FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997Commission 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 (Zip Code)
executive offices)
Registrant's telephone number,
including area code (817) 731-8621
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A - Voting Outstanding at April 1, 1997
(Common stock, $0.10 par value) 25
Class B - Nonvoting Outstanding at April 1, 1997
(Common stock, $0.02 par value) 922,257
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
PAGE
INDEX NUMBERS
- -----------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet -
March 31, 1997 and September 30, 1996 1-2
Condensed Consolidated Statement of Income -
three months and six months ended March 31, 1997 a 3
Condensed Consolidated Statement of Cash Flows -
six months ended March 31, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statemen 5-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I - FINANCIAL INFORMATION
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
March 31, September 30,
1997 1996
CURRENT ASSETS (Unaudited) *
Cash and cash equivalents $ 16,069,718 $ 19,448,932
Commissions receivable 2,013,328 2,671,831
Agents' loans and advances 637,836 745,189
Other receivables 630,077 416,220
Prepaid expenses 258,065 110,139
Deferred income taxes 0 534,016
------------ ------------
Total Current Assets 19,609,024 23,926,327
------------ ------------
PROPERTY AND EQUIPMENT
Property and equipment 20,020,430 19,907,089
Less: Accumulated depreciation (7,835,411) (7,292,895)
------------ ------------
Total Property and Equipment 12,185,019 12,614,194
------------ ------------
OTHER ASSETS
Marketable securities, at market 54,075,400 52,036,944
Memberships 62,467 62,467
Notes receivable - Other 50,000 50,000
------------ ------------
Total Other Assets 54,187,867 52,149,411
------------ ------------
TOTAL ASSETS $ 85,981,910 $ 88,689,932
============ ============
1
<PAGE>
PART I - FINANCIAL INFORMATION - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 56,690 $ 423,714
Accrued commissions payable 2,938,911 2,758,258
Accrued bonuses payable 7,288,117 9,959,319
Income taxes payable 1,817,455 4,981
Accrued sales meeting expense 2,516,065 1,557,397
Other accrued liabilities 603,840 1,966,287
Notes payable 620,736 613,716
Loans from insurance companies 11,582,720 10,458,853
------------ ------------
Total Current Liabilities 27,424,534 27,742,525
------------ ------------
LONG-TERM OBLIGATIONS
Sales meeting and other 1,611 1,611
Notes payable 0 494,650
Deferred Career Commission Plan paya 16,733,797 14,571,565
Deferred income taxes 1,025,729 1,930,874
------------ ------------
Total Long-term Obligations 17,761,137 16,998,700
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 55,739 55,739
Additional paid-in capital 1,194,606 2,830,260
Retained earnings 29,929,277 31,223,388
Unrealized holding gains 9,653,909 9,875,400
Treasury stock - at par (37,292) (36,080)
------------ ------------
Total Stockholders' Equity 40,796,239 43,948,707
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 85,981,910 $ 88,689,932
============ ============
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed
financial statements.
2
<PAGE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
COMMISSIONS REVENUE $ 59,557,969 $ 57,412,659 $ 30,935,138 $ 29,352,433
------------ ------------ ------------ ------------
OPERATING EXPENSES
Commissions, bonuses, and agent expe(43,446,648) (42,373,879) (22,004,761) (21,427,834)
General and administrative expenses (12,194,789) (11,755,444) (6,044,182) (6,128,059)
------------ ------------ ------------ ------------
Total Operating Expenses (55,641,437) (54,129,323) (28,048,943) (27,555,893)
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 3,916,532 3,283,336 2,886,195 1,796,540
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 453,941 414,897 177,470 167,565
Investment income 4,707,039 3,180,633 78,431 (11,697)
Rental and other income 118,021 103,713 39,599 57,818
Gain (Loss) on disposal of equipment 0 4,247 0 4,247
Interest expense (32,949) (21,096) (9,868) (10,806)
------------ ------------ ------------ ------------
Total Other Income 5,246,052 3,682,394 285,632 207,127
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 9,162,584 6,965,730 3,171,827 2,003,667
PROVISION FOR INCOME TAXES (2,957,992) (2,216,056) (1,338,560) (700,611)
------------ ------------ ------------ ------------
NET INCOME $ 6,204,592 4,749,674 1,833,267 1,303,056
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 946,096 967,224 926,338 948,633
============ ============ ============ ============
NET INCOME PER SHARE $ 6.56 $ 4.91 $ 1.98 $ 1.37
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
3
<PAGE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Six Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 6,204,592 $ 4,749,674
Adjustments for non cash items 542,516 386,170
Changes in operating assets and liabilities 548,342 22,099
------------ ------------
Net Cash Provided by Operating Activities 7,295,450 5,157,943
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (2,549,621) (3,444,122)
Purchase of property and equipment (113,341) (305,075)
------------ ------------
Net Cash Used for Investing Activities (2,662,962) (3,749,197)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts (payments) on loans from insurance
companies 1,123,867 (1,500,150)
Purchase of treasury stock (1,636,866) (1,888,108)
Dividends paid (7,498,703) (4,550,795)
------------ ------------
Net Cash Used for Financing Activities (8,011,702) (7,939,053)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,379,214) (6,530,307)
CASH AND CASH EQUIVALENTS - Beginning of Period 19,448,932 16,773,197
------------ ------------
CASH AND CASH EQUIVALENTS - End of Period $ 16,069,718 $ 10,242,890
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
4
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 and 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 was formed as a wholly-owned subsidiary.
First Command began operations in April 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Condensed 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, IRA Alabama and First
Command Bank. All intercompany accounts and transactions have been
eliminated.
<PAGE> 5
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
BASIS OF PRESENTATION
The Condensed Consolidated Balance Sheet as of March 31, 1997, the
Condensed Consolidated Statement of Income for the three months and six
months ended March 31, 1997 and 1996, and the Condensed Consolidated
Statement of Cash Flows for the six months ended March 31, 1997 and 1996
included herein are unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of results
for the interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
annual Form 10-K filed with the Securities and Exchange Commission in
December 1996, and the audited consolidated financial statements and
notes thereto included in the Company's September 30, 1996 annual
report to shareholders.
The results of operations for the three months and six months ended
March 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
6
<PAGE>
<TABLE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - STOCKHOLDERS' EQUITY
<CAPTION>
During the six months ended March 31, 1997, stockholders' equity was changed by the followi
transactions:
Additional Unrealized
Common Paid-in Retained Holding Treasury
Balance - Stock Capital Earnings Gain Stock
<S> <C> <C> <C> <C> <C>
September 30, 1996 $ 55,739 $ 2,830,260 $ 31,223,388 $ 9,875,400 $ (36,080)
Purchase of 60,535 shares
of treasury stock (1,635,654) (1,212)
Payment of dividend (7,498,703)
Net income 6,204,592
Net change in unrealized
holding gain on securities
available for sale (221,491)
Balance - ----------- ------------ ------------ ------------ ------------
March 31, 1997 $ 55,739 $ 1,194,606 $ 29,929,277 $ 9,653,909 $ (37,292)
=========== ============ ============ ============ ============
</TABLE>
7
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position
and operating results during the periods included in the accompanying
condensed consolidated financial statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996 - COMPARISON
During the six months ended March 31, 1997, the demand for life
insurance and mutual fund investments marketed by the Company to U.S.
military personnel remained strong. Commission revenue for the six
months ended March 31, 1997, increased 3.7% to $59,557,969 from
$57,412,659 recorded during the comparable period in 1996. This overall
increase in commission revenue is a trend which has occurred over the past
several years, and is expected to continue in the future due to the long
term personal financial management philosophy espoused to clients, an
effectively trained sales force and efficient marketing practices used by
the Company's sales agents. The 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.
Commissions, bonuses, and agent expenses for the six months ended
March 31, 1997 increased 2.5% or $1,072,769 from the same period in 1996.
Generally, in the past there has been a constant relationship between
commission revenues and commissions, bonuses, and agent expenses.
Commissions, bonuses, and agent expenses have decreased as a percentage of
commission revenues due to a decline in the voluntary allocation to the
agents' Deferred Career Commission Plan (DCCP) of $248,000 from the
comparative six month period in 1996. Without this reduction to the DCCP;
commissions, bonuses, and agent expenses would have increased 3.1% from
the comparative period.
General and administrative expenses for the six months ended March 31,
1997 increased 3.7%, or $439,345, from the same period in 1996. This
increase is primarily due to costs involved in the redesign of the
corporate database used by the home office. This redesign will result in
improved efficiencies in both personnel and computer hardware costs in
the future. In addition, increased data processing costs and general
inflationary factors contributed to higher operating costs.
The total of other income for the initial six months of fiscal year
1997 increased 42.5% to $5,246,052 from $3,682,394 earned in the
comparable six month period for 1996. This increase is primarily
attributable to greater distributions from mutual funds.
8
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 - COMPARISON
Income from operations for the current quarter increased $1,089,655, or 60.7%,
from the comparable period in 1996. The increase is attributable to a
5.4% improvement in commission revenue for the quarter. This favorable
change was enhanced by a 1.4% decrease in general and administrative
expenses and partially offset by a 2.7% increase in commissions, bonuses
and agent expenses.
The total of other income for the current quarter of 1997 increased
to $285,632 from $207,127 earned in the comparable three month period
in 1996. This increase is primarily attributable to greater interest
and investment income in 1997.
LIQUIDITY AND FINANCIAL RESOURCES
The Company has historically operated with a working capital
deficiency. The Company has been able to do this because of its loans from
insurance companies. As long as the Company does business 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 .72 to 1 and .86 to 1 at March 31, 1997, and September 30,
1996, respectively. The decline in the current ratio is the result of
paying dividends of $7,498,703 on December 1, 1996, to the shareholders of
record as of September 30, 1996, and the paying of normal year-end
incentive bonuses of $5,597,907 to the Company's sales agents. The current
ratio is expected to improve due to income from operations during the
fiscal year.
Cash and cash equivalents, consisting primarily of money market funds
are used to finance the Company's current operations and are held as a
reserve for the payment of current liabilities. Marketable securities have
been accumulated in anticipation of future capital expenditures and as an
additional reserve against contingencies. As of March 31, 1997, the
significant nonrecurring short-term obligation requiring the immediate use
of resources is the completion of the "WinUSPA" and "Phoenix '96" software
projects for approximately $1.7 million.
The Company is planning to complete a stock offering during the quarter
ended September 30, 1997. The purpose of this offering is the same as
it was in 1996, 1995 and 1993. The estimated net proceeds shall be
used for the continuing operation of the Company's business, for
further development and expansion, and for limited contingency planning.
It is not anticipated that any part of the net proceeds will be used for
the purpose of retiring or reducing any indebtedness of the Company.
9
<PAGE>
PART II - OTHER INFORMATION
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibit No. 11: Computation of net income per
common share information is presented on
face of Statement of Income.
(b) No reports on Form 8-K have been filed
during the quarter ended March 31, 1997.
10
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
(Registrant)
Date April 25, 1997 By /S/ Lamar C. Smith
----------------- --------------------
LAMAR C. SMITH
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)
Date April 25, 1997 By /S/Martin R. Durbin
----------------- --------------------
MARTIN R. DURBIN
Treasurer and
Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 16069718
<RECEIVABLES> 3281241
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 54075400
<PP&E> 12185019
<TOTAL-ASSETS> 85981910
<SHORT-TERM> 0
<PAYABLES> 45185671
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 55739
<OTHER-SE> 40740500
<TOTAL-LIABILITY-AND-EQUITY> 85981910
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 453941
<COMMISSIONS> 59557969
<INVESTMENT-BANKING-REVENUES> 4707039
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 32949
<COMPENSATION> 43446648
<INCOME-PRETAX> 9162584
<INCOME-PRE-EXTRAORDINARY> 6204592
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6204592
<EPS-PRIMARY> 6.56
<EPS-DILUTED> 6.56
</TABLE>
