<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended June 30, 1995 Number 0-9209
------------------- --------
RIVERSIDE GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1144172
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 Belfort Parkway, Jacksonville, Florida 32256
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code number
602-224-6820
------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
On August 11, 1995 there were 5,315,101 shares of the Registrant's common
stock outstanding.
<PAGE> 2
RIVERSIDE GROUP, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1995 (Unaudited)
and December 31, 1994 3
Condensed Consolidated Statements
of Operations
Three months and six months ended
June 30, 1995 and 1994 (Unaudited) 4
Condensed Consolidated Statement
of Common Stockholders' Equity
Six months ended
June 30, 1995 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows
Six months ended
June 30, 1995 and 1994
(Unaudited) 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II.
Item 2. Changes in Securities 16
Item 3. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE> 3
RIVERSIDE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale - at market $170,228 $157,579
Equity securities available for sale - at market 1,387 951
Mortgage loans 25,533 27,153
Investment real estate 17,977 31,284
Policy loans 20,046 19,742
Short-term and other investments, (at cost which approximates market) 6,592 22,262
----------- ------------
Total investments 241,763 258,971
Cash 113 189
Investment in Wickes Lumber Company, at equity 14,017 14,763
Securities of related parties 1,500 1,500
Accrued investment income 3,209 3,450
Reinsurance receivables 25,973 29,434
Premiums receivable 352 362
Value of acquired insurance in force 19,466 22,381
Deferred policy acquisition costs 2,328 2,453
Excess of cost over fair value of net assets acquired 11,388 11,586
Other assets 2,383 2,773
Separate account assets 8,937 8,848
----------- ------------
Total assets $331,429 $356,710
=========== ============
LIABILITIES & STOCKHOLDERS' EQUITY
Future life insurance benefits $141,010 $147,701
Policyholder contract deposits and other funds 99,859 111,465
Unpaid claims 1,191 1,227
Accrued expenses and other liabilities 6,508 8,799
Deferred income taxes 1,042 1,029
Notes payable 19,093 20,093
Mortgage debt 4,401 15,930
Subordinated debt 9,236 9,175
Net liabilities of discontinued operations 1,296 3,340
Separate account liabilities 8,937 8,848
----------- ------------
Total liabilities 292,573 327,607
----------- ------------
Commitments and contingencies (Note 5)
Common stockholders' equity:
Common stock, $.10 par value; 20,000,000 shares authorized;
issued and outstanding, 5,315,101 in 1995 and 5,465,781 in 1994 532 547
Additional paid-in capital 17,272 18,175
Retained earnings 19,609 20,123
Unrealized investment appreciation (depreciation), net of taxes and deferred
policy acquisition costs of $843 in 1995 and ($894) in 1994 1,443 (9,742)
----------- ------------
Total common stockholders' equity 38,856 29,103
----------- ------------
Total liabilities and common stockholders' equity $331,429 $356,710
=========== ============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
RIVERSIDE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except pre share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- --------------------------------
1995 1994 1995 1994
<S> <C> <C> <C>
Premiums and annuity considerations $ 2,110 $ 4,054 $ 4,311 $ 10,151
Net investment income 3,707 5,005 7,569 9,293
Net realized investment gains (losses) 344 (386) 296 (848)
Equity in income (losses) of Wickes Lumber Company 694 2,173 (745) (512)
Other income (171) 202 689 706
---------- --------- --------- ----------
Total revenues 6,684 11,048 12,120 18,790
Losses, loss adjustment expenses and policy benefits 2,808 4,742 6,734 10,623
Commissions and insurance service fees 892 1,238 1,558 1,951
Other operating costs and expenses 1,110 1,755 2,757 4,033
Interest expense 772 858 1,567 1,401
Minority interest -- 10 -- (7)
---------- ---------- ---------- ----------
Total expenses 5,582 8,603 12,616 18,001
Income (loss) from continuing operations before income taxes 1,102 2,445 (496) 789
Income tax expense 0 932 0 819
---------- ---------- ---------- ----------
Income (loss) from continuing operations 1,102 1,513 (496) (30)
Loss from operations of discontinued property
and casualty insurance company (116) (2,011) (18) (2,166)
---------- ---------- ---------- ----------
Net income (loss) $ 986 $ (498) $ (514) $ (2,196)
========== ========== ========== ==========
Earnings (loss) per share, after deducting preferred
stock dividends and accretion:
Income (loss) from continuing operations $ 0.20 $ 0.28 $ (0.09) $ (0.01)
Loss from discontinued operations (0.02) (0.37) 0.00 (0.40)
---------- ---------- ---------- ----------
Net income (loss) per share $ 0.18 $ (0.09) $ (0.09) $ (0.41)
========== =========== ========== ==========
Weighted average number of common shares
used in computing earnings per share 5,365,546 5,477,259 5,366,370 5,369,930
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
RIVERSIDE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized Total
Additional Investment Common
Common Paid-In Retained Appreciation Stockholders'
Stock Capital Earnings (Depreciation) Equity
------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 547 $ 18,175 $ 20,123 $ (9,742) $ 29,103
Net loss, six months ended June 30, 1995 (514) (514)
Purchase and Retirement of 150,680 shares
of common stock, at cost (15) (903) (918)
Change in unrealized investment appreciation
of fixed maturities and equity securities 11,185 11,185
------ ---------- -------- -------------- -------------
Balance, June 30, 1995 $ 532 $ 17,272 $ 19,609 $ 1,443 $ 38,856
====== ========== ======== ============== =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
RIVERSIDE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
OPERATING ACTIVITIES 1995 1994
--------- --------
<S> <C> <C>
Net loss $ (514) $ (2,196)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization of value of acquired insurance in force 1,238 (485)
Net change in deferred policy acquisition costs 64 932
Provision for deferred income taxes 13 819
Net realized investment losses 48 848
Depreciation and amortization 354 645
Interest on policyholders' funds 4,367 5,111
Equity in losses of unconsolidated subsidiaries 745 512
Minority interest and other non-cash adjustments -- 7
Change in other assets and liabilities:
Premiums receivable and unearned premiums 10 140
Accrued investment income 241 (310)
Reserve for unpaid claims, policy benefits and
recoverable on paid losses from reinsurers and others (602) (4,558)
Other assets 231 2,828
Net liabilities of discontinued operations, other liabilities
and current income taxes (4,335) (2,719)
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,860 1,574
INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities available for sale (33,169) (71,005)
Equity securities (13,375) (20)
Investment real estate (69) (150)
Mortgage and policy loans (1,351) (11)
Short-term investments (164,387) (91,983)
Sale, maturity, and principal reduction of investments:
Fixed maturities available for sale 32,897 46,601
Fixed maturities actively managed -- 22,369
Equity securities 12,931 1,592
Mortgage and policy loans 2,825 1,861
Investment real estate 13,789 3,262
Short-term investments 180,057 96,660
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 30,148 9,176
FINANCING ACTIVITIES
Repayment of debt (12,529) (19,500)
Increase in borrowings 20,000
Preferred stock redemption -- (1,283)
Issuance of common stock -- 100
Purchase and retirement of treasury shares (918) --
Deposits of policyholders' funds 494 4,359
Withdrawal of policyholders' funds (19,131) (14,276)
------- ------
NET CASH USED IN FINANCING ACTIVITIES (32,084) (10,600)
------- ------
INCREASE (DECREASE) IN CASH (76) 150
Cash at beginning of year 189 465
------- ------
CASH AT END OF PERIOD $ 113 $ 615
======= ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
RIVERSIDE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The condensed consolidated balance sheets of Riverside Group, Inc. and
subsidiaries ("Riverside" or "the Company") as of June 30, 1995, the condensed
consolidated statements of operations for the three month and six month periods
ended June 30, 1995 and 1994, the condensed consolidated statement of common
stockholders' equity for the six months ended June 30, 1995 and the condensed
consolidated statements of cash flows for the six months ended June 30, 1995
and 1994, have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 1995, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1994 Annual Report on Form 10-K.
Earnings Per Share
Earnings per share are based upon the weighted average number of
shares of common stock outstanding during each period (5,366,370 shares in 1995
and 5,369,930 shares in 1994), after deducting accretion of redeemable Series C
preferred stock totaling $234,000 in 1994. Effective June 30, 1995, the
Company exercised an option to purchase 150,680 shares of its common stock
which were retired as treasury shares.
2. EQUITY INVESTMENT IN WICKES LUMBER COMPANY
Summary financial information of Wickes Lumber Company ("Wickes") for
the first six months of 1995 and 1994 follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
July 1, 1995 June 25, 1994 July 1, 1995 June 25, 1994
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Operating Statement Data:
Net sales $272,791 $259,261 $464,495 $408,913
Gross profit 63,936 62,050 109,493 99,261
Income (loss) before income taxes 4,098 7,963 (3,561) (460)
Income tax expense (benefit) 1,640 600 (1,043) 900
Net income (loss) 2,470 7,360 (2,128) (1,360)
Net income (loss) per common share $ 0.40 $ 1.21 $ (0.35) $ (0.22)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
(unaudited)
July 1, 1995 Dec. 31, 1994
------------ -------------
<S> <C> <C>
Balance Sheet Data:
Total assets $348,737 $319,573
Long term debt 237,818 211,139
Common stockholders' equity $ 28,574 $ 30,146
</TABLE>
At June 30, 1995, the Company, owned 1,842,774 shares, or approximately
30%, of Wickes outstanding common stock. On August 14, 1995, the Company
intends to attempt to exercise its option from Wickes Lumber Investment
Partnership ("WLIP") to purchase 374,516 additional shares at an aggregate
exercise price of $2,300,000. The Company is unable to predict whether WLIP
will accept or reject this attempt. For a description of the pending dispute
with WLIP, see Note 5 of Notes to Condensed Consolidated Financial Statements.
Giving effect to the option exercise the Company would own approximately 36% of
Wickes outstanding common stock. The market value of the Company's investment
(also assuming option exercise) is $30,500,000 at August 8, 1995, based on its
quoted closing market price of $13.75 per share. Included in the Company's
results of operations for the second quarter and first six months of 1995 are
net income (losses) of $694,000 and $(745,000) respectively, which represents
the Company's 30% share of Wickes net income (losses). In 1994 the Company
reported its share of Wickes net income (losses) for the second quarter and
first six months of $2,173,000 and $(512,000) respectively.
3. DIVESTITURE OF PROPERTY AND CASUALTY OPERATIONS
The Company is preparing for the sale of its property and casualty
insurance operations in accordance with the terms of the contract for sale with
MedMarc Insurance Company. It is anticipated this transaction will close
during 1995. The Company expects a gain of approximately $3,000,000 will be
recorded on the sale.
The income (loss) from discontinued operations includes total property
and casualty revenues of $701,000 and $1,039,000 for the three months and six
months ended June 30, 1995 and $824,000 and $2,000,000 for the three months and
six months ended June 30, 1994, respectively. Realized investment gains
(losses) were $(12,000) and $(86,000) for the three months and six months ended
June 30, 1995 and $(232,000) and $217,000 for the three months and six months
ended June 30, 1994, respectively. Also included in results of discontinued
operations for 1995 is income of $285,000 related to an arbitration award on a
disputed reinsurance settlement received in the first quarter.
The net assets and liabilities of the Company's property and casualty
insurance operations as of June 30, 1995 are classified in the accompanying
unaudited condensed consolidated balance sheet as "net liabilities of
discontinued operations".
4. INVESTMENTS
In 1994 the Company's life insurance subsidiaries had a separate
trading portfolio (fixed maturities actively managed) which was included in the
Company's investment portfolio at market value. These investments were
liquidated in the second quarter of 1994. Unrealized losses on the securities
actively
8
<PAGE> 9
managed included in the results of operations for the first quarter of 1994
totaled $1,017,000. All other investments in fixed maturities are classified
as available for sale and as such are carried at market value with unrealized
gains or losses reflected directly in stockholders' equity, net of applicable
deferred income taxes and net of the adjustment to deferred acquisition costs
that would have been recognized had the unrealized holding losses been
realized.
The Company's real estate limited partnership holdings, which are
consolidated for financial statement purposes, sold real estate properties
which were recorded on the Company's financial statements at a value of
approximately $14.0 million in May of 1995. Related mortgage debt on these
properties of $10.5 million was paid off and capital gains of $0.3 million were
realized.
5. COMMITMENTS AND CONTINGENCIES
On or about August 11, 1993, FynSyn Capital Corp. ("FynSyn") and a
related entity, WLIP, sold an aggregate of 260,760 shares of Wickes' common
stock, an option to acquire 374,516 additional shares of Wickes' common stock
and 10.33 shares of Wickes' 9% redeemable preferred stock to Riverside. In
connection with this sale, FynSyn stated that it was unable to locate the stock
certificate representing the preferred stock and executed and delivered to
Wickes an affidavit of loss and indemnity agreement, in reliance on which
Wickes issued a replacement stock certificate to FynSyn, which was delivered to
the Company upon completion of the sale. The 10.33 preferred shares were
converted into approximately 103,922 shares of Wickes common stock as part of
Wickes' plan of recapitalization completed on October 22, 1993. In February
1994, a third party informed Wickes that FynSyn had previously transferred the
10.33 preferred shares to the third party in 1989. On July 8, 1994, Wickes
filed an action (the "Florida FynSyn Action") styled Wickes Lumber Company vs.
FynSyn Capital Corp., et al. in the United States District Court for the Middle
District of Florida, Jacksonville Division. In this action, Wickes sought,
among other things, declaratory relief as to the respective rights and
liabilities of Wickes and Riverside, as well as FynSyn and the third party
related to and as a consequence of these matters and seeking indemnity from
FynSyn. Riverside cross-claimed against FynSyn, WLIP and related parties
seeking indemnity, among other things. The court in the Florida FynSyn Action
dismissed Wickes' complaint on jurisdictional grounds. In a related action
(the "New Jersey FynSyn Action") filed in July 1994, by FynSyn and WLIP in
Superior Court of New Jersey, Essex County, Chancery Division, styled FynSyn
Capital Corporation and Wickes Lumber Investment Partnership vs. Bankers Trust
Company, et al., FynSyn and WLIP are seeking, among other things, rescission of
the affidavit of loss and indemnity agreement and the rescission or reformation
of the terms of the sale of all of their Wickes securities to Riverside. In
1995, this action was removed to the United States District Court for the
District of New Jersey. Riverside and Wickes have answered the complaint in
the New Jersey FynSyn Action and counterclaimed seeking, among other things,
indemnity and enforcement of their contractual rights. Wickes has also sought
declaratory relief similar to that sought in the Florida FynSyn Action.
Riverside and Wickes intend to pursue vigorously their respective rights
against FynSyn, WLIP and related parties, and Riverside intends to defend
vigorously the claims of FynSyn and WLIP.
The State of Florida is investigating the propriety of the methods by
which collateral protection insurance programs have been conducted by certain
financial institutions who were policyholders of Dependable Insurance Company
Inc. ("Dependable"). Dependable is cooperating with these investigations and
has made available its records to, and has met with, representatives of the
State. The Company does not believe that these investigations will have a
material adverse effect on the Company or the proposed sale of Dependable.
9
<PAGE> 10
As is common in the insurance industry, the Company is regularly
engaged in the defense of claims arising out of the conduct of the insurance
business. Currently, the Company is not aware of any litigation which would,
in management's opinion, have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
6. NOTE PAYABLE
Terms of AFAC's credit agreement with Bank of Montreal and First
Interstate Bank of California were revised by a second amendment dated July 28,
1995. Under terms of this amendment the loan repayment schedule is as follows:
1995-$1,000,000; 1996- $2,000,000; 1997-$5,200,000; 1998-$4,000,000;
1999-$4,520,000 and 2000-$2,280,000. The most recent loan repayment schedule
for this agreement prior to the second amendment was as follows:
1995-$2,000,000; 1996-$5,000,000; 1997-$2,000,000; 1998-$2,400,000 and
1999-$7,600,000. The second amendment provides for an additional $1,000,000
bridge loan not included in the above repayment schedule. The bridge loan is
payable in full on the earlier of December 31, 1995, or the closing of the sale
of Dependable. The Company intends to utilize the proceeds of the bridge loan
as a portion of the exercise price on its option to acquire additional common
shares of Wickes stock (see Note 2). The second amendment also revised the terms
for determining the effective interest rate on the loan, permits the sale of
AFAC subsidiaries, requires minimum Risk Based Capital levels for life insurance
subsidiaries, lowered the minimum Wickes stock market value to $10 per common
share, increases the Company's minimum net worth by $4,000,000 to $32,000,000
and establishes a limit of $2,000,000 which the Company may pay in dividends or
to redeem, retire, repurchase or otherwise acquire any shares of any class of
its capital stock presently or hereafter outstanding for the duration of the
loan. All other provisions of the original credit agreement and first amendment
remain in effect.
7. INCOME TAXES
The Company's effective tax rate for the three months and six months
ended June 30, 1995 was 0% compared to 38% and 104% for the three months and
six months ended June 30, 1994, respectively. For 1995 the Company presently
believes current life deferred taxes payable can be sheltered against non-life
deferred tax assets for net operating losses. The unusually high rate for the
first half of 1994 was primarily due to non-utilization of current operating
and investment losses of the Company's non-life insurance subsidiaries.
8. RELATED PARTY TRANSACTIONS
In February, April and June of 1995, the Company advanced to Wilson
Financial Corporation ("Wilson Financial") an aggregate of $900,000 and Wilson
Financial granted the Company an option to acquire at exercise prices ranging
from $5.88 to $6.31 per share the number of shares of the Company's Common
Stock equal to the amount of such advance and related interest outstanding
divided by the exercise price. Effective June 30, 1995, the Company elected to
exercise its option on these advances acquiring 150,680 common shares at an
aggregate exercise price of $918,310 by canceling the advances and related
interest with Wilson Financial previously discussed.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto contained
elsewhere herein and in conjunction with the Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual report on
Form 10-K for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's general liquidity requirements consist primarily of
providing funds for payment of debt and related interest and for operating
expenses.
Presently funds available for general uses from operating sources are
limited to: interest payments on the surplus note of Dependable; management
fees and expense reimbursements for services provided to the Company's
operating subsidiaries; funds that may be generated from the sale of Dependable
or other unrestricted assets; and surplus note payments from Laurel Life
Insurance Company ("Laurel") via dividends Laurel receives from its American
Founders Life Insurance Company ("American Founders") subsidiary. In general,
Texas statutes limit the amount of dividends American Founders may pay in any
year, without State approval, to the greater of prior year's statutory net
gain from operations after income taxes or 10% of statutory capital and
surplus. For 1995, American Founders is eligible to pay dividends of $7.1
million without State approval.
The Company anticipates that it has adequate liquidity to meet its
required obligations through the remainder of 1995 without any additional
financing or asset sales. The Company believes, however, that it will be
necessary for the Company to complete the sale of Dependable, to obtain
additional financing, to modify the terms of the Company's existing financing,
or to effect sales of other assets in order for the Company to meet its
liquidity needs during the first quarter of 1996.
In June, 1995, the Company entered into a definitive agreement to sell
Dependable to MedMarc Insurance Company. The Company believes that this
transaction will be completed before year-end 1995 and will result in an
approximate $3.0 million gain and, together with assets of Dependable to be
retained by the Company, will provide liquidity beyond the Company's current
needs. Upon completion of this transaction, the Company may explore the
advisability of repurchasing additional shares of its common stock.
Effective July 28, 1995, the Company entered into a second amendment
of its bank credit agreement which reduced the term note repayment requirements
in 1995 by $1.0 million and also provided a $1.0 million bridge loan facility
to the Company through the earlier of year-end 1995 or until Dependable is
sold. For a further description of the terms of this amendment, see Note 6 of
Notes to Condensed Consolidated Financial Statements included elsewhere herein.
On August 14, 1995, the Company intends to utilize the additional $1.0 million
borrowing under this credit agreement and general corporate funds to attempt to
pay in full its $1.1 million promissory note to FynSyn Capital Corp. and to pay
the exercise price for its option to acquire an additional 374,516 shares of
Wickes common stock
11
<PAGE> 12
from Wickes Lumber Investment Partnership. For additional information, see
Notes 2 and 5 of Notes to Condensed Consolidated Financial Statements included
elsewhere herein.
See Note 5 of Notes to Condensed Consolidated Financial
Statements included elsewhere herein for a description of litigation seeking,
among other things, recission of the transaction in which Riverside acquired or
has the right to acquire for approximately $6.5 million an aggregate of 739,198
shares of Wickes Common Stock.
INSURANCE SUBSIDIARIES
General. During the first six months of 1995, approximately $17
million of cash was used by consolidated operating activities, including
deposits and withdrawals of policyholders funds principally as the result of
annuity surrenders and payment of death benefits.
Dependable. In May 1995, real estate partnership interests owned by
Dependable completed the sale of certain real estate assets. The partnerships
have temporarily advanced a portion of the net cash proceeds of the sale to
Dependable. In addition, Dependable received net proceeds of an arbitration
award of approximately $.9 million related to a disputed reinsurance receivable
in May, 1995. These transactions will provide Dependable with sufficient
liquidity through the anticipated closing date of the sale to MedMarc Insurance
Company. If the Dependable sale is not completed in a timely manner additional
financing or other sources of capital will be required to meet projected
liquidity needs in 1996.
Life Insurance Subsidiaries.. The life insurance subsidiaries'
investment portfolio is highly liquid, consisting predominately of readily
marketable securities. The life insurance subsidiaries do not expect any
material changes in their cash requirements and are not aware of any other
trends, events or uncertainties that are reasonably likely to have a material
effect on life operations' liquidity.
12
<PAGE> 13
RESULTS OF OPERATIONS
GENERAL
The Company reported results of operations for the quarter and six
months ended June 30, 1995 and 1994, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations (1) $ 1,102 $ 1,513 $(496) $ (30)
Loss from discontinued
operations (2) (116) (2,011) (18) (2,166)
------- ------- ------ --------
Net income (loss) $ 986 $ (498) $(514) $(2,196)
======= ======== ====== ========
</TABLE>
(1) Includes net realized investment gains (losses) of $344,000 and
$(386,000) for the quarters ended June 30, 1995 and 1994, respectively
and $296,000 and $(848,000) for the six months ended June 30, 1995 and
June 30, 1994, respectively. Also included in results of continuing
operations for the first quarter of 1995 is income of $600,000 related
to the settlement of a disputed financing proposal. In 1994 results
of continuing operations include a first quarter gain of $558,000 from
the sale of the Company's subordinated notes.
(2) 1995 includes first quarter income of $285,000 related to an
arbitration award on a disputed reinsurance receivable. During the
second quarter of 1994 the Company experienced unusually adverse loss
development in its commercial lines.
WICKES LUMBER COMPANY
The following table provides comparative Wickes total operating
statement data and the Company's equity in net income (loss) of Wickes:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(unaudited) (unaudited)
July 1, 1995 June 25, 1994 July 1, 1995 June 25, 1994
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Total Operating Statement Data:
Net sales $272,791 $259,261 $464,495 $408,913
Gross profit 63,936 62,050 109,493 99,261
Income (loss) before income taxes 4,098 7,963 (3,561) (460)
Income tax expense (benefit) 1,640 600 (1,043) 900
Net income (loss) 2,470 7,360 (2,128) (1,360)
Equity in net income (loss) of Wickes $ 694 $ 2,173 $ (745) $ (512)
</TABLE>
The increase in net sales for the second quarter is primarily related
to acquisitions since the second quarter of 1994. On a same store basis second
quarter sales decreased 2.1% due to a slow down in residential construction and
lumber price deflation. Net sales for the first six months of 1995 increased
on both a total and same store basis. The increase in same store sales of 4.4%
is attributable to increased market share as Wickes
13
<PAGE> 14
core customer, the residential builder, has experienced a significant decrease
in housing starts for the first half of 1995 when compared to the first half of
1994.
Second quarter gross profits increased 3.1% as a result of increased
sales volumes. Gross profit as a percent of sales decreased to 23.4% of sales
for the second quarter of 1995 from 23.9% of sales in the second quarter of
1994. For the first half of 1995 gross profit as a percent of sales decreased
to 23.6% from 24.3% for the first half of 1994. Contributing to reduced gross
margins was increased sales to the building professionals customer segment
which purchases a greater portion of lower margin commodity building materials.
Also, declines of commodity wood prices caused a decrease in gross profit
dollars.
Wickes net income before income taxes for the second quarter of 1995
decreased by $3.9 million primarily due to higher selling, general and
administrative expenses as a percent of sales, lower gross profit margins and
higher interest expense. For the first half of 1995 Wickes net loss before
income taxes increased by $3.1 million compared to the first half of 1994.
Reduced gross margins and increased interest expense are primarily responsible
for increased losses in the first half of 1995.
Wickes second quarter 1995 income tax expense was $1.6 million
compared to $0.6 million for the second quarter of 1994. For the first half of
1995 Wickes recorded a current tax benefit of $1.4 million compared to an
expense of $0.9 million in 1994. The income tax expense/benefits recorded in
1995, at an effective tax rate of 40%, reflects Wickes belief that all tax
benefits will be utilized in 1995. In the first half of 1994, Wickes did not
record a tax benefit due to the valuation allowance recorded against deferred
tax assets at that time.
INSURANCE OPERATIONS
The following table sets forth comparative information with respect to
the Company's life insurance operations.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Inc. Inc.
1995 1994 (Dec.) 1995 1994 (Dec.)
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Premiums and annuities $2,110 $4,054 (48%) $4,311 $10,151 (58%)
Benefits and losses 2,808 4,742 (41%) 6,734 10,623 (37%)
Policy acquisition expenses 892 1,238 (28%) 1,558 1,951 (20%)
Investment income $3,745 $4,734 (21%) $7,604 $9,081 (16%)
</TABLE>
The decrease in premiums and annuity considerations for 1995 compared
to 1994 was caused primarily by the sale of the life and accident and health
business in Aztec Life Assurance Company ("Aztec") in December 1994.
Benefits and losses decreased during 1995 compared to 1994 primarily
due to larger decreases in reserves than in prior year and the sale of the
Aztec business.
Policy acquisition amortization expenses are lower in 1995 compared to
1994 due to the reduction in the underlying assets as a result of amounts
written off at year-end 1994 related to the sale of the inforce business of
Aztec.
The decrease in investment income in 1995 compared to 1994 resulted
primarily from lower average invested assets.
14
<PAGE> 15
The Company estimates that the December 1994 sale of the Aztec
business generated a decrease in profits from life insurance operations of $0.7
million for the second quarter and $1.5 million for the first half of 1995
compared to the same periods for 1994.
Presently American Founders is engaged in negotiations for sale of the
corporate charter and state licenses of its National American Life Insurance
Company of Texas subsidiary.
INVESTMENT OPERATIONS
Investment operations include all invested assets of the life
insurance subsidiaries, the parent company, and assets of Dependable that are
anticipated to be retained by the Company after the sale of Dependable.
Investment income, net of investment expenses, decreased 16% from 1994 to 1995
primarily as a result of reduced invested assets.
Annualized investment yields on average invested assets were 6.1% in
1995 compared to 6.2% in 1994. Included in net investment income for the first
six months of 1995 and 1994 were $(185,000), and $(187,000), respectively, of
net real estate expense.
Net realized investment gains (losses) for the first six months of
1995 and 1994 were $296,000 and $(848,000), respectively.
OPERATING COSTS AND INTEREST EXPENSE
Other operating costs and expenses were $1,110,000 for the second
quarter of 1995 compared to $1,755,000 in 1994. For the six months ended June
30, 1995, other operating costs and expenses were $2,757,000 compared to
$4,033,000 for the same period in 1994. Decreased expenses are due to reduced
lease expenses, data processing expense savings, expense reimbursements from
third parties for administrative services and staff reductions. The decrease
in operating costs is attributable, in part, to decreased premium and
investment income revenues as a result of life insurance policies sold or
lapsed.
Interest expense for the second quarter of 1995 compared to 1994 was
$772,000 and $858,000, respectively and comparable amounts for the first six
months were $1,567,000 and $1,401,000, respectively. The increase in interest
expense for the first six months ended June 30, 1995, results principally from
the increased indebtedness of AFAC incurred in April 1994 and from higher
interest rates.
DISCONTINUED PROPERTY AND CASUALTY INSURANCE OPERATIONS
The decreased losses from discontinued operations is primarily related
to the unusually adverse loss development experienced during the second quarter
of 1994 in the commercial lines. Also income of $285,000 was realized in the
first quarter of 1995 as the result of an arbitration award related to a
disputed reinsurance receivable.
INCOME TAXES
The Company's effective tax rate for the three months and six months
ended June 30, 1995, was 0% compared to 38% and 104% for the three months and
six months ended June 30, 1994, respectively. For 1995 the Company presently
believes current life deferred taxes payable can be sheltered against non-life
deferred tax assets for net operating losses. The unusually high rate for the
first half of 1994 was primarily due to non-utilization of current operating
and investment losses of the Company's non-life insurance subsidiaries.
15
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Terms of AFAC's credit agreement with Bank of Montreal and First
Interstate Bank of California were revised under terms of a second amendment
dated July 28, 1995. For a description of the revised terms of the credit
agreement, including limitations on the Company's ability to pay dividends or
repurchase capital stock,see Note 6 of Notes to Condensed Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS
In May 1995, the United States District Court for the Middle District
of Florida, Jacksonville Division, entered an order denying the Company's
request for clarification that its claims had not been dismissed in the action
styled Wickes Lumber Company v. FynSyn Capital Corp. et al. In 1995 the
action styled FynSyn Capital Corp. and Wickes Investment Partnership v. Bankers
Trust Company, et al. was removed to the United States District Court for the
District of New Jersey. For further information, see Note 5 of Notes to
Condensed Consolidated Financial Statements included elsewhere herein.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no Reports on Form 8-K
filed by the Company during the
first six months of 1995.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RIVERSIDE GROUP, INC.
/s/ Duane T. Miller
---------------------------
Duane T. Miller
Vice President and
Controller
/s/ Wayne A. Schreck
---------------------------
Wayne A. Schreck
Executive Vice President
(Chief Accounting Officer)
Dated: August 11, 1995
17
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Riverside Group Inc. and Subsidiares condensed consoliated balance sheet and
condensed consolidated statement of operations and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 170228
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1387
<MORTGAGE> 25533
<REAL-ESTATE> 17977
<TOTAL-INVEST> 241763
<CASH> 113
<RECOVER-REINSURE> 25973
<DEFERRED-ACQUISITION> 21794
<TOTAL-ASSETS> 331429
<POLICY-LOSSES> 141010
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1191
<POLICY-HOLDER-FUNDS> 99859
<NOTES-PAYABLE> 32730
<COMMON> 532
0
0
<OTHER-SE> 38324
<TOTAL-LIABILITY-AND-EQUITY> 331429
4311
<INVESTMENT-INCOME> 7569
<INVESTMENT-GAINS> 296
<OTHER-INCOME> (56)
<BENEFITS> 6734
<UNDERWRITING-AMORTIZATION> 1302
<UNDERWRITING-OTHER> 256
<INCOME-PRETAX> (496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496)
<DISCONTINUED> (18)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (514)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
