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 September 30, 1995 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 November 6, 1995
Voting Common Stock, $1.00 Par Value 5,689,215
Nonvoting Common Stock, $1.00 Par Value 7,475,285
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
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(000 OMITTED)
September 30 December 31
1995 1994
ASSETS ------------ -----------
Investments:
Debt securities - available for sale $ 655,002 $ 603,421
Debt securities - held to maturity 51,055 51,048
Equity securities 206,608 156,596
Mortgage loans 141,192 143,677
Real estate 13,622 17,110
Policy loans 35,134 33,967
Short-term investments 14,173 13,728
---------- ----------
Total investments 1,116,786 1,019,547
Cash 6,234 10,533
Reinsurance recoverables 9,297 26,290
Property, furniture and equipment 43,627 45,770
Deferred policy acquisition costs 187,135 195,053
Accounts and notes receivable 7,581 6,145
Income tax receivable 1,357 15,790
Other assets 45,752 44,636
----------- -----------
TOTAL $ 1,417,769 $ 1,363,764
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy reserves $ 843,437 $ 861,453
Policyholders' funds 104,336 103,771
Postretirement and postemployment benefits 72,079 70,501
Other liabilities 56,985 53,281
Notes payable 5,400 7,500
----------- ----------
Total liabilities 1,082,237 1,096,506
----------- ----------
Shareholders' equity:
Voting common stock 5,692 5,725
Nonvoting common stock 9,014 8,981
Additional paid-in capital 6,378 6,378
Net unrealized gain on equity
securities 27,376 (31,222)
Retained earnings 311,623 301,947
Treasury stock-at cost:
Nonvoting common stock,
(1,542 shares) (24,551) (24,551)
----------- -----------
Total shareholders' equity 335,532 267,258
----------- -----------
TOTAL $ 1,417,769 $ 1,363,764
=========== ==========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(000 OMITTED EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
---- ---- ---- ----
Premium and other income $ 67,266 $ 68,155 $ 203,084 $ 214,263
net investment income 17,226 17,595 51,021 51,302
Realized investment gains (losses) (2,647) 627 (2,187) 3,263
-------- ------- --------- --------
Total 81,845 86,377 251,918 268,828
-------- ------- --------- -------
Benefits 29,459 33,294 93,253 109,734
Policy reserve increase (decrease) 106 (1,353) 2,535 (6,773)
Amortization of deferred
policy acquisition costs 5,754 9,472 24,049 35,992
Other operating expenses 39,451 40,565 115,590 120,774
Restructuring credit 0 0 (1,100) 0
------- ------- ------- -------
Total 74,770 81,978 234,327 259,727
------- ------- ------- -------
Income before income taxes 7,075 4,399 17,591 9,101
------- ------- ------- -------
Provison (credit) for income taxes:
Current 3,539 2,138 5,974 4,319
Deferred (1,290) (1,070) (429) (2,206)
------- ------- -------- -------
Total 2,249 1,068 5,545 2,113
------- ------- -------- -------
Net income $ 4,826 $ 3,331 $ 12,046 $ 6,988
======= ======= ======== =======
Per share
Net income $ 0.37 $ 0.25 $ 0.92 $ 0.53
====== ====== ====== ======
Dividends $ 0.06 $ 0.06 $ 0.18 $ 0.18
====== ====== ====== ======
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 NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(000 OMITTED)
1995 1994
---- ----
OPERATING ACTIVITIES:
Net Income $ 12,046 $ 6,988
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in -
Accrued policy reserves and benefits (8,218) (36,722)
Accounts receivable, unearned premiums (10,589) (4,933)
Other assets and other liabilities 15,097 10,910
Accrued and unearned investment income 457 (952)
Liability for income taxes (2,200) 9,080
Liability for restructuring charges (2,439) (1,802)
Amortization of policy acquisition costs 24,049 35,992
Deferral of policy acquisition costs (22,611) (28,714)
Depreciation of property and equipment 3,244 3,405
Purchase of property and equipment (1,102) (1,268)
Net realized (gains) on investments 2,187 (3,263)
-------- -------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITES 9,921 (11,279)
-------- -------
INVESTING ACTIVITIES:
Sales, maturities or payments from investments
and loans 202,936 249,914
Purchases of investments and loans granted (213,251) (245,254)
-------- --------
NET CASH (USED) BY
INVESTING ACTIVITIES (10,315) 4,660
-------- --------
FINANCING ACTIVITIES:
Additions to notes payable - 7,000
Reductions in notes payable (2,100) (7,600)
Receipts credited to policyholders' funds 16,894 18,064
Return of policyholders' funds (16,329) (14,497)
Dividends to shareholders (2,370) (2,370)
------- -------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (3,905) 597
------- -------
INCREASE (DECREASE) IN CASH (4,299) (6,022)
CASH, BEGINNING OF YEAR 10,533 13,451
------- -------
CASH, AS OF SEPTEMBER 30 $ 6,234 $ 7,429
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in satisfaction of debt $ 3,521 $ 2,726
======= =======
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(000 OMITTED)
Capital Stock $1 Par
(Shares and Amounts) Additional
-------------------- Paid-in
Voting Nonvoting Capital
------ --------- ----------
Balance, December 31, 1993 $ 6,100 $ 8,606 $ 6,378
Net income
Dividends to shareholders
($.18 per share)
Issue and (retirement) of stock (319) 319
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes)
------- ------- -------
Balance, September 30, 1994 $ 5,781 $ 8,925 $ 6,378
======= ======= =======
Balance, December 31, 1994 $ 5,725 $ 8,981 $ 6,378
Net income
Dividends to shareholders
($.18 per share)
Issue and (retirement) of stock (33) 33
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes)
------- ------- -------
Balance, September 30, 1995 $ 5,692 $ 9,014 $ 6,378
======= ======= =======
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(000 OMITTED)
Net Unrealized
Gain (Loss) on
Debt Securities
Available for Sale and
Equity Securities Retained
net of tax Earnings
---------------------- --------
Balance, December 31, 1993 $ 25,393 $ 293,996
Net income 6,988
Dividends to shareholders
($.18 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes) (41,823)
--------- ---------
Balance, September 30, 1994 $ (16,430) $ 298,614
========= =========
Balance, December 31, 1994 $ (31,222) $ 301,947
Net income 12,046
Dividends to shareholders
($.18 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes) 58,598
-------- ---------
Balance, September 30, 1995 $ 27,376 $ 311,623
======== =========
See notes to consolidated condensed financial statements.
INDEPENDENT INSURANCE GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(000 OMITTED)
Treasury Stock
---------------------
Shares Amounts Total
------ ------- -----
Balance, December 31, 1993 (1,542) $ (24,551) $ 315,922
Net income 6,988
Dividends to shareholders
($.18 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes) (41,823)
------ --------- ---------
Balance, September 30, 1994 (1,542) $ (24,551) $ 278,717
====== ======== =========
Balance, December 31, 1994 (1,542) $ (24,551) $ 267,258
Net income 12,046
Dividends to shareholders
($.18 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and
equity securities to market
(net of taxes) 58,598
------- --------- ---------
Balance, September 30, 1995 (1,542) $ (24,551) $ 335,532
======= ========= =========
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
September 30, 1995 and December 31, 1994, the results of
operations for the three months and nine months ended
September 30, 1995 and 1994 and cash flows for the three
months and nine months ended September 30, 1995 and 1994.
INDEPENDENT INSURANCE GROUP, INC. AND SUBSIDIARIES
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.
Independent's net income for the third quarter of 1995 totaled
$4.8 million, or $.37 per share, compared with $3.3 million, or
$.25 per share in the year-ago quarter. Year-to-date net income
also improved, and totaled $12.0 million, or $.92 per share in
1995, compared with $7.0 million, or $.53 per share for the first
nine months of 1994. As previously reported, all products not
marketed through our Home Service distribution channels were
wound down by the end of 1994. Accordingly, the amounts in the
accompanying tables for 1995 periods reflect Home Service
operations only.
Pretax income, exclusive of realized investment gains and losses,
was $9.7 million in the current quarter and was $19.8 million for
the first nine months of 1995. Each of these results is an
improvement over the performance in the comparable 1994 periods
of $3.8 million and $5.8 million, respectively. The improvement
in this quarter-to-quarter comparison stems from more favorable
experience in life benefits. Also, this quarter reflects $3.6
million lower expense for punitive damage lawsuits from the year-
ago quarter when we reported stepped-up activity, and reflects an
adjustment which lowered the amortization of acquisition costs by
$2.0 million. Partially offsetting these reductions in benefits
and expenses was the increase in property/casualty claims from
Hurricane Erin which made landfall in Florida during the third
quarter. Pretax losses, including reinstatement premiums for
catastrophe reinsurance coverage, totaled $1.6 million. Similar
pretax losses are expected to be reported in the fourth quarter
related to Hurricane Opal.
Including realized investment gains and losses, pretax income
totaled $7.1 million in the current quarter, compared with $4.4
million in the third quarter of 1994. Realized investment gains
and losses generally vary between quarters due to market
conditions and investment strategies. During the current
quarter, the Company realized $4.1 million of such losses on
written covered call options due to their change in market value
in a rising stock market environment. Next quarter these losses
will be more than offset by gains generated from the sale of
equity securities against which these options were written.
Also during the current quarter, book value per share grew to
$25.49. The improvement thusfar in 1995 stems from the
combination of net income less dividends paid, plus recording an
increase in the market value of our debt and equity security
investments. The change in market value on these securities is
recorded in shareholders' equity in accordance with accounting
standards. The market value of our debt security portfolio will
fluctuate between periods due to changing interest rates. The
increase in market value thusfar in 1995 has more than offset the
decrease the Company experienced in 1994.
As was previously communicated, at the July 12 meeting of the
Board of Directors, management was authorized to look into
various methods of maximizing shareholder value, including
investigating the terms on which the Company might be combined
with another. On October 19, it was announced that a definitive
agreement had been reached with American General Corporation
pursuant to which American General will pay $362 million, or
$27.50 per share, in cash and/or securities for Independent's
outstanding shares. Under the terms of the agreement, all
holders of voting and nonvoting common stock of Independent would
be offered the elections of receiving $27.50 in cash, common
stock of American General or 7% convertible preferred stock of
American General, or any combination thereof. When considering
the elections of all shareholders in the aggregate, no more than
50% of the Independent shares may be converted into cash, and no
more than 50% of the Independent shares may be converted into
American General preferred stock. No limit is imposed on the
number of shares of Independent common stock which may be
converted into American General common stock. Proxy materials
with additional information will be mailed to Independent's
shareholders in advance of a special meeting of Independent's
voting and nonvoting shareholders to be called to approve the
transaction. The transaction is expected to be completed in
January 1996, subject to shareholder and regulatory approvals.
In relation to this transaction, the Company will incur future
costs for professional services plus employee severance programs.
At this time, such costs are not reasonably estimable.
At their meeting in October, the Board of Directors declared the
regular cash dividend. A dividend of 6 cents per share on
voting and nonvoting common stock of the corporation is payable
December 1, 1995, to shareholders of record at the close of
business on November 10, 1995.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed for the three
months ended September 30, 1995.
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:November 14, 1995 By:
Boyd E. Lyon, Sr., Vice President,
Treasurer and Chief Financial
Officer
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<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 655002
<DEBT-CARRYING-VALUE> 51055
<DEBT-MARKET-VALUE> 58048
<EQUITIES> 206608
<MORTGAGE> 141192
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<TOTAL-INVEST> 1116786
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<POLICY-LOSSES> 829516
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0
0
<OTHER-SE> 320826
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195921
<INVESTMENT-INCOME> 51021
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<UNDERWRITING-AMORTIZATION> 24049
<UNDERWRITING-OTHER> 114490
<INCOME-PRETAX> 17591
<INCOME-TAX> 5545
<INCOME-CONTINUING> 12046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12046
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<RESERVE-OPEN> 45606<F1>
<PROVISION-CURRENT> 78878
<PROVISION-PRIOR> 3432
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<PAYMENTS-PRIOR> 29023
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<FN>
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