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, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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:
Class B Nonvoting Common Stock
(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, 1997, 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, 1997, the following number of shares of common stock were
outstanding:
Class A - Voting $ .02 par - 25
Class B - Non-Voting $ .02 par - 996,680
DOCUMENTS INCORPORATED BY REFERENCE
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,
1997
Total number of pages, including cover page - 44
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. . . . . . . . .33
PART III
Item 10. Directors and Executive Officers of the Registrant. . . .34
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . .37
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . .38
Item 13. Certain Relationships and Related Transactions. . . . . .40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 41
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. Additionally, the Company formed a de
novo federal savings bank during 1997 to generate commercial and consumer
loans and receive deposits primarily from clients of the Company and its
subsidiaries. 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.
On March 21, 1997, the Company formed a wholly-owned subsidiary, "First
Command Bank", a federal savings bank (the "Bank"). The Bank began
operations on April 21, 1997.
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 ten 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 five 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
increased to $15,842,192 as of September 30, 1997 from $10,458,853 as of
September 30, 1996, due to a shift in sales of policies from carriers with
whom the Company does 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, 1997, 1996, and 1995 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 $77,158,888 (63%), $72,975,873 (63%), and $69,165,124
(64%), 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 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
PART I
ITEM 1 - BUSINESS - Continued
Investment Sales Operations - Continued
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, 1997, 1996 and
1995, commissions earned on the sale of shares of mutual funds and the
percentage thereof of total commission revenue (shown parenthetically) were
$45,170,713 (37%), $43,656,196 (37%), and $39,278,686 (36%) respectively.
(Total commission revenue represents gross revenue before deduction of
commissions to registered representatives/agents and other expenses of
operation.)
Banking Operations
The Company has established First Command Bank (the "Bank"), a federal
savings bank, to offer consumer banking products and services to the
Company's clients. As a federally chartered savings association, the Bank is
subject to the primary supervision of the Office of Thrift Supervision. The
Bank was formed on March 21, 1997, and was approved to accept deposits and
commence operations on April 21, 1997. The Bank is a wholly-owned subsidiary
of the Company and has been initially capitalized by the Company for $6
million which was drawn from current liquid assets of the Company. For the
period ended September 30, 1997, the Bank had net interest income after
provision for loan losses of $48,095.
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 Company offers consumer banking products and services to its
clients through First Command Bank. 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 1997 was 623. As of
September 30, 1997 the Company had 665 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 1997, the Company's sales efforts resulted in over 47,382
life insurance applications being filed with new coverage exceeding $3.7
billion. Total insurance in force now exceeds $29.8 billion. In addition,
during fiscal year 1997, nearly 57,087 mutual fund applications were
processed. These applications have a face value of $1.12 billion. The
Company's clients now have more than $11.9 billion invested in mutual funds.
The Company, through the Bank, opened approximately 2,600 customer deposit
accounts for over $13 million and originated over 1,000 customer loans for
over $17 million.
PART I
ITEM 1 - BUSINESS - Continued
Regulation and Competition
The insurance, securities and banking 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 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. The Company's federal savings
bank operations, which were established to provide consumer banking products
and services to the Company's clients, are subject to the primary supervision
of the Office of Thrift Supervision.
Competition is keen in the life insurance, securities and consumer banking
businesses. 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.
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 and the Bank,
for which it reimburses them. USPA employs approximately three hundred and
eight (308) people full time at present, whose functions are administrative
and sales supportive. The Bank presently employs fourteen (14) people to
service its current customers. All insurance and mutual fund sales by the
Company and USPA are made by independent contractor agents, of which there
are approximately six hundred and sixty-five (665).
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 4%) 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
the Company's Director of Training. Monthly rent is currently paid to the
Company for that portion of such residence personally used by this employee.
The rent paid 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
PART I
ITEM 2 - PROPERTIES - Continued
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
During the ordinary course of business the Company is subject to litigation
from a number of areas. Currently, the Company is involved in one law suit
filed after the end of its fiscal year, which management believes is without
merit and has a very low probability of loss.
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, 1997, the Company had 14 stockholders of record of its
Class A - voting common stock, and 535 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, 1996 and 1997 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> <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
September 30, 1997 December 1, 1997 7.73
</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, 1993 through 1997. 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,
1997 1996 1995 1994 1993
Income Statement Data:
Commissions Revenue $122,329,601 $116,632,069 $ 108,443,810 $100,491,633 $93,767,954
Bank Operations 58,458 -0- -0- -0- -0-
Operating Expenses (113,528,791) (109,040,366) (102,510,314) (93,421,636) (86,224,269)
Operating Income 8,859,268 7,591,703 5,933,496 7,069,997 7,543,685
Other Income 5,216,114 3,719,793 4,201,478 3,464,253 3,280,284
Income before Income
Taxes 14,075,382 11,311,496 10,134,974 10,534,250 10,823,969
Income Taxes (4,639,886) (3,842,639) (3,417,024) (3,561,062) (3,567,212)
Net Income $ 9,435,496 $ 7,468,857 $ 6,717,950 $ 6,973,188 $ 7,256,757
Earnings Per Share $ 10.06 $ 7.97 $ 7.18 $ 7.51 $ 7.65
Cash Dividends
Declared $ 7.73 $ 7.63 $ 4.50 $ 4.88 $ 7.31
Balance Sheet Data:
Working Capital
(Deficit) $ (9,534,501) $ (3,816,198) $ (5,876,390) $ (6,577,744) $ (2,510,885)
(1)Loans from Insurance
Companies (Included in 15,842,192 10,458,853 12,319,485 11,128,518 10,681,383
working capital)
Bank Assets 22,062,980 -0- -0- -0- -0-
Total Assets 125,896,308 88,689,932 79,634,999 66,095,600 54,590,033
Bank Liabilities 13,437,520 -0- -0- -0- -0-
Long-Term Obligations 25,127,512 16,998,700 12,376,835 7,256,834 3,006,623
Stockholders' Equity 53,936,083 43,948,707 40,014,745 32,193,799 29,121,614
(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, 1997, 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, 1997 increased 4.9% to $122,329,60
from $116,632,069 recorded during the year ended September 30, 1996. This
compares to a 7.6% increase from fiscal year 1995 to 1996. After factoring
in the recent low inflation rates, the increase in commission revenue of 4.9%
is 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.
First Command Bank commenced operations on April 21, 1997. Through strong
loan and deposit growth combined with an initial capitalization of $6 million
from IRA, Inc., net interest income totaled $308,295. This income was
partially offset by a $260,200 provision for loan losses on loans funded
during the period.
The overall growth in commission revenue occurred at a higher rate for
insurance sales than it did for mutual fund sales. During the past fiscal
year commission revenue for insurance sales increased 5.7% to $77,158,888 and
commission revenue for mutual fund sales increased 3.5% to $45,170,713. The
percentage increases from fiscal year 1995 to 1996 were 5.5% and 11.1%,
respectively, for insurance and mutual fund sales.
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, 1997 and 1996 increased 1.7% and 7.2%, respectively, in the
aggregate. Generally, in the past there has been a constant relationship
between commission revenues and commission and agent expenses. The growth of
insurance commission revenues have occurred more from trail commissions than
from first-year commissions. Agents are generally only paid commissions
during the first year following a sale.
It is very likely that this trend of a decrease in the percentage growth of
commissions and agent expenses will continue due to the growing proportion of
the future increase in commission revenue resulting from trail commissions.
The Company receives reduced commissions for several years subsequent to the
actual sale, whereas the agents are generally paid commissions for only
twelve months after a sale. Therefore, commissions and agent expenses could
continue to decrease in relation to commission revenue.
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Results of Operations - Continued
General and administrative expenses for the years ended September 30, 1997
and 1996 increased $2,988,813 or 13.1% and $728,499 or 3.3%, respectively,
over their prior years. The increase from 1995 to 1996 is considered a
general inflationary increase. The increase from 1996 to 1997 is primarily
due to costs involved in the redesign of field and home office software.
This redesign will result in improved efficiencies in both personnel and
computer hardware costs in the future. In addition, start-up costs
associated with First Command Bank and general inflationary factors
contributed to higher operating costs.
The total of other income for the year ended September 30, 1997 increased
$1,496,321 to $5,216,114. The total of other income for the year ended
September 30, 1996 increased $481,685 from the prior year. These
fluctuations of other income are mainly due to 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, 1997, 1996 and 1995 income before income taxes has been 11.5%, 9.7% and
9.3% 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 new first year insurance
commission loans. The Company had a ratio of current assets to current
liabilities of .71 to 1 and .86 to 1 at September 30, 1997 and 1996,
respectively. The current ratios when excluding the loans from insurance
companies balances are 1.36 to 1 and 1.38 to 1, respectively.
The Company had a net increase of $4,186,974 in cash and cash equivalents
from the prior year. As reflected in the statement of cash flows, net cash
provided by operating activities continued to remain strong. An additional
source of increased cash flows came from loans from insurance companies.
The Company has land adjacent to its current headquarters which is intended
to be used as a site for the construction of an additional office building
and parking garage. The Company estimates that it will need $20,000,000 of
capital for the construction of this additional office facility for the Home
Office. 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.
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Liquidity and Financial Resources - Continued
From its inception, the Company has purchased the Company stock owned by
agents and employees when their active association with the Companies ended.
During the years ended September 30, 1997 and 1996 the Company redeemed
78,485 shares and 129,963 shares, respectively. The Company will continue
this policy so as to limit stock ownership to those actively involved in the
business.
During the years ended September 30, 1997 and 1996, 149,050 and 104,700
shares of Class B, non-voting common stock were issued from Treasury Stock at
$27.04 and $26.56 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 are 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 21% and 19% for 1997 and 1996, 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 should meet normal
financing requirements. The Company's future building expansion may be
partially debt financed due to the current low interest rate environment.
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, 1997,
1996 and 1995 and for the years ended September 30, 1997, 1996 and 1995 are
presented in accordance with Regulation S-X and in conformity with generally
accepted accounting principles, as required. Independent Research Agency for
Life Insurance, Inc. is subject to the reporting requirements of Section
13(a) of the Securities Exchange Act of 1934. The Company is subject to the
informational reporting requirements of Section 13(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") as a result of filing
a registration statement pursuant to Section 12(g) of the Securities Exchange
Act of 1934 (which became effective on January 24, 1997) with respect to the
Company's Class B Non-Voting Common Stock, which was held of record by
greater than 500 shareholders at the Company's fiscal year end on September
30, 1996 and in accordance therewith files periodic and current reports and
other information with the Securities and Exchange Commission (the
"Commission"). Prior to the effectiveness of such registration statement,
the Company was subject to the informational reporting requirements of
Section 15(d) of the Exchange Act.
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, 1997, 1996 and 1995. . . . . 13
Consolidated Statements of Income - Years ended September 30, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statements of Changes In Stockholders' Equity - Years
ended September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 18
Consolidated Statements of Cash Flows - Years ended September 30,
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 23
November 5, 1997
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,
1997, 1996 and 1995, 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,
1997, 1996 and 1995, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with generally
accepted accounting principles.
BRANTLEY, FRAZIER, ROGERS & COMPANY, P.C.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997, 1996 AND 1995
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS 1997 1996 1995
Cash - Demand deposits $ 289,074 $ 659,899 $ 454,159
Cash - Money market mutual
fund accounts - Note 2 18,735,189 18,789,033 16,319,038
Commissions receivable - Note 2 3,003,639 2,671,831 2,319,856
Agents' loans and advances
- Note 2 493,891 745,189 940,067
Accounts receivable - Customers
- Note 2 54,499 -0- 115,000
Accounts receivable - Other
- Note 2 266,746 79,641 643,179
Income taxes receivable - Note 8 744,881 336,579 374,799
Prepaid expenses 83,396 110,139 48,803
Deferred income taxes - Note 8 189,377 534,016 152,128
Total Current Assets 23,860,692 23,926,327 21,367,029
PROPERTY AND EQUIPMENT - At Cost - Note 2
Land 3,528,333 3,528,333 3,528,333
Office building 9,568,786 9,403,496 9,383,158
Other buildings and improvements 131,746 131,746 131,746
Office/computer equipment and
furniture 7,065,463 6,543,017 6,393,679
Automobiles 262,187 300,497 295,218
Construction in progress 19,113 -0- -0-
Total Property and Equipment 20,575,628 19,907,089 19,732,134
Less: Accumulated depreciation (8,429,667) (7,292,895) (6,428,646)
Net Property and Equipment 12,145,961 12,614,194 13,303,488
FIRST COMMAND BANK ASSETS
Cash and cash equivalents - Note 2 4,611,643 -0- -0-
Loans, net of allowance for loan
losses of $260,200 - Note 2 and 11 17,098,580 -0- -0-
Premises and equipment, net of
accumulated depreciation of $27,619
- Note 2 203,776 -0- -0-
Accrued interest receivable 118,639 -0- -0-
Other assets 30,342 -0- -0-
Total First Command Bank Assets 22,062,980 -0- -0-
OTHER ASSETS
Marketable securities at market
value - Notes 2 and 3 67,714,208 52,036,944 44,852,015
Memberships 62,467 62,467 62,467
Notes receivable - Other 50,000 50,000 50,000
Total Other Assets 67,826,675 52,149,411 44,964,482
TOTAL ASSETS $125,896,308 $88,689,932 $79,634,999
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES 1997 1996 1995
Accounts payable $ 597,578 $ 423,714 $ 486,402
Accrued commissions payable 2,970,067 2,758,258 2,533,614
Accrued bonuses payable 10,232,017 9,959,319 9,210,740
Accrued contribution payable to
employees' Profit Sharing Plan
- Note 10 993,511 1,058,617 941,601
Income taxes payable - Note 8 -0- 4,981 626,927
Deferred Career Commission Plan
payable - Note 9 1,156,257 489,502 423,114
Accrued sales meeting expense 543,750 1,557,397 275,000
Other accrued liabilities 465,171 418,168 426,536
Notes payable - Note 5 594,650 613,716 -0-
Loans from insurance companies
- Note 4 15,842,192 10,458,853 12,319,485
Total Current Liabilities 33,395,193 27,742,525 27,243,419
LONG-TERM OBLIGATIONS
Accrued sales meeting expense and
other 395,110 1,611 289,111
Notes payable - Note 5 -0- 494,650 -0-
Deferred Career Commission Plan
payable - Note 9 20,557,266 14,571,565 9,796,309
Deferred income taxes - Note 8 4,175,136 1,930,874 2,291,415
Total Long-Term Obligations 25,127,512 16,998,700 12,376,835
FIRST COMMAND BANK LIABILITIES
Deposits - Note 12 13,292,748 -0- -0-
Accrued interest payable 22,171 -0- -0-
Other liabilities 122,601 -0- -0-
Total First Command Bank
Liabilities 13,437,520 -0- -0-
COMMITMENTS AND CONTINGENCIES - Note 13 and 16
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 4,708,239 2,830,260 3,472,253
Retained earnings - Notes 7, 14
and 17 33,160,181 31,223,388 28,305,327
Unrealized holding gains - Note 3 16,046,593 9,875,400 8,217,001
Treasury stock - Class A Common,
at par - Note 6 (8) (8) (8)
Treasury stock - Class B Common,
at par - Note 6 (34,661) (36,072) (35,567)
Total Stockholders' Equity 53,936,083 43,948,707 40,014,745
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY $125,896,308 $88,689,932 $79,634,999
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<S> <C> <C> <C>
COMMISSIONS REVENUE 1997 1996 1995
Insurance sales $ 77,158,888 $ 72,975,873 $ 69,165,124
Mutual fund sales 45,170,713 43,656,196 39,278,686
Total Commissions Revenue 122,329,601 116,632,069 108,443,810
FIRST COMMAND BANK OPERATIONS
Interest income on loans 261,685 -0- -0-
Interest income on cash
equivalents 165,083 -0- -0-
Interest expense on deposits (118,473) -0- -0-
Provision for loan losses - Note 11 (260,200) -0- -0-
Other fee income 10,363 -0- -0-
Total First Command Bank Operations 58,458 -0- -0-
OPERATING EXPENSES
Commissions and agent expenses
- Note 9 (87,809,129) (86,309,517) (80,507,964)
General and administrative
expenses - Note 10 (25,719,662) (22,730,849) (22,002,350)
Total Operating Expenses (113,528,791) (109,040,366) (102,510,314)
INCOME FROM OPERATIONS 8,859,268 7,591,703 5,933,496
OTHER INCOME (EXPENSES)
Interest income 914,929 846,607 777,897
Investment income - Including net
gains on sales of investments
- Note 3 4,749,604 3,216,870 3,616,571
Net rental and other expense (385,791) (268,148) (116,795)
Interest expense (61,304) (66,100) (23,925)
Loss on sales of property and
equipment (1,324) (9,436) (52,270)
Total Other Income 5,216,114 3,719,793 4,201,478
INCOME BEFORE INCOME TAXES 14,075,382 11,311,496 10,134,974
PROVISION FOR INCOME TAXES
- Note 8 (4,639,886) (3,842,639) (3,417,024)
NET INCOME $ 9,435,496 $ 7,468,857 $ 6,717,950
EARNINGS PER SHARE - Note 2 $ 10.06 $ 7.97 $ 7.18
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Additional
Class Class Paid-In
A B Capital
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
Purchase of treasury stock
- Note 6 - - (2,120,665)
Payment of dividend - Note 7
Proceeds from stock issuance
- Note 6 - - 3,998,644
Net income
Net change in unrealized holding
gains on securities available
for sale - Note 3
BALANCE - September 30, 1997 $ 10 $ 55,729 $ 4,708,239
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Unrealized Treasury Stock Total
Retained Holding Class Class Stockholders'
Earnings Gains A B Equity
$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
- - - (1,570) (2,122,235)
(7,498,703) - - - (7,498,703)
- - - 2,981 4,001,625
9,435,496 - - - 9,435,496
- 6,171,193 - - 6,171,193
$33,160,181 $16,046,593 $ (8) $ (34,661) $53,936,083
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995
Commissions revenue received $121,997,793 $116,277,714 $108,172,477
Commissions paid to agents (82,261,489) (78,914,869) (73,709,584)
Operating expenses paid (22,900,641) (20,070,746) (20,094,588)
Sales meeting expenses paid (2,504,172) (1,168,286) (2,309,149)
Contribution to employees=
Profit Sharing Plan (1,409,355) (1,034,981) (1,053,022)
Interest income received 914,929 846,607 777,897
Interest income received on Bank assets 308,129 -0- -0-
Interest expense paid (57,141) (29,075) (23,925)
Interest expense paid on Bank deposits (96,302) -0- -0-
Investment income received 4,749,604 3,216,870 3,616,571
Other income received by Bank 10,363 -0- -0-
Net rental and other expenses
paid (385,791) (268,148) (116,795)
Net customers' custodial funds
received (paid) (172,743) 175,000 (388,538)
Income taxes paid (5,736,186) (6,253,259) (5,381,960)
Income taxes refunded 92,818 230,138 3,520
Net Cash Provided by
Operating Activities 12,549,816 13,006,965 9,492,904
CASH FLOWS FROM INVESTING ACTIVITIES
Net receipts (payments) on agents'
loans and advances 251,298 194,878 (105,339)
Purchase of investments (2,853,624) (4,087,976) (4,602,720)
Proceeds from sales of property
and equipment 15,495 30,715 30,698
Purchase of property and
equipment (960,289) (523,287) (3,586,939)
Net increase in Bank loans (17,358,780) -0- -0-
Memberships purchased -0- -0- (15,000)
Net Cash Used in
Investing Activities (20,905,900) (4,385,670) (8,279,300)
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts (payments) on loans
from insurance companies 5,383,339 (1,860,632) 1,190,967
Net increase in Bank deposits 13,292,748 -0- -0-
Purchase of treasury stock (1,777,388) (2,165,801) (836,202)
Dividends paid (7,498,703) (4,550,796) (4,390,233)
Payments on notes payable (858,563) (108,282) (79,804)
Proceeds from stock issuance 4,030,312 2,780,832 3,463,072
Stock issuance costs (28,687) (40,881) (62,136)
Net Cash Provided by (Used in)
Financing Activities 12,543,058 (5,945,560) (714,336)
NET INCREASE IN CASH AND CASH
EQUIVALENTS 4,186,974 2,675,735 499,268
CASH AND CASH EQUIVALENTS
Beginning of Year 19,448,932 16,773,197 16,273,929
CASH AND CASH EQUIVALENTS
End of Year $23,635,906 $19,448,932 $16,773,197
</TABLE>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
NET INCOME $ 9,435,496 $ 7,468,857 $ 6,717,950
Adjustments for Items
Included in Net Income
Not Providing or Using Cash:
Depreciation expense 1,207,927 1,172,430 1,083,853
Loss on sales of property and
equipment 1,324 9,436 52,270
Decrease in deferred income
taxes due to operations (4,063,546) (2,180,983) (1,567,734)
Provision for loan losses 260,200 -0- -0-
Other Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Increase in commissions
receivable (331,808) (351,975) (259,546)
(Increase) decrease in other
various receivables (768,545) 716,758 (822,611)
(Increase) decrease in
prepaid expenses and other assets (3,599) (61,336) 5,726
Increase (decrease) in
accounts payable and
accrued expenses (9,693) 1,400,502 (800,021)
Increase (decrease) in other
accrued liabilities 169,604 (8,368) 71,892
Increase in Deferred Career
Commission Plan payable 6,652,456 4,841,644 5,011,125
NET CASH PROVIDED BY OPERATING
ACTIVITIES $12,549,816 $13,006,965 $ 9,492,904
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
During the years ended September 30, 1997, 1996 and 1995, IRA Inc.
Issued notes payable in the amounts of $344,847, $1,216,648 and $79,804
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.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
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 149 cities located in 41
states, 1 U.S. territory and 3 foreign countries.
In November, 1996, IRA, Inc. received approval from the Office of Thrift
Supervision to organize and operate a denovo Federal Savings Bank. In March,
1997, First Command Bank (the Bank) was formed as a wholly-owned subsidiary
and began operations on April 21, 1997. The Bank generates commercial and
consumer loans and receives deposits primarily from clients of IRA, Inc. and
its subsidiaries.
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 and First Command Bank. All
intercompany accounts and transactions have been eliminated.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. The Bank's loans are generally
secured by specific items of collateral including consumer assets and
business assets.
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in national economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
estimated losses on loans. Such agencies may require the Bank to recognize
additional losses based on their judgments about information available to
them at the time of their examination.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
includes Cash - Demand deposits, Cash - Money market mutual fund accounts and
Bank cash and cash equivalents. 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.
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.
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 temporary cash
investments and marketable securities with financial institutions and
investment companies. Therefore, the majority of these funds are not FDIC
insured. IRA,
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
CONCENTRATION OF CREDIT RISK - Continued
Inc. does however limit 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 supplier base. As of September 30, 1997,
1996 and 1995, IRA, Inc. had no significant concentrations of credit risk.
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.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated 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
Expenditures for maintenance, repairs and minor renewals are charged to
operations as incurred. Upon retirement or other disposition of property or
equipment, the carrying value and the related accumulated depreciation are
removed from the accounts. Depreciation expense amounted to $1,207,927,
$1,172,430 and $1,083,853 for the years ended September 30, 1997, 1996 and
1995, respectively.
BANK LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans are stated at their unpaid principal balances, less the allowance for
loan losses. Interest on loans is recognized over the term of the loan and
is calculated using the simple-interest method on principal amounts
outstanding.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, specific impaired loans, economic conditions, and
other risks inherent in the portfolio. The allowance is increased by a
provision for loan losses, which is charged to expense and reduced by charge-
offs,
net of recoveries. Changes in the allowance relating to impaired loans are
charged or credited to the provision for loan losses. Accrual of interest on
a loan is discontinued when management believes, after considering economics,
business
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
BANK LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Continued
conditions, and collection efforts, that the borrower's financial condition
is such that collection of interest is doubtful. Uncollectible interest
previously accrued is charged off or an allowance is established by means of
a charge to interest income. Income is subsequently recognized only to the
extent cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments is back
to normal, in which case the loan is returned to accrual status.
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.
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, 1997, 1996
and 1995, the weighted average of shares outstanding were 937,502, 937,224
and 935,048, respectively.
NOTE 3 - MARKETABLE SECURITIES
As of September 30, 1997, 1996 and 1995, nearly all of the investment
securities of IRA, Inc. are in publicly traded mutual funds. At September
30, 1997, 1996 and 1995, the investment securities portfolio was comprised of
securities classified as available for sale. The investment securities
portfolio at September 30, 1997, 1996 and 1995, is carried at market.
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, 1997, 1996 and 1995, are as
follows:
<TABLE>
<C> <S> <C> <C> <C> <C>
1997 1996 1995
Total Marketable Securities
(At Cost) $ 38,617,547 $35,763,923 $31,675,947
Gross unrealized gains
- noncurrent portion 29,096,661 16,273,021 13,188,040
Gross unrealized losses
- - noncurrent portion -0- -0- (11,972)
Net unrealized gains
- noncurrent portion 29,096,661 16,273,021 13,176,068
Total Marketable Securities
(At Market) $ 67,714,208 $52,036,944 $44,852,015
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 3 - MARKETABLE SECURITIES - Continued
There were no sales of investment securities for the years ended September
30, 1997, 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 $29,096,661, $16,273,021, and $13,176,068
is reflected net of taxes in a separate component of stockholders' equity as
of September 30, 1997, 1996 and 1995 as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Net unrealized holding gain $29,096,661 $16,273,021 $13,176,068
Unrealized holding gain
designated to the DCCP (4,783,641) (1,310,294) (726,066)
Tax effect reflected in deferred
taxes (8,266,427) (5,087,327) (4,233,001)
Unrealized Holding Gain
- Stockholders' Equity $ 16,046,593 $ 9,875,400 $ 8,217,001
</TABLE>
The net change in the unrealized holding gain as reflected in a separate
component of stockholders' equity as of September 30, 1997, 1996 and 1995 was
calculated as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Net increase in unrealized
holding gains $ 12,823,640 $ 3,096,953 $ 5,201,755
Net increase in unrealized
holding gains on DCCP Investments (3,473,347) (584,228) (639,207)
Tax effect on undesignated
investments (3,179,100) (854,326) (1,554,249)
Net Change in Unrealized Holding
Gains $ 6,171,193 $1,658,399 $3,008,299
</TABLE>
NOTE 4 - LOANS FROM INSURANCE COMPANIES
Loans from insurance companies represent non-interest bearing loans from five
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, 1997 there are notes payable
outstanding to three former stockholders. These notes payable have interest
rates ranging from 5.0% to 5.5% with each having a maturity date of January
2, 1998. These notes payable are unsecured.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 5 - NOTES PAYABLE AND REVOLVING LINE OF CREDIT - Continued
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, 1997 are considered to approximate fair value.
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, 1997 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, 1997, 1996 and
1995.
NOTE 6 - COMMON STOCK
At September 30, 1997, 1996 and 1995, 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
At September 30, 1997
Number of shares issued 100 2,786,435
Number of previously issued shares
repurchased and held as treasury stock 75 1,733,078
Number of shares outstanding 25 1,053,357
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
</TABLE>
STOCK ISSUANCE
During the year ended September 30, 1997, IRA, Inc. issued 149,050 shares of
Class B treasury stock at $27.04 per share. This provided total proceeds of
$4,030,312 of which $28,687 was used to pay stock issuance costs. This
increased additional paid-in capital by $3,998,644 and decreased treasury
stock by $2,981. 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, 1997, 1996 AND 1995
NOTE 6 - COMMON STOCK - Continued
PURCHASE OF TREASURY STOCK
During the years ended September 30, 1997, 1996 and 1995, IRA, Inc.
repurchased a total of 78,485 shares, 129,963 shares, and 39,325 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 $2,122,235 for the year ended
September 30, 1997, $3,382,449 for the year ended September 30, 1996, and
$916,006 for the year ended September 30, 1995.
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 2, 1996, a cash dividend of $7.63 per share ($7,498,703) was paid
by IRA, Inc. from retained earnings on its Class B common stock to its
shareholders of record as of September 30, 1996.
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.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 8 - 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.
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, 1997, 1996 and 1995 are as
follows:
<TABLE>
<S> <C> <S> <C> <C> <S> <C>
1997 1996
Current Noncurrent Current Noncurrent
Asset Liability Asset Liability
Effect of tax accumulated
depreciation in excess
of book accumulated
depreciation $ - $(1,476,904) $ - $(1,352,380)
Sales meeting accrual 184,876 116,694 529,515 -
Allowance for loan losses - 88,468 - -
Portion of accrued
vacation 4,501 - 4,501 -
Deferred Career Commission
Plan accrual - 5,363,033 - 4,508,833
Unrealized investment holding
gains - (8,266,427) - (5,087,327)
Deferred Tax Asset
(Liability) $ 189,377 $(4,175,136) $534,016 $(1,930,874)
</TABLE>
<TABLE>
<C> <S> <C>
1995
Current Noncurrent
Asset Liability
$ - $(1,240,047)
93,500 97,750
58,628 -
- 3,083,883
- (4,233,001)
$152,128 $(2,291,415)
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
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, 1997, 1996 and
1995 as follows:
<TABLE>
<S> <C> <S><C> <S><C> <S><C> <C> <C>
1997 1996 1995
Amount Percent Amount Percent Amount Percent
Tax at federal
statutory rate $4,785,630 34.0% $3,845,909 34.0% $3,445,891 34.0%
Non-taxable income (211,360) (1.5) (180,936) (1.6) (131,496) (1.3)
Non-deductible expenses 42,599 0.3 75,578 0.7 83,395 0.8
Effect of marginal rates 35,425 0.3 77,192 0.7 -0- 0.0
Environmental tax 16,000 0.1 11,360 0.1 7,920 0.1
Other (28,408) (0.2) 13,536 0.1 11,314 0.1
Provision for Income
Taxes $4,639,886 33.0% $3,842,639 34.0% $3,417,024 33.7%
</TABLE>
The components of the provision for income taxes as of September 30, 1997,
1996 and 1995 are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Current tax expense $5,230,085 $5,439,394 $ 4,345,551
Deferred tax benefit (590,199) (1,596,755) (928,527)
Provision for Income Taxes $4,639,886 $3,842,639 $ 3,417,024
</TABLE>
For federal income tax purposes, IRA, Inc. and its subsidiaries have elected
to file separate income tax returns for the years 1995 and 1996 and on a
consolidated basis for 1997.
NOTE 9 - 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 $3,704,855, $4,704,578 and $4,390,805 for the
years ended September 30, 1997, 1996 and 1995, respectively. This expense is
included in commissions and agent expenses on the accompanying statements of
income.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 9 - DEFERRED CAREER COMMISSION PLAN - Continued
The DCCP payable balances for each year are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Commissions accrued to
agents $ 2,600,000 $ 4,015,737 $ 4,000,613
Investment income on DCCP
designated investments 1,104,855 688,841 390,192
DCCP Expense 3,704,855 4,704,578 4,390,805
Unrealized holding gains
on DCCP designated
investments - See Note 3 3,473,347 584,228 639,207
Commissions paid to agents (525,746) (447,162) (18,887)
Net Increase in DCCP
Payable 6,652,456 4,841,644 5,011,125
DCCP Payable - Beginning
of Year 15,061,067 10,219,423 5,208,298
DCCP Payable - End of
Year $21,713,523 $15,061,067 $10,219,423
Classification on the Balance Sheet:
Current $ 1,156,257 $ 489,502 $ 423,114
Noncurrent 20,557,266 14,571,565 9,796,309
Total $21,713,523 $15,061,067 $10,219,423
</TABLE>
NOTE 10 - 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, 1997,
1996 and 1995 amounted to $1,344,249, $1,151,997 and $1,041,671 respectively,
and is included on the accompanying statements of income with general and
administrative expenses.
NOTE 11 - BANK LOANS
The composition of loans as of September 30, 1997 is as follows:
<TABLE>
<S> <C>
Description Amount
Debt consolidation $ 13,386,556
Small business 2,581,645
Other 1,390,579
Total Loans 17,358,780
Less: Allowance for loan losses (260,200)
Total Loans - Net $ 17,098,580
</TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 11 - BANK LOANS - Continued
For the period ended September 30, 1997, the Bank had no losses resulting
from the extension of credit. In addition, as of September 30, 1997, there
are no impaired loans or loans on which the accrual of interest had been
discontinued.
As of September 30, 1997, there are no loans to certain directors, executive
officers and significant stockholders of the Company.
NOTE 12 - BANK DEPOSITS
Deposit account balances at September 30, 1997 are as follows:
<TABLE>
<S> <C> <C>
Description Amount
Noninterest bearing $ 902,295
Interest-bearing demand 11,174,551
Certificates of deposit 1,215,902
Total Deposits $ 13,292,748
</TABLE>
A summary of certificates of deposit by maturity as of September 30, 1997 is
as follows:
<TABLE>
<C> <C> <C> <C> <C>
Year Ending Amount
September 30, 1998 $ 623,063
September 30, 1999 592,839
Total Certificates of Deposit $ 1,215,902
</TABLE>
The Bank held related party deposits of approximately $32,880 at September
30, 1997.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Bank has outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying consolidated
financial statements. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented by
the contractual or notional amount of those instruments. The Bank uses the
same credit policies in making such commitments as it does for instruments
that are included in the consolidated balance sheet. As of September 30,
1997 the Bank has committed credit lines of $3,922,300 of which $1,587,090
has been advanced.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - Continued
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation.
NOTE 14 - NET CAPITAL REQUIREMENTS OF SUBSIDIARIES
UNITED SERVICES PLANNING ASSOCIATION, INC.
USPA is subject to the Securities and Exchange Commission Uniform Net Capital
Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital
and requires that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1. At September 30, 1997, USPA had net
capital of $14,126,621, which was $13,825,765 in excess of its required net
capital of $300,856. The Company's net capital ratio was 0.32 to 1.
FIRST COMMAND BANK
The Bank is subject to various regulatory capital requirements administered
by its primary federal regulator, the Office of Thrift Supervision (OTS).
Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct effect on the Bank and
the consolidated financial statements. Under the regulatory capital adequacy
guidelines the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
Under the most conservative of these guidelines, at
September 30, 1997, the Bank's actual and required capital amounts were
approximately $5,664,000 and $1,484,000, respectively.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS - BANK
The fair value of the Bank's financial instruments (loans and deposits) is
considered to approximate book value as of September 30, 1997. This is based
upon the fact that the Bank had only been operating for approximately five
months during the year and there have not been any significant interest rate
variances in that time period.
NOTE 16 - CONTINGENCIES
During the ordinary course of business the Company is subject to litigation
from a number of areas. Currently, the Company is involved in one law suit
filed after the end of its fiscal year, which management believes is without
merit and has a very low probability of loss.
NOTE 17 - SUBSEQUENT EVENTS - CASH DIVIDENDS
The Company is planning a cash dividend of $7.73 per share ($8,142,450) to be
paid on December 1, 1997 by IRA, Inc. from retained earnings on its Class B
common stock to its shareholders of record as of September 30, 1997.
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, 1997, 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> <S> <C>
Name Age Title - Time Served
Lamar C. Smith 50 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 58 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 51 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)
Hal N. Craig 60 Director (1993 - Present), Vice
President and Director of Management
Information Systems (1992 - 1993),
Chief Information Officer (1994 -
Present)
Donaldson D. Frizzell 65 Director (1993 - Present) Vice
President and Director of
Investments(1992 - Present)
Jerry D. Gray 49 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)
</TABLE>
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Identification - Continued
<TABLE>
<S> <C> <C> <S> <C> <S> <C>
Name Age Title - Time Served
David P. Thoreson 66 Director (1994 - Present), Regional
Vice President (1988 - 1993)
G. Norman Coder 59 Director (1983 - Present), Secretary
(1980 - Present)
Martin R. Durbin 36 Treasurer and Chief Financial Officer
(1996 - Present), Assistant to the
Chairman of the Board (1995 - 1996)
Registered Representative and Agent
(1991 - 1995), Director of Commission
Accounting (1983 - 1991)
Arnold Punaro 51 Director (1997 - Present)
Carroll H. Payne II 43 Director (1983 - Present) (1.)
Naomi K. Payne 39 Director (1983 - Present) (1.)
</TABLE>
(1.) Carroll H. Payne II and Naomi K. Payne are siblings. 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 at
least 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.
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.
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.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
B. Business Experience - Continued
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.
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 and 1997 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.
Arnold L. Punaro - Mr. Punaro was elected as a Director in July, 1997. He is
a Senior Vice President of the Science Applications International Corporation
and a Brigadier General in the U.S. Marine Corps Reserve. In the latter
capacity, his current assignment is Commanding General of the 4th Marine
Division, USMC. He previously served as the Commanding General, Marine Corps
Reserve Support Command, and for Senator Sam Nunn (1973 - 1996), and as Staff
Director of the Senate Armed Services Committee (SASC) or as Staff Director
of the Minority of the SASC from 1983 through 1996. He serves on the faculty
of the Marine Corps
University and is an adjunct professor in the graduate school at Georgetown
University. He is a member of the Secretary of Defense Reserve Forces Policy
Board, and the Board of Governors of the Marine Corps Association.
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.
Martin R. Durbin - Mr. Durbin was elected Treasurer of the Company in 1996,
at which time he also became its Chief Financial Officer and the Director of
Financial Services. He was originally employed by USPA in 1983 and was a
field agent of the Company from 1991 through June, 1995, at which time he was
again employed by USPA as Assistant to the Chairman of the Board.
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. She has heretofore been engaged in working with, and
coordinating assistance for, deaf and otherwise handicapped students through
various agencies and institutions dedicated to such students.
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
B. Business Experience - Continued
* Called "Field Vice President" in 1982.
Messrs. Smith, Lanier, Crump, and Payne also serve on the Executive Committee
of the Company's Board of Directors. Messrs. Smith, Lanier and Crump also
serve on the 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.
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.
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 1997.
<TABLE>
<S> <C> <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 1997 $427,400 $186,000 ----- $22,500
Chairman of the 1996 398,666 170,000 ----- 22,500
Board and Chief 1995 386,399 160,000 ----- 30,000
Executive Officer
James N. Lanier 1997 328,745 146,000 ----- 22,500
President and Chief 1996 306,242 133,000 ----- 22,500
Operating Officer 1995 297,114 121,000 ----- 30,000
Howard M. Crump 1997 286,075 115,000 ----- 22,500
Senior Vice President 1996 266,583 104,000 ----- 22,500
and Director of 1995 257,339 95,000 ----- 30,000
Marketing
G. Norman Coder 1997 155,710 68,000 ----- 22,500
Counsel and Secretary 1996 142,582 66,000 ----- 22,500
1995 137,430 64,000 ----- 29,829
Donaldson D. Frizzell 1997 130,177 54,000 ----- 22,500
Vice President and 1996 122,512 50,000 ----- 22,500
Director of 1995 110,704 45,000 ----- 22,039
Investments
</TABLE>
(1) - Contribution paid on the employee's behalf into a profit sharing
retirement plan. See B. below.
Part III
ITEM 11 - EXECUTIVE COMPENSATION - Continued
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 $22,500 whichever is less, is contributed and held in
trust of such employees until termination of employment, retirement or
death/disability. During the Company's fiscal year ending September 30,
1997, 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, 1997, to the
individuals named or identified as members of the group above, the 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 who are Company employees or agents of the Company actively engaged
in sales or sales management are paid $600 for personal attendance at full
Board meetings. All other Directors are paid a quarterly retainer of $4,000
plus a meeting fee of $600. If these latter Directors serve at a Board
committee meeting in conjunction with a Board or other Company meeting, they
are paid $300 for such committee meeting. If they serve at a Board committee
meeting not in conjunction with any other Company meeting, they are paid $500
for such meeting. If one of this latter group of Directors participates in
a telephone/teleconference or video-conference Board or Board committee
meeting, they are paid $300 for such participation. Expenses of all
Directors required to travel to a meeting are either paid or reimbursed.
Additionally, Directors in the latter group described above are reimbursed at
the rate of $50 per hour for travel time. During the Company's fiscal year
ending September 30, 1997, a total of $72,775 was paid by the Company to its
Directors. No fees are paid for serving as a Director of a subsidiary except
for three Directors of First Command Bank who are not otherwise employed by
Company or its subsidiaries. These individuals are paid $1,000 plus travel
expenses each time they personally attend a full Board meeting of First
Command Bank. This totaled $12,000 for the period ended September 30, 1997.
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1997, 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.
Part III
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- Continued
<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 4.46
Carroll H. Payne II
6245 Locke Ave. Class A 3 shares 12.00
Fort Worth, TX 76116 Class B 46,977 shares 4.46
Debra S. Payne
5910 N. Central
Expressway Ste. 1000 Class A 3 shares 12.00
Dallas, TX 75206 Class B 46,528 shares 4.42
Naomi K. Payne
6812 Riverdale Class A 3 shares 12.00
Fort Worth, TX 76132 Class B 46,977 shares 4.46
Lamar C. Smith
5111 Turtle Creek Ct. Class A 2 shares 8.00
Fort Worth, TX 76116 Class B 40,000 shares 3.80
James N. Lanier
3500 Bellaire Park Ct. Class A 2 shares 8.00
Fort Worth, TX 76109 Class B 18,000 shares 1.71
Howard M. Crump
3458 Bellwood Court Class A 2 shares 8.00
Fort Worth, TX 76109 Class B 26,000 shares 2.47
Hal N. Craig
4429 Dunwick Ln. Class A 1 share 4.00
Fort Worth, TX 76109 Class B 5,600 shares .53
Donaldson D. Frizzell
6920 Tumbling Trail Class A 1 share 4.00
Fort Worth, TX 76116 Class B 7,100 shares .67
Jerry D. Gray
519 N. Mur-len Class A 1 share 4.00
Olathe, KS 66062 Class B 20,000 shares 1.90
David P. Thoreson
2016 Empire Mine Cir. Class A 1 share 4.00
Rancho Cordova, CA 95670 Class B 27,850 shares 2.64
Clinton C. Hayes
792 Coverdale Court Class A 1 share 4.00
Virginia Beach, VA 23452 Class B 18,250 shares 1.73
G. Norman Coder
4016 Edgehill Rd. Class A 1 share 4.00
Fort Worth, TX 76116 Class B 22,647 shares 2.15
</TABLE>
Part III
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- Continued
<TABLE>
<S> <C> <C> <S> <C> <S> <C>
Name and Address Title of Amount and Nature of Percent of
of Beneficial Owner Class Beneficial Ownership Class
Martin R. Durbin
5910 C. R. 805 C
Cleburne, TX 76031 Class B 1,725 shares .16
Edward T. Elmendorf Jr.
6410 Southwest Blvd.
Suite 200 Class A 1 share 4.00
Fort Worth, TX 76109 Class B 17,550 shares 1.67
All Significant Class A 25 shares 100.00
Owners, Executive Class B 392,181 shares 37.23
Officers and Directors
as a Group (15 persons)
</TABLE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. In August 1997, pursuant to the offering of the Company's stock under a
registration statement on Form S-1, effective June 1997, 18,300 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, 1997 for the total consideration of
$494,832 ($27.04 per share). A total of 149,050 shares of Class B non-
voting common stock of the Company were sold during the offering for the
total consideration of $4,030,312 ($27.04 per share).
In September 1996, pursuant to the offering of the Company's stock under
a registration statement on Form S-1, effective May 30, 1996, 15,500
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, 1996 for the total consideration of
$411,680 ($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 8, 1995, 20,842 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 consideration of $488,536 ($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 year ended September 30, 1997, 39,385 shares, 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 $1,064,970. A total of 78,485
shares of Class B non-voting common stock were repurchased by the Company
from all persons under the terms of the Stock Agreements with such persons
during this period for the total consideration of $2,122,235.
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, 1997, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Consolidated Statements of Income - Years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 16
Consolidated Statements of Changes in Stockholders'
Equity - Years ended September 30, 1997, 1996 and 1995. . . . . . 18
Consolidated Statements of Cash Flows - Years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements . . . . . . . . . . . . 23
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 Registration Statement filed
May, 1997.
Exhibit 10 - Material contracts
(a) Stock Agreement - Payne Family
(b) Stock Agreement - Class B Nonvoting Stock
(c) Stock Agreement - Class A Voting Stock
Incorporated herein by reference to Exhibits 10a., 10b. and 10c.,
respectively, in the Registrant's Form S-1 Registration
Statement filed May, 1996.
Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . . . . 43
(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, 1997.
FORM 10-K
ITEM 14(A)(3)
EXHIBITS
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
% 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%
First Command Bank 100%
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.
By /S/ Lamar C. Smith By /S/Martin R. Durbin
Lamar C. Smith Martin R. Durbin
Chairman of the Board and Chief Treasurer and Chief
Executive Officer and Director Financial Officer,
(Duly Authorized Officer) (Principal Financial
and Accounting Officer)
Date: 12/17/97 Date: 12/17/97
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:
<TABLE>
<C> <S> <C> <S> <C>
Signature Title Date
/S/ James N. Lanier President and Director 12/17/97
James N. Lanier
/S/ Howard M. Crump Senior Vice President 12/17/97
Howard M. Crump and Director
/S/ Donaldson D. Frizzell Vice President 12/17/97
Donaldson D. Frizzell and Director
/S/ Hal N. Craig Vice President 12/17/97
Hal N. Craig and Director
/S/ Carroll H. Payne II Director 12/17/97
Carroll H. Payne II
/S/ G. Norman Coder Secretary and Director 12/17/97
G. Norman Coder
H:\DOCS6\U6650\001\641.1
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,635,906
<SECURITIES> 67,714,208
<RECEIVABLES> 22,041,075
<ALLOWANCES> 260,200
<INVENTORY> 0
<CURRENT-ASSETS> 23,860,692
<PP&E> 20,807,023
<DEPRECIATION> 8,457,286
<TOTAL-ASSETS> 125,896,308
<CURRENT-LIABILITIES> 46,239,874
<BONDS> 25,720,351
<COMMON> 55,739
0
0
<OTHER-SE> 53,880,344
<TOTAL-LIABILITY-AND-EQUITY> 125,896,308
<SALES> 122,329,601
<TOTAL-REVENUES> 128,372,807
<CGS> 87,809,129
<TOTAL-COSTS> 113,528,791
<OTHER-EXPENSES> 387,115
<LOSS-PROVISION> 260,200
<INTEREST-EXPENSE> 179,777
<INCOME-PRETAX> 14,075,382
<INCOME-TAX> 4,639,886
<INCOME-CONTINUING> 9,435,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,435,496
<EPS-PRIMARY> 10
<EPS-DILUTED> 10
</TABLE>
