<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 March 31, 1996 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)
602-224-6820
------------
Registrant's telephone number, including area code number
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 May 10, 1996, there were 5,311,123 shares of the Registrant's common stock
outstanding.
<PAGE> 2
RIVERSIDE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1996 (Unaudited)
and December 31, 1995 3
Condensed Consolidated Statements
of Operations
Three months ended
March 31, 1996 and 1995 (Unaudited) 4
Condensed Consolidated Statement
of Common Stockholders' Equity
Three months ended
March 31, 1996 (Unaudited) 5
Condensed Consolidated Statements of
Cash Flows
Three months ended
March 31, 1996 and 1995
(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 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE> 3
RIVERSIDE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Investments:
Fixed maturities available for sale - at market $147,398 $147,152
(amortized cost $146,891 in 1996 and $141,755 in 1995)
Equity securities available for sale - at market 1,064 838
(cost $1,180 in 1996 and $968 in 1995)
Mortgage and construction loans 27,566 26,903
Investment real estate 17,851 17,879
Policy loans 19,572 19,827
Short-term and other investments, (at cost which
approximates market) 8,622 20,842
-------- --------
Total investments 222,073 233,441
Cash 439 258
Investment in Wickes Lumber Company, at equity 8,915 11,210
Accrued investment income 2,905 2,488
Reinsurance receivables 25,669 28,500
Deferred income taxes 825 825
Value of acquired insurance in force 18,065 18,415
Deferred policy acquisition costs 2,020 2,027
Other assets 3,886 3,561
======== ========
Total assets $284,797 $300,725
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Future life insurance benefits $137,349 $140,295
Policyholder contract deposits and other funds 94,011 97,171
Unpaid claims 1,147 966
Accrued expenses and other liabilities 4,464 5,022
Notes payable 19,511 19,600
Mortgage debt -- 2,312
Subordinated debt 9,338 9,303
-------- --------
Total liabilities 265,820 274,669
-------- --------
Commitments and contingencies (Note 4)
Common stockholders' equity:
Common stock, $.10 par value; 20,000,000 shares authorized;
issued and outstanding, 5,311,123 in 1996 and 1995 531 531
Additional paid-in capital 17,209 17,209
Retained earnings 1,129 3,923
Unrealized investment appreciation (depreciation),
net of taxes and deferred policy acquisition costs of
$283 in 1996 and $884 in 1995 108 4,393
-------- --------
Total common stockholders' equity 18,977 26,056
-------- --------
Total liabilities and common stockholders' equity $284,797 $300,725
======== ========
</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 per share amounts)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Premiums and annuity considerations $ 1,966 $ 2,201
Net investment income 3,157 3,862
Net realized investment gains (losses) 474 (48)
Equity in losses of Wickes Lumber Company (2,295) (1,439)
Other income 280 692
---------- ----------
Total revenues 3,582 5,268
Policyholder benefits 3,578 3,926
Policy acquisition expenses 1,057 666
Other operating costs and expenses 952 1,479
Interest expense 789 795
---------- ----------
Total expenses 6,376 6,866
Loss from continuing operations before income taxes (2,794) (1,598)
Income tax expense -- --
---------- ----------
Loss from continuing operations (2,794) (1,598)
Income from operations of discontinued property
and casualty insurance company -- 98
========== ==========
Net loss $ (2,794) $ (1,500)
========== ==========
Earnings (loss) per share:
Loss from continuing operations $ (0.53) $ (0.28)
Income from discontinued operations 0.00 0.02
========== ==========
Net loss per share $ (0.53) $ (0.26)
========== ==========
Weighted average number of common shares
used in computing earnings per share 5,311,123 5,465,781
</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, 1995 $531 $17,209 $ 3,923 $ 4,393 $26,056
Net loss, three months
ended March 31, 1996 (2,794) (2,794)
Change in unrealized
investment appreciation
(depreciation) of fixed
maturities and equity
securities (4,285) (4,285)
---- ------- ------- ------- --------
Balance, March 31, 1995 $531 $17,209 $ 1,129 $ 108 $18,977
==== ======= ======= ======= =======
</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>
Three Months Ended March 31,
----------------------------
1996 1995
OPERATING ACTIVITIES --------- ----------
<S> <C> <C>
Net loss $(2,794) $(1,500)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of value of acquired insurance in force 951 565
Net change in deferred policy acquisition costs 7 (9)
Net realized investment (gains) losses (474) 48
Depreciation and amortization 103 209
Interest on policyholders' funds 2,106 2,513
Equity in losses of unconsolidated subsidiaries 2,295 1,439
Change in other assets and liabilities:
Premiums receivable and unearned premiums -- (38)
Accrued investment income (417) 175
Reserve for unpaid claims, policy benefits and
recoverable on paid losses from reinsurers and others (415) (2,408)
Other assets (378) (776)
Net liabilities of discontinued operations,
other liabilities and current income taxes (558) (394)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 426 (176)
INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities available for sale (30,383) (16,514)
Equity securities (233) (13)
Investment real estate -- (20)
Mortgage and policy loans (3,587) (335)
Short-term investments (75,783) (116,156)
Sale, maturity, and principal reduction of investments:
Fixed maturities available for sale 25,707 9,811
Equity securities -- 69
Mortgage and policy loans 3,239 787
Investment real estate -- 251
Short-term investments 87,981 134,509
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,941 12,389
FINANCING ACTIVITIES
Repayment of debt (2,401) (2,039)
Deposits of policyholders' funds 82 1,643
Withdrawal of policyholders' funds (4,867) (11,695)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,186) (12,091)
-------- --------
INCREASE IN CASH 181 122
Cash at beginning of year 258 189
-------- --------
CASH AT END OF PERIOD $ 439 $ 311
======== ========
</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 March 31, 1996, the condensed
consolidated statements of operations for the three months ended March 31, 1996
and 1995, the condensed consolidated statement of common stockholders' equity
for the three months ended March 31, 1996 and the condensed consolidated
statements of cash flows for the three months ended March 31, 1996 and 1995,
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
March 31, 1996, 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
1995 Annual Report on Form 10-K.
2. EQUITY INVESTMENT IN WICKES LUMBER COMPANY
Summary financial information of Wickes Lumber Company ("Wickes") for
the first three months of 1996 and 1995 follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended
------------------
(unaudited)
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Operating Statement Data:
Net sales $152,508 $191,704
Gross profit 34,930 45,557
Net loss (6,174) (4,598)
Net loss per common share $ (1.00) $ (.75)
(unaudited)
March 30, 1996 December 30, 1995
-------------- -----------------
Balance Sheet Data:
Current assets $195,852 $219,475
Total assets 274,971 302,515
Current liabilities 70,285 79,853
Long term debt and other long-term liabilities 195,716 205,221
Common stockholders' equity $ 8,970 $ 15,129
</TABLE>
At March 31, 1996, the Company, owned 2,217,102 shares, or
approximately 36%, of Wickes outstanding common stock. Included in the Company's
results of operations for the first three months of 1996 and 1995 are net losses
of $2,295,000 and $1,439,000 respectively, which represent the Company's share
of Wickes net losses, less amortization of capitalized costs related to the
Wickes investment.
In January 1996 the Company entered into a definitive agreement with
Wickes (the "Wickes Agreement") to purchase two million newly issued shares of
common stock at an aggregate purchase price of $10 million. Closing of the
definitive agreement is presently subject to, among other things, completion of
the proposed Life Insurance Reorganization. See Note 3 of Notes to Condensed
Consolidated Financial Statements. Acquisition of the additional shares would
increase the Company's ownership in Wickes common stock to 53% of total common
shares and 56% of voting common shares.
7
<PAGE> 8
3. LIFE INSURANCE REORGANIZATION
On March 8, 1996, the Company entered into a definitive agreement with
Circle Investors, Inc. (the "Circle Agreement") to combine its life insurance
operations with those of Circle Investors, Inc. ("Circle") a privately held
company engaged in providing financial services (the "Life Insurance
Reorganization"). Pursuant to the Circle Agreement, a wholly-owned subsidiary of
American Financial Acquisition Corporation ("AFAC") that wholly-owns all of
AFAC's insurance subsidiaries will merge with and into Circle, with Circle
surviving. Under the terms of the Circle Agreement the Company will receive net
cash of $13.5 million, after taxes and expenses, and common and preferred shares
of Circle. In addition, Circle will assume or replace $18 million of bank debt
of AFAC. The Company will retain 950,000 shares of Wickes common stock and real
estate with a net appraised value of $2 million (net of an $18 million mortgage)
owned by American Founders. Completion of the Circle Agreement is subject to,
among other things, approvals of insurance regulatory authorities and
finalization of financing arrangements. Circle management has informed the
Company that it has obtained written commitments from investors and lenders for
the financing required to complete the transaction and that it is in the process
of negotiating definitive agreements for such financing.
During the first three months of 1996 the life insurance operations
subject to the Circle Agreement generated income after taxes of $858,000.
However based upon an evaluation of the life operations profits and the benefits
to the Company of these operations additional deferred acquisition cost
amortization of $571,000 was recorded for the first three months of 1996
reducing life insurance income to a net of $287,000. The additional amortization
adjusts the value of the life insurance operations to approximate the estimated
value of consideration to be received upon completion of the Life Insurance
Reorganization.
4. COMMITMENTS AND CONTINGENCIES
On or about August 11, 1993, FynSyn Capital Corp. ("FynSyn") and a
related entity, Wickes Lumber Investment Partnership ("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. In July 1994, FynSyn and WLIP commenced an action 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 this action and
counterclaimed seeking, among other things, indemnity and enforcement of their
contractual rights. Wickes has also sought 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 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.
On November 3, 1995, a complaint styled Morris Wolfson v. J. Steven
Wilson, Kenneth M. Kirschner, Albert Ernest, Jr., Claudia B. Slacik, Jon F.
Hanson, Robert E. Mulcahy, Frederick H. Schultz, Wickes Lumber Company and
Riverside Group, Inc. was filed in the Court of Chancery of the State of
Delaware in and for New Castle County (C.A. No. 14678). As amended, this
complaint alleges, among other things, that the transaction contemplated by the
Wickes Agreement is unfair and constitutes a waste of Wickes' assets and that
Wickes and the Company breached their fiduciary duties in their approval of this
transaction. The amended complaint, among other things, seeks on behalf of a
purported class of Wickes' shareholders to enjoin, or to obtain damages with
respect to, the transaction.
In connection with the sale of Dependable Insurance Company, the
Company agreed to indemnify the purchaser for certain losses on various
categories of liabilities. Terms of the indemnities provided by the Company vary
with regards to time limits and maximum amounts. AFAC subordinated debentures in
the amount of $2.1 million are pledged as collateral on these indemnities.
Although future loss development will occur over a number of years the Company
believes, based on all information presently available, that reserves
transferred to the purchaser at the closing and those held by the Company are
8
<PAGE> 9
adequate for these indemnities. It is not anticipated that these indemnities
will have a material adverse effect on the Company's financial position, results
of operations or cash flows.
As is common in the insurance industry, the Company's insurance
subsidiaries are regularly engaged in the defense of claims arising out of the
conduct of the insurance business. In management's opinion, none of these claims
will have a material adverse effect on the Company's financial position, results
of operations or cash flows.
The Company is not aware of any environmental liabilities or similar
issues.
5. NOTE PAYABLE
As a result of the decrease during 1995 in the trading value of Wickes
and the charges taken in the fourth quarter of 1995 related to the Life
Insurance Reorganization, the Company has not been in compliance with certain
requirements of its bank credit agreement. A waiver of these requirements
through June 30, 1996, has been received from the banks to allow for completion
of the Life Insurance Reorganization. Under the terms of the Life Insurance
Reorganization the outstanding principal balance of the Company's bank credit
agreement is to be repaid in full by Circle. Circle management has informed the
Company that it has obtained written commitments from investors and lenders for
the financing required to complete the transaction and that it is in the process
of negotiating definitive agreements for such financing.
Should the Company not complete the Life Insurance Reorganization by
June 30, 1996, in order for the Company to maintain adequate liquidity and to
meet the scheduled payments of principal and interest on its indebtedness, the
Company would be required to obtain an extension of currently scheduled
principal and interest payments, obtain additional financing or sell a
significant amount of assets held by the Parent Company and to use the proceeds
for parent Company purposes, which would require the consent of the Company's
current bank lenders.
6. INCOME TAXES
The Company's effective tax rate was 0% for the three months ended
March 31, 1996 and 1995. The Company presently believes it will be able to
shelter the earnings of the life insurance operations with tax loss
carryforwards. The losses of Wickes reduce the Company's GAAP basis in Wickes
creating deferred tax benefits which are realized upon sale or subsequent
increase in GAAP basis of Wickes common stock or other capital assets.
Accordingly no current tax benefit is realized by the Company relative to
Wickes.
7. RELATED PARTY TRANSACTIONS
In March of 1996 the Company entered into an employment agreement with
its Chairman, J. Steven Wilson, with respect tohis employment by the Company
during 1996. Pursuant to this agreement, Mr. Wilson received his entire 1996
salary at his 1995 rate of $208,040 in advance and received an advance against
his 1996 bonus equal to the amount of his 1995 bonus of $200,000.
On March 29, 1996, the Company made a loan of $154,114 to a company
owned by a director of the Company. In addition the Company agreed to extend the
maturity date of a previous loan of $225,000 to this company. Both loans bear
interest at a rate of 7.5% and are presently scheduled to mature on May 14,
1996, with an option to extend an additional 60 calendar days subject to certain
conditions. The Company presently anticipates the additional extension will be
granted.
9
<PAGE> 10
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, 1995.
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.
The funds available to the Parent Company from operating sources
continue to be limited pending the completion of the Life Insurance
Reorganization. See Note 3 of Notes to Condensed Consolidated Financial
Statements included elsewhere herein. Sources of funds available to the Parent
Company include management fees and expense reimbursements for services provided
to the Company's subsidiaries and affiliates; funds that may be generated from
the sale of unrestricted assets; and intercompany advances from AFAC. The
Company anticipates that these sources, together with cash on hand, will be
adequate to meet the Company's liquidity needs through June 1996, by which time
the Company expects to have completed the Life Insurance Reorganization.
The Company anticipates that the net after-tax cash proceeds of the
Life Insurance Reorganization will be approximately $13.5 million, of which the
Company has agreed to utilize $10 million under the Wickes Agreement to acquire
two million shares of Wickes Common Stock. See Note 2 of Notes to Condensed
Consolidated Financial Statements included elsewhere herein. The Company
anticipates that its funds on hand after completion of the Wickes investment,
together with other sources of funds, will be adequate for the Company's
liquidity requirements at least into 1997. In recent years the Company has
realized a significant portion of its liquidity requirements through expense
reimbursements and other distributions from its insurance subsidiaries.
Following completion of the merger transaction these sources of funds will no
longer be available.
The Company's remaining operations after the Life Insurance
Reorganization, exclusive of Wickes (which is currently prohibited from paying
dividends by reason of restrictions in its debt instruments), will consist
primarily of real estate sales, the operations of Wickes Financial Services
Center, Inc. ("WFSC"), and the operations of Wickes Mortgage Lending ("WML").
Although revenues have increased for WML and WFSC has implemented a managing
general agent structure which is less capital intensive, it is anticipated that
the continued development of these operations will produce negative cash flows
at least through the remainder of this year. The Company will continue to
monitor the cash requirements and contributions of these operations. Should
additional liquidity be necessary, the Company would be required to obtain
additional financing or sell assets held by the Parent Company.
As a result of the decrease during 1995 in the trading value of Wickes
and the charges taken in the fourth quarter of 1995 related to the Life
Insurance Reorganization the Company has not been in compliance with certain
requirements of its bank credit agreement. A waiver of these requirements
through June 30, 1996, has been received from the banks to allow for completion
of the Life Insurance Reorganization. Under the terms of the Life Insurance
Reorganization the outstanding principal balance of the Company's bank credit
agreement is to be repaid in full by Circle. Circle has informed the Company it
has obtained written commitments from investors and lenders for financing
sufficient to complete the transaction and retire the Company's bank
indebtedness and that it is in the process of negotiating definitive agreements
for such financing. Should the Company not complete the Life Insurance
Reorganization by June 30, 1996, in order for the Company to maintain adequate
liquidity and to meet the scheduled payments of principal and interest on its
indebtedness, the Company would be required to obtain an extension of currently
scheduled principal and interest payments, obtain additional financing or sell a
significant amount of assets held by the Parent Company and to use the proceeds
for parent Company purposes, which would require the consent of the Company's
current bank lenders. The Company believes that should the Circle Agreement, for
any reason, be terminated the Company would be able to enter into a definitive
agreement for a comparable transaction in a reasonable time frame. Although the
Company believes it will complete the Life Insurance Reorganization by late June
1996,
10
<PAGE> 11
there can be no assurance that the Company will continue to have funds
sufficient for its needs if the Life Insurance Reorganization does not occur by
June 30, 1996.
See Note 4 of Notes to Condensed Consolidated Financial Statements for
a description of (i) litigation seeking, among other things, recission of the
transaction in which Riverside acquired for approximately $6.5 million an
aggregate of 739,198 shares of Wickes common stock and (ii) litigation seeking,
among other things, to enjoin or to obtain damages with respect to the Wickes
Agreement.
During the first quarter of 1996, stockholders' equity decreased by a
net of $7.1 million primarily as a result of first quarter losses sustained by
Wickes of $2.3 million and decreases in the market value of invested assets of
the life insurance subsidiaries of $4.3 million. The ratio of the Company's
consolidated total recourse debt to stockholders' equity increased from 120% at
December 31, 1995, to 152% at March 31, 1996. The increase in the debt to
stockholders' equity ratio was dampened by retirement of $2.3 million of real
estate mortgage debt.
LIFE INSURANCE SUBSIDIARIES
During the first three months of 1996, approximately $4.4 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.
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 liquidity needs of the life operations.
RESULTS OF OPERATIONS
GENERAL
The Company reported results of operations for the three months ended
March 31, 1996 and 1995, as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Loss from continuing operations (1) $(2,794) $(1,598)
Income from discontinued operations (2) - 98
-------- -------
Net loss $(2,794) $(1,500)
======= =======
</TABLE>
(1) Includes the Company's equity in losses of Wickes Lumber of $2,295,000
and $1,439,000 for the first quarters of 1996 and 1995, respectively.
The first quarter of 1996 includes additional deferred acquisition cost
amortization of $571,000. For a discussion of the additional
amortization see Note 3 of Notes to Condensed Consolidated Financials
Statments included elsewhere herein. Includes capital gains (losses) of
$474,000 and $(48,000) for the first quarters of 1996 and 1995,
respectively. The first quarter of 1995 includes income of $600,000
related to the settlement of a disputed financing proposal.
(2) Includes $285,000 of income in the first quarter of 1995 related to an
arbitration award on a disputed reinsurance receivable
11
<PAGE> 12
WICKES LUMBER COMPANY
The following table provides comparative Wickes total operating
statement data and the Company's equity in losses of Wickes:
<TABLE>
<CAPTION>
Three Months Ended
(unaudited)
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Total Operating Statement Data:
Net sales $152,508 $191,704
Gross profit 34,930 45,557
Net loss (6,174) (4,598)
Equity in losses of Wickes $ (2,295) $ (1,439)
</TABLE>
Net Sales
Wickes' net sales for the first quarter of 1996 decreased 20.4% to
$152.5 million from $191.7 million for the first quarter of 1995. Same store
sales declined 14.5% compared with the same period last year. Wickes believes
that the decrease in same store sales is primarily attributable to severe
weather conditions, a slowdown in residential construction and deflation in
lumber prices. Wickes estimates that deflation in lumber prices accounted for a
decrease in total sales of approximately 5.6%, or $8.5 million. Wickes' program
to reduce the number of under-performing building centers was also a major cause
of the 1996 sales decline compared with 1995. Wickes currently operates 20 fewer
building centers than in the first quarter of 1995.
Gross Profit
Wickes' 1996 first quarter gross profit decreased to $34.9 million from
$45.6 million for the first quarter of 1995, a 23.3% decrease. Gross profit as a
percent of sales decreased to 22.9% of sales for the first quarter of 1996 from
23.8% in 1995. The decline in gross profit as a percent of sales is primarily
attributable to Wickes' continued emphasis on sales to the professional builder,
resulting in an increase in the portion of the Wickes' sales comprised of lower
margin commodity products, and to a lesser extent a program to reduce the amount
of excess and slow-moving inventory. Wickes also estimates the decline in lumber
prices during the first quarter of 1996, compared with the first quarter of
1995, resulted in a decrease of approximately $1.4 million in total gross
profit.
Net Loss
Wickes' first quarter has historically been adversely affected by
seasonal decreases in building and construction activity in the Northeast and
Midwest resulting from winter weather conditions. In the first quarter of 1996,
the Northeast experienced record snowfalls which slowed construction activity in
this area of the country.
Wickes net loss increased to $6.2 million from $4.6 million for the
first three months of 1996 compared to 1995 mainly as a result of lower sales,
decreased gross profit margins and increased losses related to international
operations. Partially offsetting the previous items were decreased selling,
general and administrative expenses.
Equity in Losses of Wickes
The Company's share of Wickes' losses increased by $.9 million. Of this
amount $.5 million was due to increased Wickes' losses and $.4 million was due
to a 6% increase in ownership of Wickes' outstanding common stock for the first
quarter of 1996 compared to 1995.
12
<PAGE> 13
LIFE INSURANCE OPERATIONS
The following table sets forth comparative information with respect to
the Company's life insurance operations.
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
Incr.
1996 1995 (Decr.)
---- ---- -------
<S> <C> <C> <C>
Premiums and annuities $1,966 $2,201 (11%)
Benefits and losses 3,578 3,926 (9%)
Policy acquisition expenses 1,057 666 59%
Investment income $3,155 $3,859 (18%)
</TABLE>
The decrease in premiums and annuity considerations for 1996 compared
to 1995 is primarily the result of normal lapse activity as the Company does not
presently have active life insurance marketing operations.
Benefits and losses decreased during 1996 compared to 1995 primarily
due to reduced surrender activity on annuity policies as a result of a large
number of policies with surrender charges expiring in the first quarter of 1995.
The decrease is partially offset by a $.4 million increase in death claims for
the first quarter of 1996.
Policy acquisition expenses increased in 1996 compared to 1995 due to
additional deferred acquisition cost amortization of $571,000 related to the
Life Insurance Reorganization. See Note 3 of Notes to Condensed Consolidated
Financial Statements included elsewehere herein. All other acquisition costs
decreased between years primarily as a result of reduced spreads on interest
sensitive products which slows the rate at which these assets are amortized.
The decrease in investment income in 1996 compared to 1995 resulted
primarily from lower average invested assets, lower reinvestment rates and
increased investment expenses related to expansion of mortgage lending
activities. See "Investment Operations".
INVESTMENT OPERATIONS
Investment operations include all invested assets of the life insurance
subsidiaries and the parent company. Investment income, net of investment
expenses, decreased 18% from 1996 to 1995 primarily as a result of reduced
average invested assets, lower yields and increased investment expenses.
Annualized investment yields on average invested assets were 5.5% in
1996 compared to 6.2% in 1995. Decreased yields primarily resulted from lower
reinvestment rates and additional investment expenses related to the expansion
of mortgage lending activities. Included in net investment income for the first
three months of 1996 and 1995 were $(36,000), and $(115,000), respectively, of
net real estate expense.
Net realized investment gains (losses) for the first three months of
1996 and 1995 were $474,000 and $(98,000), respectively.
OPERATING COSTS AND INTEREST EXPENSE
Other operating costs and expenses were $952,000 for the first quarter
of 1996 compared to $1,479,000 in 1995. Decreased expenses resulted from reduced
amortization due to intangible assets written off at year end 1995, data
processing savings and other cost reduction efforts at the Company's life
insurance subsidiaries and the implementation of a managing general agent
structure at WFSC.
Interest expense remained relatively level for the first quarter of
1996 compared to 1995 at $789,000 and $795,000, respectively.
INCOME TAXES
The Company's effective tax rate was 0% for the three months ended
March 31, 1996 and 1995. The Company presently believes it will be able to
shelter the earnings of the life insurance operations with tax loss
carryforwards. The losses of Wickes reduce the Company's GAAP basis in Wickes
creating deferred tax benefits which are realized upon sale or subsequent
increase in GAAP basis of Wickes common stock or other capital assets.
Accordingly no current tax benefit is realized by the Company relative to
Wickes.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
For a description of the proposed transactions to buy additional shares
of Wickes common stock and the reorganization of the Company's life insurance
operations, see Note 2 and Note 3 of Notes to Condensed Consolidated Financial
Statements included elsewhere herein.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K.
(a) Exhibits
27 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
On January 23, 1996, the Company filed a current report Form
8-K in regards to the signing of the Wickes Agreement,
reporting under Item 5. Other Events.
14
<PAGE> 15
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: May 15, 1996
15
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM RIVERSIDE
GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 147398
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1064
<MORTGAGE> 27566
<REAL-ESTATE> 17851
<TOTAL-INVEST> 222073
<CASH> 439
<RECOVER-REINSURE> 25669
<DEFERRED-ACQUISITION> 20085
<TOTAL-ASSETS> 284797
<POLICY-LOSSES> 137349
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1147
<POLICY-HOLDER-FUNDS> 94011
<NOTES-PAYABLE> 19511
0
0
<COMMON> 531
<OTHER-SE> 18446
<TOTAL-LIABILITY-AND-EQUITY> 284797
1966
<INVESTMENT-INCOME> 3157
<INVESTMENT-GAINS> 474
<OTHER-INCOME> 280
<BENEFITS> 3578
<UNDERWRITING-AMORTIZATION> 958
<UNDERWRITING-OTHER> 99
<INCOME-PRETAX> (2794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2794)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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<RESERVE-CLOSE> 0
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</TABLE>
