SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 1.3 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1994 Commission File No: 0-9649
INDEPENDENT INSURANCE GROUP, INC.
FLORIDA 59-2027555
(State or other jurisdiction of (I.R.S. employer
incorporation of Organization) identification number)
One Independent Drive, Jacksonville, Florida 32276
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (904) 358-5151
NONE
(Former name, former address and former fiscal year, if changed since
last report)
Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 with the Commission, during
the preceding 12 months (or such shorter period that the Registrant was
required to file such reports), and has been subject to the filing
requirements for at least the past 90 days. YES X NO
The number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 2, 1994
Voting Common Stock, $1.00 Par Value 5,793,503
Nonvoting Common Stock, $1.00 Par Value 7,370,997
INDEPENDENT INSURANCE GROUP, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Income
Consolidated Condensed Statements of Cash Flows
Consolidated Condensed Statements of Changes in
Shareholders' Equity
Notes to Consolidated Condensed Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(000 OMITTED)
June 30 December 31
1994 1993
ASSETS ----------- -----------
Investments:
Debt securities - available for sale $ 625,346 $ 676,754
Debt securities - held to maturity 49,163 53,289
Equity securities 149,696 139,491
Mortgage loans 150,044 165,652
Real estate 18,202 17,589
Policy loans 33,213 33,065
Short-term investments 7,524 5,927
----------- -----------
Total investments 1,033,188 1,091,767
Cash 8,219 13,451
Reinsurance recoverables 52,824 58,405
Property, furniture and equipment, net 47,694 49,320
Deferred policy acquisition costs 198,155 196,720
Accounts and notes receivable 6,299 11,833
Income taxes receivable 20,471 9,131
Other assets 45,264 47,378
----------- -----------
TOTAL $ 1,412,114 $ 1,478,005
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities $ 884,857 $ 901,806
Policyholders' funds 102,158 99,849
Other liabilities 134,923 153,628
Notes payable 10,600 6,800
----------- -----------
Total liabilities 1,132,538 1,162,083
----------- -----------
Shareholders' equity:
Voting common stock 5,794 6,100
Nonvoting common stock 8,912 8,606
Additional paid-in capital 6,378 6,378
Net unrealized gain (loss) on debt securities
for sale and equity securities (net of tax) (13,030) 25,393
Retained earnings 296,073 293,996
Treasury stock-at cost:
Nonvoting common stock, 1,542 shares (24,551) (24,551)
----------- -----------
Total shareholders' equity 279,576 315,922
----------- -----------
TOTAL $ 1,412,114 $ 1,478,005
=========== ===========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
Premium and other income $ 72,722 $ 95,973 $146,108 $198,699
Net investment income 16,780 18,602 33,707 37,842
Realized investment gains 2,417 3,516 2,636 11,221
-------- -------- -------- --------
Total 91,919 118,091 182,451 247,762
-------- -------- -------- --------
Benefits 35,170 47,650 76,440 113,798
Policy reserve increase (1,565) 1,289 (5,420) 7,093
Amortization of deferred
policy acquisition costs 11,956 14,357 26,520 33,985
Other operating expenses 41,090 45,210 80,209 87,346
Restructuring charge 0 10,000 0 10,000
-------- -------- -------- --------
Total 86,651 118,506 177,749 252,222
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 5,268 (415) 4,702 (4,460)
-------- -------- -------- --------
Provison (credit) for income taxes:
Current 1,423 2,504 2,181 186
Deferred 201 (2,950) (1,136) (2,311)
-------- -------- -------- --------
Total 1,624 (446) 1,045 (2,125)
-------- -------- -------- --------
Income (loss) from
continuing operations 3,644 31 3,657 (2,335)
Income from discontinued
operations (net of taxes) 0 0 0 492
Gain on disposition of discontinued
operations (net of taxes) 0 (22) 0 6,980
-------- -------- -------- --------
Net income before cumulative
effect of change in accounting
principles 3,644 9 3,657 5,137
Cumulative effect of change in
accounting principles 0 2,061 0 (40,754)
-------- -------- -------- --------
Net income (loss) $ 3,644 $ 2,070 $ 3,657 $ (35,617)
======== ======== ======== ========
Per share
Income (loss) from continuing
operations $ 0.28 $ 0.00 $ 0.28 $ (0.18)
Income from discontinued
operations net of taxes 0.00 0.00 0.00 0.57
-------- -------- -------- --------
Net income before cumulative
effect of change in accounting
principles 0.28 0.00 0.28 0.39
Cumulative effect of change in
accounting principles 0.00 0.15 0.00 (3.10)
-------- -------- -------- --------
Net income (loss) $ 0.28 $ 0.15 $ 0.28 $ (2.71)
======== ======== ======== ========
Dividends $ 0.06 $ 0.06 $ 0.12 $ 0.12
======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands) 13,165 13,165 13,165 13,165
======== ======== ======== ========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED)
1994 1993
--------- ---------
OPERATING ACTIVITIES:
Net Income (loss) $ 3,657 (35,617)
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in -
Accrued policy reserves and benefits (30,668) (7,116)
Accounts receivable, unearned premiums 2,446 7,534
Other assets and other liabilities 4,022 10,526
Accrued and unearned investment income (33) (285)
Current income taxes payable 10,486 1,695
Deferred income tax provision (credit) (1,136) (2,311)
Amortization of policy acquisition costs 26,520 33,985
Deferral of policy acquisition costs (22,209) (32,710)
Depreciation of property and equipment 2,262 2,393
Purchase of property and equipment (636) (374)
(Income) from discontinued operations
(net of taxes) 0 (492)
Net realized (gains) on investments (2,636) (11,221)
(Gain) on disposition of discontinued
operations (net of taxes) 0 (6,980)
Restructuring charge 0 10,000
Cumulative effect of change in
accounting principles (net of taxes) 0 40,754
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITES (7,925) 9,781
--------- ---------
INVESTING ACTIVITIES:
Sales, maturities or payments from
investments and loans 198,208 365,066
Purchases of investments and loans granted (200,045) (400,522)
Disposition of discontinued operations 0 22,573
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,837) (12,883)
--------- ---------
FINANCING ACTIVITIES:
Additions to notes payable 7,000 10,900
Reductions in notes payable (3,200) (10,900)
Receipts credited to policyholders' funds 12,249 12,726
Return of policyholders' funds (9,939) (8,582)
Dividends to shareholders (1,580) (1,580)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,530 2,564
--------- ---------
INCREASE (DECREASE) IN CASH (5,232) (538)
CASH, BEGINNING OF YEAR 13,451 7,996
--------- ---------
CASH, AS OF JUNE 30 $ 8,219 $ 7,458
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in satisfaction of debt $ 2,026 $ 4,331
========= =========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED)
Capital Stock $1 Par
(Shares and Amounts)
------------------------
Voting Nonvoting
--------- -----------
Balance, December 31, 1992 $ 6,267 $ 8,439
Net income (loss):
Income (loss) from
continuing operations
Income from discontinued
operations (net of tax)
Gain on discontinued
operations (net of tax)
Cumulative effect of change
in accounting principles
Dividends to shareholders
($.12 per share)
Issue and (retirement) of stock (17) 17
Adjustment of equity
securities to market
(net of tax)
--------- -----------
Balance, June 30, 1993 $ 6,250 $ 8,456
========= ===========
Balance, December 31, 1993 $ 6,100 $ 8,606
Net income
Dividends to shareholders
($.12 per share)
Issue and (retirement) of stock (306) 306
Adjustment of debt securities
available for sale and equity
securities to market (net of tax)
--------- -----------
Balance, June 30, 1994 $ 5,794 $ 8,912
========= ===========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED)
Net Unrealized
Gain (Loss) on
Debt Securities
Additional Available for Sale
Paid-in and Equity Securities
Capital net of tax
------------ ------------------------
Balance, December 31, 1992 $ 6,378 $ 11,756
Net income (loss):
Income (loss) from
continuing operations
Income from discontinued
operations (net of tax)
Gain on discontinued
operations (net of tax)
Cumulative effect of change
in accounting principles
Dividends to shareholders
($.12 per share)
Issue and (retirement) of stock
Adjustment of equity
securities to market
(net of tax) (2,565)
------------ --------------
Balance, June 30, 1993 $ 6,378 $ 9,191
============ ==============
Balance, December 31, 1993 $ 6,378 $ 25,393
Net income
Dividends to shareholders
($.12 per share)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and equity
securities to market (net of tax) (38,423)
------------ --------------
Balance, June 30, 1994 $ 6,378 $ (13,030)
============ ==============
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED)
Treasury Stock
Retained ---------------------
Earnings Shares Amounts
--------- --------- ---------
Balance, December 31, 1992 $ 333,417 (1,542) $ (24,551)
Net income (loss):
Income (loss) from
continuing operations (2,335)
Income from discontinued
operations (net of tax) 492
Gain on discontinued
operations (net of tax) 6,980
Cumulative effect of change
in accounting principles (40,754)
Dividends to shareholders
($.12 per share) (1,580)
Issue and (retirement) of stock
Adjustment of equity
securities to market
(net of tax)
--------- --------- ---------
Balance, June 30, 1993 296,220 (1,542) $ (24,551)
========= ========= =========
Balance, December 31, 1993 293,996 (1,542) $ (24,551)
Net income 3,657
Dividends to shareholders
($.12 per share) (1,580)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and equity
securities to market (net of tax)
--------- --------- ---------
Balance, June 30, 1994 296,073 (1,542) $ (24,551)
========= ========= =========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(000 OMITTED)
Total
---------
Balance, December 31, 1992 $ 341,706
Net income (loss):
Income (loss) from
continuing operations (2,335)
Income from discontinued
operations (net of tax) 492
Gain on discontinued
operations (net of tax) 6,980
Cumulative effect of change
in accounting principles (40,754)
Dividends to shareholders
($.12 per share) (1,580)
Issue and (retirement) of stock
Adjustment of equity
securities to market
(net of tax) (2,565)
---------
Balance, June 30, 1993 $ 301,944
=========
Balance, December 31, 1993 $ 315,922
Net income 3,657
Dividends to shareholders
($.12 per share) (1,580)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and equity
securities to market (net of tax) (38,423)
---------
Balance, June 30, 1994 $ 279,576
=========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of June 30, 1994 and December 31, 1993, the results of operations for he
three months and six months ended June 30, 1994 and 1993 and cash flows for
the three months and six months ended June 30, 1994 and 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors affecting the accompanying financial statements. It has been the
Company's experience that undue weight cannot be given to the results of a
single period, as such results are not necessarily indicative of that for an
entire year.
Included within the accompanying tables is the result of exiting non-Home
Service lines of business in all companies, which will continue through 1994.
The reduction in related comparative revenue and expense is reflected.
Net income for the current quarter totaled $3.6 million, or $.28 per share
compared with $2.1 million, or $.15 per share in the second quarter of 1993.
For the first half of 1994, net income totaled $3.7 million versus a loss of
$35.6 million a year ago. In 1993, a number of unusual adjustments impacted
net income in both periods. In addition to the cumulative charge for required
accounting changes, results for the 1993 second quarter and six months include
an after-tax restructuring charge of $6.6 million, or $.50 per share,
associated with exiting non-Home Service lines of business in the
property/casualty subsidiaries. Excluding these charges, second quarter
operating income from continuing operations (which excludes realized
investment gains and related taxes) for 1994 is $2.2 million or $.16 per
share, compared with $4.3 million or $.33 per share. Year-to-date operating
income from continuing operations is $2.1 million or $.15 per share in 1994,
up $5.2 million from the loss of $3.1 million, or $.24 per share in the first
six months of 1993. Earnings are not yet at a level desired or expected, and
management is still not pleased with the results.
Excluding realized investment gains, this quarter the life insurance
subsidiary reported pretax operating income of $1.1 million, a decrease of
$5.5 million from the year-ago second quarter. Among the factors contributing
to the decrease was reduced investment income as a result of lower yields,
adverse claims experience during the wind-down of our group insurance lines of
business and small growth in net Home Service premiums to offset increases in
insurance costs. Home Service life insurance premiums grew five percent over
the second quarter in
1993, however, decreasing accident/health premiums largely offset this
improvement. Directly responding to the decreasing accident/health premiums,
the Company has introduced the first of several new accident/health products.
On July 1, a new Loss of Time policy was issued in Florida. This
nonassignable, personal reimbursement plan was designed after outside
marketing research was completed, and is unique to Independent Life. This
product is scheduled to be introduced in other states in the near future. At
the end of June, the exiting of the group insurance lines of business was
substantially complete, thus eliminating a line of business that has
historically diminished profits, including pretax losses of approximately $2.0
million thusfar in 1994.
Pretax operating earnings of the property/casualty subsidiaries totaled $1.0
million, and improved $2.8 million over the year ago quarter. This comparison
excludes unusual adjustments in 1993, such as charges for restructuring and
abnormal catastrophes. Throughout 1993, property/casualty operations were
diminished by the high cost of catastrophe reinsurance associated with our
non-Home Service policies. The wind-down of such non-Home Service
property/casualty lines of business continues to be on target, and related
operations appear to have stabilized.
Corporatewide, credit quality of investments remains high, yet pressure on
yields of high quality, liquid investments and prepayments on securities has
slowed earnings growth in each subsidiary.
Assets totaled $1.41 billion at June 30, down from a year ago. The decrease
is primarily related to the runoff of non-Home Service lines of
property/casualty business, coupled with the reduction in the carrying value
of our debt security investments in accordance with the required adoption of a
new accounting standard (SFAS 115) at year-end 1993. Under the standard, the
carrying value of debt security investments is adjusted for interest rate
changes, without adjusting related liabilities. The recent rise in interest
rates has caused the carrying value of certain debt security investments to
decrease approximately $28.0 million compared with a year ago, with a related
decrease in shareholders' equity of approximately $16.0 million, or $1.24 book
value per share. It is important to note that had the standard permitted us
to market value the liabilities matched with these securities, a resulting
increase in shareholders equity would have more than offset this decrease.
In other areas, during the quarter the A. M. Best Company reaffirmed its
Excellent rating of Independent Life. Also during the quarter, an
independent publication cited the Company as having the lowest debt of any
large publicly traded company domiciled in Florida at the end of 1993.
As previously announced, a regular quarterly cash dividend has been declared.
A dividend of 6 cents per share on both voting and nonvoting common stock is
payable on September 1, 1994, to shareholders of record on August 11, 1994.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed for the three months ended June
30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT INSURANCE GROUP,INC.
(Registrant)
Date: August 12, 1994 By:
Boyd E. Lyon, Sr., Vice President,
Treasurer and Chief Financial Officer
