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, 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 November 1, 1994
Voting Common Stock, $1.00 Par Value 5,737,604
Nonvoting Common Stock, $1.00 Par Value 7,426,896
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, 1994 AND DECEMBER 31, 1993
(000 OMITTED)
September 30 December 31
1994 1993
ASSETS ----------- -----------
Investments:
Debt securities - available for sale $ 613,673 $ 676,754
Debt securities - held to maturity 51,082 53,289
Equity securities 153,099 139,491
Mortgage loans 146,727 165,652
Real estate 17,130 17,589
Policy loans 33,500 33,065
Short-term investments 11,274 5,927
----------- -----------
Total investments 1,026,485 1,091,767
Cash 7,429 13,451
Reinsurance recoverables 40,077 58,405
Property, furniture and equipment, net 46,832 49,320
Deferred policy acquisition costs 193,532 196,720
Accounts and notes receivable 6,889 11,833
Income taxes receivable 22,572 9,131
Other assets 44,811 47,378
----------- -----------
TOTAL $ 1,388,627 $ 1,478,005
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities $ 873,124 $ 901,806
Policyholders' funds 103,416 99,849
Other liabilities 127,170 153,628
Notes payable 6,200 6,800
----------- -----------
Total liabilities 1,109,910 1,162,083
----------- -----------
Shareholders' equity:
Voting common stock 5,781 6,100
Nonvoting common stock 8,925 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) (16,430) 25,393
Retained earnings 298,614 293,996
Treasury stock-at cost:
Nonvoting common stock, 1,542 shares (24,551) (24,551)
----------- -----------
Total shareholders' equity 278,717 315,922
----------- -----------
TOTAL $ 1,388,627 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(000 OMITTED EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
Premium and other income $ 68,155 $ 95,852 $214,263 $294,551
Net investment income 17,595 17,869 51,302 55,711
Realized investment gains 627 2,515 3,263 13,736
-------- -------- -------- --------
Total 86,377 116,236 268,828 363,998
-------- -------- -------- --------
Benefits 33,294 49,481 109,734 163,279
Policy reserve increase (1,353) 965 (6,773) 8,058
Amortization of deferred
policy acquisition costs 9,472 7,706 35,992 41,691
Other operating expenses 40,565 50,079 120,774 137,425
Restructuring charge 0 0 0 10,000
-------- -------- -------- --------
Total 81,978 108,231 259,727 360,453
-------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 4,399 8,005 9,101 3,545
-------- -------- -------- --------
Provision (credit) for income taxes:
Current 2,138 2,823 4,319 3,009
Deferred (1,070) (778) (2,206) (3,089)
-------- -------- -------- --------
Total 1,068 2,045 2,113 (80)
-------- -------- -------- --------
Income (loss) from
continuing operations 3,331 5,960 6,988 3,625
Income from discontinued
operations (net of taxes) 0 0 0 492
Gain on disposition of discontinued
operations (net of taxes) 0 0 0 6,980
-------- -------- -------- --------
Net income before cumulative
effect of change in accounting
principles 3,331 5,960 6,988 11,097
Cumulative effect of change in
accounting principles 0 (2,460) 0 (43,214)
-------- -------- -------- --------
Net income (loss) $ 3,331 $ 3,500 $ 6,988 $ (32,117)
======== ======== ======== ========
Per share
Income (loss) from continuing
operations $ 0.25 $ 0.45 $ 0.53 $ 0.27
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 0.25 0.45 0.53 0.84
Cumulative effect of change in
accounting principles 0.00 (0.18) 0.00 (3.28)
-------- -------- -------- --------
Net income (loss) $ 0.25 $ 0.27 $ 0.53 $ (2.44)
======== ======== ======== ========
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, 1994 AND 1993
(000 OMITTED)
1994 1993
--------- ---------
OPERATING ACTIVITIES:
Net Income (loss) $ 6,988 (32,117)
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in -
Accrued policy reserves and benefits (36,722) (9,388)
Accounts receivable, unearned premiums (4,933) 9,361
Other assets and other liabilities 10,910 (46,309)
Accrued and unearned investment income (952) (518)
Current income taxes payable 11,286 2,919
Deferred income tax provision (credit) (2,206) (3,088)
Amortization of policy acquisition costs 35,992 41,691
Deferral of policy acquisition costs (28,714) (38,097)
Depreciation of property and equipment 3,405 3,517
Purchase of property and equipment (1,268) (625)
(Income) from discontinued operations
(net of taxes) 0 (492)
Net realized (gains) on investments (3,263) (13,736)
(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 43,214
--------- ---------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES (9,477) (40,648)
--------- ---------
INVESTING ACTIVITIES:
Sales, maturities or payments from
investments and loans 249,914 473,782
Purchases of investments and loans granted (247,056) (454,791)
Disposition of discontinued operations 0 22,573
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (2,858) 41,564
--------- ---------
FINANCING ACTIVITIES:
Additions to notes payable 7,000 10,900
Reductions in notes payable (7,600) (11,900)
Receipts credited to policyholders' funds 18,064 19,029
Return of policyholders' funds (14,497) (12,994)
Dividends to shareholders (2,370) (2,370)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 597 2,665
--------- ---------
INCREASE (DECREASE) IN CASH (6,022) 3,581
CASH, BEGINNING OF YEAR 13,451 7,996
--------- ---------
CASH, AS OF SEPTEMBER 30 $ 7,429 $ 11,577
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Real estate acquired in satisfaction of debt $ 2,726 $ 7,627
========= =========
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, 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 (159) 159
Adjustment of equity
securities to market
(net of tax)
--------- -----------
Balance, September 30, 1993 $ 6,108 $ 8,598
========= ===========
Balance, December 31, 1993 $ 6,100 $ 8,606
Net income
Dividends to shareholders
($.12 per share)
Issue and (retirement) of stock (319) 319
Adjustment of debt securities
available for sale and equity
securities to market (net of tax)
--------- -----------
Balance, September 30, 1994 $ 5,781 $ 8,925
========= ===========
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, 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) (3,461)
------------ --------------
Balance, September 30, 1993 $ 6,378 $ 8,295
============ ==============
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) (41,823)
------------ --------------
Balance, September 30, 1994 $ 6,378 $ (16,430)
============ ==============
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, 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 (3,625)
Income from discontinued
operations (net of tax) 492
Gain on discontinued
operations (net of tax) 6,980
Cumulative effect of change
in accounting principles (43,214)
Dividends to shareholders
($.12 per share) (2,370)
Issue and (retirement) of stock
Adjustment of equity
securities to market
(net of tax)
--------- --------- ---------
Balance, September 30, 1993 298,930 (1,542) $ (24,551)
========= ========= =========
Balance, December 31, 1993 293,996 (1,542) $ (24,551)
Net income 6,988
Dividends to shareholders
($.12 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and equity
securities to market (net of tax)
--------- --------- ---------
Balance, September 30, 1994 298,614 (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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(000 OMITTED)
Total
---------
Balance, December 31, 1992 $ 341,706
Net income (loss):
Income (loss) from
continuing operations 3,625
Income from discontinued
operations (net of tax) 492
Gain on discontinued
operations (net of tax) 6,980
Cumulative effect of change
in accounting principles (43,214)
Dividends to shareholders
($.12 per share) (2,370)
Issue and (retirement) of stock
Adjustment of equity
securities to market
(net of tax) (3,461)
---------
Balance, September 30, 1993 $ 303,758
=========
Balance, December 31, 1993 $ 315,922
Net income 6,988
Dividends to shareholders
($.12 per share) (2,370)
Issue and (retirement) of stock
Adjustment of debt securities
available for sale and equity
securities to market (net of tax) (41,823)
---------
Balance, September 30, 1994 $ 278,717
=========
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, 1994 and December 31, 1993, the results of operations for he
three months and nine months ended September 30, 1994 and 1993 and cash flows
for the three months and nine months ended September 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.
Independent's net income from continuing operations (exclusive of realized
investment gains) improved for the third consecutive quarter, and totaled
$2.9 million, or $.22 per share. This compares with $2.0 million or $.15
per share in the third quarter of 1993. During the quarter the Company
concluded the introduction of the previously mentioned Loss of Time Policy,
completed the discontinuation of its group line of business and continued
on schedule with the winddown of non-Home Service property/casualty lines.
Net income (including realized investment gains) for the current quarter
was $3.3 million or $.25 per share, compared with $3.5 million of $.27
per share in the year-ago quarter. For the first nine months of 1994, net
income totaled $7.0 million of $.53 per share. This compares with a net loss
of $(32.1) million or $(2.44) per share through September of 1993, which
included the impact of restructure charges, discontinued operations and the
cumulative effect of changes in accounting principles required in the industry.
The accompanying tables also reflect reduced revenues and expenses associated
with exiting non-Home Service lines of business in all companies, which will
continue through 1994.
While management recognizes the improving trend in net income from continuing
operations, it remains committed to producing a higher level of results. The
current level of results has been influenced by three areas in particular.
Investment income is lower, although it has gradually improved with each
quarter in 1994. The industry in general is experiencing reduced investment
income due to lower yields. Secondly, the stepped-up activity for punitive
damage awards in Alabama continues to be a concern for any industry operating
there. Though management believes suits brought against Independent in that
state are for the most part frivolous, we continue with our conservative
position of providing ample reserves. As a result, this quarter we increased
our estimate for losses by $3.7 million pretax. Thirdly, Home Service premiums
have grown 2% over the comparable amount a year ago. This is below our
desired goal, and management is introducing new products and special
marketing campaigns aimed at improving this area of performance.
The quality of assets continues at our traditionally high standards. Assets
totaled $1.39 billion at September 30, down from $1.49 billion 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 Company carries most of its debt securities at market
value. These securities are then permitted to be traded in order to properly
manage our investment portfolios, thereby taking advantage of market
opportunities. At year-end 1993, we increased book value per share by $1.32
due to high market values associated with the twenty-year low interest rates.
The recent rise in interest rates has resulted in a decreased market value
of these securities. As a result, compared with year-end 1993 shareholders'
equity has been reduced $41.2 million, lowering book value per share by $3.13.
The standard did not equitably permit valuing related liabilities at market
value. If it had, the resulting decrease in liabilities would have more than
offset the reduced carrying value of its debt securities.
Management maintains a significant ownership position in the Company and as a
result, has interests parallel to other shareholders. We are aware of the
recent decline in the price of the Company's shares. We are unaware of any
news not regularly reported to our shareholders which would result in this
decrease. It is believed that continued improvement in corporate performance
should provide for improved stock performance as well.
As previously reported, a regular quarterly dividend of 6 cents per share
on both voting and nonvoting common stock is payable December 1, 1994, to
shareholders of record on November 10, 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
September 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: November 14, 1994 By:
Boyd E. Lyon, Sr., Vice President,
Treasurer and Chief Financial Officer
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