST OR
FOR WITHHELD
---------- ----------
Jerry L. Chicoine........... 40,846,794 8,460
John W. Creer............... 40,846,794 8,460
John E. Walker.............. 40,846,794 8,460
(ii) Election of the following Class B directors to the Company's
Board of Directors:
AGAINST OR
FOR WITHHELD
---------- ----------
Kenneth R. Ashby............ 1,192,990 --
Al Christopherson........... 1,192,990 --
Kenny J. Evans.............. 1,192,990 --
Thomas R. Gibson............ 1,192,990 --
Jack M. Givens.............. 1,192,990 --
Gary Hall................... 1,192,990 --
James K. Harmon............. 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 --
Roger Bill Mitchell......... 1,192,990 --
Stephen M. Morain........... 1,192,990 --
Bryce P. Neidig............. 1,192,990 --
Howard D. Poulson........... 1,192,990 --
Frank S. Priestley.......... 1,192,990 --
John J. Van Sweden.......... 1,192,990 --
Edward M. Wiederstein....... 1,192,990 --
(iii) Approval of the Director Compensation Plan. Shareholders cast
42,832,580 votes for and 171,850 votes against the approval of
the Director Compensation Plan. There were 28,424 abstentions
and no broker non-votes. Shares have been restated to reflect
the 100% common stock dividend.
(iv) Approval of the appointment of Ernst & Young LLP as independent
auditors for the Company for the year 1998. Shareholders cast
42,742,534 votes for and 2,310 votes against the appointment of
Ernst & Young LLP. There were 487,930 abstentions and no broker
non-votes. Shares have been restated to reflect the 100% common
stock dividend.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1998:
None
25
<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 12, 1998
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)
26
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0001012771
<NAME> FBL FINANCIAL GROUP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,761,113
<DEBT-CARRYING-VALUE> 593,057
<DEBT-MARKET-VALUE> 614,905
<EQUITIES> 43,523
<MORTGAGE> 305,741
<REAL-ESTATE> 41,759
<TOTAL-INVEST> 2,957,232
<CASH> 3,418
<RECOVER-REINSURE> 7,286
<DEFERRED-ACQUISITION> 194,744
<TOTAL-ASSETS> 3,548,186
<POLICY-LOSSES> 2,284,251
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 34,381
<POLICY-HOLDER-FUNDS> 241,855
<NOTES-PAYABLE> 24,574
0
3,000
<COMMON> 47,579
<OTHER-SE> 510,728
<TOTAL-LIABILITY-AND-EQUITY> 3,548,186
75,044
<INVESTMENT-INCOME> 114,673
<INVESTMENT-GAINS> (2,857)
<OTHER-INCOME> 15,073
<BENEFITS> 102,958
<UNDERWRITING-AMORTIZATION> 4,455
<UNDERWRITING-OTHER> 27,585
<INCOME-PRETAX> 40,720
<INCOME-TAX> 12,829
<INCOME-CONTINUING> 25,946
<DISCONTINUED> 466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,412
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.74
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
