FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended September 30, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934. For the transition period from
_____________ to _____________.
Commission file number 33-56402-FW
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1731373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 South Hulen Street, Fort Worth, Texas 76109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 731-8621
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
(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
Indicate by check mark if the 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 the registrant's knowledge, in definitive 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 December 1, 1996, all of the voting common stock of the Registrant
was held by affiliates of the Registrant. The aggregate market value of
the voting common stock held by non-affiliates was $ -0-.
As of December 1, 1996, the following number of shares of common stock
were outstanding:
Class A - Voting $ .02 par - 25
Class B - Non- Voting $ .02 par - 972,767
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<S> <C> Location in Form 10-K Incorporated Documents
Part IV, Item 14 - Exhibits - Page 41 Articles of Incorporation and
Bylaws, and stock agreements in
Exhibit 3 and 10 of Company's
Form S-1 Registration
Statement Filed in May, 1996.
</TABLE>
Total number of pages, including cover page - 46
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
TABLE OF CONTENTS
PART I PAGE
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . 5
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . 6
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data. . . . . . .11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . . . .30
PART III
Item 10. Directors and Executive Officers of the Registrant . . .31
Item 11. Executive Compensation . . . . . . . . . . . . . . . . .35
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . .36
Item 13. Certain Relationships and Related Transactions . . . . .38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . .39
PART I
ITEM 1 - BUSINESS
General Statement of Company's Purpose
The primary business purpose of Independent Research Agency for Life
Insurance, Inc. ("the Company") and its insurance agency subsidiaries is
the sale of life insurance and, through its subsidiary, United Services
Planning Association, Inc., the sale of mutual funds to active duty and
former commissioned, warrant and noncommissioned officers of the United
States Military services and their families. The Company's Board of
Directors considers profit secondary to expanded service to its clientele.
History of the Company
The Company began operations in January 1964, as a sole proprietorship
owned by Carroll H. Payne, doing business as the "Carroll H. Payne
Agency." On January 1, 1971, the name was changed to "Independent
Research Agency for Life Insurance." On January 1, 1977, the Company was
organized as a partnership (IRA Partnership) under the general partnership
laws of the state of Texas. On March 9, 1981, the IRA Partnership
exchanged all of its assets relating to the operation of its life
insurance business (substantially all of its assets) to Independent
Research Agency for Life Insurance, Inc., a corporation formed by the
partners of IRA Partnership under the laws of the state of Texas on
December 9, 1980. Thereafter, IRA Partnership continued in existence
under another name, but all of its former life insurance operations are
now owned and conducted by the Company. The IRA Partnership was dissolved
in 1992.
One of the partnership assets acquired by the Company was all of the
shares of "Independent Research Agency for Life Insurance, Inc.," a Hawaii
corporation, incorporated under the laws of the state of Hawaii on
September 14, 1979. It is a wholly-owned subsidiary of the Company and
is a life insurance general agency in the state of Hawaii.
On March 9, 1981, the Company acquired all of the shares of United
Services Planning Association, Inc. ("USPA"), a corporation incorporated
under the laws of the state of Texas on November 24, 1958, and USPA is a
wholly-owned subsidiary of the Company.
On April 28, 1982, the Company formed a wholly-owned subsidiary,
"Independent Research Agency for Life Insurance, Inc.," a Wyoming
corporation. On February 14, 1983, the Company formed a wholly-owned
subsidiary, "Independent Research Agency for Life Insurance, Inc.," a
Montana corporation. On September 2, 1983, the Company formed a wholly-owned
subsidiary, "Independent Research Agency (New York), Inc.," a New
York corporation. On January 15, 1988, the Company formed a wholly-owned
subsidiary, "Independent Research Agency for Life Insurance, Inc.," a
Nevada corporation. On June 28, 1994, the Company formed a wholly-owned
subsidiary, "Independent Research Agency for Life Insurance, Inc.," an
Alabama Corporation. These five subsidiaries are life insurance general
agencies in the states where formed.
In addition, the Company markets a relatively small number of variable
annuities through one insurance carrier.
PART I
ITEM 1 - BUSINESS - Continued
Insurance Agency Operations
As an insurance agency, the Company markets insurance products offered
by several insurance carriers. These products are individual whole life
and term life insurance policies. In addition, the Company markets a
relatively small number of variable annuities through one insurance
carrier. The Company is authorized to market an insurance carrier's
products by entering into an agency agreement with the carrier. A
typical agency agreement allows the Company to solicit applications for
insurance and to submit the applications to the carrier for approval, as
well as to deliver policies issued by the carrier. The Company and its
insurance agency subsidiaries have agency agreements with nine insurance
carriers. Consistent with industry practice, all the agreements to which
the Company and its subsidiaries are parties are terminable at will or
upon very short notice.
The Company's income is derived principally from commissions earned from
the sale of insurance products. Commissions are generally a percentage
of the premiums paid by clients. The Company has loan agreements with
four of the insurance carriers it represents as general agent whereby the
carriers loan an amount to the Company equal to the difference between the
total amount of first year commissions to be earned by the Company on
certain insurance policies sold by its agents and the amount of the
commissions actually earned by the Company as of any particular date. The
total amount of such loans decreased to $10,458,853 as of September 30,
1996 from $12,319,485 as of September 30, 1995, due to a shift in sales
of policies from carriers with whom the Company does not have such loan
agreements. Each of the loan agreements provides that the outstanding
balance of any loan be repaid immediately by the Company if the policy
upon which the loan was calculated is cancelled during its first year.
Historically, less than five percent (5%) of the policies sold by the
Company are cancelled during the first year of the policy.
For the fiscal years ended September 30, 1996, 1995, and 1994 the
commissions earned by the Company from insurance carriers for insurance
solicited by it and the percentage thereof of total commission revenue
(shown parenthetically) were $72,975,873 (63%), $69,165,124 (64%), and
$63,367,022 (63%), respectively. (Total commission revenue represents
gross revenue before deduction of commissions to registered
representatives/agents and other expenses of operation.)
The Company's business is dependent upon its market of active duty and
former members of the United States military services and their families.
The Company's sales force has never sold competitively in the open
civilian market, and the Company has no plans to attempt to sell to such
market. In management's view, the Company is not reliant upon its
relationship with any one insurance carrier, as it can substitute carriers
if needed under similar terms.
Investment Sales Operations
The Company's subsidiary USPA is a broker-dealer of several different
mutual funds pursuant to written agreements with the investment companies.
USPA has the non-exclusive right to sell shares of these mutual funds
through its agents and receives commissions from such sales. These sales
are principally of mutual funds which have the stated objective of long
PART I
ITEM 1 - BUSINESS - Continued
Investment Sales Operations - Continued
term capital growth, through systematic investment plans or open account
brokerage arrangements depending on suitability considerations. USPA is
not obligated to meet any stated sales volume for any particular mutual
fund. USPA does not bear any part of the cost of printing prospectuses
used in connection with any mutual fund offering nor does it bear the
costs of supplemental sales literature, promotion or advertising. The
agreements between USPA and the investment companies are continuous and
provide for termination without penalty by either party on written notice.
For the fiscal years ended September 30, 1996, 1995 and 1994, commissions
earned on the sale of shares of mutual funds and the percentage thereof
of total commission revenue (shown parenthetically) were $43,656,196
(37%), $39,278,686 (36%) and $37,124,611 (37%), respectively. (Total
commission revenue represents gross revenue before deduction of
commissions to registered representatives/agents and other expenses of
operation.)
Marketing
The Company offers life insurance products, and through USPA, mutual fund
products in the states in which it and its subsidiaries are authorized to
do business, through independent licensed agents who are paid on a
commission basis. The selling efforts of the Company are concentrated on
U.S. career military personnel and sales to existing clients formerly on
active duty. Management believes that the products offered (and, in the
case of life insurance products, the benefits and premium rates related
thereto) are generally competitive with those of other such products
available for sale in its market. The Company believes that its most
valuable asset is its trained and established force of field
representatives. The Company's average number of agents during fiscal
1996 was 603. As of September 30, 1996 the Company had 608 agents
appointed.
The Company's analysis of the impact of base closures and force reduction
in the U.S. military indicates to the Company a minimal impact upon
existing agents in the field and a market which will continue to present
an opportunity for growth of the Company's business. Specifically, the
Company estimates that it will still be selling, and providing service,
to less than twenty-five percent of its potential overall market (Rank of
E-6 and above including all warrant and commissioned officer ranks) during
the forthcoming year.
During fiscal year 1996, the Company's sales efforts resulted in over
47,274 life insurance applications being filed with new coverage exceeding
$3.7 billion. Total insurance in force now exceeds $28.0 billion. In
addition, during fiscal year 1996, nearly 62,318 mutual fund applications
were processed. These applications have a face value of $1.06 billion.
The Company's clients now have more than $8.71 billion invested in mutual
funds.
Regulation and Competition
Both the insurance and securities industries are heavily regulated as to
trade practices. State insurance laws and regulations are particularly
restrictive as to the advertising and solicitation of insurance. Agents
PART I
ITEM 1 - BUSINESS - Continued
Regulations and Competition - Continued
of the Company are duly examined and licensed and must be continually
aware of such regulations and comply fully at all times. Neither the
Company nor its predecessors have ever been required to cease doing
business in any locale as the result of a violation of such laws and
regulations. USPA is subject to both federal and state regulation as a
broker-dealer of securities. Securities laws are most stringent as to
the advertising of, solicitation of, accounting for, and general
representation of securities sold. Representatives of USPA must be
registered representatives of the National Association of Securities
Dealers, Inc. ("NASD"), and licensed with the Securities Department in the
state in which they represent USPA. Neither USPA nor any of its
representatives has ever been fined, suspended, or required to cease doing
business in any locale as the result of a violation of NASD or state laws,
rules, or regulations.
Competition is keen in both the life insurance and securities business.
A number of life insurance companies are engaged in sales to military
personnel, offering a variety of policies. These competitors are also
able, through affiliations with securities organizations, to offer
investments to military personnel in competition with USPA. Additionally,
military personnel are offered a number of other specialized savings and
investment opportunities, by other organizations such as banks and credit
unions. The Company's sales force has never sold competitively in the
open civilian market.
Potential Future Expansion of Services
The Company plans to establish a federal savings bank to extend consumer
banking services to its clients. The Company received approval of its
charter application from the Office of Thrift Supervision (OTS) in
November, 1996. The Company is expecting the federal savings bank to be
open for business the summer of 1997. The Company cannot predict what
financial results the federal savings bank's operations will generate.
The Board of Directors has authorized an initial capitalization for the
federal savings bank of $6 million to be drawn from current liquid
investments of the Company. No additional stock will be issued due to the
establishing of the federal savings bank.
Taxation of the Company
The Company will be taxed under the usual practices of taxation applicable
to corporations.
Personnel
The Company utilizes the services of personnel employed by USPA, for which
it reimburses USPA. USPA employs approximately two hundred ninety-five
(295) people full time at present, whose functions are administrative and
sales supportive. All sales by the Company and by USPA are made by
independent contractor agents, of which there are approximately six
hundred and eight (608).
PART I
ITEM 2 - PROPERTIES
The Company owns, unencumbered, the building at 4100 South Hulen Street,
Fort Worth, Texas, in which its home office operation is conducted. A
portion (approximately 14%) of this 128,000 square foot building is being
leased to third parties. The Company owns one residential property in
Fort Worth, Tarrant County, Texas, which is currently rented on a month
to month basis to Raleigh Kone, Director of Training of the Company.
Monthly rent is currently paid to the Company for that portion of such
residence personally used by this employee. The rent paid by Raleigh Kone
is $1,000 per month. The management of the Company considers the above
monthly rent to be fair and reasonable in the view of the amount of
personal living space rented in the residence by this individual. This
residential property has traditionally been used for lodging of visiting
agents, and entertainment of prospective agents and current agents. Some
of these business guests remain for conferences and seminars conducted by
the Company for periods from one to fourteen days. The Company also owns
approximately nine motor vehicles and substantial office equipment,
including printing and computer equipment.
ITEM 3 - LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries are involved in any
material legal proceedings, nor are any such proceedings pending, nor is
the Company involved in any other legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
There is presently no market for the Company's common stock, of either
class, and it is very unlikely that a market will develop in the future.
As an insurance agency incorporated in Texas, only insurance agents
licensed in Texas can, under Texas law, own the Company's stock.
Therefore, the stock price cannot be and is not determined by actions and
considerations of any such market.
Number of Security Holders
As of December 1, 1996, the Company has 14 stockholders of record of its
Class A - voting common stock, and 505 stockholders of record of its Class
B - non-voting common stock.
Dividend History and Restriction
Holders of common shares are generally entitled to receive dividends as
may be declared by the Board of Directors from funds legally available
therefor. Although the Company has paid dividends on its common shares
in the years 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996
no assurance can be given that any dividends will be declared and paid in
the future. Future dividend policies shall be subject to the discretion
of the Board of Directors and will depend upon a number of factors,
including, among other things, future earnings, capital requirements,
(particularly capital needed for rapid growth or a major business
initiative), war, and the financial condition of the Company, any one of
which could cause the Company to be unable to pay dividends in one or more
years. There are currently no legal or contractual restrictions that
materially limit the Company's ability to pay dividends.
Following is a history of the dividends paid by the Company since
inception. Dividends have only been paid on its Class B - non-voting
common stock.
<TABLE>
<C> <C> <C>
Date of Record Payment Date Per Share
October 20, 1987 December 3, 1987 $8.00
September 30, 1988 November 30, 1988 2.10
September 30, 1989 November 30, 1989 2.65
September 30, 1990 November 28, 1990 3.00
September 30, 1991 November 30, 1991 4.00
September 30, 1992 December 1, 1992 6.59
September 30, 1993 December 1, 1993 7.31
September 30, 1994 December 1, 1994 4.88
September 30, 1995 December 1, 1995 4.50
September 30, 1996 December 2, 1996 7.63
</TABLE>
On October 31, 1988, the Company's stockholders approved an amendment to
the Company's Articles of Incorporation whereby the Company's Class B
common stock would split on a basis of five new shares for each one share
then outstanding. The par value of the stock was correspondingly reduced
from a par value of $.10 per share to a par value of $.02 per share. The
stock split became effective on November 1, 1988.
PART II
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for the five years ended September 30, 1992 through 1996. This
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and related notes thereto included elsewhere herein. The selected
consolidated financial data was derived from the audited financial statements
of the Company.
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended September 30,
1996 1995 1994 1993 1992
Income Statement Data:
Commissions Revenue $ 116,632,069 $ 108,443,810 $100,491,633 $ 93,767,954 $ 83,885,886
Operating Expenses (109,040,366) (102,510,314) (93,421,636) (86,224,269) (77,374,218)
Operating Income 7,591,703 5,933,496 7,069,997 7,543,685 6,511,668
Other Income 3,719,793 4,201,478 3,464,253 3,280,284 3,368,056
Income before Income
Taxes 11,311,496 10,134,974 10,534,250 10,823,969 9,879,724
Income Taxes (3,842,639) (3,417,024) (3,561,062) (3,567,212) (3,592,814)
Net Income $ 7,468,857 $ 6,717,950 $ 6,973,188 $ 7,256,757 $ 6,286,910
Earnings Per Share $ 7.97 $ 7.18 $ 7.51 $ 7.65 $ 5.89
Cash Dividends
Declared $ 7.63 $ 4.50 $ 4.88 $ 7.31 $ 6.59
Balance Sheet Data:
Working Capital
(Deficit) $ (3,816,198) $ (5,876,390) $ (6,577,744) $ (2,510,885) $ (11,642,662)
(1)Loans from Insurance
Companies (Included in 10,458,853 12,319,485 11,128,518 10,681,383 12,528,037
working capital)
Total Assets 88,689,932 79,634,999 66,095,600 54,590,033 56,262,287
Long-Term Obligations 16,998,700 12,376,835 7,256,834 3,006,623 589,624
Stockholders' Equity 43,948,707 40,014,745 32,193,799 29,121,614 28,212,818
</TABLE>
(1) This loan balance will continue to perpetuate as long as the Company does
business with these insurance companies as they have done in the past.
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
During the year ended September 30, 1996, the demand for life insurance
and mutual fund investments marketed by the Company to U.S. military
personnel remained strong and total current sales continued to increase.
Commission revenue for the year ended September 30, 1996 increased 7.6%
to $116,632,069 from $108,443,810 recorded during the year ended September
30, 1995. This compares to a 7.9% increase from fiscal year 1994 to 1995.
The percentage increase in commission revenue for fiscal year 1996 is the
second lowest increase since fiscal year 1992. However, the largest
increase in recent years has been 11.8%. After factoring in the recent
low inflation rates, the increase in commission revenue of 7.6% is still
very comparable to the past several years. These variances are
attributable to IRA, Inc. and each of its subsidiaries. This overall
increase in commission revenue is considered to be continuing a trend
which has occurred over the past several years, and is expected to
continue in the future due to the long term personal financial management
philosophy espoused to clients, an effectively trained sales force and
efficient marketing practices used by the Company's sales agents.
The overall growth in commission revenue occurred at a lower rate for
insurance sales than it did for mutual fund sales. During the past
fiscal year commission revenue for insurance sales increased 5.5% to
$72,975,873 and commission revenue for mutual fund sales increased 11.1%
to $43,656,196. The percentage increases from fiscal year 1994 to 1995
were 9.2% and 5.8%, respectively, for insurance and mutual fund sales.
The larger percentage increase in mutual fund sales was due mainly to the
abundance of favorable press given to mutual funds over the past couple
of years and the public's increased recognition of the importance of
saving for retirement. The Company does not foresee a decrease in mutual
fund investing in the future unless a serious "bear market" were to occur
and investors start becoming more conservative in their savings methods.
The Company's analysis of the impact of base closures and force reduction
in the U.S. military indicates to the Company a minimal impact upon
existing agents in the field and a market which will continue to present
an opportunity for growth of the Company's business. Specifically, the
Company estimates that it will still be selling, and providing service,
to less than twenty-five percent of its potential overall market (Rank of
E-6 and above including all warrant and commissioned officer ranks) during
the forthcoming year.
Commissions, incentive commissions, and agent expenses for the years ended
September 30, 1996 and 1995 increased 7.2% and 8.9%, respectively, in the
aggregate. These increases are consistent with the increase in
commissions revenue. Commissions, incentive commissions, and agent
expenses have been 74% of commission revenues for each of the past three
fiscal years. This constant relationship may not continue in the future
because it is expected that a growing proportion of the future increases
in commission revenue will result from trail or renewal commissions.
Trail and renewal commission revenue result from sales made in prior
years.
The Company receives reduced commissions for several years subsequent to
the actual sale, whereas the agents are generally paid commissions for
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Results of Operations - Continued
only twelve months after a sale. Therefore, commissions and agent
expenses could decrease in relation to commission revenue. This has yet
to occur since part of the compensation paid by the Company to its agents
is in the form of discretionary incentive commissions called "Future
Incentive Commissions" and voluntary allocations to the agents' Deferred
Career Commission Plan (DCCP). By utilizing these discretionary
compensation methods the Company has the ability to better control its
costs, as well as provide more rewards to the best producing sales agents.
General and administrative expenses for the years ended September 30, 1996
and 1995 increased $728,499 or 3.3% and $2,483,083 or 12.7%, respectively,
over their prior years. The increase from 1995 to 1996 is considered a
general inflationary increase. A significant component of the fiscal year
1995 increases were salaries and other employee benefit related costs
resulting from hiring additional employees and providing existing
employees with competitive pay increases. These new employees' salaries
and other employee benefit related costs, in addition to standard pay
raises, caused general and administrative expenses to increase from
$11,161,606 in fiscal year 1994 to $12,073,913 in fiscal year 1995. This
represents a 8.2% increase from fiscal year 1994 to 1995. The additional
employees hired during fiscal year 1995 were primarily in the Financial
Programs department. The remaining significant increase in general and
administrative expenses from fiscal year 1994 to 1995 resulted from a
major PC software project titled "WinUSPA ". This project will redesign
the field automation system currently used by the Company's agents. The
WinUSA project is currently in the implementation stage.
The total of other income for the year ended September 30, 1996 decreased
$481,685 to $3,719,793. The total of other income for the year ended
September 30, 1995 increased $737,225 from the prior year. These
fluctuations of other income are mainly due to the timing of mutual fund
distributions.
Income before income taxes has remained fairly constant as a percentage
of commission revenues for the past few years. For the years ended
September 30, 1996, 1995 and 1994 income before income taxes has been
9.7%, 9.3% and 10.5% of total commission revenues.
Liquidity and Financial Resources
The Company has operated with a working capital deficiency during all of
the periods presented in the accompanying selected financial data. The
Company has been able to do this because of its loans from insurance
companies. As long as the Company continues to do business in this manner
with these insurance companies (there are no current intentions to change)
the loan balance will continue to replenish itself from first year
insurance commission advances. The Company had a ratio of current assets
to current liabilities of .86 to 1 and .78 to 1 at September 30, 1996 and
1995, respectively. The current ratios when excluding the loans from
insurance companies balances are 1.38 to 1 and 1.43 to 1, respectively.
The Company had a net increase of $2,675,735 in cash and cash equivalents
from the prior year. As reflected in the statement of cash flows, net
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Liquidity and Financial Resources - Continued
cash provided by operating activities continued to remain strong. During
the year ended September 30, 1996, a significant amount of cash flows
were utilized in investing activities. The two most significant
investment cash flow uses in 1996 were the purchase of $4,087,976 of
mutual fund shares and $523,287 of property and equipment.
The Company has land which is intended to be used as a future site for the
construction of a building. The Company is planning to accumulate
$3,800,000 annually through 1998, for a total accumulation of $19,000,000,
for the construction of this additional office facility for the Home
Office. The Company is also planning to start a financial institution in
early 1997. This financial institution inititative will require
approximately $6,000,000 in capitalization funds. Once the financial
institution begins operations, it is not expected to have a significant
impact on the operating income of the Company. The remaining retained
earnings of the Company have been accumulated in anticipation of other
future capital expenditures and as an additional reserve against
contingencies.
These retained earnings have for the most part been invested in equity and
money market mutual funds. The equity mutual funds have been classified
as noncurrent assets since there are no intentions to liquidate these
investments during the next year.
From its inception, the Company has exercised its option of purchasing the
Company stock owned by agents and employees when their active association
with the Companies ended. During the years ended September 30, 1996 and
1995 the Company redeemed 129,963 shares and 39,325 shares, respectively.
The Company plans to continue to exercise this option so as to limit stock
ownership to those actively involved in the business.
During the years ended September 30, 1996 and 1995, 104,700 and 147,742
shares of Class B, non-voting common stock were issued from Treasury Stock
at $26.56 and $23.44 per share, respectively. These stock offerings were
accomplished using registration statement Form S-1. The primary purpose
of these offerings was to provide the Company's agents with an opportunity
to purchase shares of the Company. The net proceeds will be used for the
continuing operation of the Company's business, for further development
and expansion, and for limited contingency planning. It is not
anticipated that any part of the net proceeds will be used for the purpose
of retiring or reducing any indebtedness of the Company.
Return on total equity was 19% and 21% for 1996 and 1995, respectively.
Management has goals of maintaining a return of 15% to 25% in the future.
Presently, the Company has no debt outstanding under its $1,000,000
revolving line of credit. The Company feels that, between its current
cash position and the working capital generated by operations, it can
adequately meet normal financing requirements and any future expansion
goals.
PART II
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The accompanying consolidated financial statements of Independent Research
Agency for Life Insurance, Inc. and Subsidiaries as of September 30, 1996,
1995 and 1994 and for the years ended September 30, 1996, 1995 and 1994
are presented in accordance with Regulation S-X. Independent Research
Agency for Life Insurance, Inc. is subject to the reporting requirements
of Section 15(d) of the Securities Exchange Act of 1934.
Supplementary Data
The selected quarterly financial data required by Item 302(a) of
Regulation S-K is omitted because the Registrant does not meet both of the
specified tests.
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants . . . . . . . . . 12
Consolidated Balance Sheets - September 30, 1996, 1995 and 1994. . . 13
Consolidated Statements of Income - Years ended September 30, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Changes In Stockholders' Equity - Years
ended September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . 16
Consolidated Statements of Cash Flows - Years ended September 30,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 20
November 15, 1996
(Except Note 11, as to which
the date is December 2, 1996)
Board of Directors
Independent Research Agency
for Life Insurance, Inc. and Subsidiaries
Fort Worth, Texas
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of
Independent Research Agency for Life Insurance, Inc. and Subsidiaries as
of September 30, 1996, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Independent Research Agency for Life Insurance, Inc. and Subsidiaries as
of September 30, 1996, 1995 and 1994, and the consolidated results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As described in Notes 3 and 8 to the financial statements, the Company
changed its method of accounting for marketable securities and income
taxes during the year ended September 30, 1994 as required by the
provisions of Statements of Financial Accounting Standards No. 109 and No.
115.
BRANTLEY, FRAZIER, ROGERS & COMPANY, P.C.
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996, 1995 AND 1994
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS 1996 1995 1994
Cash - Demand deposits $ 659,899 $ 454,159 $ 1,792,100
Cash - Money market mutual
fund accounts - Note 2 18,789,033 16,319,038 14,481,829
Commissions receivable - Note 2 2,671,831 2,319,856 2,060,310
Agents' loans and advances
- Note 2 745,189 940,067 834,728
Accounts receivable - Customers
- Note 2 -0- 115,000 231,718
Accounts receivable - Other
- Note 2 79,641 643,179 78,649
Income taxes receivable - Note 8 336,579 374,799 -0-
Prepaid expenses 110,139 48,803 54,529
Deferred income taxes - Note 8 534,016 152,128 533,360
Total Current Assets 23,926,327 21,367,029 20,067,223
PROPERTY AND EQUIPMENT - At Cost - Note 2
Land 3,528,333 3,528,333 1,963,930
Office building 9,403,496 9,383,158 9,182,167
Other buildings and improvements 131,746 131,746 131,746
Office/computer equipment and
furniture 6,543,017 6,393,679 4,831,049
Automobiles 300,497 295,218 265,039
Total Property and Equipment 19,907,089 19,732,134 16,373,931
Less: Accumulated depreciation (7,292,895) (6,428,646) (5,490,561)
Net Property and Equipment 12,614,194 13,303,488 10,883,370
OTHER ASSETS
Marketable securities at market
value - Notes 2 and 3 52,036,944 44,852,015 35,047,540
Memberships 62,467 62,467 47,467
Notes receivable - Other 50,000 50,000 50,000
Total Other Assets 52,149,411 44,964,482 35,145,007
TOTAL ASSETS $88,689,932 $79,634,999 $66,095,600
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES 1996 1995 1994
Accounts payable $ 423,714 $ 486,402 $ 732,908
Accrued commissions payable 2,758,258 2,533,614 2,243,633
Accrued bonuses payable 9,959,319 9,210,740 8,516,428
Accrued contribution payable to
employees' Profit Sharing Plan
- Note 9 1,058,617 941,601 952,952
Income taxes payable - Note 8 4,981 626,927 1,285,017
Deferred Career Commission Plan
payable - Note 10 489,502 423,114 -0-
Accrued sales meeting expense 1,557,397 275,000 1,430,867
Other accrued liabilities 418,168 426,536 354,644
Notes payable - Note 5 613,716 -0- -0-
Loans from insurance companies
- Note 4 10,458,853 12,319,485 11,128,518
Total Current Liabilities 27,742,525 27,243,419 26,644,967
LONG-TERM OBLIGATIONS
Accrued sales meeting expense and
other 1,611 289,111 1,611
Notes payable - Note 5 494,650 -0- -0-
Deferred Career Commission Plan
payable - Note 10 14,571,565 9,796,309 5,208,298
Deferred income taxes - Note 8 1,930,874 2,291,415 2,046,925
Total Long-Term Obligations 16,998,700 12,376,835 7,256,834
STOCKHOLDERS' EQUITY
Common stock - Note 6
Class A - Voting 10 10 10
Class B - Non-Voting 55,729 55,729 55,729
Additional paid-in capital 2,830,260 3,472,253 424,761
Retained earnings - Notes 7
and 11 31,223,388 28,305,327 26,542,341
Unrealized holding gains - Note 3 9,875,400 8,217,001 5,208,702
Treasury stock - Class A Common,
at par - Note 6 (8) (8) (8)
Treasury stock - Class B Common,
at par - Note 6 (36,072) (35,567) (37,736)
Total Stockholders' Equity 43,948,707 40,014,745 32,193,799
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY $88,689,932 $79,634,999 $66,095,600
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S> <C> <C> <C>
COMMISSIONS REVENUE 1996 1995 1994
Insurance sales $ 72,975,873 $ 69,165,124 $ 63,367,022
Mutual fund sales 43,656,196 39,278,686 37,124,611
Total Commissions Revenue 116,632,069 108,443,810 100,491,633
OPERATING EXPENSES
Commissions and agent expenses
- Note 10 (86,309,517) (80,507,964) (73,902,369)
General and administrative
expenses - Note 9 (22,730,849) (22,002,350) (19,519,267)
Total Operating Expenses (109,040,366) (102,510,314) (93,421,636)
INCOME FROM OPERATIONS 7,591,703 5,933,496 7,069,997
OTHER INCOME (EXPENSES)
Interest income 846,607 777,897 417,149
Investment income - Including net
gains on sales of investments
- Note 3 3,216,870 3,616,571 3,272,036
Net rental and other expense (268,148) (116,795) (155,222)
Interest expense (66,100) (23,925) (23,033)
Loss on sales of property and
equipment (9,436) (52,270) (46,677)
Total Other Income 3,719,793 4,201,478 3,464,253
INCOME BEFORE INCOME TAXES 1,311,496 10,134,974 10,534,250
PROVISION FOR INCOME TAXES
- Note 8 (3,842,639) (3,417,024) (3,561,062)
NET INCOME $ 7,468,857 $ 6,717,950 $ 6,973,188
EARNINGS PER SHARE - Note 2 $ 7.97 $ 7.18 $ 7.51
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S> <C> <C> <C>
Common Stock Additional
Class Class Paid-In
A B Capital
BALANCE - September 30, 1993 $ 10 $ 55,729 $ 2,329,704
Cumulative effect of change in
accounting principle for
marketable securities - Note 3
Purchase of treasury stock - Note 6 (1,904,943)
Payment of dividend - Note 7
Net income
Net change in unrealized holding
gains (losses) on securities
available for sale - Note 3
BALANCE - September 30, 1994 $ 10 $ 55,729 $ 424,761
Purchase of treasury stock
- Note 6 (350,489)
Payment of dividend - Note 7
Proceeds from stock issuance
- Note 6 3,397,981
Net income
Net change in unrealized holding
gains on securities available
for sale - Note 3
BALANCE - September 30, 1995 $ 10 $ 55,729 $ 3,472,253
Purchase of treasury stock
- Note 6 (3,379,850)
Payment of dividend - Note 7
Proceeds from stock issuance
- Note 6 2,737,857
Net income
Net change in unrealized holding
gains on securities available
for sale - Note 3
BALANCE - September 30, 1996 $ 10 $ 55,729 $ 2,830,260
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Unrealized Treasury Stock Total
Retained Holding Class Class Stockholders'
Earnings Gains A B Equity
$26,772,200 $ -0- $ (8) $(36,021) $29,121,614
5,496,372 5,496,372
(1,715) (1,906,658)
(7,203,047) (7,203,047)
6,973,188 6,973,188
(287,670) (287,670)
26,542,341 5,208,702 (8) (37,736) 32,193,799
(564,731) (786) (916,006)
(4,390,233) (4,390,233)
2,955 3,400,936
6,717,950 6,717,950
3,008,299 3,008,299
28,305,327 8,217,001 (8) (35,567) 40,014,745
(2,599) (3,382,449)
(4,550,796) (4,550,796)
2,094 2,739,951
7,468,857 7,468,857
1,658,399 1,658,399
$31,223,388 $9,875,400 $ (8) $(36,072) $43,948,707
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995 1994
Commissions revenue received $116,277,714 $108,172,477 $100,425,548
Commissions paid to agents (78,914,869) (73,709,584) (68,841,581)
Operating expenses paid (20,070,746) (20,094,588) (17,202,074)
Sales meeting expenses paid (1,168,286) (2,309,149) (871,531)
Contribution to employees'
Profit Sharing Plan (1,034,981) (1,053,022) (1,043,649)
Interest income received 846,607 777,897 417,149
Interest expense paid (29,075) (23,925) (23,033)
Investment income received 3,216,870 3,616,571 1,891,544
Net rental and other expense
paid (268,148) (116,795) (155,372)
Net customers' custodial fund
received (paid) 175,000 (388,538) 133,255
Income taxes paid (6,253,259) (5,381,960) (2,938,037)
Income taxes refunded 230,138 3,520 7,863
Net Cash Provided by
Operating Activities 13,006,965 9,492,904 11,800,082
CASH FLOWS FROM INVESTING ACTIVITIES
Net receipts (payments) on agents'
loans and advances 194,878 (105,339) (393,037)
Proceeds from sales of
investments -0- -0- 5,694,192
Purchase of investments (4,087,976) (4,602,720) (3,276,466)
Proceeds from sales of property
and equipment 30,715 30,698 47,605
Purchase of property and
equipment (523,287) (3,586,939) (1,043,432)
Memberships purchased -0- (15,000) (2,359)
Net Cash Provided By (Used In)
Investing Activities (4,385,670) (8,279,300) 1,026,503
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts (payments) on loans
from insurance companies (1,860,632) 1,190,967 447,135
Purchase of treasury stock (2,165,801) (836,202) (1,755,426)
Dividends paid (4,550,796) (4,390,233) (7,203,047)
Payments on notes payable (108,282) (79,804) (151,232)
Proceeds from stock issuance 2,780,832 3,463,072 -0-
Stock issuance costs (40,881) (62,136) -0-
Net Cash Used In Financing
Activities (5,945,560) (714,336) (8,662,570)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,675,735 499,268 4,164,015
CASH AND CASH EQUIVALENTS
Beginning of Year 16,773,197 16,273,929 12,109,914
CASH AND CASH EQUIVALENTS
End of Year $19,448,932 $16,773,197 $16,273,929
</TABLE>
<TABLE>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C> <C>
NET INCOME 1996 1995 1994
Adjustments for Items
Included in Net Income $ 7,468,857 $ 6,717,950 $ 6,973,188
Not Providing or Using Cash:
Depreciation expense 1,172,430 1,083,853 984,501
Gain on sales of investments -0- -0- (1,380,492)
Loss on sales of property and
equipment 9,436 52,270 46,677
Decrease in deferred income
taxes due to operations (2,180,983) (1,567,734) (1,173,514)
Bad debt expense 2,380 11,787 5,901
Other Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Increase in commissions
receivable (354,355) (271,333) (66,085)
(Increase) decrease in other
various receivables 716,758 (822,611) 466,543
(Increase) decrease in
prepaid expenses (61,336) 5,726 4,041
Increase (decrease) in
accounts payable and
accrued expenses 1,400,502 (800,021) 3,782,789
Increase (decrease) in other
accrued liabilities (8,368) 71,892 (46,903)
Increase in Deferred Career
Commission Plan payable 4,841,644 5,011,125 2,203,436
NET CASH PROVIDED BY OPERATING
ACTIVITIES $13,006,965 $ 9,492,904 $11,800,082
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the years ended September 30, 1996, 1995 and 1994, IRA Inc. Issued
notes payable in the amounts of $1,216,648, $79,804 and $151,232,
respectively, to stockholders as consideration for the repurchase of their
stock by the Company.
The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND OPERATION
Independent Research Agency for Life Insurance, Inc. (IRA, Inc.) was
chartered in Texas in December 1980. The Company began operations in
March 1981 and is the continuation of a business formerly operated as
Independent Research Agency for Life Insurance, a Texas partnership.
IRA, Inc. acquired United Services Planning Association, Inc., a Texas
corporation (USPA), and Independent Research Agency for Life Insurance,
Inc., a Hawaii Corporation (IRA Hawaii), in March 1981. IRA, Inc.
organized Independent Research Agency for Life Insurance, Inc., a Wyoming
Corporation (IRA Wyoming), in April 1982; Independent Research Agency for
Life Insurance, Inc., a Montana Corporation (IRA Montana), in February
1983; Independent Research Agency (New York), Inc., a New York Corporation
(IRA New York), in September 1983; Independent Research Agency for Life
Insurance, Inc., a Nevada Corporation (IRA Nevada), in January 1988; and
Independent Research Agency for Life Insurance, Inc., an Alabama
Corporation (IRA Alabama), in June 1994.
The subsidiaries IRA Hawaii, IRA Wyoming, IRA Montana, IRA New York, IRA
Nevada and IRA Alabama are maintained solely to permit IRA, Inc. to do
business in those states.
IRA, Inc., IRA Hawaii, IRA Wyoming, IRA Montana, IRA New York, IRA Nevada
and IRA Alabama are engaged in the sale of life insurance to United States
professional military personnel. USPA is engaged in the sale of mutual
funds to United States professional military personnel as a broker-dealer
registered with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. The companies share common
employees, sales agents and representatives, and office facilities. Home
offices are located in Fort Worth, Texas. The companies' agents and
representatives maintain offices in approximately 145 cities located in
41 states, 1 U.S. territory and 2 foreign countries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of IRA, Inc. is presented
to assist in understanding IRA, Inc.'s financial statements. The
financial statements and notes are representations of IRA, Inc.'s
management who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IRA, Inc.
and its wholly-owned subsidiaries, USPA, IRA Hawaii, IRA Wyoming, IRA
Montana, IRA New York, IRA Nevada and IRA Alabama. All intercompany
accounts and transactions have been eliminated.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
RECOGNITION OF COMMISSIONS REVENUE
Commissions revenue on sales of insurance policies and mutual fund
investments by the Companies' sales agents are recognized when earned from
the insurance and mutual fund companies. Commissions are paid to the
Company usually monthly, as they are earned on investments made or
premiums paid by the individual investors and policyholders to the mutual
fund and insurance companies.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates.
DEPRECIATION
Depreciation of property and equipment is computed using the straight-line
method over the following estimated useful lives:
Estimated Lives
Buildings and improvements 7-40 years
Other property and equipment 3-10 years
Depreciation expense amounted to $1,172,430, $1,083,853, and $984,501 for
the years ended September 30, 1996, 1995 and 1994, respectively.
MARKETABLE SECURITIES
Nearly all of the investments of IRA, Inc. are in publicly traded mutual
funds. IRA, Inc. has classified these investments as available-for-sale
securities. Therefore, these securities are reported at fair value with
unrealized gains and losses excluded from earnings and reported net of
taxes as a separate component of stockholders' equity. Realized gains and
losses, determined by using the average cost method, are included in
earnings.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
includes Cash - Demand deposits and Cash - Money market mutual fund
accounts. The funds in the money market mutual fund accounts are with
various investment companies. The invested funds earn interest at
prevailing rates while on deposit and may be withdrawn on demand by check.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject IRA, Inc. to concentrations
of credit risk consist principally of temporary cash investments,
commissions receivable and marketable securities. IRA, Inc. places its
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
temporary cash investments and marketable securities with financial
institutions and investment companies. IRA, Inc. limits the amount of
credit exposure to any one company or institution. Concentrations of
credit risk with respect to commissions receivable are limited due to the
number of investment and insurance companies comprising IRA, Inc.'s
customer base. As of September 30, 1996, 1995 and 1994, IRA, Inc. had no
significant concentrations of credit risk.
EARNINGS PER SHARE
Earnings per share is calculated based on the weighted average of shares
outstanding during the period. For the years ended September 30, 1996,
1995 and 1994, the weighted average of shares outstanding were 937,224,
935,048, and 928,830, respectively.
AGENT LOANS AND ADVANCES
Agent loans and advances consist of both secured and unsecured
obligations. The majority of the loans relate to the purchase of computer
equipment and are secured by future commissions receivable. The book
value of the loans are considered to approximate fair value.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable income or deductions in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
RECLASSIFICATIONS
The accompanying financial statements for the years ended September 30,
1995 and 1994 reflect certain reclassifications to conform with
classifications adopted for the year ended September 30, 1996. These
reclassifications have no effect on net income or retained earnings as
previously reported.
NOTE 3 - MARKETABLE SECURITIES
As of September 30, 1996, 1995 and 1994, nearly all of the investment
securities of IRA, Inc. are in publicly traded mutual funds. At September
30, 1996, 1995 and 1994, the investment securities portfolio was comprised
of securities classified as available for sale in conjunction with the
adoption of Statement of Financial Accounting Standards (SFAS) No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS
No. 115 does not allow retroactive restatement and, therefore, the
investment securities portfolio at September 30, 1993, was carried at the
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 3 - MARKETABLE SECURITIES - Continued
lower of aggregate cost or market. The investment securities portfolio
at September 30, 1996, 1995 and 1994, is carried at market. The
cumulative effect on October 1, 1993 of adopting this accounting
principle was to increase stockholders' equity by $5,496,372.
The determination of classifying the marketable securities as either
current or noncurrent is based upon management's intention to liquidate
specific securities within one year. The aggregate cost and market values
of IRA, Inc.'s marketable securities as of September 30, 1996, 1995 and
1994, are as follows:
<TABLE>
<C> <C> <C> <C> <C>
1996 1995 1994
Total Marketable Securities
(At Cost) $35,763,923 $31,675,947 $27,073,227
Gross unrealized gains
- noncurrent portion 16,273,021 13,188,040 8,017,293
Gross unrealized losses
- noncurrent portion -0- (11,972) (42,980)
Net unrealized gains
- noncurrent portion 16,273,021 13,176,068 7,974,313
Total Marketable Securities
(At Market) $52,036,944 $44,852,015 $35,047,540
</TABLE>
Proceeds from sales of investment securities were $5,694,192 for the year
ended September 30, 1994. The realized gains on these sales amounted to
$1,380,492. There were no sales of investment securities for the years
ended September 30, 1996 and 1995. The average cost method is used to
determine the cost of each security at the time of sale.
The excess of market over cost of $16,273,021, $13,176,068 and $7,974,313
is reflected net of taxes in a separate component of stockholders' equity
as of September 30, 1996, 1995 and 1994 as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Net unrealized holding gain $16,273,021 $13,176,068 $7,974,313
Unrealized holding gain
designated to the
Deferred Career Commission Plan (1,310,294) (726,066) (86,859)
Tax effect reflected in deferred
taxes (5,087,327) (4,233,001) (2,678,752)
Unrealized Holding Gain
- Stockholders' Equity $ 9,875,400 $ 8,217,001 $5,208,702
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 3 - MARKETABLE SECURITIES - Continued
The net change in the unrealized holding gain as reflected in a separate
component of stockholders' equity as of September 30, 1996, 1995 and 1994
was calculated as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Realized gain on sales during
the year $ -0- $ -0- $(1,380,492)
Appreciation of value on
securities sold from beginning
of year to date of sale -0- -0- 37,569
Net unrealized gain for the year
on securities not sold 3,096,953 5,201,755 993,918
Net Increase (Decrease) in
Unrealized Holding Gains 3,096,953 5,201,755 (349,005)
Net Increase in Unrealized
Holding Gains on DCCP Investments (584,228) (639,207) (86,859)
Tax effect on Company designated
investments (854,326) (1,554,249) 148,194
Net Change in Unrealized Holding
Gains $1,658,399 $3,008,299 $ (287,670)
</TABLE>
NOTE 4 - LOANS FROM INSURANCE COMPANIES
Loans from insurance companies represent non-interest bearing loans from
four insurance companies which IRA, Inc. represents as general agent. The
amounts of the loans are adjusted monthly and are calculated to be equal
to the difference between the total amount of first year commissions on
certain insurance policies sold by IRA, Inc. and the amount of the first
year commissions earned by IRA, Inc. on the policies.
NOTE 5 - NOTES PAYABLE AND REVOLVING LINE OF CREDIT
As consideration for the repurchase of stock, IRA, Inc. issued notes
payable to some stockholders. As of September 30, 1996 there are notes
payable outstanding to three former stockholders. These notes payable
have interest rates ranging from 5.0% to 6.0% with maturity dates ranging
from January 2, 1997 to January 2, 1998. These notes payable are
unsecured. The principal payments on these notes payable are due as
follows:
<TABLE>
<C> <S>
Year Ended
September 30, Amount
1997 $ 613,716
1998 494,650
Total $1,108,366
</TABLE>
Based on borrowing rates currently available to IRA, Inc. For loans with
similar terms and maturities, the book value of notes payable as of
September 30, 1996 are considered to approximate fair value.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 5 - NOTES PAYABLE AND REVOLVING LINE OF CREDIT - Continued
During the year ended September 30, 1993 IRA, Inc. established a
$1,000,000, one year revolving line of credit. The revolving line of
credit has since been renewed on an annual basis. Bank advances on the
credit line are payable on or before December 31, 1996 and carry an
interest rate at the Bank's prime rate. The credit line is unsecured.
IRA, Inc. had not made any draws on the credit line during the years ended
September 30, 1996, 1995 and 1994.
NOTE 6 - COMMON STOCK
At September 30, 1996, 1995 and 1994, the common stock of IRA, Inc. is as
follows:
<TABLE>
<S> <C> <C>
Class A Class B
Voting rights Voting Non-Voting
Par value per share $0.10 $0.02
Number of shares authorized 1,000 100,000,000
Class A Class B
At September 30, 1996
Number of shares issued 100 2,786,435
Number of previously issued shares
repurchased and held as treasury stock 75 1,803,643
Number of shares outstanding 25 982,792
At September 30, 1995
Number of shares issued 100 2,786,435
Number of previously issued shares
repurchased and held as treasury stock 75 1,778,380
Number of shares outstanding 25 1,008,055
At September 30, 1994
Number of shares issued 100 2,786,435
Number of previously issued shares
repurchased and held as treasury stock 75 1,886,797
Number of shares outstanding 25 899,638
</TABLE>
STOCK ISSUANCE
During the year ended September 30, 1996, IRA, Inc. issued 104,700 shares
of Class B treasury stock at $26.56 per share. This provided total
proceeds of $2,780,832 of which $40,881 was used to pay stock issuance
costs. This increased additional paid-in capital by $2,737,857 and
decreased treasury stock by $2,094. During the year ended September 30,
1995, IRA, Inc. issued 147,742 shares of Class B treasury stock at $23.44
per share. This provided total proceeds of $3,463,072 of which $62,136
was used to pay stock issuance costs. This increased additional paid-in
capital by $3,397,981 and decreased treasury stock by $2,955.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 6 - COMMON STOCK - Continued
PURCHASE OF TREASURY STOCK
During the years ended September 30, 1996, 1995 and 1994, IRA, Inc.
repurchased a total of 129,963 shares, 39,325 shares, and 85,731 shares,
respectively, of its previously outstanding Class B common stock in
accordance with the terms of its stock agreements with shareholders. The
total cost of the stock repurchased was $3,382,449 for the year ended
September 30, 1996, $916,006 for the year ended September 30, 1995, and
$1,906,658 for the year ended September 30, 1994.
STOCK AGREEMENTS
All shares of IRA, Inc. are subject to agreements between the shareholders
and IRA, Inc. setting forth limitations of transferability and the rights
of IRA, Inc. to repurchase the stock. The provisions are summarized as
follows:
1. All shareholders must be at all times duly contracted agents
licensed to sell insurance in Texas.
2. In the event of a shareholder's death, or his desire to sell or
otherwise dispose of stock, the shareholder or the shareholder's
executor must offer such shares to IRA, Inc. IRA, Inc. will
repurchase such shares within ninety (90) days after receipt of
such notice at a price to be established at least annually by IRA,
Inc. IRA, Inc. will pay all cash for such shares, or may,
as determined by IRA, Inc. at its sole discretion, issue a note
as full or partial consideration for such repurchase.
3. Shares are restricted from encumbrance.
4. IRA, Inc. has the right, on thirty (30) days written notice to
stockholder, to repurchase that number of shares of common stock
from stockholder representing the shares in excess of five percent
of the Company's outstanding shares of common stock.
NOTE 7 - CASH DIVIDENDS
On December 1, 1995, a cash dividend of $4.50 per share ($4,550,796) was
paid by IRA, Inc. from retained earnings on its Class B common stock to
its shareholders of record as of September 30, 1995.
On December 1, 1994, a cash dividend of $4.88 per share ($4,390,233) was
paid by IRA, Inc. from retained earnings on its Class B common stock to
its shareholders of record as of September 30, 1994.
On December 1, 1993, a cash dividend of $7.31 per share ($7,203,047) was
paid by IRA, Inc. from retained earnings on its Class B common stock to
its shareholders of record as of September 30, 1993.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 8 - INCOME TAXES
Effective October 1, 1993, the Companies adopted SFAS No. 109, Accounting
for Income Taxes, which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and tax basis of assets and liabilities that will
result in taxable income or deductions in the future based on enacted tax
laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities. The provisions of SFAS No. 109 did not have a
significant impact on the Companies.
Certain items of income and expense are recognized in different years for
financial reporting and income tax purposes. Deferred income taxes are
provided in recognition of these temporary differences. The items
comprising the deferred tax balances as of September 30, 1996, 1995 and
1994 are as follows:
<TABLE>
<C> <C> <C> <C> <C>
1996 1995
Current Noncurrent Current Noncurrent
Asset Liability Asset Liability
Effect of tax accumulated
depreciation in excess
of book accumulated
depreciation $ $(1,352,380) $ $(1,240,047)
Sales meeting accrual 529,515 93,500 97,750
Portion of accrued
vacation 4,501 58,628
Deferred Career Commission
Plan accrual 4,508,833 3,083,883
Unrealized investment holding
gains (5,087,327) (4,233,001)
Deferred Tax Asset
(Liability) $534,016 $(1,930,874) $152,128 (2,291,415)
</TABLE>
<TABLE>
<C> <C>
1994
Current Noncurrent
Asset Liability
$ $(1,106,480)
486,495
46,865
1,738,307
(2,678,752)
$533,360 $(2,046,925)
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 8 - INCOME TAXES - Continued
Income tax at the federal statutory rate is reconciled to the Companies'
actual income tax expense for the years ended September 30, 1996, 1995 and
1994 as follows:
<TABLE>
<S> <C> <C> <C> <C>
1996 1995
Amount Percent Amount Percent
Tax at federal
statutory rate $3,845,909 34.0% $3,445,891 34.0%
Non-taxable income (180,936) (1.6) (131,496) (1.3)
Non-deductible expenses 75,578 0.7 83,395 0.8
Effect of marginal rates 77,192 0.7 -0- 0.0
Environmental tax 11,360 0.1 7,920 0.1
Other 13,536 0.1 11,314 0.1
Provision for Income
Taxes $3,842,639 34.0% $3,417,024 33.7%
</TABLE>
<TABLE>
<C> <C>
1994
Amount Percent
$3,581,645 34.0%
(71,039) (0.7)
46,363 0.5
4,617 0.0
9,900 0.1
(10,424) (0.1)
$3,561,062 33.8%
</TABLE>
The components of the provision for income taxes as of September 30, 1996,
1995 and 1994 are as follows:
1996 1995 1994
Current tax expense $5,439,394 $ 4,345,551 $ 4,647,717
Deferred tax benefit (1,596,755) (928,527) (1,086,655)
Provision for Income Taxes $3,842,639 $ 3,417,024 $ 3,561,062
For federal income tax purposes, IRA, Inc. and its subsidiaries have
elected to file separate income tax returns.
NOTE 9 - PROFIT SHARING PLAN
USPA has in effect a qualified, non-contributory employee Profit Sharing
Plan, which covers substantially all of the Company's employees. The
Profit Sharing Plan contribution expense for the years ended September 30,
1996, 1995 and 1994 amounted to $1,151,997, $1,041,671, and $1,038,863,
respectively, and is included on the accompanying statements of income
with general and administrative expenses.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 10 - DEFERRED CAREER COMMISSION PLAN
During the year ended September 30, 1993, IRA, Inc. established a Deferred
Career Commission Plan for the benefit of its sales agents. This is a
nonqualified plan under which commissions accrue for its sales agents
until their business relationship with the Company terminates. The sales
agents receive no paid commissions under this Plan prior to their
termination date. Commissions which are accrued are determined annually
based upon IRA, Inc.'s business needs. These accrued commissions payable
to the sales agents do not have any superior claims to the assets of IRA,
Inc. Deferred Career Commission Plan expense was $4,704,578, $4,390,805,
and $2,116,577 for the years ended September 30, 1996, 1995 and 1994,
respectively. This expense is included in commissions and agent expenses
on the accompanying statements of income. The Deferred Career Commission
Plan payable balances for each year are as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Commissions accrued to
Agents $ 4,015,737 $ 4,000,613 $2,012,415
Investment income on DCCP
designated investments 688,841 390,192 104,162
DCCP Expense 4,704,578 4,390,805 2,116,577
Unrealized holding gains
on DCCP designated
investments - See Note 584,228 639,207 86,859
Commissions paid to Agents (447,162) (18,887) -0-
Net Increase in DCCP
Payable 4,841,644 5,011,125 2,203,436
DCCP Payable - Beginning
of Year 10,219,423 5,208,298 3,004,862
DCCP Payable - End of
Year $15,061,067 $10,219,423 $5,208,298
Classification on the Balance Sheet:
Current $ 489,502 $ 423,114 $ -0-
Noncurrent $14,571,565 $ 9,796,309 $5,208,298
</TABLE>
NOTE 11 - SUBSEQUENT EVENTS - CASH DIVIDENDS
A cash dividend of $7.63 per share ($7,498,703) is to be paid on December
2, 1996 by IRA, Inc. from retained earnings on its Class B common stock
to its shareholders of record as of September 30, 1996.
PART II
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
There has been no Form 8-K filed within 24 months prior to the date of the
most recent financial statements reporting a change of accountants or
reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Identification - The following is a list in tabular form of all Company
Directors and Executive Officers as of December 1, 1996, providing their
names, ages and positions held as well as the period of time they have
served in each position. No arrangements or understandings exist between
any of these individuals and any other persons pursuant to which they have
been, or will be, selected as a Director or Executive Officer. The term
of office of all Executive Officers is one year. The term of office of
a Director is, under the Classified Board system of election adopted by
the Company in 1989, three years.
<TABLE>
<S> <C> <C> <S> <C>
Name Age Title - Time Served
Lamar C. Smith 49 Director (1983 - Present),Chairman
of the Board and Chief Executive
Officer (1992 - Present), President
and Chief Executive Officer (1991),
President and Chief Operating
Officer(1985 - 1991), Member of
Executive Committee of Board of
Directors(1985 - Present)
James L. Lanier 57 Director (1988 - Present), President
and Chief Operating Officer (1992 -
Present), Senior Vice President and
Director of Marketing (1990 - 1991),
Member of Executive Committee of
Board of Directors (1990 - Present),
Regional Vice President (1988 -
1989)
Howard M. Crump 50 Director (1990 - Present),Regional
Vice President (1990 - 1991), Senior
Vice President and Director of
Marketing (1992 - Present), Member
of Executive Committee of the
Board of Directors (1992 - Present)
William A. Dast 60 Director (1983 - Present), Senior
Vice President (1993 - Present),
Treasurer (1980 - Present), Member
of Executive Committee of Board of
Directors (1990 - Present)
Hal N. Craig 59 Director (1993 - Present), Vice
President and Director of Management
Information Systems (1992 - 1993),
Chief Information Officer (1994 -
Present)
Donaldson D. Frizzell 64 Director (1993 - Present) Vice
President and Director of
Investments(1992 - Present)
Charles B. Addison 59 Director (1992 - Present), Regional
Vice President (1992 - 1993)
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Identification - Continued
Name Age Title - Time Served
Jerry D. Gray 48 Vice President and Director of Client
Services (1988 - 1989), Director
(1990 - Present) and Regional Vice
President (1990 - 1993)
Clinton C. Hayes 46 Director (1992 - Present), Regional
Vice President (1992 - 1993)
David P. Thoreson 65 Director (1994 - Present), Regional
Vice President (1988 - 1993)
Frederic W. Watke 63 Director (1989 - Present), Regional
Vice President (1989 - 1993)
G. Norman Coder 58 Director (1983 - Present), Secretary
(1980 - Present)
William M. Breit 58 Vice President (1994 - Present) and
Director of Personnel and
Administration (1982 - Present)
Margaret L. Galda 51 Vice President (1995 - Present),
Director of Client Services (1994 -
Present) and Assistant Director
of Training (1992 - 1994)
Philip G. Loignon 58 Vice President (1995 - Present),
Director of Financial Programs
(1994 - Present) and Director of
Client Services (1992 - 1994)
Freda J. Payne 65 Director (1983 - Present) (1.)
Carroll H. Payne II 42 Director (1983 - Present) (1.)
Naomi K. Payne 38 Director (1983 - Present) (1.)
</TABLE>
(1.) Freda J. Payne is the widow of Carroll H. Payne, who was the father
of Carroll H. Payne II and Naomi K. Payne. There are no other
family relationships between any of the Directors and Executive
Officers of the Company or its subsidiaries.
B. Business Experience - The following is a brief description of the
business experience of each Director and Executive Officer during the
past five years:
Lamar C. Smith - Having previously been an agent, District Agent, Regional
Vice President*, Senior Vice President and Director of Marketing, Mr.
Smith was elected President and Chief Operating Officer of the Company in
December 1985, and became President and Chief Executive Officer in
December 1990, in which capacities he served until January 1992 at which
time he became Chairman of the Board and Chief Executive Officer, in which
positions he continues to serve.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
B. Business Experience - Continued
James N. Lanier - Mr. Lanier became an agent of the Company in 1983, a
District Agent in 1986, an Assistant Regional Agent in 1987, and in 1988
he was elected a Director and Regional Vice President. In January 1990
he became Senior Vice President and Director of Marketing, in which
positions he served until January 1992 at which time be became President
and Chief Operating Officer, in which positions he continues to serve.
Howard M. Crump - Having been an agent and District Agent, Mr. Crump was
appointed Assistant Regional Agent in 1983 and became Regional Agent in
January 1990. Mr. Crump was elected Director and Regional Vice President
in April 1990, in which capacities he served until January 1992 when he
became Senior Vice President and Director of Marketing, in which positions
he continues to serve.
William A. Dast - Mr. Dast has been the Company's Treasurer since its
creation (1980). He has been on its Board of Directors since 1983. He
became Senior Vice President in 1993.
Hal N. Craig - Having previously been an agent, and Director of
Programming, Mr. Craig became the Director of Insurance Services in 1988.
In 1990 Mr. Craig became the Director of Management Information Systems
and was elected Vice President effective January 1992. He was elected a
Director effective January 1, 1993. He became Chief Information Officer
in 1994.
Donaldson D. Frizzell - Having previously been an agent, Mr. Frizzell
became Director of Investments in 1984 and was elected a Vice President
effective January 1992. He continues to serve in these capacities. He
was elected a Director effective January 1, 1994.
Charles B. Addison - Having previously been an agent and District Agent,
Mr. Addison became an Assistant Regional Agent in 1990. Effective January
1992 Mr. Addison was elected Director and Regional Vice President, in
which capacities he served through 1993. In 1994 he was reelected a
Director.
Jerry D. Gray - Having previously been an agent and District Agent, Mr.
Gray became an Assistant Regional Agent in 1982, and was elected a
Director and Regional Vice President in 1986, in which capacities he
served until 1988, at which time he was elected a Vice President and
became the Director of Client Services. Beginning in 1990, he was
reelected a Director and Regional Vice President, in which capacities he
served through 1993. In 1994 he was reelected a Director.
Clinton C. Hayes - Having previously been an agent and District Agent, Mr.
Hayes became an Assistant Regional Agent in 1988 in which position he
served until October 1992 when he became a Regional Agent. Mr. Hayes was
elected a Director and Regional Vice President effective December 1992,
in which capacities he served through 1993. In 1994 he was reelected a
Director.
David P. Thoreson - Having previously been an agent and District Agent,
Mr. Thoreson became a Regional Agent in 1988 and was elected a Director
in 1994, in which capacities he continues to serve.
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
B. Business Experience - Continued
Frederic W. Watke - Mr. Watke became an agent in 1980, and a District
Agent in 1982. In 1986, he was appointed an Assistant Regional Agent.
In 1989, he was elected a Director and Regional Vice President, in which
capacities he served through 1993. In 1994 he was reelected a Director.
G. Norman Coder - Mr. Coder has been the Company's Secretary since its
creation (1980). He has been on its Board of Directors since 1983.
William M. Breit - Having previously been an agent, Mr. Breit became
Director of Personnel and Administration in 1982 and was elected Vice
President effective December, 1994, and continues to serve in these
positions.
Margaret L. Galda - Having previously been an agent and District Agent,
Ms. Galda became Assistant Director of Training in 1992. In 1994, Ms.
Galda became Director of Client Services and was elected Vice President
effective July, 1995, and continues to serve in these positions.
Philip G. Loignon - Having previously been an agent and District Agent,
Mr. Loignon became Director of Client Services in 1992. In 1994, Mr.
Loignon became Director of Financial Programs and was elected Vice
President effective December, 1994, and continues to serve in these
positions.
Freda J. Payne - Mrs. Payne became a member of the Board of Directors in
1983 and continues to serve in this capacity. Mrs. Payne has been
principally engaged in overseeing family investments for the past five
years.
Carroll H. Payne II - Mr. Payne was elected a Director in 1983 and
continues to serve in this capacity. An established Architect, he was
principally employed as such by Albert S. Komatsu and Associates, Fort
Worth, Texas From 1984 and 1988 and is currently self-employed.
Naomi K. Payne - Ms. Payne was elected a Director in 1983, and continues
in that capacity. During the past five years, she has been primarily
engaged in working with, and coordinating assistance for, deaf and
otherwise handicapped students through various agencies and institutions
dedicated to such students.
Messrs. Smith, Lanier, Crump, and Dast also serve on the Executive
Committee of the Company's Board of Directors and Boards of Directors of
various subsidiaries of the Company, particularly of United Services
Planning Association, Inc. (USPA), the Company's major subsidiary. All
of the Company's Executive Officers serve in the same capacities for USPA.
* Called "Field Vice President" in 1982.
C. Involvement In Certain Legal Proceedings - None of the Directors or
Executive Officers of the Company have been during the past five years,
nor are currently, involved in any regulatory, or civil or criminal
court proceedings of any kind.
Part III
ITEM 11 - EXECUTIVE COMPENSATION
A. Cash Compensation
The following Summary Compensation Table sets forth the cash compensation
and certain other components of the compensation of the Chief Executive
Officer and the other four most highly compensated executive officers of
the Company in fiscal year 1996.
<TABLE>
<S> <C> <C> <C> <S> <C>
Summary Compensation Table
Name and Fiscal Annual Cash Compensation All Other
Principal Position Year Salary Bonus Other Compensation
(1)
Lamar C. Smith 1996 $398,666 $170,000 ----- $22,500
Chairman of the 1995 386,399 160,000 ----- 30,000
Board and Chief 1994 358,334 150,000 ----- 30,000
Executive Officer
James N. Lanier 1996 306,242 133,000 ----- 22,500
President and Chief 1995 297,114 121,000 ----- 30,000
Operating Officer 1994 273,105 115,000 ----- 30,000
Howard M. Crump 1996 266,583 104,000 ----- 22,500
Senior Vice President 1995 257,339 95,000 ----- 30,000
and Director of 1994 236,341 87,000 ----- 30,000
Marketing
William A. Dast 1996 173,112 93,000 ----- 22,500
Senior Vice President 1995 167,760 85,000 ----- 30,000
and Treasurer 1994 151,786 80,000 ----- 30,000
G. Norman Coder 1996 142,582 66,000 ----- 22,500
Counsel and Secretary 1995 137,430 64,000 ----- 29,829
1994 124,320 62,000 ----- 27,312
</TABLE>
(1) - Contribution paid on the employee's behalf into a profit sharing
retirement plan. See B. below.
B. Compensation Pursuant to Plans
A profit sharing retirement plan exists for employees of the Company's
subsidiary, USPA, under the terms of which up to fifteen percent (15%) of
annual compensation, or $30,000 ($22,500 for Plan year beginning November
1, 1994), whichever is less, is contributed and held in trust for such
employees until termination of employment, retirement or death/disability.
During the Company's fiscal year ending September 30, 1996, the cash
contribution to this plan on behalf of the highly compensated executive
officers was limited to $22,500, and $112,500 was contributed on behalf
of these Executive Officers as a group. No stock option plans exist or
are contemplated as to the Company's stock.
C. Other Compensations
No other compensation not covered by the immediately preceding paragraphs
such as personal benefits, securities, or property, was paid or
distributed during the Company's fiscal year ending September 30, 1996,
to the individuals named or identified as members of the group above,the
Part III
ITEM 11 - EXECUTIVE COMPENSATION - Continued
C. Other Compensations - Continued
aggregate amount of which, as to any of such individuals, was either the
lesser of $50,000 or ten percent (10%) of the cash compensation described
above.
D. Compensation of Directors
Directors currently receive a fee of $750 for attendance at a meeting of
the Board of Directors. During the Company's fiscal year ending September
30, 1996, a total of $31,500 was paid by the Company to its Directors.
No fees are paid for serving as a Director of a subsidiary of the Company.
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1996, the number of
shares of Class A voting common stock and Class B non-voting common stock
and the percentage of outstanding shares of each class owned of record by
each person who beneficially owns more than five percent of a class of
common stock, by each Executive Officer and Director of the Company, and
by all Executive Officers and Directors as a group.
<TABLE>
<C> <S> <C> <C>
Name and Address Title of Amount and Nature of Percent of
of Beneficial Owner Class Beneficial Ownership Class
Freda J. Payne
6812 Riverdale Class A 3 shares 12.00
Fort Worth, TX 76132 Class B 46,977 shares 4.78
Carroll H. Payne II
5763 Glenwillow Court Class A 3 shares 12.00
Fort Worth, TX 76132 Class B 46,977 shares 4.78
Debra S. Payne
12900 Preston Road,
Ste. 500 Class A 3 shares 12.00
Dallas, TX 75230 Class B 46,528 shares 4.73
Naomi K. Payne
6812 Riverdale Class A 3 shares 12.00
Fort Worth, TX 76132 Class B 46,977 shares 4.78
Lamar C. Smith
6245 Locke Avenue Class A 2 shares 8.00
Fort Worth, TX 76116 Class B 36,000 shares 3.66
James N. Lanier
3500 Bellaire Park Ct. Class A 1 share 4.00
Fort Worth, TX 76109 Class B 14,000 shares 1.42
Howard M. Crump
3458 Bellwood Court Class A 1 share 4.00
Fort Worth, TX 76109 Class B 22,000 shares 2.24
Part III
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- Continued
Name and Address Title of Amount and Nature of Percent of
of Beneficial Owner Class Beneficial Ownership Class
William A. Dast
9129 Timber Oaks Drive Class A 1 share 4.00
Fort Worth, TX 76179 Class B 14,385 shares 1.46
Hal N. Craig
4429 Dunwick Ln. Class A 1 share 4.00
Fort Worth, TX 76109 Class B 5,000 shares .51
Donaldson D. Frizzell
6920 Tumbling Trail Class A 1 share 4.00
Fort Worth, TX 76116 Class B 6,500 shares .66
Charles B. Addison
2501 Oakhill Circle Class A 1 share 4.00
#1911 Class B 8,500 shares .87
Fort Worth, TX 76109
Jerry D. Gray
519 N. Mur-len Class A 1 share 4.00
Olathe, KS 66062 Class B 18,500 shares 1.88
David P. Thoreson
2016 Empire Mine Cir. Class A 1 share 4.00
Rancho Cordova, CA 95670 Class B 26,350 shares 2.68
Frederic W. Watke
2600 Peachtree Rd. #9 Class A 1 share 4.00
Atlanta, GA 30305 Class B 16,500 shares 1.68
Clinton C. Hayes
792 Coverdale Court Class A 1 share 4.00
Virginia Beach, VA 23452 Class B 16,750 shares 1.71
G. Norman Coder
4016 Edgehill Rd. Class A 1 share 4.00
Fort Worth, TX 76116 Class B 22,647 shares 2.31
William M. Breit
5059 Spring Meadow Ct.
Fort Worth, TX 76132 Class B 2,700 shares .27
Margaret L. Galda
4750 Bellaire Dr.
Fort Worth, TX 76109 Class B 4,200 shares .43
Philip G. Loignon
6504 Riverbend Road
Fort Worth, TX 76132 Class B 5,200 shares .53
</TABLE>
Part III
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- Continued
<TABLE>
<S> <C> <C>
Name and Address Title of Amount and Nature of Percent of
of Beneficial Owner Class Beneficial Ownership Class
All Significant Class A 25 shares 100.00
Owners, Executive Class B 406,691 shares 41.38
Officers and Directors
as a Group (19 persons)
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. In August 1996, pursuant to the offering of the Company's stock under
a registration statement on Form S-1, effective July 1, 1996, 17,200
shares of the Class B non-voting common stock ofthe Company were issued
to individuals who were either Officers and/or Directors of the Company
during the year ended September 30, 1996 for the total consideration
of $456,832 ($26.56 per share). A total of 104,700 shares of Class B
non-voting common stock of the Company were sold during the offering
for the total consideration of $2,780,832 ($26.56 per share).
In May 1995 pursuant to the offering of the Company's stock under a
registration statement on Form S-1, effective February, 1995, 31,742
shares of the Class B non-voting common stock of the Company were
issued to individuals who were either Officers and/or Directors of the
Company during the year ended September 30, 1995 for the total con-
sideration of $744,032 ($23.44 per share). A total of 147,742 shares
of Class B non-voting common stock of the Company were sold during the
offering for the total consideration of $3,463,072 ($23.44 per share).
B. During the years ended September 30, 1996, 1995, and 1994, -0- shares,
-0- shares, and 36,856 shares, respectively, of the Class B non-voting
common stock were repurchased by the Company from then current Officers
and/or Directors under the terms of the Stock Agreements with such
persons for the total consideration of $-0-, $-0- and $819,677,
respectively. A total of 129,963 shares, 39,325 shares and 85,731
shares, respectively, of Class B non-voting common stock were repur-
chased by the Company from all persons under the terms of the Stock
Agreements with such persons during such periods for the total
consideration of $3,382,449, $916,006 and $1,906,658, respectively.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a)(1) The following financial statements are
included in Part II, Item 8:
Report of Independent Certified Public Accountants . . . . . 12
Consolidated Balance Sheets - September 30, 1996, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Consolidated Statements of Income - Years ended
September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . 15
Consolidated Statements of Changes in Stockholders'
Equity - Years ended September 30, 1996, 1995 and 1994. . . 16
Consolidated Statements of Cash Flows - Years ended
September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . . . . . 20
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Independent Research Agency for Life Insurance, Inc. has no unconsolidated
subsidiaries, no 50% or less owned companies accounted for by the equity
method, no consolidated majority owned subsidiaries engaged in diverse
financial activities, and no affiliates whose securities are pledged as
collateral.
(a)(3) Exhibits included herein:
Exhibit 3 - Articles of Incorporation and Bylaws
Incorporated herein by reference to Exhibit 3.a.
and 3.b. in the Registrant's Form S-1 Registra-
tion Statement filed July, 1996.
Exhibit 10 - Material contracts
(a) Stock Agreement - Payne Family
(b) Stock Agreement - Agents
Incorporated herein by reference to Exhibit 10
in the Registrant's Form S-1 Registration
Statement filed July, 1996.
Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . 42
PART IV
EM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- Continued
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Registrant
during the three months ended September 30, 1996.
FORM 10-K
ITEM 14(A)(3)
EXHIBITS
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
% Owned
United Services Planning Association, Inc. (Texas) 100%
Independent Research Agency for Life Insurance, Inc. (Hawaii) 100%
Independent Research Agency for Life Insurance, Inc. (Wyoming) 100%
Independent Research Agency for Life Insurance, Inc. (Montana) 100%
Independent Research Agency for Life Insurance, Inc. (New York) 100%
Independent Research Agency for Life Insurance, Inc. (Nevada) 100%
Independent Research Agency for Life Insurance, Inc. (Alabama) 100%
</TABLE>
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:
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
<TABLE>
<S> <C> <S> <C>
By /S/ Lamar C. Smith By /S/ William A. Dast
Lamar C. Smith William A. Dast
Chairman of the Board and Chief Senior Vice President,
Executive Officer and Director Treasurer and Director
(Duly Authorized Officer) (Principal Financial
and Accounting Officer)
Date: 12/19/96 Date: 12/19/96
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:
Signature Title Date
/S/ James N. Lanier President and Director 12/18/96
James N. Lanier
/S/ Howard M. Crump Senior Vice President 12/18/96
Howard M. Crump and Director
/S/ Donaldson D. Frizzell Vice President 12/19/96
Donaldson D. Frizzell and Director
/S/ Hal N. Craig Vice President 12/19/96
Hal N. Craig and Director
/S/ Carroll H. Payne II Director 12/20/96
Carroll H. Payne II
/S/ G. Norman Coder Secretary and Director 12/19/96
G. Norman Coder
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 19,448,932
<SECURITIES> 52,036,944
<RECEIVABLES> 3,883,240
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,926,327
<PP&E> 19,907,089
<DEPRECIATION> 7,292,895
<TOTAL-ASSETS> 88,869,932
<CURRENT-LIABILITIES> 27,742,525
<BONDS> 16,998,700
<COMMON> 55,739
0
0
<OTHER-SE> 43,892,968
<TOTAL-LIABILITY-AND-EQUITY> 88,689,932
<SALES> 116,632,069
<TOTAL-REVENUES> 120,695,546
<CGS> 86,309,517
<TOTAL-COSTS> 109,040,366
<OTHER-EXPENSES> 277,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,100
<INCOME-PRETAX> 11,311,496
<INCOME-TAX> 3,842,639
<INCOME-CONTINUING> 7,468,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,468,857
<EPS-PRIMARY> 8
<EPS-DILUTED> 8
</TABLE>
