SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from January 1 to December 31, 1994
Commission file number 0-3296
DIXIE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0440887
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3760 I-55 North 39211-6323
P.O. Box 22587, Jackson, Mississippi 39225-2587
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 601-982-8210
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Capital Stock par value $1 per share
(Title of class)
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 for 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. Yes X No ___
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of March 15, 1995, 8,394,973 common shares were outstanding, and the
aggregate market value of the common shares (based upon the closing average of
the bid and asked prices on the over-the-counter market) of Dixie National
Corporation held by nonaffiliates was approximately $7,765,350.
Documents Incorporated By Reference
None
2
<PAGE>
PART I
ITEM 1 - BUSINESS
(a) General Development of Business
Dixie National Corporation (Corporation) was organized in 1966 as a
Mississippi corporation. It is an insurance holding company primarily engaged in
the life insurance business through its 99.3% owned subsidiary, Dixie National
Life Insurance Company (Dixie Life), a Mississippi corporation organized in
1965. The term "Company" as used herein includes the Corporation, Dixie Life and
the Corporation's other subsidiaries, as the context indicates.
Virtually all of the Company's consolidated revenues are represented by
premium income and net investment income generated in Dixie Life's insurance
operations. For the year ended December 31, 1994, the Company had total revenues
of $11,651,343 and a net loss of $2,554,729. The Corporation's financial
condition is dependent upon the operations of Dixie Life, as well as on Dixie
Life's ability to transfer funds to the Corporation to meet expenses, debt
service requirements and other financial needs of the Corporation. In that
regard, provisions of the Mississippi insurance law impose restrictions upon the
transfer of funds from an insurance company subsidiary, such as Dixie Life, to a
parent stockholder, such as the Corporation.
The Corporation has signed a Letter of Intent to sell Dixie Life to
Standard Management Corporation, an Indiana corporation (SMC). As more fully
discussed under "Recent Developments" below, this transaction (SMC Transaction),
if completed, provides for the satisfaction of substantially all of the
Corporation's debt, including a $3,689,000 Term Loan due March 31, 1995 held by
a subsidiary of SMC and $1,720,000 in Subordinated Convertible Notes of the
Corporation due May 1, 1995 (Convertible Notes). The SMC Transaction also would
significantly change the nature of the Corporation's business, including its
dependence on receipt of funds from a regulated subsidiary. For further
information, see "(c) Narrative Description of Business," below, "Item 7
- -Management's Discussion and Analysis of Financial Condition and Results of
Operations," and Notes 2 and 9 of Notes to Consolidated Financial Statements.
All of the shares of Dixie Life owned by the Corporation are pledged as
collateral under the Term Loan, and the holders of the Convertible Notes also
have a security interest in those shares.
Recent Developments
Proposed Sale of Dixie National Life Insurance Company and Satisfaction of
Indebtedness
On March 6, 1995, the Corporation entered into a Letter of
Intent with SMC to sell to SMC all of the capital stock of Dixie Life which the
Corporation owns. Dixie Life represents 94% of the consolidated assets and
substantially all of the consolidated operations of the Corporation.
At closing SMC will cancel the Term Loan obligation, assume the
Corporation's indebtedness of $1,720,000
3
<PAGE>
under the Convertible Notes due May 1, 1995, pay the Corporation $2,500,000 in
cash and issue to the Corporation SMC common shares equal to $500,000 valued at
the average trading price of SMC's shares for the five days prior to closing.
The Corporation will also receive the first $175,000 of agent advances that
Dixie Life collects after closing. These payments constitute a selling price of
at least $8,408,746 and up to $8,583,746 if agent advances equal at least
$175,000 at closing and at least $175,000 is subsequently collected. Agent
advances, net of allowance for doubtful accounts at December 31, 1994, were
approximately $270,000. The selling price will be adjusted by the change in
Dixie Life's capital and surplus and asset valuation reserve between December
31, 1994 and closing. In addition, Dixie Life will continue to pay $15,000 per
month rent to Vanguard, Inc. (Vanguard), a wholly-owned subsidiary of the
Corporation through the December 31, 1996 expiration of an existing lease on the
office building occupied by the Corporation and Dixie Life.
Although the SMC Transaction provides means to satisfy the
Convertible Subordinated Notes at closing, such notes are due before the
anticipated closing date and there are no assurances that the Corporation will
be able to extend such notes beyond their May 1, 1995 maturity, or effect any
alternative accommodations. However, management is exploring several options and
believes that the Convertible Notes will be satisfied or extended at their due
date.
Except as to the extension of the due date of the Term Loan, a
prohibition against the Corporation negotiating with other parties and certain
other customary provisions, the Letter of Intent is not binding and is subject
to a Definitive Purchase Agreement which the parties intend to sign before April
1, 1995. The Definitive Purchase Agreement will contain usual and customary
conditions, including, among others, the receipt of all required regulatory
approvals and approval of the transaction by the shareholders of the Corporation
at a meeting to be held on or before August 1, 1995. There is no assurance that
the SMC Transaction will be consummated. As previously reported, in the first
quarter of 1994, the Corporation reached an agreement in principle for the
acquisition of the Corporation by SMC in a tax-free merger. A definitive Merger
Agreement among the Corporation, SMC and an SMC affiliate was executed June 8,
1994. On August 1, 1994, the Corporation terminated the Merger Agreement as a
result of SMC's failure to meet certain conditions of the Merger Agreement. On
November 7, 1994, Standard Life Insurance Company of Indiana, a subsidiary of
SMC, purchased the Term Loan from the bank which previously held the note.
Sale of Common Stock
The Corporation entered into an agreement with Universal
Management Services, a Nevada corporation (UMS), as of October 27, 1994 (UMS
Agreement). The UMS Agreement provides that UMS will use its best efforts to
assist the Corporation in locating potential investors for its Common Stock in
non-U.S. markets pursuant to Regulation S of the Securities Act of 1933. On
November 29, 1994, with such assistance, the Corporation sold 2,000,000 shares
of its Common Stock for which it received 1,230,770 shares of Alanco
Environmental Resources, Inc. (Alanco) common stock (November Transaction). The
Alanco shares had an aggregate market value of $2,000,000 on November 29, 1994
(see Note 3 of Notes to Consolidated Financial Statements). Alanco is
principally engaged in the manufacture and marketing of a pollution control
device sold in domestic and foreign markets.
4
<PAGE>
The UMS Agreement also gave UMS the right to assist the Corporation
in placing an additional 4,425,000 shares of its Common Stock, as previously
described in the Corporation's Form 10-Q for the nine months ended September 30,
1994. In light of the SMC Transaction among other factors the Corporation and
UMS have agreed to amend and restate the UMS Agreement on the basis described
below. A copy of the amended and restated UMS Agreement is expected to be filed
as an exhibit to a Form 8-K current report of the Corporation shortly.
Under the amended and restated UMS Agreement, UMS has the right to
use its best efforts to assist the Corporation in placing up to 12,500,000
additional shares of the Corporation's Common Stock in non-U.S. markets,
pursuant to Regulation S. The Corporation expects to:
1. Issue 2,000,000 shares of its Common Stock in exchange for
16% of the outstanding common shares of Phoenix Medical Management,
Inc. (PMM), an Arizona corporation.
2. If the acquisition of the 16% interest is completed, issue
100,000 of its Common Stock for an option to acquire the remaining 84%
of the common shares of PMM for 10,400,000 shares of the Corporation's
Common Stock.
3. Purchase from PMM three specialized health care facilities
for approximately $700,000 in cash. The funds for this transaction are
expected to be obtained through the placement, with the assistance of
UMS, but outside of the UMS Agreement, of approximately 700,000 shares
of the Corporation's Common Stock under Regulation S.
PMM was formed in November 1993 to engage in the ownership and
operation of health care facilities specializing in pain care. It's primary
business activity is the development of a proprietary multi-state network of
medical facilities that specialize in the comprehensive treatment of
patients seeking relief of chronic pain. Each facility is designed and
equipped to accommodate a multi-modality pain management, psychological and
physical rehabilitation program, as well as to accommodate other non-
affiliated surgeons who perform their own "non-pain related" surgical
procedures at these facilities.
PMM currently has one medical facility open and operating in
Phoenix, Arizona, with two additional facilities, in Lafayette and New
Orleans, Louisiana, scheduled to open in June and September 1995,
respectively. These facilities will operate under the name Surgi-Net and
Advanced Pain Management Institute.
The combination of all facets of pain management was successfully
test marketed by the founders of PMM in Phoenix, Arizona, and Lafayette,
Louisiana, over the course of the past two years. PMM is a development stage
company which opened its Phoenix facility in January 1995. Accordingly, PMM
does not have a meaningful history of operations.
5
<PAGE>
The amount of the consideration to be paid by the Corporation for
the acquisition of its interest in PMM and the three specialized health care
facilities, as described above, bears no relation to PMM's current
assets or operations. No assurances can be given, or representations made, as
to the results of this venture if, in fact, it proceeds, or whether it, or any
diversification by the Corporation into the health care field, will be
financially successful.
The Corporation understands that PMM is 60% owned by Amarante
Financial S.A.(Amarante), a British Virgin Islands corporation, which was one
of the investors in the November Transaction. Amarante owns all of the
outstanding common stock of UMS. The Corporation also is informed that Alanco
and two unaffiliated individuals hold the minority interest in PMM. Amarante
has an option to purchase all of the minority interest during June 1995.
John E. Haggar, who is a director of the Corporation is Chief
Financial Officer and a director of UMS. James G. Ricketts, who also is a
director of the Corporation, is a director of Alanco. The information set
forth above regarding the business and operations of PMM is based on
information supplied by UMS.
The Corporation believes that PMM offers an attractive opportunity
for entry into the health care market, and that the investment is a logical
strategic move. With the proposed sale of Dixie Life to SMC, the
Corporation will have divested itself of its remaining insurance
operations, yet will still be involved in an area related to the
accident and health insurance business which was a significant part of the
Corporation's operations for many years. Assuming that the PMM transactions
take place, the Corporation expects that a principal part of its business in
the future would be in the health care industry.
In view of covenants contained in the Term Loan Agreement, the
aquisition of shares of PPM by the Corporation will require certain waivers
from SMC, which the Corporation will seek to obtain. However, there is no
assurance that such waivers will be obtained, in which case the Corporation will
be obliged to reassess the proposed PMM transaction. There are no assurances
that any further transactions contemplated by the UMS Agreement will be
completed. UMS's rights under the UMS Agreement will expire June 30, 1995.
If at least 6,425,000 shares are placed with UMS's assistance, the
UMS Agreement provides that the purchasers will be entitled to designate a
majority of the Corporation's Board of Directors. This right would be
facilitated by the resignation of a sufficient number of directors whose
tenure as director predates the UMS Agreement so that designees of the new
investors could be appointed until the next annual meeting of the
Corporation's stockholders. The UMS Agreement contained three other
undertakings of the Corporation which were accomplished at the 1994 annual
meeting of the Corporation's stockholders held January 24, 1995. These were
(a) reduction of the Corporation's Board of Directors from 15 members to 9
members; (b) election to the Corporation's Board of Directors of three
representatives of the parties who purchased the Corporation's Common Stock
in the November Transaction; and (c) an increase in the number of
authorized shares of the Corporation's Common Stock from 10,000,000 to
50,000,000.
Future Plans
The acquisition of a 16% interest in PMM, if completed, will mark
the Corporation's entry into the health care field. The Corporation expects to
utilize any proceeds of the SMC
6
<PAGE>
Transaction and any sales of its Alanco shares, after satisfaction of the
Corporation's debt, to facilitate its diversification into the health care
field. At the present time, the Corporation does not expect to reenter the
life insurance business if the SMC Transaction is completed. The
Corporation is also considering other lines of business.
Sale of Accident and Health Business
In 1994 Dixie Life sold virtually all of its accident and
health business in two transactions (A&H Sales). The first sale was
initiated in December 1993 and completed in February 1994. The second
transaction was initiated in July 1994 and completed in September 1994. The
Company recognized losses of $324,000 in 1993 and $1,196,000 in 1994 on
these transactions. For further information, see "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations."
(b) Financial Information About Industry Segments
The Company's insurance operations represent the only material
industry segment in which the Company is engaged. Financial information
concerning the lines of insurance business within the Company's single
industry segment is included herein in Note 16 of Notes to Consolidated
Financial Statements.
(c) Narrative Description of Business
General
Dixie Life has traditionally offered various forms of life,
health and annuity insurance products, primarily designed for
specialized insurance markets. However, as discussed under "Recent
Developments" above, Dixie Life sold virtually all of its accident and
health business in late 1993 and mid 1994. Consequently, from July 1994,
Dixie Life has only been marketing life insurance products, primarily in
the burial or final expense market. Dixie Life will continue its present
marketing program pending consummation of the SMC Transaction.
The following table sets forth information as to life
insurance in force and premium income (after giving effect to amounts ceded
and assumed) from all business of Dixie Life for the last five years:
7
<PAGE>
1994 1993 1992 1991 1990
Life Insurance
in force (at
December 31) $224,782,000 $188,337,000 $330,440,000 $540,989,000 $389,589,000
Premium income:
Life $ 3,878,000 $ 4,935,000 $ 4,455,000 $ 4,466,000 $ 3,803,000
Accident and Health
5,302,000 14,185,000 12,287,000 10,054,000 8,032,000
Annuity 336,000 379,000 437,000 627,000 623,000
------------ ------------ ------------ ------------ ---------
TOTAL $ 9,516,000 $ 19,499,000 $ 17,179,000 $ 15,147,000 $ 12,458,000
Premium income from new business only for the last five years is shown
in the following table:
1994 1993 1992 1991 1990
Life $ 301,000 $ 1,068,000 $ 837,000 $ 942,000 $ 1,293,000
Accident and Health
1,530,000 4,012,000 4,184,000 3,857,000 2,685,000
Annuity 9,000
------------ ------------ ------------ ------------ ----------
TOTAL $ 1,831,000 $5,080,000 $5,021,000 $4,808,000 $3,978,000
8
<PAGE>
In 1993, a marketing director new to Dixie Life produced a
significant amount of new life business. In early 1994, this marketing
director ceased producing business for Dixie Life, significantly
contributing to the decrease in first year life premiums in 1994. The 1994
decrease in first year accident and health premiums was caused by the A&H
sales.
Statutory Surplus and Accounting
An insurance company such as Dixie Life must maintain minimum
levels of capital and surplus(Statutory Surplus),as required by the insurance
laws and regulations of the insurance company's state of domicile and the
various other states in which it operates. See "Insurance Company
Regulation," below. At December 31, 1994, Dixie Life's Statutory Surplus
was approximately $6,280,000. The highest level of Statutory Surplus required
by the laws or regulations of any state in which Dixie Life operates is
$3,000,000.
Statutory accounting practices, as prescribed by the
Mississippi Department of Insurance, differ from generally accepted
accounting principles in several respects. The most significant of these
differences is that statutory accounting practices require that costs incurred
in writing new insurance business be expensed as paid, while generally
accepted accounting principles require the capitalization of such costs,
which are then amortized over the expected life of the insurance
products sold. The principal such first year cost expensed in its
entirety is commissions, which are significantly greater in the
first year compared to renewal commissions. For example, on accident and
health policies the first year commission is typically 70% of premium
while the renewal commission is typically 20%. On life insurance policies
the first year commissions are as much as 105% of premiums while the
renewal commission is typically 10%. The excess of first year commissions
over renewal commissions is deferred under generally accepted accounting
principles, as are other costs associated with the issuance of a policy.
Because the high first year costs associated with issuance of a
policy are expensed under statutory accounting practices, high levels of new
business create drains on statutory net income and therefore Statutory
Surplus. Dixie Life experienced increased levels of new business for
several years through 1992, creating a strain on Statutory Surplus. However,
primarily as a result of the sale of Dixie Life's accident and health
business and a 1993 agreement by Dixie Life to cease writing new business
in a particular state, the trend did not continue in 1994 and 1993. In
order to write an increasing amount of new business while continuing to
meet the statutory requirements of the states in which it conducted its
insurance operations, it has been necessary for Dixie Life to utilize
various forms of surplus relief.
9
<PAGE>
The principal source of surplus relief since 1989 has been
financial reinsurance agreements, which for GAAP purposes are treated as
financing arrangements, but for statutory accounting purposes provide
reserve credits that, in equal amount, increase Statutory Surplus. Since
September 1992, Dixie Life has had a financial reinsurance agreement
with Crown Life Insurance Company, a Canadian corporation (Crown Agreement).
Under Dixie Life's agreement with Crown, Dixie Life was entitled to a
credit to its statutory reserves of $1,985,000 at December 31, 1994.
The amount of this credit will decrease in the amount of $165,000 each
calendar quarter beginning in 1995. See "Reinsurance", below.
The sales of Dixie Life's accident and health business
discussed above increased Statutory Surplus by $5,322,000 and
$2,125,000 in 1994 and 1993, respectively.
Capital Requirements of the Corporation
During 1994 and in early 1995, the Corporation devoted significant
effort to strengthening the Statutory Surplus of Dixie Life and reducing the
Corporation's dependence upon the operations of Dixie Life and its ability to
transfer funds to the Corporation. Management's effort resulted in the
following:
1) The UMS Agreement was entered into as a possible source of
funds to satisfy the Term Loan and the Convertible Notes.
2) The SMC Agreement was entered into as a possible means of
satisfying the Term Loan and the Convertible Notes. There are no
assurances the transaction contemplated by the SMC Agreement will be
consummated.
3) Dixie Life's accident and health business was sold,
thereby increasing Dixie Life's Statutory Surplus to a level that
reduced the importance of the reserve credit provided by the Crown
Agreement. This also allowed Dixie Life to accelerate the recapture
of the reserve credit in 1994, further reducing its dependence on
the Crown agreement.
As previously stated, the financial condition of the
Corporation has been dependent upon the operations of Dixie Life, and the
ability of Dixie Life to transfer funds to the Corporation. As an insurance
company subsidiary of the Corporation and a member of a holding company
system with the Corporation, the ability of Dixie Life to transfer funds to
the Corporation is, to a significant degree, controlled by statute. Generally,
all transactions between members of a holding company system must be "fair and
reasonable." The Mississippi Commissioner of Insurance (Commissioner)
has wide latitude in evaluating the reasonableness of a transaction and
its effect upon a Mississippi insurer, such as Dixie Life. The Commissioner
takes the position that a Mississippi insurance company cannot make a loan to
any of its shareholders, officers or directors. Mississippi law limits the
size of dividends or other distributions that may be made by a
Mississippi insurer to another member of its holding company system without
approval of the Commissioner. Thus, it is possible for an insurance company
to be financially healthy, but for its holding company to be in need of
funds under circumstances where it would be difficult or impossible to either
transfer the needed funds from
10
<PAGE>
the insurance company to its holding company or for the insurance company
to obtain the necessary regulatory approval for transfers that require the
approval of the Commissioner of Insurance. See "Insurance Company Regulation,"
below, "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations", and Notes 2 and 9 of Notes to Consolidated Financial
Statements.
Products and Markets
Life insurance policies sold in the final expense, or burial market,
include fixed premium interest sensitive policies that provide for increasing
death benefits, as well as traditional whole life policies. These policies
are designed to cover expenses such as funeral, last illness, monument and
cemetery lot. The policies provide for a death benefit, generally not in excess
of $10,000, and a level premium payment. The products include a cash value
which may be borrowed by the policyholder.
Dixie Life's policies sold in other markets include interest
sensitive and traditional whole life policies and forms of term policies.
The interest sensitive and whole life policies include cash values which
may be borrowed by the policyholder. Dixie Life issues policies on both a
participating and non-participating basis. See Note 8 of Notes to Consolidated
Financial Statements.
Dixie Life conducts insurance operations in 21 states, primarily
in the southeastern and southwestern United States, and the District of
Columbia. In 1994, the geographic distribution of collected premiums from the
sale of accident and health, and life insurance policies, including annuity
contracts, was as follows:
Accident and Health Life
State First Year Renewal First Year Renewal Total
- ----- ------------ ----------- ----------- ------- ------
Texas 2.6% 8.4% 2.1% 8.1% 21.2%
Mississippi 2.0% 9.0% 0.7% 6.2% 17.9%
Georgia 2.9% 6.6% 0.6% 2.0% 12.1%
Louisiana 1.0% 4.7% 0.2% 4.1% 10.0%
Kansas 1.4% 5.7% 0.0% 0.6% 7.7%
Other states 7.0% 13.2% 1.1% 9.8% 31.1%
------ ----- ----- ----- -----
16.9% 47.6% 4.7% 30.8% 100.0%
Sales Force and Employees
Dixie Life's insurance products are offered through a sales force
consisting, as of December 31, 1994, of approximately 1,760 agents, 375
general agents, and 50 marketing directors, with whom Dixie Life has
non-exclusive contracts. Sales personnel are compensated on a commission basis
and are provided incentives for increased production. A relatively small number
of Dixie Life's marketing directors generate a significant amount of premium
income and the loss of one or more marketing directors could have an adverse
economic effect on the Company. In that regard, see "General," above, with
respect to the impact of the loss of a marketing director on 1994 new life
insurance business.
11
<PAGE>
At December 31, 1994, the Company had approximately 31 home office
employees, including officers. In connection with the A&H sales, the home office
staff was further reduced to 26 at March 15, 1995. At December 31, 1993, such
staff numbered approximately 50.
Competition
The life insurance industry is highly competitive. There are over
2,000 life insurance companies nationwide. Dixie Life's competitors
consist of both stock and mutual companies. Because the profits, if any,
of mutual companies accrue to the benefit of policyholders, such companies
may have certain competitive advantages. Dixie Life is a relatively small,
essentially regional, insurance company that competes with life insurance
companies that are more widely known, have far greater resources and offer a
broader range of insurance products. Dixie Life also competes with other
regional insurance companies of a more comparable size. These factors contribute
to the competition encountered by the Company in attracting the services
of qualified sales agents and may result in higher agent costs. Based on
industry data, major life companies generally pay smaller commissions than
Dixie Life. Compared to the regional companies in the market area it services,
Dixie Life believes it pays similar commissions. The Company expects this
pattern to continue in the foreseeable future. Dixie Life believes that its
policies and rates, the services performed by its agents, and its claims
administration are generally competitive with those offered by both stock
and mutual companies in the jurisdictions in which it operates.
Changes in the market place and individual needs require Dixie Life to
continually reevaluate the insurance which it offers in order to remain
competitive. Competition is intense, and is increasing, particularly as
banks, securities brokerage firms and other financial intermediaries have
become involved in the marketing of insurance products.
Investments
Dixie Life is required to invest its assets in accordance with
applicable provisions of the Mississippi insurance law. The following table
shows the composition of Dixie Life's invested assets at December 31, 1994 and
1993, valued on a GAAP basis:
1994 1993
---- ----
Carrying Percent of Carrying Percent of
Value Total Value Total
-------- ---------- -------- ----------
Fixed maturities $17,332,660 54.7% $13,489,902 43.0%
Policy loans 3,060,185 9.7 3,025,981 9.6
Government guaranteed
student loans, 5,978,288 18.9 7,159,975 22.9
Short-term
investments 4,860,347 15.3 3,040,448 9.7
Cash and cash
equivalents 459,109 1.4 4,655,458 14.8
--------- ------- --------- ------
TOTAL $31,690,589 100.0% $31,371,764 100.0%
12
<PAGE>
Dixie Life's fixed maturities consist of obligations issued by U.S.
Government agencies and authorities; states, municipalities and political
sub-divisions; public utilities; and other corporate issuers. As the table
shows there was a substantial increase in fixed maturities, and a
substantial decrease in cash and cash equivalents, during 1994. In 1994,
the Company completed a plan begun in 1993 to realign the composition of
its fixed maturities and short-term investments to create a portfolio with
an average life of approximately 10 years.
For more information with respect to Dixie Life's investments and the
changes that have occurred in its portfolio of fixed maturities and short-term
investments, and the effect of those changes on income, see "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 3 of Notes to Consolidated Financial statements.
Reinsurance
Dixie Life reinsures substantial portions of its life insurance
risks with other carriers under its excess coverage reinsurance
arrangements. Generally, when the life coverage on any one individual exceeds
$55,000, Dixie Life's maximum retention on the insured is $50,000. The
excess coverage is reinsured under agreements Dixie Life has entered into with
various reinsurers, other than Crown.
In addition to its excess coverage reinsurance arrangements, Dixie
Life, pursuant to the Crown Agreement, has ceded to Crown 90% of the retained
portion of its traditional life and 90% of the retained part of its fixed
premium excess interest sensitive life policies in effect as of September 30,
1992. The face amount of policies ceded as of the effective date was
approximately $255,455,000. The reinsurance effected under the Crown Agreement
is on a combination coinsurance and modified coinsurance basis. It is expected
that the coinsurance portion will decrease and the modified coinsurance portion
will increase over the term of the Crown Agreement.
As the amount of reinsurance on a coinsurance basis decreases under
the Crown Agreement the amount of the reserve credit available to Dixie Life is
reduced, with a corresponding reduction of Dixie Life Statutory Surplus.
The Crown Agreement provided Dixie Life with $4,500,000 of initial reserve
credit. At December 31, 1994, the reserve credit was $1,985,000 which may not
be reduced by more than $165,000 per quarter ($250,000 per quarter prior to
an amendment effective October 31, 1994).. It is anticipated that the Crown
Agreement will be terminated in approximately three years from December 31,
1994, when all of the coinsurance portion of the reinsurance is expected to
be converted to modified coinsurance, unless the agreement is further amended.
Dixie Life has placed assets in trust equal to 105% of the amount
of the reserves on the portion of the ceded block of business originally
reinsured under the Crown Agreement on a coinsurance basis. These assets, with
a market value of approximately $13,435,000 as of December 31, 1994, have been
placed in trust by Dixie Life with a bank.
13
<PAGE>
Under the terms of the Crown Agreement, Dixie Life makes quarterly
payments to Crown which are generally equal to 1% of the reserve credit being
provided under the agreement for the next quarter. The Crown Agreement provides
for various premium and other payments to be made between Dixie Life and
Crown. These payments may offset each other, resulting in a netting of amounts
due. No net quarterly payment to Crown during the remaining life of the Crown
Agreement will exceed the payment made in the next preceding quarter.
Under all of Dixie Life's reinsurance arrangements, Dixie Life
remains liable under its policies to its policyholders, regardless of the
ability of the reinsurer to meet its obligation to Dixie Life.
Dixie Life has assumed reinsurance on a block of life
insurance business under the Servicemen's Group Life Insurance Program.
However, this assumption has virtually no effect on Dixie's earnings from
year to year. This assumption increased Dixie Life's total in force life
insurance by approximately $141,936,000 at December 31, 1994. Dixie does
not have any plans to enter into other assumption reinsurance agreements.
Additional information regarding Dixie's reinsurance policies and
activities is included in Notes 2 and 13 of Notes to Consolidated Financial
Statements.
Regulatory Factors
Dixie Life is subject to regulation and supervision by the
insurance departments of the jurisdictions in which it is licensed to do
business. These insurance departments are charged with the responsibility
to assure that insurance companies maintain adequate capital and surplus,
manage investments within prescribed character and exposure limitations and
comply with a variety of operational standards. They also make periodic
examinations of individual companies and review annual reports on the
financial condition of all companies operating within their respective
jurisdictions. Regulations cover many aspects of the life insurance
business, including accounting and financial reporting procedures.
As a Mississippi domiciled insurer, Dixie Life is primarily subject
to regulation by the Mississippi Insurance Department. An annual statement
must be filed with the Insurance Department in each state in which Dixie Life
is qualified on or before March 1 of each year covering operations and
reporting on the financial condition of Dixie Life as of December 31st of the
preceding year. Periodically, the Mississippi Insurance Department examines the
assets, liabilities and reserves of Dixie Life and performs a full
examination of its operations. The Mississippi Insurance Department's most
recent complete examination of Dixie Life was as of December 31, 1990.
In 1993, the Mississippi Insurance Department completed a
targeted examination as of September 30, 1993. In February 1995, the
Department began a complete examination as of December 31, 1994. The
Department invites other jurisdictions in which Dixie Life does
business to participate in its examinations, if they so desire.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed up to prescribed limits for policyholder
losses incurred as a result of insolvent companies that were doing business
in the assessing state. The amount of future assessments, if any, of Dixie
14
<PAGE>
Life under these laws cannot be estimated. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's own financial strength. In addition,insurers are generally
allowed a 100% credit for guaranty assessments paid against future premium tax
expense.
Under Mississippi law, the Corporation and Dixie Life are members
of an insurance holding company system. As members of an insurance holding
company system, transactions between the Corporation and Dixie Life are
subject to various statutory controls and limitations and may require
approval and trigger certain reporting requirements. In addition,
Mississippi law provides that certain transactions involving a domestic
insurer and any person in its holding company system shall not be entered
into unless the insurer has notified the Mississippi Commissioner in
writing of the insurer's intention to enter into such transaction at
least 30 days prior thereto, or such shorter period as the Mississippi
Commissioner may permit, and that the Mississippi Commissioner has not
disapproved such transaction within such period.
Generally, transactions within a holding company system must be fair
and reasonable; charges or fees for services rendered must be reasonable;
accounting for expenses incurred and for payments received must be allocated to
the insurer in conformity with customary insurance accounting practices
consistently applied; the books and records of the parties to all such
transactions must clearly and accurately disclose the nature and details
of the transactions, including accounting information necessary to support
the reasonableness of the charges or fees to the parties; and the insurer's
surplus as regards policyholders following any dividend or distribution to a
stockholder affiliate must be reasonable in relation to the insurer's
outstanding liabilities and adequate to meet its financial needs. Certain
transactions are required to be reported to the Commissioner.
Mississippi law prohibits the payment of an extraordinary dividend
or any other extraordinary distribution by an insurer to a stockholder until
30 days after the Mississippi Commissioner has received notice of the
declaration thereof and has not, within such period, disapproved such
payment or has approved such payment within the permitted period.
An extraordinary dividend or distribution is one which,
together with all other distributions or dividends within the preceding
12 months, exceeds the lesser of (i) 10% of such insurer's surplus as
regards policyholders as of December 31st next preceding, or (ii) net
gains from operations of such insurer, not including realized capital
gains, for the twelve months ending December 31 next preceding. In such
computations, the insurer may carry forward net gain from operations
from the previous two calendar years that have not already been paid
out as dividends. Based upon Dixie Life's net gain from operations in
1994, Dixie Life may pay only a nominal dividend without the approval
of the Mississippi Commissioner.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often have an
impact on the business in a variety of ways. Current and proposed
federal measures which may significantly affect the insurance business
include employee benefit regulation, tax law changes affecting the
taxation of insurance companies, the tax treatment of insurance
products, and the relative desirability of various personal investment
vehicles.
15
<PAGE>
ITEM 2 - PROPERTIES
The Company's home offices occupy an entire two story building
located at 3760 Interstate 55 North, in Jackson, Mississippi. The
building and its three quarter acre site are owned by Vanguard.
ITEM 3 - LEGAL PROCEEDINGS
As previously reported in the Corporation's Form 8-K report
dated January 14, 1994, Dixie Life is a defendant in a suit filed on
January 7, 1994, by David William Becker, plaintiff, in the Circuit
Court of Montgomery County, Alabama.
The suit alleges that Dixie Life has failed to properly pay
dividends to holders of its Charter Contract policies. As discussed in
Note 13 of Notes to Consolidated Financial Statements, these policies
are participating policies pursuant to which Dixie Life is obligated to
apportion dividends to the holders of such policies as a group and on a
prorata basis, of not less than 35% of the statutory net profits of
Dixie Life, computed by a formula set forth in the policy. The formula
utilizes certain information contained in the annual statement filed by
Dixie Life with the Mississippi Department of Insurance, as such report
was constituted in 1966. The suit was filed as a class action on behalf
of the plaintiff and a class of persons allegedly similarly situated
and alleges the class consists of over 1,000 persons.
The suit seeks judgment in an undetermined amount for alleged
underpayment of dividends and an injunction requiring Dixie Life to pay
appropriate dividends in the future.
Dixie Life has paid a dividend to holders of the Charter
Contract policies in each year since the policies were issued. On a
cumulative basis, the total dividends paid to the holders of the
Charter Contract policies since issuance exceed 35% of the statutory
net profits of Dixie Life for the same period as defined by the policy.
Dixie Life filed an answer to the complaint on March 7, 1994
and intends to vigorously defend the suit. Dixie Life believes serious
questions exist as to whether a class action is available relative to
the plaintiff's claim, and the identity of the class, if a class action
is available. Dixie Life will oppose the certification of any class
and, alternatively, will seek to limit the class.
No discovery has yet taken place and no class has yet been
certified by the court. In the absence of a class, if any, and its
composition, if certified, Dixie Life has no reasonable basis upon
which to estimate its potential liability, if any.
There are no other pending legal proceedings, except for
routine litigation incidental to the Company's business, to which the
Company or any of its subsidiaries are a part, or to which any of the
Company's properly is subject.
16
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock is traded in the
over-the-counter market and is quoted on the NASDAQ Market System under
the symbol DNLC. The tables below set forth the reported high and low
sales price as reported by the National Quotation Bureau, Inc. for the
quarters indicated. This information does not include retail markups,
markdowns, or commissions.
1994
High Low
Quarter Bid Asked Bid Asked
First 1 1 1/4 1 1 3/16
Second 15/16 1 1/16 13/16 15/16
Third 9/16 3/4 1/2 11/16
Fourth 3/4 7/8 1/2 5/8
1993
High Low
Quarter Bid Asked Bid Asked
First 7/8 1 1/8 7/8 1 1/8
Second 13/16 1 1/16 13/16 1 1/16
Third 1 1/16 1 1/4 15/16 1 1/8
Fourth 13/16 1 11/16 7/8
No dividends were paid on the Corporation's Common Stock
during the last two years.
The number of holders of record of common stock of the
Corporation on March 15, 1995 was 2,464.
17
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Selected consolidated financial data for the Corporation and
its subsidiaries is set forth in the following table:
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
FOR THE YEAR ENDED
DECEMBER 31:
REVENUES
Premiums $ 9,516,157 $19,499,289 $17,178,510 $15,146,819 $12,457,781
Net Investment
Income 2,133,635 2,005,075 2,157,848 2,410,940 2,545,802
Realized investment
gains (losses) 1,551 25,580 (24,494) 2,029 (29,818)
----------- ----------- ------------ ----------- ------------
Total $11,651,343 $21,529,944 $19,311,864 $17,559,788 $14,973,765
NET INCOME (LOSS) $(2,554,779) $ (957,138) $ 848,984 $ 1,566,934 $ 2,495,775
PER COMMON SHARE AMOUNTS
Primary and fully diluted
Net income (loss) (.39) (.15) .13 .24 .39
AT YEAR-END:
TOTAL ASSETS $44,577,452 $56,255,734 $55,540,644 $54,240,107 $49,191,859
NOTES PAYABLE
AND OTHER DEBT $ 6,103,839 $ 6,253,670 $ 7,003,517 $ 7,520,447 $ 6,110,609
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and notes
thereto appearing elsewhere in this report.
Liquidity and Capital Resources
General. In 1994 and early 1995, the Corporation devoted
significant effort to strengthening the Statutory Surplus of Dixie Life
and reducing the Corporation's dependence upon the operations of Dixie
Life and the ability of Dixie Life to transfer funds to the Corporation
in order for the Corporation to meet its liquidity requirements. The
following steps were taken in 1994 and early 1995:
The A&H Sales increased Dixie Life's Statutory Surplus to a level so
that Dixie Life is not dependent upon the reserve credit provided by
the Crown Agreement to meet minimum levels
18
<PAGE>
of Statutory Surplus required by any state in which it operates. The
A&H Sales also allowed Dixie Life to accelerate the recapture of the
Crown reserve credit in 1994, further reducing the dependence on the
Crown Agreement.
The sale of Alanco shares provides a possible source of funds to
satisfy the Convertible Notes.
The SMC Transaction provides a possible source of funds to satisfy the
Term Loan and the Convertible Notes. There are no assurances the
transaction contemplated by the SMC Agreement will be consummated.
Liquidity Requirements. Most of the operating liquidity
requirements of the Company arise from the insurance operations of
Dixie Life and generally are met through funds generated by Dixie
Life's operations. Premium income and net investment income provide
funds that are used to pay claims to policyholders; make policy loans;
pay costs of obtaining new business, principally first year
commissions; and pay operating expenses. Dixie Life's operations
generated positive cash flow of approximately $778,000, $98,000 and
$1,074,000 in 1994, 1993 and 1992, respectively.
Dixie Life pays a monthly management fee of $154,000 to the
Corporation. Funds provided by the management fee are sufficient to pay
operating and interest expenses of the Corporation.
The Corporation's significant liquidity need at this time is
for debt service. At December 31, 1994, the Corporation owed a
subsidiary of SMC approximately $3,689,000 under a Term Loan. The Term
Loan (originally due March 31, 1995) is now due at closing of the SMC
Transaction or 90 days after the cancellation of the SMC Transaction by
either party. Also, the Corporation's 10% Convertible Notes, in the
amount of $1,720,000, are due May 1, 1995. Although the SMC Transaction
provides a means to satisfy the Convertible Notes at closing, such
notes are due before the anticipated closing date and there are no
assurances that the Corporation will be able to extend such notes
beyond their May 1, 1995 maturity, or effect any alternative
accommodations. However, management is exploring several options and
believes that the Convertible Notes will be satisfied or extended at
their due date. All of the shares of Dixie Life owned by the
Corporation are pledged to secure payment of the Term Loan and the
Convertible Notes.
At December 31, 1994, Vanguard owed a bank approximately
$524,000 under a mortgage loan secured by the home office building of
Dixie Life. Under a lease agreement, Dixie Life pays Vanguard rent
sufficient to cover the debt service under the mortgage.
The loan agreement covering the Term Loan contains three
financial covenants. First, the covenants include a requirement that
Dixie Life maintain statutory capital and surplus of at least
$3,500,000 as of the end of each quarter. Dixie Life's statutory
capital and surplus at December 31, 1994, was $6,280,000. Second, the
Corporation must maintain tangible net worth, as defined, of at least
$9,000,000. At December 31, 1994, tangible net worth was $8,487,818.
Finally, the Corporation must maintain a ratio of total liabilities to
tangible net worth of not more than 4.5 to 1. At December 31, 1994, the
ratio of total liabilities to tangible net worth was 4.17 to 1. Failure
to satisfy any of the financial covenants is an event of default unless
waived by the holder to the Term Loan. Standard
19
<PAGE>
Life has waived the Corporation's failure to satisfy the tangible net
worth covenant.
The terms of the Convertible Notes provide that an event of
default under the Term Loan, if not cured or waived, is an event of
default under the Convertible Notes.
Going Concern Considerations. The lack of assurance that the
SMC Transaction will be completed raises significant doubt about the
Company's ability to continue as a going concern. Completion of the SMC
Transaction together with an extension or timely repayment of the
Convertible Notes would remove such uncertainties.
Management's plans in this regard include the following:
1. Endeavor to complete the SMC Transaction, thereby satisfying the
Term Loan, as well as the Convertible Notes, assuming their due date is
extended.
2. Seek to extend or secure an alternative means of paying the
Convertible Notes. Liquidation of a portion of the Alanco shares is a possible
source of repayment of at least a portion of the Convertible Notes.
3. In the event the SMC Transaction is canceled by either party,
searching for another purchaser of Dixie Life in the 90 days available to it
beyond such cancellation beforthe Term Loan is due.
There are no assurances that any of these efforts will be
successful.
Investment Portfolio Liquidity. Dixie Life's investment
strategy emphasizes investments of the highest quality. Accordingly,
Dixie Life's policy has been to invest in securities which are
considered investment grade by various investor services and the
National Association of Insurance Commissioners ("NAIC"). Occasionally,
securities will fall below investment grade over the life of the
securities. At December 31, 1994, Dixie Life's investment in securities
not of investment grade was less than 1% of total investments.
During 1994, the Dixie Life increased its investment in fixed
maturities by almost $5 million. The funding for this increase came
from several sources, including $778,000 from operations, $403,000 from
net collections on agent advances, $1,182,000 from net collections on
student loans and $2,568,000 from a reduction in cash and short term
investments. Dixie Life has completed its program, begun in 1993, to
recast its investment portfolio into investments with an average
maturity of approximately 10 years. Management believes its investment
portfolio provides appropriate liquidity to meet the liabilities of
Dixie Life as such liabilities mature.
At December 31, 1994, the Company's investments are reported
in accordance with the provisions of Statement of Financial Accounting
Standards No. 115 (FAS 115) which was issued by the Financial
Accounting Standards Board in 1993 and effective for 1994 financial
statements. As a result the carrying basis for investments is different
in 1994 than in 1993.
20
<PAGE>
At December 31, 1994, fixed maturity investments are all
classified as available for sale and are carried at market value.
Unrealized market gains and losses are reported as a separate component
of stockholders' equity. Application of FAS 115 resulted in a reduction
of the Corporation's stockholders' equity of $925,000 at December 31,
1994.
In 1995, Dixie Life's Board of Directors approved two new
investment programs. First, investment of up to $1,200,000 in five year
equipment leases on food preparation equipment at a rate of prime plus
4% fixed at closing has been approved. Approximately $540,000 has been
funded thus far in 1995. Second, investment of up to $1,000,000 in
secured home construction loans in Arizona has been approved. These
construction loans will have a loan to value ratio of not more than 65%
and carry interest rates of 14.5% to 16.5%, depending on the
development. No construction loans have been funded in 1995.
Statutory Surplus. Minimum required levels of Statutory
Surplus vary by state and range from $600,000 to $3,000,000 in states
where Dixie Life is licensed. If an insurance company's Statutory
Surplus falls below the statutory minimum, that company could be
subjected to severe restrictions in the states where such minimum
levels are not maintained. Thus any insurance company has a continuing
need to maintain required minimum Statutory Surplus levels.
The insurance departments of most of the states in which Dixie
Life operates, including its domicile state of Mississippi, have
broad discretionary powers to require higher levels of Statutory
Surplus, or to impose restrictions on operations, including fund
transfers and new business sales, when such restrictions are
perceived by the departments as necessary or desirable to maintain
adequate amounts of Statutory Surplus.
At December 31, 1994, Dixie Life's Statutory Surplus was
$6,280,000, well in excess of the minimum requirement of any state. Prior to
the 1994 A&H Sale, Dixie Life's Statutory Surplus was less than $3,000,000.
Further, in order to meet its Statutory Surplus requirements, Dixie Life has,
from time to time, depended upon forms of reinsurance agreements that provide
surplus relief through reserve credits that, for statutory accounting purposes,
increase Statutory Surplus in an amount equal to the reserve credit
taken. Dixie Life's principal reinsurance agreement provided a reserve
credit of $1,985,000 at December 31, 1994. It also has sold blocks of
in force accident and health insurance, thereby generating significant
statutory profits.
Results of Operations
The Company incurred a net loss of $2,554,779 in 1994
compared to a net loss of $957,138 in 1993 reflecting a negative change
of 167% in 1994 compared to 1993. The net loss in 1993 reflected a
negative change of 213% compared to 1992 net income of $848,984. On a
per share basis the net loss for 1994 was $.39 compared to a net loss
of $.15 in 1993 and net income of $.13 in 1992.
Total revenues for 1994 were $11,651,000 compared to
$21,530,000 in 1993 and $19,312,000 in 1992, reflecting a 46% decrease
in 1994 and an 11% increase in 1993.
Premium income in 1994 was $9,516,000, a 51% decrease from 1993
premiums of
21
<PAGE>
$19,499,000. The 1993 level of premiums was 14% greater than 1992
premium income of $17,179,000. The decrease in premiums in 1994 was
driven primarily by the A&H Sales which resulted in Dixie Life having
no accident and health premiums in the last half of 1994. The
composition of premium income in each of the three years was as
follows:
Life and Accident
Annuity and Health Total
1994 $4,214,000 $5,302,000 $9,516,000
1993 5,314,000 14,185,000 19,499,000
1992 4,892,000 12,287,000 17,179,000
Net investment income was $2,134,000 in 1994 compared to
$2,005,000 in 1993 and $2,158,000 in 1992, reflecting an increase of 6%
in 1994 and a decrease of 7% in 1993. In 1994 and 1993, net investment
income was favorably influenced by a planned program to reinvest
significant short term holdings in a portfolio with an average life of
10 years. There was also a positive impact in 1994 from rising interest
rates. Several factors counteracted these positive factors. First, in
1991 Dixie Life began reinvesting the proceeds of all calls, maturities
and sales in short term investments.This program continued throughout 1992 and
into the first quarter of 1993. This resulted in a significant decrease in
the yield on Dixie Life's investment portfolio. Second, income on student
loans has steadily decreased in absolute dollars, driven partly by a reduction
in the amount of loans outstanding and the fact that a significant portion
of the outstanding loans provide for floating interest rates which have
fallen over the periods being compared.
Total benefits and expenses were $14,236,000 in 1994,
$22,700,000 in 1993 and $18,213,000 in 1992, reflecting a decrease of
37% in 1994 and an increase of 25% in 1993.
22
<PAGE>
In 1994, every expense category experienced a significant
decrease. The decreases in benefits and claims to policyholders,
amortization of deferred policy acquisition costs and commissions
largely resulted from the A&H Sales. The composition of these three
categories by segment were as follows:
Life and Accident
Annuity and Health Total
Benefits and Claims to Policyholders:
1994 $3,512,000 $3,061,000 $ 6,573,000
1993 4,046,000 8,528,000 12,574,000
1992 3,321,000 6,771,000 10,092,000
Amortization of Deferred Policy Acquisition Costs:
1994 968,000 453,000 1,421,000
1993 1,526,000 980,000 2,506,000
1992 1,337,000 720,000 2,057,000
Commissions:
1994 882,000 1,012,000 1,894,000
1993 367,000 3,142,000 3,509,000
1992 452,000 2,270,000 2,722,000
General expenses declined $323,000 in 1994 compared to 1993.
Under the terms of the 1994 A&H Sale, Dixie Life continued to
administer the business which was sold through December 16, 1994 and
received compensation from the purchaser of $671,000 which was credited
to general expense. Actual costs of such administration exceeded the
compensation received, accounting for the difference in the decrease
and the compensation received. The decreases in all recurring
categories were offset by the difference in the loss incurred on the
A&H Sales in 1994 compared to 1993.
In 1993, total benefits and expenses increased $4,487,000 with
an increase in benefits and claims to policyholders comprising
$2,481,000 of this increase, or 55% of the total increase. This
increase in benefits and claims to policyholders was caused by an
increase in claims paid of $1,895,117 and an increase in accident and
health (A&H) reserves resulting from continued high levels of claims.
Dixie Life instituted rate increases on several of its A&H policies
because of the higher levels of claims and it continually monitored its
claims experience and requested rate increases on its A&H products
whenever claims experience warranted rate increases. The rate increases
which were approved generally were instituted in the latter part of
1993 or early 1994 and thus had little effect on operations for 1993.
Amortization of deferred policy acquisition costs and value of
insurance purchased increased $450,000 in 1993 as a result of a general
increase in the amount of insurance in force and a somewhat higher
level of terminated policies in 1993. Commission expenses increased
$787,000 as a result of a relatively higher renewal premium income on
A&H products which carry a higher renewal commission structure. General
expenses increased $437,000 in 1993 with $217,000 of this increase
being caused by increased professional fees.
In 1994, a change in deferred taxes on policy liabilities, resulting
from an incorrect estimate of the tax basis policy benefits at December 31,
1993, caused a $362,786 reduction of the 1994 tax benefit credited to
operations. Consequently the 1994 effective tax rate was less than 2%.
Income tax benefit in 1993 was 18% of the loss before income taxes compared to
income tax expense of 23% on income before income taxes in 1992 and 18% in 1991.
23
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data called for by
this Item are set forth immediately following the Index to Financial
Statements and Financial Statement Schedules at page 34.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
24
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Corporation are:
Name Age Director Since
----------- --------- ------------------
T. H. Etheridge 61 1966
John E. Haggar 52 1995
Robert B. Neal 57 1970
25
<PAGE>
Name Age Director Since
------------ ----------- ------------------
Dennis Nielsen 54 1995
Joe D. Pegram 54 1991
S. L. Reed, Jr. 58 1980
James G. Ricketts 56 1995
Herbert G. Rogers, III 52 1992
W. A. Taylor, Jr. 64 1969
Each director holds office until the next annual meeting of
shareholders or until his successor shall be duly elected and qualified.
26
<PAGE>
The executive officers of the Corporation are:
Name Age Executive Officer Since
------------ ---------- ------------------------
S. L. Reed, Jr. 58 1995
Chairman
Chief Executive Officer
Robert B. Neal 57 1967
President
T. F. Flowers, Jr. 57 1970
Senior Vice President
26(A)
<PAGE>
Name Age Executive Officer Since
------------- ------------ ------------------------
Jerry M. Greer 52 1970
Senior Vice President and Secretary
Monroe M. Wright 54 1993
Senior Vice President,
Treasurer and Chief Operating Officer
The Corporation's officers serve at the pleasure of the Board of Directors.
Business Experience
The principal occupations and business experience for the last five
years or more of the directors and executive officers of the Corporation are as
follows:
S. L. Reed, Jr. - From January 1995, Chairman of the Board of Directors and
Chief Executive Officer of the Corporation. President of Reed Enterprises, Inc.
(an aquaculture and investment company) of Belzoni, Mississippi; Director of
Delta Industries, Inc., Producers Feed Co. and Venture SystemSource, Inc. He
serves as a member of the Executive Committee.
T. H. Etheridge - President and Chief Executive Officer of Choctaw Maid Farms,
Inc., (a food processing and marketing company), of Carthage, Mississippi;
Chairman of the Board of Central Industries and Director of Southern Hens, Inc.
He serves as a member of the Executive Committee.
T. F. Flowers - Senior Vice President of the Corporation and Dixie Life,
Director of Agencies of Dixie Life and President of Dixie National Life
Marketing Corporation, a subsidiary of the Corporation.
Jerry M. Greer - Senior Vice President and Secretary of the Corporation and of
Dixie Life.
John E. Haggar - From December 1994 Chief Financial Officer and Director of
UMS Previously, Mr. Haggar was a sole practitioner engaged in providing
accounting services to the general public. He is a member of the American
Institute of Certified Public Accountants and the Washington Society of
Certified Public Accountants. Mr. Haggar serves as Chairman of the Audit and
Compliance Committee and a member of the Finance and Business Strategy
Committee and the Nominating and Stockholder Relations Committee.
26(B)
<PAGE>
Robert B. Neal - President of the Corporation and also Chairman of the
Board of Directors, President and Chief Executive Officer of Dixie
Life. He serves as a member of the Executive Committee.
Dennis Nielsen - Self-employed as a business consultant offering
assistance to businesses on restructuring, financing, or assisting with
possible mergers or acquisitions. Previously he was owner of P&N, Inc.
and Hufburn Sales, Inc., both automobile dealerships. Mr. Nielsen
serves as a member of the Audit and Compliance Committee and the
Nominating and Stockholder Relations Committee.
Joe D. Pegram - Attorney. He serves as a member of the Audit Committee.
James G. Ricketts - President and Chief Executive Officer of
International Corrections Corporation of Scottsdale, Arizona, a
corporation which he founded in 1990 to develop and operate private
prisons and to act as an independent consultant to corrections agencies
throughout the United States. Previously he served as Director of
Arizona Department of Corrections, Executive Director of the Colorado
Department of Corrections and deputy Secretary to the Florida
Department of Corrections as well as numerous other positions in the
corrections field. In addition, he is a Director of Alanco.
Dr. Ricketts serves as Chairman of the Personnel and Compensation Committee and
a member of Finance and Business Strategy Committee.
Herbert G. Rogers, III - President of Rogers Agency, Inc., Rogers LP-Gas
Company, Rogers Investments, Inc., Mississippi Realty, Inc. and Roell Realty
Corp. of New Albany, Mississippi; Director of the Nashoba Bank and Chairman of
the Board of the Gentry Furniture Corporation. He serves as Chairman of the
Finance and Business Strategy Committee and a member of the Personnel and
Compensation Committee.
W. A. Taylor, Jr. - Chairman of the Board of Taylor Machine Works of Louisville,
Mississippi. He serves as Chairman of the Nominating and Stockholder Relations
Committee and a member of the Personnel and Compensation Committee.
Monroe M. Wright-Senior Vice President and Treasurer of the Corporation and of
Dixie Life since February 1993 and Chief Operating Officer since January 1,
1994. He was a practicing CPA for 24 years prior to joining the
Corporation and served as a shareholder in Horne CPA Group from 1990 until
January 1993 and as a sole practitioner from 1987 to 1990.
------------------------
The Corporation was the subject of an investigation by the
Securities and Exchange Commission (SEC), which was resolved by means of a
settlement. Pursuant to the settlement, on March 9, 1994, the United States
District Court for the District of Columbia entered final judgments of
permanent injunction against the Corporation and Robert B. Neal, a Director
and President of the Corporation. The judgments were entered on the basis of
a complaint filed by the SEC. The Corporation and Mr. Neal each
consented to the entry of final judgments of permanent injunction
without admitting or denying the allegations contained in the SEC's
complaint. The final judgments to which the Corporation and Mr. Neal
consented enjoin them from violating or
26(C)
<PAGE>
aiding and abetting future violations of sections of the Securities Act
of 1933 and the Securities Exchange Act of 1934 and certain rules
thereunder.
ITEM 11 - EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for each of
the last three years, information concerning the total compensation paid or
awarded to the Corporation's Chief Executive Officer and all other executive
officers whose total compensation exceed $100,000, for services rendered in
all capacities to the Corporation and its subsidiaries.
SUMMARY COMPENSATION TABLE
Name
and
Principal Annual Compensation All Other
Position Year Salary Bonus Compensation
- ---------- ------ --------- -------- --------------
Robert B. Neal 1994 $125,269 None $2,505(1)
President 1993 $125,269 None $2,575(1)
26(D)
<PAGE>
Name
and
Principal Annual Compensation All Other
Position Year Salary Bonus Compensation
- ---------- ------ --------- ------- ---------------
(cont'd) 1992 $121,739 $3,477 $1,217(1)
Monroe M. Wright 1994 $100,000 None $1,000(1)
Senior Vice 1993(2) 85,000 10,000 -0-
President
Treasurer and Chief
Operating Officer
(1) Includes the Company's contributions under its qualified profit
sharing plans for employees, including officers.
(2) Commenced employment January 1993.
In 1994 no stock options were granted to or exercised by Robert B.
Neal or Monroe M. Wright and Mr. Wright holds no unexercised options as of
December 31, 1994. The following table sets forth information as of December
31, 1994, concerning the unexercised options held by Mr. Neal. None of
the options held by Mr. Neal were in-the-money at December 31, 1994.
Options are in-the-money when the fair market value of the underlying common
stock exceeds the exercise price of the option. The closing prices of the
Corporation's common stock on December 31, 1994 were $.50 bid and $.625 ask per
share.
26(E)
<PAGE>
FISCAL YEAR END OPTION VALUES
Number of Unexercised Options Value of Unexercised
at December 31, 1994 In-the-Money Options
----------------------------- at December 31, 1994
Name Exercisable Unexercisable --------------------
Robert B. Neal 28,570 0 N/A
At a meeting held on March 24, 1995, the Corporation's Board of
Directors approved granting to each director an option to purchase 5,000
shares of the Corporation's Common Stock at the average of the bid and asked
price as quoted by NASDAQ on April 3, 1995. The options may be exercised 20% per
year beginning March 31, 1996 and expire March 31, 2000. If a person
ceases being a director of the Corporation, his option will be canceled
30 days thereafter.
Compensation of Directors
Directors who are also officers of the Corporation receive no additional
compensation for serving on the Corporation's Board or committees thereof.
All other directors are paid $550 for each Board or committee meeting they
attend. During 1994, Rubel Phillips, Chairman of the Board of Directors
throughout 1994, was paid $17,000 for his services as Chairman and S.L.
Reed, Jr., was paid $9,800 for his services as Vice Chairman of the
Board. As a group, Directors who were not officers were paid $63,700
during 1994.
Compensation Committee Interlocks and Insider Participation
During 1994, the Compensation Committee of the Corporation's Board of
Directors consisted of Rubel L. Phillips, Chairman, Edgar L. McKenzie, Samuel
Leroy Reed, Jr., William A. Taylor Jr., and Zach Taylor, Jr., none of whom was
an executive officer of the Corporation. Mr. Taylor holds or controls $200,000
principal amount of the Corporation's Convertible Notes due May 1, 1995. See
"Item 13 - Certain Relationships and Related Transactions."
26(F)
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth pertinent information as to the
beneficial ownership of the Company's common stock as of March 15, 1995, of
persons known by the Company to be holders of 5% or more of such common stock.
Information as to the number of shares beneficially owned has been furnished by
the persons named in the table.
Name and Address Shares
of Beneficial Beneficially Percent
Owner Owned of Class
---------------- ------------- ---------
American Capitol 1,000,144(1) 10.6%
Insurance Company
10555 Richmond Avenue
Houston, Texas 77042
S. L. Reed, Jr. 590,942 7.0%
120 North Congress Street
Jackson, MS 39201
26(G)
<PAGE>
Name and Address Shares
of Beneficial Beneficially Percent
Owner Owned of Class
---------------- ------------- ---------
(cont'd)
Robert B. Neal 533,768(2) 6.2%
c/o Dixie National Corporation
3760 Interstate 55 North
Jackson, MS 39211
W. A. Taylor, Jr. 434,815(2) 5.0%
939 West Main
Louisville, MS 39339
(1) Includes 1,000,000 shares issuable upon conversion of the Company's
Convertible Notes due May 1, 1995. See "Item 13 - Certain Relationships
and Related Transactions." The share ownership of American Capitol
Insurance Company is as shown in a Schedule 13G, dated July 28, 1993, filed
with the Securities and Exchange Commission under the Securities Exchange
Act of 1934. The Schedule 13G states that it is filed jointly by
American Capitol Insurance Company, a wholly-owned subsidiary of Acap
Corporation, which is 53% owned by Fortune National Corporation, which
is 60% owned by InsCap Corporation, which, in turn, is 40% owned by
William P. Guest. According to the Schedule 13G these companies are
organized in Texas, Delaware, Pennsylvania and Delaware, respectively.
(2) Includes shares issuable upon exercise of stock options and
conversion of Convertible Notes.
Shares of the Corporation's Common Stock were purchased in the November
Transaction described in "Item 1 - Business -(a) General Development of Business
under "Recent Developments- Sale of Common Stock " by the following persons,
in the amounts indicated in the table.
26(H)
<PAGE>
Percent of
Name and Address Shares Purchased Class
- ---------------- ------------------ ------------
Argere Holding SA 420,000 4.99%
18 Boulevard Royal
L-2449 Luxembourg
Luxembourg
EUR AM B.V. 420,000 4.99%
European Consultants
P.O. Box 71728
1008 DE Amsterdam
Netherlands
LaRoche Holding S.A. 420,000 4.99%
c/o F. Weinberg
44 Rue Du Moulin
57140 Saulny
France
LaSalle Investment LTD. 420,000 4.99%
c/o Sagem-JC Roder
14 Cours de Rive
1204 Geneve
Switzerland
26(I)
<PAGE>
(b) Security Ownership of Management
The following table sets information as to the beneficial ownership of
the Company's common stock as of March 15, 1995, by each director, each
executive officer named in the Summary Compensation Table, and by all
directors and executive officers as a group.
Shares
Name of Beneficially Percent
Beneficial Owner Owned of Class
- ---------------- ------------ --------
T. H. Etheridge 211,827(1) 2.5%
Robert B. Neal 533,768(1)(2)(3) 6.2%
Joe D. Pegram 23,043 Less than 1%
26(J)
<PAGE>
Shares
Name of Beneficially Percent
Beneficial Owner Owned of Class
- ---------------- ------------ --------
S. L. Reed, Jr. 590,942(1) 7.0%
Herbert G. Rogers, III 102,128(1) 1.2%
W. A. Taylor, Jr. 434,815(1)(2)(3) 5.0%
John E. Haggar 2,000 Less than 1%
Dennis Nielsen 7,200 Less than 1%
James G. Ricketts 0 0%
Monroe M. Wright 0 0%
Directors and
executive officers as
a group (12 persons) 2,473,862(4) 27.8%
- -----------------
26(K)
<PAGE>
(1) Includes shares held in the name of spouse, minor child or other
relatives or persons, as to some of which shares the owner named has shared
voting or investment power, but as to which beneficial ownership is disclaimed,
as follows: T. H. Etheridge -37,510 shares; Robert B. Neal - 1,368 shares;
S. L. Reed, Jr. - 482,078 shares; Herbert G. Rogers, III - 27,479
shares; and W. A. Taylor, Jr. -234,815 shares.
(2) Includes shares issuable upon exercise of stock options as
follows: Robert B. Neal - 28,570 shares.
(3) Includes shares issuable upon conversion of Convertible Notes, as
follows: Robert B. Neal - 100,000 shares; and W. A. Taylor, Jr. - 200,000
shares.
(4) Includes all shares issuable upon exercise of stock options and
conversion of Convertible Notes and shares held in the name of spouse,
minor child or other relatives or persons, as to which beneficial
ownership is disclaimed.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain executive officers, directors and/or holders of record or
beneficially of more than 5% of the Corporation's Common Stock hold more
than $60,000 of the Corporation's Convertible Notes which are due May
1, 1995. The Corporation expects to satisfy the Convertible Notes at maturity
either by payment or otherwise. The following table summarizes such holdings:
26(L)
<PAGE>
Amount of
Holder Relationship Holdings
- ------- ----------- ----------
American Capital Insurance Company 5% Owner $1,000,000
Robert B. Neal Director, Executive 100,000
Officer and 5% Owner
W. Cleopha Pigg Director until 100,000
January 24, 1995
W.A. Taylor Director and 200,000(1)
5% Owner
(1) Includes $100,000 held by Taylor Equipment & Machine Tool Corp., of
which Mr. Taylor is Chairman of the Board and a significant
stockholder.
See "Recent Developments - Sale of Common Stock" under "Item 1-
Business -
26(M)
<PAGE>
(a) General Development of Business" as to the proposed issuance of shares of
the Corporation's Common Stock in exchange for shares, and an option for
shares, of PMM Common Stock, and the interests of certain persons
therein.
26(N)
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1 and 2. Financial Statements and Financial Statement Schedules of Dixie
National Corporation and Subsidiaries.
See separate Index to Financial Statements and Financial Statement Schedules on
page 31.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporation by Reference to
- ------- ----------- -----------------------------
<S> <C> <C>
(2)(a) Restated Agreement dated as of October Registrant's Quarterly Report on
27, 1994 between Dixie National Form 10-Q for the nine months
Corporation and Universal Management ended September 30, 1994.
Services
(2)(b) Letter of Intent between Dixie
National Corporation and Standard
Management Corporation dated
March 6, 1995.
(3)(a)(1) Articles of Incorporation as Registrant's Annual Report on
amended and restated Form 10-K for the year ended
December 31, 1985. Exhibit
(3a)
(3)(a)(2) Articles of Amendment to the
Articles of Incorporation of
Dixie National Corporation dated
May 23, 1986
(3)(a)(3) Articles of Amendment to the
Articles of Incorporation of
Dixie National Corporation dated
January 24, 1995
(3)(b) By-Laws, as amended Registrant's Annual Report on
Form 10-K for the year ended
December, 31, 1990. Exhibit
(3(b).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporation by Reference to
- ------- ----------- -----------------------------
<S> <C> <C>
(4)(a)(1) Loan Agreement, dated May 3, Registrant's Quarterly Report on
1993, between Dixie National Form 10-Q for the three months
Corporation and Trustmark ended March 31, 1993. Exhibit
National Bank, including letter (4)(a)(i).
of May 11, 1993 which amends
Section 4.02 (f) of the Loan
Agreement, and related Pledge
and Security Agreement
(4)(a)(2) Amendment, dated February 28, Registrant's Current Report on
1994, to Loan Agreement dated May Form 8-K dated February 28, 1994.
3, 1993, between the Corporation Exhibit (4)(a)(2).
and Trustmark.
(4)(a)(3) Modification, dated February Registrant's Current Report on
28, 1994, of Trustmark Loan. Form 8-K dated February 28, 1994.
(4)(a)(5) Amendment dated April 3, 1994, Registrant's Annual Report on
to Loan Agreement dated May 3, Form 10-K for the year ended
1993, between the Corporation December, 31, 1993. Exhibit
and Trustmark. (4)(a)(5).
(4)(a)(6) Modification Agreement, dated Registrant's Annual Report on
April 13, 1994, to Note dated Form 10-K for the year ended
May 3, 1993 of the Corporation December 31, 1993. Exhibit
to Trustmark (4)(a)(6).
(4)(b)(1) Form of Dixie National Corporation Registrant's Current Report on
Subordinated Convertible Callable Form 8-K dated April 30, 1993.
Fixed Interest Rate Note Due May
1, 1995
(10)(a)* Incentive Stock Option Plan Registrant's Annual Report on
of 1982 Form 10-K for the year ended
December 31, 1990. Exhibit
(10)(b)* Incentive Stock Option Plan Proxy Statement relating to
of 1988 the Annual Meeting of
Stockholders held on April 1,
1988.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporation by Reference to
- ------- ----------- -----------------------------
<S> <C> <C>
(10)(c) Indemnity Reinsurance Registrant's Annual Report on
Agreement between Dixie National Form 10-K for the year ended
Life Insurance Company and Crown December 31, 1992. Exhibit
Life Insurance Company, effective (10)(c).
as of September 30, 1992 including
Amendment Nos. 1, 2 and 3 thereto
(10)(c)(1)` Amendment No. 4 to Indemnity Registrant's Quarterly Report on
Reinsurance Agreement between Form 10-Q for the six months
Dixie National Life Insurance ended June 30, 1993. Exhibit
Company and Crown Life Insurance (10)(c)(1).
Company
(10)(c)(2)` Amendment No. 5 to Indemnity Registrant's Quarterly Report on
Reinsurance Agreement between Form 10-Q for the nine months
Dixie National Life Insurance ended September 30, 1994.
Company and Crown Life Insurance
Company
(10)(d) Trust Agreement dated as of Registrant's Annual Report on
September 30, 1992 among Form 10-K for the year ended
Dixie National Life Insurance December 31, 1992. Exhibit
Company, Crown Life Insurance (10)(d).
Company and Trustmark National
Bank, as Trustee.
(10)(f) Automatic YRT Reinsurance Registrant's Amendment No.
Agreement, effective March 1 to Form S-2 Registration
21, 1984, between Dixie National No. 33-41488. Exhibit 10(b).
Life Insurance Company, Frankona
America Life Reassurance Company
("Frankona"), as amended
(10)(g) Automatic Coinsurance Registrant's Amendment No.
Agreement, effective March 1 to Form 2-2. Registration
21, 1984, between Dixie National Statement No. 33-41488.
Insurance Company and Frankona, Exhibit 10(c).
as amended
(10)(h) Automatic YRT Reinsurance Registrant's Amendment No.
Agreement, effective 1 to Form S-2 Registration
January 1, 1985, between Statement No. 33-41488.
Dixie National Life Insurance Exhibit 10(d).
Company and Frankona, as
amended.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporation by Reference to
- ------- ----------- -----------------------------
<S> <C> <C>
(10)(i) Automatic YRT Reinsurance Registrant's Amendment No.
Agreement, effective April 1 to Form S-2 Registration
1, 1987, between Dixie National Statement No. 33-4148
Life Insurance Company and Exhibit 10(e).
Frankona, as amended.
(10)(j) Bulk Accidental Death and Registrant's Amendment No.
Dismemberment Benefit 1 to Form S-2 Registration
Reinsurance Agreement Statement No. 33-41488.
effective May 11, 1989, Exhibit 10(f).
between Dixie National Life
Insurance Company and Frankona
(10)(k) Quota Share Coinsurance and Registrant's Current Report on
Assumption Reinsurance Agreement Form 8-K dated September 16,
by and between Central United Life 1994.
Insurance Company and Dixie National
Life Insurance Company (Exhibits
except Exhibit C, have been omitted)
(22) Subsidiaries of the Registrant Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1991. Exhibit 22.
</TABLE>
*Management contract or compensatory plan.
Registrant agrees to file with the Securities and Exchange
Commission, upon request, copies of any instrument defining the rights of the
holders of its consolidated long-term debt.
Schedules other than those referred to above are omitted for
the reason that they are not required, are not applicable, or the required
information is shown in the financial statements or notes thereto, or is
incorporated by reference.
(b) Reports on Form 8-K
The Corporation filed the following reports on Form 8-K during
the last quarter of the year ended December 31, 1994:
<TABLE>
<CAPTION>
Date of Current Report
(or Amendment) Items Reported
---------------------- --------------
<S> <C>
November 29, 1994 Items 5. Other Events. (Sale of 2,000,000
shares of Common Stock.)
</TABLE>
(c) Exhibits required by Item 601 of Regulation S-K
The exhibits listed in Item 14(a)3 of this report, and not
incorporated by reference, follow "SIGNATURES." See "Exhibit Index."
30
<PAGE>
(d) Financial statement schedules required by Regulation S-X
The financial statement schedules required by Regulation S-X,
filed herewith, are identified in the Index to Financial Statements and
Financial Statement Schedules on page 31.
31
<PAGE>
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent certified public accountant 33
Consolidated balance sheets as of December 31, 1994 and 1993 35
Consolidated statements of operations for the three years ended
December 31, 1994 36
Consolidated statements of stockholders' equity for the three
years ended December 31, 1994 37
Consolidated statements of cash flows for the three years ended
December 31, 1994 38
Notes to Consolidated Financial Statements 39
Report of the independent certified public accountant on
financial statement schedules 52
Schedule III - Condensed Financial Information of Registrant 53
Schedule VI - Reinsurance 57
Schedule VIII - Valuation and Qualifying Accounts 57
</TABLE>
32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders
Dixie National Corporation
Jackson, Mississippi
We have audited the accompanying consolidated balance sheets of Dixie National
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dixie National
Corporation and subsidiaries as of December 31, 1994 and 1993 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Corporation and subsidiaries will continue as a going concern. As
discussed in Note 9. to the consolidated financial statements, the Company
does not have available the resources to satisfy its short-term debt
requirements.
33
<PAGE>
This raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to this matter are also described
in Note 9. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
HORNE CPA GROUP
Jackson, Mississippi
March 20, 1995, except for Note 16.,
as to which the date is March 24, 1995
34
<PAGE>
CONSOLIDATED BALANCE SHEETS
DIXIE NATIONAL CORPORATION
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed maturities at market at December 31, 1994
(amortized cost $18,489,000) and amortized cost
at December 31, 1993 (market approximately
$13,631,000) $17,332,660 $13,489,902
Policy loans 3,060,185 3,025,981
Common stock 2,000,000
Government guaranteed student loans, less
allowance for uncollectible loans of $464,603 at
December 31, 1994 and $504,981 at December
31, 1993 5,978,288 7,159,975
Short-term investments 4,860,347 3,040,448
Cash and cash equivalents 459,109 4,655,458
----------- -----------
TOTAL INVESTMENTS 33,690,589 31,371,764
Accounts receivable, less allowance for doubtful accounts
of $195,895 at December 31, 1994 and $480,000 at
December 31, 1993 787,419 1,534,392
Accrued investment income 412,705 380,411
Deferred policy acquisition costs, net 6,626,230 19,759,110
Value of life insurance purchased, net 1,589,356 1,749,356
Property and equipment less accumulated depreciation
of $1,482,500 at December 31, 1994 and $1,362,936 at
December 31, 1993 584,694 608,212
Other assets 886,459 852,489
----------- -----------
TOTAL ASSETS $44,577,452 $56,255,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy liabilities
Future policy benefits $27,538,803 $34,904,591
Unearned premiums 746,720
Other policy claims and benefits payable 240,766 987,260
Other policyholders' funds 829,530 889,715
----------- -----------
TOTAL POLICY LIABILITIES 28,609,099 37,528,286
Notes payable and other debt 6,103,839 6,253,670
Income taxes 3,599 983,449
Accrued liabilities and expenses 679,460 829,084
----------- -----------
TOTAL LIABILITIES 35,345,997 45,594,489
STOCKHOLDERS' EQUITY
Common Stock, $1 par value authorized 10,000,000 shares; issued
8,424,973 shares and 6,424,973 at December 31, 1994
and 1993, respectively; outstanding 8,394,973 shares and
6,394,973 shares at December 31, 1994 and 1993, respectively 8,394,973 6,394,973
Retained earnings 1,711,493 4,266,272
Unrealized holding losses on investments available for sale (925,011)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,181,455 10,661,245
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $44,577,452 $56,255,734
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DIXIE NATIONAL CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 9,516,157 $19,499,289 $17,178,510
Net investment income 2,133,635 2,005,075 2,157,848
Realized investment gains (losses) 1,551 25,580 (24,494)
----------- ------------ -----------
TOTAL REVENUES 11,651,343 21,529,944 19,311,864
BENEFITS AND EXPENSES
Benefits and claims to policyholders 6,573,216 12,573,809 10,092,459
Amortization of deferred policy acquisition costs and
value of insurance purchased 1,420,943 2,506,419 2,056,889
Commissions, net 1,893,838 3,509,301 2,722,167
General expenses, net 2,187,114 2,510,047 2,072,636
Interest expense 449,550 571,026 599,810
Insurance taxes, licenses and fees 514,579 705,170 669,113
Loss on sale of accident and health business 1,196,811 324,511
----------- ------------ -----------
TOTAL BENEFITS AND EXPENSES 14,236,051 22,700,283 18,213,074
----------- ------------ -----------
INCOME BEFORE INCOME TAXES (2,584,708) (1,170,339) 1,098,790
Income tax benefit (expense) 29,929 213,201 (249,806)
----------- ------------ -----------
NET INCOME (LOSS) $(2,554,779) $ (957,138) $ 848,984
=========== ============ ===========
Primary and fully diluted net income
(loss) per share $ (.39) $ (.15) $ .13
=========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DIXIE NATIONAL CORPORATION
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Unrealized
Common Retained Holding
Stock Earnings Losses Total
------ -------- ---------- -----
<S> <C> <C> <C> <C>
Balance January 1, 1992 $6,424,973 $4,380,050 $ $10,805,023
Net income for 1992 848,984 848,984
Common Stock purchased by subsidiary (30,000) (5,624) (35,624)
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1992 6,394,973 5,223,410 $11,618,383
Net loss for 1993 (957,138) (957,138)
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1993 6,394,973 4,266,272 10,661,245
Net loss for 1994 (2,554,779) (2,554,779)
Unrealized holding losses on investments available for
sale $(925,011) (925,011)
Common Stock issued 2,000,000 2,000,000
---------- ---------- --------- -----------
BALANCE DECEMBER 31, 1994 $8,394,973 $1,711,493 $(925,011) $ 9,181,455
========== ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DIXIE NATIONAL CORPORATION
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,554,779) $ (957,138) $ 848,984
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of accident and health business 1,196,811 324,511
Increase in policy liabilities 2,155,070 2,952,775 1,682,675
Amortization 1,420,943 2,506,419 2,056,889
Increase (decrease) in deferred income taxes (748,597) (278,991) 117,552
Decrease in accrued liabilities (149,625) (251,709) (270,205)
Policy acquisition costs deferred (1,285,902) (3,642,818) (4,118,793)
Decrease in accounts receivable 1,623,993 163,070 310,800
Depreciation 119,564 117,910 160,272
Other, net (37,996) (199,712) 82,763
------------ ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,739,482 734,317 870,937
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities:
Maturities 2,326,044 14,500 151,000
Calls 890,845 2,472,358 2,405,817
Sales 224,500 3,418,054
Repayment of policy and student mortgage loans 2,099,864 1,976,751 1,578,475
Cost of investments acquired;
Fixed maturities (8,458,904) (9,038,606) (678,633)
Policy and student loans (952,404) (1,099,649) (1,027,537)
Temporary investments, net (1,819,899) 8,472,377 (6,567,829)
Additions to property and equipment (96,046) (20,557) (12,452)
Proceeds from sale of property and equipment 3,538 109,381
------------ ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (5,786,000) 2,780,712 (623,724)
Cash flows from financing activities:
Proceeds from borrowing 1,515,000
Payments on debt (149,831) (2,264,847) (832,217)
------------ ----------- -----------
NET CASH USED BY
BY FINANCING ACTIVITIES (149,831) (749,847) (832,217)
------------ ----------- -----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (4,196,349) 2,765,182 (585,004)
Cash and cash equivalents at beginning of year 4,655,458 1,890,276 2,475,280
------------ ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 459,109 $ 4,655,458 $ 1,890,276
============ =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes $ 718,668 $ 5,824 $ 259,887
============ =========== ===========
Cash payments for interest $ 505,318 $ 552,459 $ 623,636
============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Lease obligation incurred for new data processing equipment $ 8,061 $ 315,287
=========== ===========
Notes issued in exchange for debentures $ 485,000
===========
Common Stock issued for equity securities of
nonaffiliated company $ 2,000,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIXIE NATIONAL CORPORATION
DECEMBER 31, 1994
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
Principles of Consolidation: The consolidated financial statements include the
financial statements of Dixie National Corporation (Corporation), its
wholly-owned subsidiaries and Dixie National Life Insurance Company (Dixie
Life), which is approximately 99% owned (collectively Company). The interests
of minority stockholders are not material. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Investments: At December 31, 1994, the Company's investments are reported in
accordance with the provisions of Statement of Financial Accounting Standards
No. 115 (FAS 115) which was issued by the Financial Accounting Standards Board
in 1993 and effective for 1994 financial statements. As a result the carrying
basis for investments is different in 1994 than in 1993.
At December 31, 1994, fixed maturity investments are all classified as
available for sale and are carried at market value. Unrealized market gains
and losses are reported as a separate component of stockholders' equity.
Equity securities are classified as trading, which, under the provisions of FAS
115, are reported at market with unrealized market gains or losses being
reflected in operations. Because of the provisions of an agreement with
Universal Management Services (UMS) discussed in Notes 3 and 16, equity
securities are reported at cost at December 31, 1994. At December 31, 1993
fixed maturity investments were carried at amortized cost.
Realized gains and losses on the disposition of fixed maturity investments are
determined on the specific identification basis and are reported in operations
when realized.
Policy loans are stated at the amounts loaned to policyholders and are
collateralized by assignment of the cash value of underlying policies. Student
loans are carried at cost less an allowance for uncollectible amounts.
Short-term investments will be held to maturity and are due in one year or less
and are carried at cost which approximates market.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and
money-market investments which carry no withdrawal restrictions.
Recognition of Premium Revenue and Related Expenses: Premiums for traditional
life insurance contracts are reported as revenue over the premium-paying period
of the policy. Premiums for fixed premium interest sensitive products are
added to the policy account value and revenues for such products are recognized
as charges to the account value for mortality, administration and surrenders
(retrospective deposit method). Profits are also earned to the extent that
investment income exceeds policy requirements. The related benefits and
expenses are matched with revenues through the provision for future policy
benefits and the amortization of deferred acquisition costs in a manner which
recognizes profits as they are earned.
Future Policy Benefits: The liability for future policy benefits interest
sensitive products is represented by the policy account value. The liability
for future policy benefits for all other life and health products is provided
on the net level premium method based on estimated investment yields,
mortality, morbidity, persistency and
39
<PAGE>
other assumptions. Assumptions are based upon Dixie Life's experience and
industry experience, where appropriate, with provision for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. If it is determined future experience will probably differ
significantly from that previously assumed, the estimates are revised.
Deferred Acquisition Costs: The costs of acquiring new insurance business are
deferred. Such deferred costs consist principally of excess first year sales
commissions, as well as underwriting expenses and certain other expenses.
Deferred acquisition costs for other than interest sensitive products are
amortized with interest over an estimate of the premium- paying period of the
policies in a manner which charges each year's operations in proportion to the
receipt of premium income. For interest sensitive products, acquisition costs
are amortized with interest in proportion to estimated gross profits. The
assumptions used as to interest, withdrawals and mortality are consistent with
those used in computing the liability for future policy benefits and expenses.
If it is determined future experience will probably differ significantly from
that previously assumed, the estimates are revised.
Value of Life Insurance Purchased: Value of life insurance purchased is being
amortized over 12 years, the expected life of the income stream.
Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of these assets.
Income Taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for changes in tax laws and rates on the date of
enactment.
Earnings Per Share: Earnings per share are based on the weighted average
number of common stock and common stock equivalents outstanding during the
year.
Reinsurance: Dixie Life cedes and assumes insurance risks with other
companies. Liabilities for future policy benefits, premiums and expenses are
reported after deduction of amounts relating to policy specific reinsurance
ceded and addition of amounts relating to policy specific reinsurance assumed.
Reclassification: Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform to 1994 presentation. These
reclassifications had no effect on amounts previously reported as stockholders'
equity or net income.
NOTE 2--STATUTORY ACCOUNTING
Dixie Life is required to file statutory financial statements with state
insurance regulatory authorities. Accounting principles used to prepare these
statutory financial statements differ from GAAP.
The excess, if any, of Dixie Life's stockholders' equity on a GAAP basis over
that determined on a statutory basis is not available for distribution to Dixie
Life's stockholders. Mississippi law governing insurance companies further
restricts payment of dividends to the lessor of (1) the prior year statutory
net income plus
40
<PAGE>
the excess of statutory net income for the second and third preceding years
over distributions in the first and second preceding years or (2) 10% of
statutory stockholders' equity. Dixie Life can distribute approximately
$200,000 in 1995 without approval of the Mississippi Department of Insurance.
The Department can grant permission for extraordinary dividends in excess of
the limitations imposed by law.
A reconciliation of Dixie Life's statutory net income to the Company's
consolidated GAAP net income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 260,165 $ 3,348 $ 96,003
Deferral of acquisition costs 1,285,902 3,642,818 4,118,793
Amortization of acquisition costs (1,420,943) (2,506,419) (2,056,889)
Differences in insurance policy
liabilities, excluding effect of
sale of block of business 1,775,875 55,079 180,501
Deferred income taxes 404,929 369,025 (188,503)
Premium income (1,077,138) (615,131) (802,747)
Investment income 21,240 66,421 (120,301)
Commissions (246,584) (178,458)
Interest expense (449,550) (571,026) (599,810)
General insurance expenses 663,558 420,741 658,719
Write off of agent advances 366,661 766,584
Supplementary contracts (131,073) (83,079) (214,998)
Other 265,182 190,596 (43,326)
STAT Bond write off of Vanguard
Debenture 2,000,000
GAAP Loss on sale of accident and health business (1,196,811) (324,511)
STAT gain on sale of accident and health business (5,322,776) (2,125,000)
----------- ----------- -----------
GAAP Net Income (Loss) $(2,554,779) $ (957,138) $ 848,984
=========== =========== ===========
</TABLE>
A reconciliation of Dixie Life's statutory stockholders' equity to the
Company's consolidated GAAP stockholders' equity is as follows:
<TABLE>
<CAPTION>
December 31
-----------
1994 1993
---- ----
<S> <C> <C>
Statutory Stockholders' Equity $ 6,280,400 $ 3,130,064
Differences in insurance policy liabilities (984,870) (7,850,857)
Deferred acquisition costs 6,626,230 19,759,110
Deferred income taxes 61,459 (1,083,861)
Debt of parent company (5,933,050) (6,030,369)
Asset Valuation Reserve 129,809 115,726
Value of life insurance purchased 1,589,356 1,749,356
Non-admitted assets 252,049 652,593
Common stock issued 2,000,000
Other (869,857) 219,483
----------- -----------
GAAP Stockholders' Equity $ 9,151,526 $10,661,245
=========== ===========
</TABLE>
At December 31, 1994 Dixie Life is a party to an indemnification reinsurance
agreement under which 90% of its retained life insurance in force at September
30, 1992 is reinsured. This transaction is accounted for as a financing
transaction in the accompanying financial statements. Dixie Life's statutory
financial statements include a reserve credit at December 31, 1994 of
$1,985,000 related to this agreement which has the effect of increasing
statutory stockholders' equity by that amount.
41
<PAGE>
NOTE 3--INVESTMENTS
The Company's investments in fixed maturity securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government agencies and authorities $ 8,966,030 $ $ 504,706 $ 8,461,324
States, municipalities and political subdivisions 511,461 6,115 505,346
Special revenue 10,278 878 9,400
Public utilities 2,041,142 23,637 121,159 1,943,620
All other corporate 6,960,013 33,432 580,475 6,412,970
----------- --------- ---------- -----------
$18,488,924 $ 57,069 $1,213,333 $17,332,660
=========== ========= ========== ===========
December 31, 1993
U.S. Government agencies and authorities $ 3,371,748 $ 24,245 $ 40,214 $ 3,355,779
States, municipalities and political subdivisions 537,695 4,877 498 542,074
Special revenue 56,719 3,592 60,311
Public utilities 1,936,724 83,405 17,649 2,002,480
All other corporate 7,587,016 112,698 29,554 7,670,160
----------- --------- ---------- -----------
$13,489,902 $ 228,817 $ 87,915 $13,630,804
=========== ========= ========== ===========
</TABLE>
Maturities of fixed maturity securities held for sale at December 31, 1994
follow:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
--------- ------
<S> <C> <C>
Due in one year or less $ 1,165,901 $ 1,173,628
Due after one year through five years 2,064,466 1,971,423
Due after five years through ten years 4,768,972 4,437,274
Due after ten years 10,489,585 9,750,335
----------- -----------
$18,488,924 $17,332,660
=========== ===========
</TABLE>
Fixed maturity and short-term investments with an approximate carrying amount
of $2,400,000 were pledged to various state insurance departments for
policyowner protection at December 31, 1994. At December 31, 1994, additional
securities with an approximate carrying amount of $13,435,000 were pledged
under the financing transaction reinsurance treaty (see Note 2).
Net investment income consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Investment income
Fixed maturities $1,189,693 $ 745,534 $ 741,248
Policy loans 170,142 159,666 181,426
Student loans 398,719 538,027 659,379
Interest on Accounts Receivable 151,759 254,538 237,728
Short-term investment 145,919 260,591 311,059
Other 77,403 46,719 27,008
---------- ---------- ----------
Net investment income $2,133,635 $2,005,075 $2,157,848
========== ========== ==========
</TABLE>
Net realized investment gains (losses) for the year ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Realized gains $12,002 $29,448 $39,947
Realized losses 10,451 3,868 64,441
------- ------- --------
Net realized gains (losses) $ 1,551 $25,580 $(24,494)
======= ======= ========
</TABLE>
42
<PAGE>
In November 1994, the Corporation issued 2,000,000 shares of its Common Stock
and received as consideration 1,230,770 shares of Alanco Environmental
Resources, Inc. (Alanco) common stock with a market value at the date of the
transaction of $2,000,000. Under the terms of the UMS agreement discussed in
Note 16, any market appreciation until June 30, 1995 may not be realized
because the purchasers of the Corporation's Common Stock have the right to buy
the Alanco shares for cash equal to the value on the day of the November
Transaction. The purchasers have the obligation to cover any market
depreciation, as defined, which might have occurred as of June 30, 1995.
Therefore, the Alanco shares will be carried at cost until June 30, 1995. At
December 31, 1994, market value of the Alanco shares based on the average of
the closing bid and asked price, was $2,153,000.
NOTE 4--DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs for the years ended December
31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 19,759,110 $18,787,222 $16,429,318
Deferred during the year:
Commissions 975,002 2,818,953 3,256,739
Other Expenses 310,900 823,865 862,054
------------ ----------- -----------
Total Deferred 1,285,902 3,642,818 4,118,793
Deferred policy acquisition costs on
policies sold (13,157,839) (324,511)
Amortized during the year (1,260,943) (2,346,419) (1,760,889)
------------ ----------- -----------
Balance at end of year $ 6,626,230 $19,759,110 $18,787,222
============ =========== ===========
</TABLE>
NOTE 5--VALUE OF LIFE INSURANCE PURCHASED
An analysis of the value of life insurance purchased for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year 1,749,356 $1,909,356 $2,205,356
Amortized during the year (160,000) (160,000) (96,000)
Adjustment to comply with
FASB EITF 92-9 (200,000)
---------- ---------- ----------
Balance at end of year $1,589,356 $1,749,356 $1,909,356
========== ========== ===========
</TABLE>
Estimated annual amortization of the value of life insurance purchased is
approximately $160,000 in each of the next five years.
NOTE 6--PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Home office property $ 795,038 $ 702,181
Data Processing Equipment 818,149 814,960
Furniture, Equipment and Autos 454,007 454,007
------------- -----------
2,067,194 1,971,148
Less accumulated depreciation 1,482,500 1,362,936
------------- -----------
$ 584,694 $ 608,212
============= ===========
</TABLE>
43
<PAGE>
NOTE 7--FUTURE POLICY BENEFIT RESERVES
A summary of the assumptions used in determining the liability for future
policy benefits at December 31, 1994 is as follows:
Life Insurance
Interest assumptions:
<TABLE>
<CAPTION>
Years of Issue Interest Rates
-------------- --------------
<S> <C>
1965-1982 8.5% graded to 4.5%
1983-1984 12.5% graded to 8.0%
1985-1991 9.0% graded to 6.0%
1992-1994 6.0% graded to 5.0%
</TABLE>
Mortality assumptions:
<TABLE>
<CAPTION>
Years of Issue Mortality Table
-------------- ---------------
<S> <C>
1965-1983 1955-60 Select and Ultimate Table
1983-1994 1965-70 Select and Ultimate Table
</TABLE>
Withdrawal assumptions:
Linton B or Linton C Lapse Tables
Termination assumptions:
Termination assumptions are based on Dixie Life's experience.
NOTE 8--PARTICIPATING BUSINESS
Life insurance policies are issued on both a participating and
non-participating basis. The following summary presents the approximate
percentages of participating life business to total life business for the years
indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Life insurance in force 5% 5% 3%
Life premium income 9% 5% 3%
Total number of life policies 12% 11% 7%
</TABLE>
The amount of dividends to be apportioned to participating policies is
determined annually by the Board of Directors of Dixie Life. In the past,
Dixie Life sold participating life insurance through a policy known as the
Charter Contract as well as other participating policies. The Charter Contract
policies contain a participation endorsement whereby Dixie Life agreed to
apportion dividends to Charter Contract holders, as a group and on a pro rata
basis, in an amount which equals at least 35% of Dixie Life's statutory net
profits computed by a formula set forth in the policy. As discussed in Note
13, Dixie Life is defendant in litigation alleging that Dixie Life failed to
properly pay dividends on its Charter Contract policies. As of December 31,
1994, Dixie
44
<PAGE>
Life had participating policies in force with a total face amount of
approximately $20,486,000 of which approximately $11,721,000 were Charter
Contract policies.
NOTE 9--NOTES PAYABLE AND OTHER DEBT
The Company has the following notes payable at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Note payable to an insurance company (bank at
December 31, 1993) bearing interest at
1% above prime (9.5% at December 31, 1994)
payable interest only monthly through
February 1995, with original maturity March 31,
1995, collateralized by common stock of
Dixie Life (Term Loan) $3,688,746 $3,688,746
Note payable to a bank bearing interest at prime
plus 3/4% (at December 31, 1994 and 1993, the
rate was 9.25%), payable in monthly
installments of $11,846 through January 5, 2001;
secured by home office property 524,304 621,623
Convertible 10% notes due May 1, 1995 (Notes)
with interest payable semi-annually until
maturity, convertible to common stock on the
basis of one share for each $1 of Note
principal, collateralized by second security
interest in common stock of Dixie Life 1,720,000 1,720,000
Obligation under capital lease 170,789 223,301
---------- ----------
$6,103,839 $6,253,670
========== ==========
</TABLE>
In 1993, the Company replaced an existing note payable to a bank collateralized
by common stock of Dixie Life with the Term Loan. In November 1994, the bank
sold the Term Loan to Standard Life Insurance Company of Indiana. As discussed
in Note 17, the terms of the proposed sale of Dixie Life effectively extend the
due date of the Term Loan to closing of the sale or 90 days after any
cancellation thereof.
The Term Loan agreement contains three covenants as follows:
The Company must maintain consolidated tangible net worth, as defined,
of not less than $9,000,000. At December 31, 1994, consolidated
tangible net worth was $8,487,818.
The Company must maintain a ratio of total liabilities to consolidated
tangible net worth of not more than 4.5 to 1. At December 31, 1994,
this ratio was 4.17 to 1.
The Company must cause Dixie Life to maintain statutory capital and
surplus of not less than $3,500,000. At December 31, 1994, Dixie
Life's statutory capital and surplus was $6,280,400.
An unwaived or uncured event of default under the term loan is an event of
default under the Notes. Standard Life Insurance Company of Indiana has waived
all defaults pending completion of the sale of Dixie Life and for 90 days after
any cancellation thereof.
Notes in the aggregate amount of $550,000 are held or controlled by officers
and directors of the Company.
45
<PAGE>
As discussed above at December 31, 1994, the Corporation owed a subsidiary of
Standard Management Corporation approximately $3,689,000 under a Term Loan
originally due March 31, 1995. The Term Loan is now due at closing of the SMC
Transaction or 90 days after the SMC Transaction in the event it is canceled by
either party. Also, the Corporation's 10% Convertible Notes, in the amount of
$1,720,000, are due May 1, 1995. Although the SMC Transaction provides a
means to satisfy the Convertible Notes at closing, such notes are due before
the anticipated closing date and there are no assurances that the Corporation
will be able to extend such notes beyond their May 1, 1995 maturity, or effect
any alternative accommodations. However, management is exploring several
options and believes that the Convertible Notes will be satisfied or extended
at their due date. All of the shares of Dixie Life owned by the Corporation
were pledged to secure payment of the Term Loan and the Convertible Notes.
The lack of assurance that the SMC Transaction will be completed raises
significant doubt about the Company's ability to continue as a going concern.
Completion of the SMC Transaction together with an extension or timely
repayment of the Convertible Notes would remove such uncertainties.
Management's plans in this regard include the following:
1. Endeavor to complete the SMC Transaction, which contemplates
cancellation of the Term Loan. The SMC Transaction would also enable
the Corporation to satisfy the Convertible Notes, assuming their due
date is extended.
2. Seek to extend or secure an alternative means of paying the
Convertible Notes. Liquidation of a portion of the Alanco shares is a
possible source of repayment of at least a portion of the Convertible
Notes.
3. In the event the SMC Transaction is canceled by either party,
searching for another purchaser of Dixie Life in the 90 days available
to it beyond such cancellation before the Term Loan is due.
There are no assurances that any of these efforts will be successful.
Aggregate maturities of notes payable and the present value of net minimum
lease payments at December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995 $5,572,519
1996 180,252
1997 142,110
1998 127,413
1999 81,545
----------
$6,103,839
==========
</TABLE>
NOTE 10--INCOME TAXES
The Company and its subsidiaries file a life-nonlife consolidated federal
income tax return. The Internal Revenue Code contains several provisions which
affect the consolidated tax provision, including a special deduction for small
life insurance companies amounting to 60% of taxable income and limitations on
the amount of nonlife taxable losses which can be used to reduce life insurance
taxable income.
The accompanying balance sheet includes a liability for income taxes payable
consisting of the following at December 31:
46
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Income taxes payable:
Currently payable $ 32,000 $600,000
Net deferred (28,401) 383,449
---------- --------
$ 3,599 $983,449
========== ========
</TABLE>
Net deferred tax liabilities (assets) consists of the following components as
of December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs $597,100 $2,192,100
Other Items 69,500 127,061
-------- ----------
666,600 2,319,161
Deferred tax assets:
Policy liabilities 48,700 1,262,712
Financing reinsurance 337,500 540,000
FAS 115 adjustment 196,500
Provisions for uncollectible
receivables 112,301 133,000
-------- ----------
695,001 1,935,712
-------- ----------
NET LIABILITY (ASSET) $(28,401) $ 383,449
======== ==========
</TABLE>
Income tax (expense) benefit for the year ended December is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current $(381,900) $(155,000) $ (73,390)
Deferred 411,849 368,201 (176,412)
--------- --------- ---------
$ 29,929 $ 213,201 $(249,806)
========= ========= =========
</TABLE>
The Company's effective income tax expense differs from the expense determined
by applying the 34% statutory federal income tax rate to income before income
taxes as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Expected tax benefit (expense)
at statutory federal income tax rate $ 878,800 $ 398,000 $(373,589)
Special deductions (583,085) (199,000) 197,838
Alternative Minimum Tax 97,000 47,000 (33,870)
Change in deferred taxes on policy liabilities (362,786)
Other (32,799) (40,185)
--------- --------- ---------
Total income tax benefit (expense) $ 29,929 $ 213,201 $(249,806)
========= ========= =========
</TABLE>
In 1994, a change in deferred taxes on policy liabilities, resulting from an
incorrect estimate of the tax basis policy benefits at December 31, 1993, caused
a $362,786 reduction of the 1994 tax benefit credited to operations.
Prior to 1984, a portion of taxable income was excluded from current taxation
and accumulated in a special tax return memorandum account. The December 31,
1983 balance of approximately $876,600 is frozen and will be taxed only if
distributed or if it exceeds certain prescribed limits. Deferred income taxes
have not been provided on this balance since the Company does not intend to
take action nor does it expect events to occur that would cause tax to be
payable on that amount.
NOTE 11-SALE OF BLOCK OF BUSINESS
Dixie Life has sold virtually all of its in force accident & health insurance
business to unaffiliated insurance companies in two transactions. Both
transactions were closed in 1994 although the first was effective December 31,
1993.
In the first transaction, Dixie Life sold all of its in force cancer insurance
in South Carolina for $2,125,000, resulting in a statutory gain equal to the
selling price in 1993. Under generally accepted accounting
47
<PAGE>
principles, the transaction was not recorded until closing in February 1994 but
the Company did record the loss incurred ($324,000) under GAAP in 1993.
In 1994, Dixie Life sold virtually all of its remaining accident and health for
$5,322,000 in a transaction effective July 1, 1994, again resulting in a
statutory gain equal to the selling price. The Company incurred a GAAP loss of
approximately $1,197,000 on this sale.
Together, these sales resulted in a reduction of deferred policy acquisition
costs and policy liabilities of $12,980,000 and $11,084,000, respectively, in
1994.
NOTE 12--INCENTIVE STOCK OPTION PLANS
Options to purchase common stock of the Company have been granted under two
incentive stock option plans. One of those plans expired in 1992 and the other
in 1993. At December 31, 1994, options to purchase 481,737 shares were
outstanding, including 23,179 at $1.16; 92,061 at $1.23; 87,816 at $1.69;
16,991 at $1.77; 34,496 at $1.41; 62,790 at $1.13; 45,161 at $1.38, 48,548 at
$1.50 and 70,695 at $1.00.
NOTE 13--CONTINGENCIES
Reinsurance: Dixie Life reinsures a portion of its insurance risk which is in
excess of its retention limits on its life insurance policies. The retention
limit for life insurance policies is generally $50,000. Dixie Life would be
liable for the reinsured risks ceded to reinsuring other companies to the
extent such reinsuring companies are unable to meet their obligations. At
December 31, 1994, Dixie Life's possible obligation under excess coverage life
insurance risks ceded to other companies was approximately $53,883,000.
Dixie Life also has assumed reinsurance under the Servicemen's Group Life
Insurance Program totaling approximately $141,936,000 at December 31, 1994.
Geographic Concentration of Business: Dixie Life is qualified to sell
insurance in 21 states and the District of Columbia. Most of its 1994 business
is in Texas (21%), Mississippi (18%), Georgia (12%), Louisiana (10%), and
Kansas (8%). Loss of the business in any of these states could have a material
adverse affect on the future operations of Dixie Life.
Litigation: Dixie Life is a Defendant in a suit filed in January, 1994 in the
Circuit Court of Montgomery County, Alabama.
The suit alleges that Dixie Life has failed to properly pay dividends to
holders of its Charter Contract policies. These policies are participating
policies pursuant to which Dixie Life is obligated to apportion dividends to
the holders of such policies, as a group and on a prorata basis, of not less
than 35% of the statutory net profits of Dixie Life computed by a formula set
forth in the policy. The formula utilizes certain information contained in the
annual report filed by Dixie Life with the Mississippi Department of Insurance,
as such report was constituted in 1966. The suit seeks to establish a class
consisting of the plaintiff and a group of persons allegedly similarly situated
and alleges the class consists of over 1,000 persons. No class has yet been
certified.
The suit seeks judgment in an undetermined amount for alleged underpayment of
dividends and an injunction requiring Dixie Life to pay appropriate dividends
in the future.
48
<PAGE>
Dixie Life has paid a dividend to holders of the Charter Contract policies in
each year since the policies were issued. On a cumulative basis, the total
dividends paid to the holders of the Charter Contract policies since issuance
exceed 35% of the net profits of Dixie Life as defined by the policies for the
same period.
As of February 17, 1994, a total of 76 Charter Contract policies are held by
residents of the state of Alabama. In all states at December 31, 1993, a total
of 1,421 Charter Contract policies are currently outstanding, of which 324 are
in premium paying status.
Dixie Life intends to vigorously defend the suit.
No discovery has yet taken place and no class has yet been certified by the
court. In the absence of a class, if any, and its composition, if certified,
Dixie Life has no reasonable basis upon which to estimate its potential
liability, if any.
The Company also is involved in ordinary, routine litigation incidental to its
business. Management and counsel are of the opinion that the ultimate
resolution of these matters will not have a material adverse effect on the
Company.
Concentration of Credit Risk: At December 31, 1994 and 1993, the Company had
funds on deposit with a federally insured bank in excess of $100,000 federal
deposit insurance coverage limits.
NOTE 14--PROFIT SHARING PLAN
The Company has a profit sharing plan which covers substantially all employees
who meet length of service provisions contained in the Plan. Prior to 1992,
the plan provided for Company defined contributions based on earnings before
income taxes and realized investment gains. In 1992, the Plan was amended to
allow employee contributions as provided under Section 401(k) of the Internal
Revenue Code. The Company matches 50% of employee contributions up to 4% of
compensation and, at the discretion of the Board of Directors, may make
additional contributions. Contributions to the Plan charged to expense were
approximately $13,000, $18,000 and $7,000 in 1994, 1993, and 1992,
respectively.
NOTE 15--BUSINESS SEGMENT INFORMATION
The Company, through Dixie Life, has engaged in the following lines of
insurance business: life insurance, individual annuities, and accident and
health insurance (A&H). From July 1, 1994, as discussed in Note 11, the
Company is no longer engaged in the accident and health line of insurance
business. Investment income and certain general expenses have been allocated
through the utilization of assumptions, estimates and formulas. Such
allocations have been made on a basis considered reasonable under the
circumstances; however, it should be understood that other acceptable methods
of allocation might produce different results. Financial information by product
grouping is as follows:
<TABLE>
<CAPTION>
Life Annuity A&H Total
---- ------- --- -----
<S> <C> <C> <C> <C>
1994
- ----
Revenues $5,360,344 $ 839,747 $ 5,451,252 $11,651,343
Benefits and expenses 5,719,795 487,326 6,779,282 12,986,403
---------- ----------- ----------- -----------
Operating profit $ (359,451) $ 352,421 $(1,328,030) $(1,335,060)
=========== =========== ===========
Unallocated general corporate expenses 1,249,648
-----------
Loss before income taxes $(2,584,708)
===========
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1993
- ----
Revenues $6,201,285 $ 861,206 $14,467,453 $21,529,944
Benefits and expenses 5,983,893 664,191 14,701,116 21,349,200
---------- ----------- ----------- -----------
Operating profit $ 217,392 $ 197,015 $ (233,663) $ 180,744
========== =========== ===========
Unallocated general corporate expenses 1,351,083
-----------
Income before income taxes $(1,170,339)
===========
1992
- ----
Revenues $5,817,395 $ 1,003,056 $12,491,413 $19,311,864
Benefits & expenses 4,330,999 2,094,313 10,454,699 16,880,011
---------- ----------- ----------- -----------
Operating profit $1,486,396 $(1,091,257) $ 2,036,714 $ 2,431,853
========== =========== ===========
Unallocated general corporate expenses 1,333,063
-----------
Income before income taxes $ 1,098,790
===========
</TABLE>
NOTE 16--SALE OF COMMON STOCK
The Corporation entered into an agreement with Universal Management Services, a
Nevada corporation (UMS), as of October 27, 1994 (UMS Agreement). The UMS
Agreement provides that UMS will use its best efforts to assist the Corporation
in locating potential investors for its Common Stock in non-U.S. markets
pursuant to Regulation S of the Securities Act of 1933.
Under the UMS Agreement, UMS has the right to assist the Corporation in placing
up to 6,425,000 shares, subject to completion of various steps set forth in the
Agreement. The first step was completed on November 29, 1994, with the
Corporation issuing 2,000,000 shares of its Common Stock for which it received
1,230,770 shares of Alanco Environmental Resources, Inc. (Alanco) common stock
(November Transaction). The Alanco shares had an aggregate market value of
$2,000,000 on November 29, 1994.
Under the UMS Agreement, UMS has the right to assist the Corporation in
placing, on a best efforts basis, by June 30, 1995, up to 12,500,000 additional
shares of the Corporation's Common Stock. Under the terms of the UMS
Agreement, the Corporation expects to:
1. Issue 2,000,000 shares of its Common Stock in exchange for 16% of
the outstanding common shares of Phoenix Medical Management, Inc.
(PMM), an Arizona corporation.
2. Issue, if the acquisition of the 16% interest is completed,
100,000 of its Common Stock for an option to acquire the remaining 84%
of the common shares of PMM for 10,400,000 shares of the Corporation's
Common Stock.
3. Purchase from PMM three specialized health care facilities for
approximately $700,000 in cash. The funds for this transaction are
expected to be obtained through the placement, with the assistance of
UMS, but outside the UMS Agreement, of approximately 700,000 shares of
the Corporation's Common Stock under Regulation S.
In view of covenants contained in the Term Loan Agreement, the aquisition of
shares of PMM by the Corporation will require certain waivers from SMC, which
the Corporation will seek to obtain. However, there is no assurance that such
waivers will be obtained, in which case the Corporation will be obliged to
reassess the proposed PMM transaction. There are no assurances that any further
transactions contemplated by the UMS Agreement will be completed. UMS's rights
under the UMS Agreement will expire June 30, 1995.
If at least 6,425,000 shares are placed with UMS's assistance, the UMS
Agreement provides that the purchasers will be entitled to designate a
majority of the Corporation's Board of Directors. This right would be
facilitated by the resignation of a sufficient number of directors whose tenure
as director predates the UMS Agreement so that designees of the new investors
could be appointed until the next annual meeting of
50
<PAGE>
the Corporation's stockholders. The UMS Agreement contained three other
undertakings of the Corporation which were accomplished at the 1994 annual
meeting of the Corporation's stockholders held January 24, 1995. These were
(a) reduction of the Corporation's Board of Directors from 15 members to 9
members; (b) election to the Corporation's Board of Directors of three
representatives of the parties who purchased the Corporation's Common Stock in
the November Transaction; and (c) an increase in the number of authorized
shares of the Corporation's Common Stock from 10,000,000 to 50,000,000.
NOTE 17--PENDING SALE OF DIXIE LIFE
On March 6, 1995, the Corporation entered into a Letter of Intent with SMC to
sell to SMC all of the capital stock of Dixie Life which the Corporation owns.
Dixie Life represents 94% of the consolidated assets and substantially all of
the consolidated operations of the Corporation.
At closing SMC will cancel the Term Loan obligation, assume the Corporation's
indebtedness of $1,720,000 under the Convertible Notes due May 1, 1995, pay the
Corporation $2,500,000 in cash and issue to the Corporation SMC common shares
equal to $500,000 valued at the average trading price of SMC's shares for the
five days prior to closing. The Corporation will also receive the first
$175,000 of agent advances that Dixie Life collects after closing. These
payments constitute a selling price of at least $8,408,746 and up to $8,583,746
if agent advances equal at least $175,000 at closing and at least $175,000 is
collected. Agent advances, net of allowance for doubtful accounts at December
31, 1994, were approximately $270,000. The selling price will be adjusted by
the change in Dixie Life's capital and surplus and asset valuation reserve
between December 31, 1994 and closing. In addition, Dixie Life will continue
to pay $15,000 per month rent to Vanguard, Inc., a wholly-owned subsidiary of
the Corporation, through the December 31, 1996 expiration of an existing lease
on the office building occupied by the Corporation and Dixie Life.
Except as to the extension of the due date of the Term Loan, a prohibition
against the Corporation negotiating with other parties and certain other
customary provisions, the Letter of Intent is not binding and is subject to a
Definitive Purchase Agreement which the parties intend to sign before April 1,
1995. The Definitive Purchase Agreement will contain usual and customary
conditions, including, among others, the receipt of all required regulatory
approvals and approval of the transaction by the shareholders of the
Corporation at a meeting to be held on or before August 1, 1995. There is no
assurance that the SMC Transaction will be consummated.
In the first quarter of 1994, the Corporation reached an agreement in principle
for the acquisition of the Corporation by SMC in a tax-free merger. A
definitive Merger Agreement among the Corporation, SMC and an SMC affiliate was
executed June 8, 1994. On August 1, 1994, the Corporation terminated the
Merger Agreement as a result of SMC's failure to meet certain conditions of the
Merger Agreement. On November 7, 1994, Standard Life Insurance Company of
Indiana, a subsidiary of SMC, purchased the Term Loan from the bank which
previously held the note.
51
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL
STATEMENT SCHEDULES
To The Shareholders
Dixie National Corporation
Jackson, Mississippi
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedules are presented for purposes of additional analysis and are not a
required part of the basic consolidated financial statements. The financial
statement schedules have been subjected to the auditing procedures applied in
the audit of the basic consolidated financial statements and, in our opinion,
the financial statement schedules are fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
Our report covering the basic consolidated financial statements indicates that
there is substantial doubt as to the Company's ability to continue as a going
concern, the outcome of which cannot presently be determined and that the
consolidated financial statements do not include any adjustments, that might
result from the outcome of this uncertainty.
HORNE CPA GROUP
Jackson, Mississippi
March 20, 1995, except for Note 16.,
as to which the date is March 24, 1995
52
<PAGE>
SCHEDULE III
DIXIE NATIONAL CORPORATION (PARENT ONLY)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 196,883 $ 11,793
Marketable equity securities 2,000,000
Receivable from affiliates 22,093 24,303
----------- -----------
TOTAL CURRENT ASSETS 2,218,976 36,096
OTHER ASSETS
Equity in net assets of subsidiaries* 13,985,455 17,448,563
Excess of cost over net assets of subsidiary, net 693,637 701,771
----------- -----------
14,679,092 18,150,334
----------- -----------
TOTAL ASSETS $16,898,068 $18,186,430
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 5,408,746
Income taxes payable 21,134 21,190
Accrued interest 60,950 28,667
Amounts due to subsidiaries* 425,783 266,582
----------- -----------
TOTAL CURRENT LIABILITIES 5,916,613 316,439
LONG-TERM DEBT (NOTE 2)
Notes payable 3,688,746
Notes payable to subsidiary* 1,800,000 1,800,000
Convertible debentures 1,720,000
----------- -----------
TOTAL LONG-TERM DEBT 1,800,000 7,208,746
STOCKHOLDERS' EQUITY 9,181,455 10,661,245
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $16,898,068 $18,186,430
=========== ===========
</TABLE>
*Eliminated in consolidation
See accompany notes to consolidated financial statements.
53
<PAGE>
SCHEDULE III (CONTINUED)
DIXIE NATIONAL CORPORATION (PARENT ONLY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1994 1993 1992
---- ---- ----
<S> <C>
REVENUES
Administrative fees from life subsidiary* $ 1,848,000 $ 1,848,000 $ 1,404,701
Investment income 3,317 5,979 700,845
------------ ------------ ------------
TOTAL REVENUES 1,851,317 1,853,979 2,105,546
EXPENSES
General and administrative 1,337,243 1,592,615 1,138,797
Interest 404,254 741,229 694,386
------------ ------------ ------------
TOTAL EXPENSES 1,741,497 2,333,844 1,833,183
INCOME BEFORE EQUITY IN INCOME
OF CONSOLIDATED SUBSIDIARIES 109,820 (479,865) 272,363
Equity in income of consolidated subsidiaries (2,664,599) (477,273) 576,621
------------ ------------ ------------
NET INCOME (LOSS) $ (2,554,779) $ (957,138) $ 848,984
============ ============ =============
Earnings (loss) per common share
Primary and fully diluted basis $ (.39) $ (.15) $ .13
============ ============ ============
</TABLE>
*Eliminated in consolidation
See accompanying notes to consolidated financial statements.
54
<PAGE>
SCHEDULE III (CONTINUED)
DIXIE NATIONAL CORPORATION (PARENT ONLY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(2,554,779) $ (957,138) $ 848,984
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Decrease (increase) in accounts receivable from
affiliates 2,210 (2,148) (62)
Equity in (income) loss of subsidiaries 2,664,599 1,005,946 (576,621)
Decrease in taxes payable (56) (1,074)
Other, net 73,116 (4,361) 215,772
------------ -------------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 185,090 41,225 488,073
Cash flows from financing activities
Proceeds from borrowing 1,515,000
Payments on debt (2,110,886) (595,368)
------------ -------------- ------------
NET CASH USED BY
FINANCING ACTIVITIES (595,886) (595,368)
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 185,090 (554,661) (107,295)
Cash and cash equivalents at beginning of year 11,793 566,454 673,749
------------ -------------- ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 196,883 $ 11,793 $ 566,454
============ ============== ============
Supplemental cash flow information:
Cash payments for income taxes $ 750 $ 12,896 $ 3,460
============ ============== =============
Cash payments for interest $ 460,485 $ 506,309 $ 489,632
============ ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
SCHEDULE III (CONTINUED)
DIXIE NATIONAL CORPORATION (PARENT ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. The accompanying condensed financial information should be read in
conjunction with consolidated financial statements and notes thereto of Dixie
national Corporation which are included in this Form 10K.
2. At December 31, 1994, the notes payable presented in Dixie National
Corporation's Parent Only Statements included the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Note payable to an insurance company $3,688,746 $3,688,746
Convertible Notes 1,720,000 1,720,000
Note payable to subsidiary 1,800,000 1,800,000
---------- ----------
7,208,746 7,208,746
Less current maturities 5,408,746 -0-
---------- ----------
$1,800,000 $7,208,746
========== ==========
</TABLE>
56
<PAGE>
SCHEDULE VI
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
REINSURANCE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
Percentage of
Gross Ceded to Other Assumed From Amount Assumed
Amount Companies Other Companies Net Amount To Net
------ --------- --------------- ---------- ------
<S> <C> <C> <C> <C> <C>
1994
- ----
Life Insurance
in force $310,922,000 $228,076,000 $141,936,000 $224,782,000 63%
============ ============ ============ ============ ==
Premiums
Life insurance $ 4,252,963 $ 374,631 $ $ 3,878,332
Annuities 335,786 335,786
Accident and
health insurance 5,302,039 5,302,039
------------ ------------ ------------ ------------
Total premiums $ 9,890,788 $ 374,631 $ $ 9,516,157
============ ============ ============ ============
1993
- ----
Life insurance
in force $331,301,000 $255,455,000 $112,491,000 $188,337,000 60%
============ ============ ============ ============ ==
Premiums
Life insurance $ 5,400,953 $ 465,903 $ $ 4,935,050
Annuities 378,903 378,903
Accident and
health insurance 14,185,336 14,185,336
------------ ------------ ------------ ------------
Total premiums $ 19,965,192 $ 465,903 $ $ 19,499,289
============ ============ ============ ============
1992
- ----
Life insurance
in force $362,518,000 $305,931,000 $273,853,000 $330,440,000 83%
============ ============ ============ ============ ==
Premiums
Life insurance $ 4,736,262 $ 326,924 $ 45,812 $ 4,455,150 -1%
Annuities 463,047 26,250 436,797
Accident and
health insurance 12,288,128 1,565 12,286,563
------------ ------------ ------------ ------------
Total premiums $ 17,487,437 $ 354,739 $ 45,812 $ 17,178,510
============ ============ ============ ============
</TABLE>
57
<PAGE>
SCHEDULE VIII
DIXIE NATIONAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Balance at Charged to
Beginning Costs and Deductions- Balance at End
Description of Period Expenses Describe of Period
- ----------- --------- -------- -------- ---------
Allowance for
Doubtful
Accounts
--------
<S> <C> <C> <C> <C>
1994 $ 480,000 $ 82,556 $(366,661) (1) $ 195,895
=========== ========= ========= ===========
1993 $ 1,000,000 $ 246,584 $(766,584) (1) $ 480,000
=========== ========= ========= ===========
1992 $ 1,000,000 $ 1,000,000
=========== ===========
</TABLE>
(1) Accounts written off
58
<PAGE>
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.
DIXIE NATIONAL CORPORATION
--------------------------
(Registrant)
Date: March 24, 1995 By: /s/Samuel Leroy Reed
--------------------
Samuel Leroy Reed
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Samuel Leroy Reed, Jr. March 24, 1995
----------------------------
Samuel Leroy Reed, Jr.
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
March ___, 1995
----------------------------
Tammy H. Etheridge
Director
/s/John E. Haggar March 24, 1995
----------------------------
John E. Haggar
Director
/s/Robert B. Neal March 24, 1995
----------------------------
Robert B. Neal
President and
Director
/s/Dennis Nielsen March 24, 1995
----------------------------
Dennis Nielsen
Director
/s/Joe D. Pegram March 24, 1995
----------------------------
Joe D. Pegram
Director
/s/James G. Ricketts March 24, 1995
----------------------------
James G. Ricketts
Director
59
<PAGE>
March ___, 1995
----------------------------
Herbert G. Rogers, III
Director
March ___, 1995
----------------------------
William A. Taylor, Jr.
Director
/s/Monroe M. Wright March 30, 1995
----------------------------
Monroe M. Wright
Senior Vice President And Treasurer
(Principal Financial and Accounting
Officer)
60
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C>
(2)(b) Letter of Intent between Dixie National 62
Corporation and Standard Management
Corporation dated March 6, 1995.
(3)(a)(2) Articles of Amendment to the 67
Articles of Incorporation of
Dixie National Corporation dated
May 23, 1986
(3)(a)(3) Articles of Amendment to the 71
Articles of Incorporation of
Dixie National Corporation dated
January 24, 1995
</TABLE>
61
March 6, 1995 VIA: Facsimile and Federal Express
Mr. Robert B. Neal
President
Dixie National Corporation
3760 I-55 North
Jackson, Mississippi 39225
Dear Mr. Neal:
This letter (the "Letter of Intent") sets forth the terms upon which
Standard Management Corporation, an Indiana corporation or a wholly-owned
subsidiary (the "Buyer") would acquire 1,489,529 shares of the outstanding
capital stock of Dixie National Life Insurance Company (the "Company") owned by
Dixie National Corporation (the "Seller"). Such terms are as follows:
1. Terms of Acquisition. After receipt of all required regulatory
approvals, Buyer, or its subsidiary, would acquire 1,489,529 shares of the
outstanding capital stock of the Company for a total purchase price of
$8,808,746, $2,500,000 of which would be paid in cash at the Closing (the
"Closing"), an additional $500,000 would be paid in the sum of Rule 144 common
stock of the Buyer valued at the average trading price of said common stock for
the five days prior to the Closing, and the balance of the purchase price in
accordance with paragraphs 2, 3, 4 and 5 below.
2. Forgiveness of Senior Debt. At Closing, the Buyer would cancel the
existing senior debt of the Seller totalling $3,688,746.
3. Assumption of Convertible Subordinated Debt. The Convertible
Subordinated Debt ("Convertible Subordinated Debt") totalling $1,720,000 of the
Seller would be liquidated by the Buyer at the Closing. The current terms of the
Convertible Subordinated Debt shall not be altered in any manner without the
prior written consent of Buyer. Buyer is aware that the Convertible Subordinated
Debt is due before the anticipated Closing.
4. Continuation of Home Office Lease Payment. The Company would
continue to honor its lease obligation with Vanguard, Inc. from the Closing
through December 31, 1996 at the rate of $15,000 per month. The intent of the
Buyer is to vacate the building within six months after Closing, except for
office space for two executives and one secretary.
5. Agent Debit Balance Assignment. After Closing, the first $175,000
recovered by the Company with respect to agent debit balances would be paid
over to the Seller.
6. Definitive Agreement. As promptly as possible after the execution of
this Letter of Intent, the Seller and Buyer will enter into the negotiation of a
Definitive Purchase Agreement (the "Purchase Agreement"). The Purchase Agreement
will contain usual and customary representations and warranties with respect to
the Seller, the Company and the Buyer including representations and warranties
relating to, among other matters; (i) due organization and existence,
qualification as a foreign corporation and capitalization, (ii) due
authorization of the Purchase, (iii)
62
<PAGE>
Mr. Robert B. Neal
March 6, 1995
Page 2
accuracy of financial statements, including, without limitation, an
unconditional representation and warranty as to the absence of undisclosed
liabilities and the accuracy of the Company's balance sheet as of December 31,
1994 and the results of operation for each of the three (3) years preceding such
date, (iv) absence of undisclosed liabilities, (v) title to properties, (vi)
pending or threatened litigation and administrative proceedings, (vii) status of
contracts, agreements, leases or other commitments, (viii) tax liabilities, (ix)
adequacy of insurance, (x) employee benefit matters, (xi) compliance with
applicable laws and regulations.
Buyer's obligation to close the Purchase Agreement will be subject to
the satisfaction of the following conditions:
(a) All required regulatory approvals of the Purchase shall have been
obtained and become final and binding, including the filing by Buyer of
a Form A with all appropriate regulatory authorities within thirty (30)
business days after execution of the Purchase Agreement.
(b) There shall have been no failure to comply with conditions or
covenants in the Purchase Agreement nor any inaccuracy in the
representations and warranties in the Purchase Agreement.
(c) Since December 31, 1994, there shall not have occurred any material
adverse change in the business, assets, operations or financial
condition of the Company.
(d) Such directors and officers of the Company, as shall be designated
by Buyer, shall have resigned effective on or prior to the closing (the
"Closing").
(e) The Company shall have minimum statutory capital and surplus and
Asset Valuation Reserve of $6,410,000 at the Closing. If statutory
capital and surplus and Asset Valuation Reserve are more or less than
$6,410,000 at Closing, the purchase price shall be increased or reduced
by the amount of such variance. Buyer shall have the right to audit
said statutory capital and surplus and Asset Valuation Reserve, and
escrow the amount of any increase in the statutory capital and surplus
and Asset Valuation Reserve for a period of ninety days after Closing.
(f) Investigation by the Buyer or its duly appointed agents,
accountants, attorneys and representatives of the financial condition
of the Company and its subsidiaries and that such due diligence
investigation shall verify that the financial condition of the Company
shall be as represented in the financial statements of the Company as
of December 31, 1994 and satisfactory to the Buyer at the sole
discretion of the Buyer.
The Seller's obligation to close the Purchase Agreement will
be subject to the satisfaction of the following conditions:
(a) There shall have been no material adverse change in the
business, assets, operations or financial condition of the Buyer prior
to closing.
(b) There shall have been no failure to comply with conditions
or covenants in the Purchase Agreement nor any inaccuracy in the
representations and warranties in the Purchase Agreement.
63
<PAGE>
Mr. Robert B. Neal
March 6, 1995
Page 3
(c) All required regulatory approvals of the Purchase
Agreement shall have been obtained and become final and binding.
(d) Seller shall have received requisite Shareholder approval
for this transaction on or before August 1, 1995.
The Purchase Agreement shall contain other customary terms
including covenants requiring the Seller to operate the Company in the
ordinary course and not to engage in certain transactions without the
consent of Buyer. The Purchase Agreement shall be executed on or before
April 1, 1995.
7. Expenses. The Seller and Buyer will each pay its own expenses
incident to the transactions contemplated hereby.
8. Access and Confidentiality. Buyer shall have such access to the
books and records of the Seller and the Company and other information
pertaining to the business and assets of the Seller and the Company necessary
in connection with the proposed transaction, it being agreed that Buyer will
hold all such information in confidence and will not disclose the same except
to persons participating in this transaction, including actuaries, attorneys
and accountants, or to potential investors and lenders, except that
nothing herein shall prevent disclosure or use of any information as may be
required by applicable law or that is at the date hereof or hereafter
becomes public other than by reason of a breach of the obligations under this
paragraph.
9. Expiration. This Letter of Intent shall expire automatically at
5:00 p.m., Central Standard Time, on March 6, 1995 if not accepted by the
Seller with written notification to Buyer.
10. Other Negotiations; Agreements. During the period from the date
of acceptance, the Seller shall not directly or indirectly solicit,
entertain or encourage inquiries or proposals or enter into an agreement or
negotiate with any other party, to sell, or enter into any merger or
consolidation with respect to, the business and/or assets of the Company or
its subsidiaries or any shares of any class of capital stock thereof. In
recognition of the Seller's obligations under this Paragraph 10, Buyer agrees
that the execution of this Letter of Intent by the Seller constitutes an
extension of the maturity of the senior debt of the Seller referred to in
Paragraph 2 held by the Buyer until Closing. Such extension shall be to a
date ninety days after written notification by Buyer to Seller or by Seller to
Buyer of an event which causes Buyer or Seller to conclude that Closing is not
possible under terms of the Purchase Agreement or this Letter of Intent.
11. Nature of Obligations. It is understood that this is merely a
Letter of Intent subject to the execution by the Seller and Buyer of a
definitive Purchase Agreement and, except for the provisions of paragraphs 7, 8
and 10 above, which shall be binding upon and inure to the benefit of the
Seller and Buyer and their respective successors and assigns, does not
constitute a binding obligation on either the Seller or Buyer.
Notwithstanding the foregoing, this Letter of Intent is
intended to evidence the preliminary understandings which we have reached
regarding the proposed transaction and our mutual intent to negotiate in good
faith to enter into a definitive Purchase Agreement in accordance with the
terms contained herein.
64
<PAGE>
Mr. Robert B. Neal
March 6, 1995
Page 4
12. Publicity. The Buyer and the Seller agree that press
releases and other announcements (including filings with regulatory
authorities) to be made by any of them with respect to, or any other
disclosure to a third party of the terms of, the transactions
contemplated hereby shall be subject to prior mutual agreement.
13. Settlement of Pending Litigation. At Closing, Seller shall
release any claim it may have to a certain earnest money deposit in the
principal sum of $250,000 plus interest held by the Clerk of the Marion
County, Indiana Superior Court and shall dismiss with prejudice its
counterclaim filed against Buyer in said Superior Court.
65
<PAGE>
Mr. Robert B. Neal
March 6, 1995
Page 5
The parties hereto now execute this Letter of Intent by
affixing their signatures as follows:
"Seller" "Buyer"
Dixie National Corporation Standard Management Corporation
By: /s/Robert B. Neal By: /s/Ronald D. Hunter
Robert B. Neal, President Ronald D. Hunter, Chairman
A:\DIXLOI36.95
66
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
DIXIE NATIONAL CORPORATION
Pursuant to the provisions of ss.79-4-10.06 of the Mississippi Code of
1972, as amended, Dixie National Corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Dixie National Corporation.
SECOND: The following Resolution was unanimously adopted by the Board of
Directors of the Corporation at a meeting duly convened and held on October
27, 1994, in Jackson, Mississippi, in the manner prescribed by the
Mississippi Business Corporation Act, to wit:
WHEREAS, the Corporation is anticipating raising funds for
general corporate purposes by the sale or exchange of shares of its
common stock, and
WHEREAS, the Corporation is presently authorized to issue a
maximum of 10,000,000 shares of its common stock of which 9,972,235 are
presently outstanding or reserved for issuance upon the conversion of
other securities or for issuance under one or more stock option plans
presently in effect; and
1
67
<PAGE>
WHEREAS, the Board of Directors of the Corporation is of the
opinion that it is in the best interest of the Corporation to amend its
Articles of Incorporation to authorize the issuance of a total of
50,000,000 shares of its common stock.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation shall be
and is hereby authorized to amend its Articles of Incorporation so as
to authorize the Corporation to issue 50,000,000 shares of its common
stock.
BE IT FURTHER RESOLVED, that the Board of Directors does
hereby recommend to the shareholders the adoption of an amendment to
the Articles of Incorporation of the Corporation to increase the
authorized number of shares of its common stock from 10,000,000 shares
to 50,000,000 shares of common stock.
BE IT FURTHER RESOLVED, that the Resolution of this Board of
Directors adopted on the 12th day of April, 1993, purporting to
increase the number of authorized common stock of the Corporation from
10,000,000 to 20,000,000 shares of common stock is hereby rescinded and
set aside.
BE IT FURTHER RESOLVED, that upon approval of the recommended
Amendment to the Articles of Incorporation by the shareholders of the
Corporation, the President and Secretary, or such other officers of the
Corporation as may be appropriate, are hereby authorized and directed
to file appropriate Articles of Amendment and other required documents
with the Secretary of State of the State of Mississippi as may be
required to effect the Amendment hereby recommended.
2
68
<PAGE>
THIRD: The following amendment was duly adopted by the
shareholders of the Corporation at a meeting held January 24, 1995, at
which a total of 8,424,973 shares of the outstanding common stock
of the Corporation was entitled to vote and at which 6,333,421 shares were
voted in favor of such amendment, and 150,667 shares voted against such
adoption, the number being cast in favor of the Amendment being
sufficient for approval of the Amendment:
Article IV is amended to read as follows: The aggregate number of
shares of common stock which the corporation shall have authority to
issue is Fifty Million (50,000,000) shares of a par value of One Dollar
($1.00) per share.
IN WITNESS WHEREOF, Dixie National Corporation has caused the
aforesaid Articles of Amendment to its Articles of Incorporation to be
executed on this the 24th day of January, 1995, by its duly authorized
President and Secretary.
DIXIE NATIONAL CORPORATION
/s/ Robert Bell Neal
ROBERT BELL NEAL, ITS PRESIDENT
/s/ Jerry M. Greer
JERRY M. GREER, ITS SECRETARY
STATE OF MISSISSIPPI
COUNTY OF HINDS
Personally appeared before me, the undersigned authority in
and for the said county and state, on this 24th day of January, 1995,
within my jurisdiction, the within named ROBERT BELL NEAL and JERRY M.
GREER, who acknowledged that they are President and Secretary,
respectively, of Dixie National Corporation, and that for and on behalf
of the said corporation, and as its act and deed
3
69
<PAGE>
they executed the above and foregoing instrument, after first having
been duly authorized by said corporation so to do.
/s/Flora Elizabeth Bates
NOTARY PUBLIC
My commission expires:
July 29, 1995
44c\dixie\amend-2.art
4
70
<PAGE>
Exhibit (3)(a)(3)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
DIXIE NATIONAL CORPORATION
Pursuant to the provisions of Section 79-3-121 of the Mississippi Code
of 1972, as amended, the undersigned corporation adopts the following Articles
of Amendment to its Articles of Incorporation:
FIRST: The name of this corporation is Dixie National Corporation.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on the 4th day of April, 1986,
in the manner prescribed by the Mississippi Business Corporation Act:
Article IV is amended to read as follows: The aggregate number of
shares which the corporation shall have authority to issue is Ten
Million (10,000,000) of a par value of One Dollar ($1.00) each.
THIRD: The number of shares of the corporation outstanding at
the time of such adoption was Three Million Four Hundred Forty-Three
Thousand Six Hundred Forty-Seven (3,443,647); and the number of shares
entitled to vote thereon was Three Million Four Hundred Forty-Three
Thousand Six Hundred Forty-Seven (3,443,647).
FOURTH:The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
1
71
<PAGE>
CLASS NUMBER OF SHARES
----- ----------------
N/A
FIFTH: The number of shares voted for such amendment was Two
Million Four Hundred Thirty-Five Thousand Two Hundred Four (2,435,204);
and the number of shares voted against such amendment was Thirty
Thousand Four Hundred Fifty-Six (30,456).
SIXTH: The number of shares of each class entitled to vote thereon as a
class voted for and against such amendment, respectively, was:
CLASS NUMBER OF SHARES VOTED
----- ----------------------
FOR AGAINST
--- -------
N/A
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: N/A
2
72
<PAGE>
EIGHTH: The manner in which such amendment effects a change in the amount
of stated capital, and the amount of stated capital (expressed in dollars) as
changed by such amendment, are as follows: N/A
DATED this the 23rd day of May, 1986.
DIXIE NATIONAL CORPORATION
BY: /s/Robert B. Neal
President
BY: /s/Jerry M. Greer
Secretary
STATE OF MISSISSIPPI
COUNTY OF HINDS
3
73
<PAGE>
I, Reggie K. Hunter, Sr., a notary public, do hereby certify
that on this the 23rd day of May, 1986, personally appeared before me
Robert B. Neal, who being by me first duly sworn, declared that he is
the President of Dixie National Corporation, that he executed the
foregoing document as President of the Corporation, and that the
statements therein contained are true.
/s/R.K. Hunter, Sr.
Notary Public
My Commission Expires:
March 26, 1988
74
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIXIE
NATIONAL CORPORATION'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD
ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000029322
<NAME> DIXIE NATIONAL CORP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 17,332,660
<DEBT-CARRYING-VALUE> 4,860,347
<DEBT-MARKET-VALUE> 4,860,347
<EQUITIES> 2,000,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 33,231,480
<CASH> 459,109
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 6,626,230
<TOTAL-ASSETS> 44,577,452
<POLICY-LOSSES> 27,538,803
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 240,766
<POLICY-HOLDER-FUNDS> 829,530
<NOTES-PAYABLE> 6,103,839
<COMMON> 8,394,973
0
0
<OTHER-SE> 786,482
<TOTAL-LIABILITY-AND-EQUITY> 44,577,452
9,516,157
<INVESTMENT-INCOME> 2,133,635
<INVESTMENT-GAINS> 1,551
<OTHER-INCOME> 0
<BENEFITS> 6,573,216
<UNDERWRITING-AMORTIZATION> 1,420,943
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (2,584,708)
<INCOME-TAX> (29,929)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,554,779)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
