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 June 30, 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 July 1, 1997
(Common stock, $0.10 par value) 25
Class B - Nonvoting Outstanding at July 1, 1997
(Common stock, $0.02 par value) 904,932
<PAGE>
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC.,
AND SUBSIDIARIES
PAGE
INDEX NUMBERS
- --------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet -
June 30, 1997 and September 30, 1996 1-2
Condensed Consolidated Statement of Income -
three months and nine months ended June 30, 199 3
Condensed Consolidated Statement of Cash Flows -
nine months ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial State 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
June 30, September 30,
1997 1996
CURRENT ASSETS (Unaudited) *
Cash and cash equivalents $ 15,014,784 $ 19,448,932
Commissions receivable 2,013,328 2,671,831
Agents' loans and advances 579,306 745,189
Other receivables 189,533 416,220
Prepaid expenses 467,310 110,139
Deferred income taxes 0 534,016
------------ ------------
Total Current Assets 18,264,261 23,926,327
------------ ------------
PROPERTY AND EQUIPMENT
Property and equipment 20,324,687 19,907,089
Less: Accumulated depreciation (8,140,148) (7,292,895)
------------ ------------
Total Property and Equipment 12,184,539 12,614,194
------------ ------------
FIRST COMMAND BANK ASSETS
Cash & Due From Banks 6,655,728 0
Loans, net of loss reserve 3,822,134 0
Equipment & Lease Improvements 199,193 0
Other bank assets 201,920 0
------------ ------------
Total First Command Bank Assets 10,878,975 0
------------ ------------
OTHER ASSETS
Marketable securities, at market 61,937,108 52,036,944
Memberships 62,467 62,467
Notes receivable - Other 50,000 50,000
------------ ------------
Total Other Assets 62,049,575 52,149,411
------------ ------------
TOTAL ASSETS $103,377,350 $ 88,689,932
============ ============
1
<PAGE>
PART I - FINANCIAL INFORMATION - CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 71,554 $ 423,714
Accrued commissions payable 3,007,619 2,758,258
Accrued bonuses payable 8,694,280 9,959,319
Income taxes payable 517,421 4,981
Accrued sales meeting expense 2,751,656 1,557,397
Other accrued liabilities 1,029,593 1,966,287
Notes payable 628,287 613,716
Loans from insurance companies 14,318,803 10,458,853
------------ ------------
Total Current Liabilities 31,019,213 27,742,525
------------ ------------
LONG-TERM OBLIGATIONS
Sales meeting and other 1,611 1,611
Notes payable 0 494,650
Deferred Career Commission Plan pa 18,911,277 14,571,565
Deferred income taxes 2,845,226 1,930,874
------------ ------------
Total Long-term Obligations 21,758,114 16,998,700
------------ ------------
FIRST COMMAND BANK LIABILITIES
Demand deposits 2,619,327 0
Time deposits 2,447,562 0
Other liabilities 12,396 0
------------ ------------
Total First Command Bank Liabili 5,079,285 0
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 55,739 55,739
Additional paid-in capital 726,130 2,830,260
Retained earnings 31,401,372 31,223,388
Unrealized holding gains 13,375,136 9,875,400
Treasury stock - at par (37,639) (36,080)
------------ ------------
Total Stockholders' Equity 45,520,738 43,948,707
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' E$103,377,350 $ 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>
Nine Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
COMMISSIONS REVENUE $ 90,834,961 $ 86,655,988 $ 31,276,992 $ 29,243,229
------------ ------------ ------------ ------------
FIRST COMMAND BANK
Net interest income 99,520 0 99,520 0
Provision for loan losses (58,200) 0 (58,200) 0
Noninterest income 675 0 675 0
------------ ------------ ------------ ------------
First Command Bank Operating Inc 41,995 0 41,995 0
------------ ------------ ------------ ------------
OPERATING EXPENSES
Commissions, bonuses, and agent ex(65,959,783) (65,237,813) (22,513,136) (22,368,134)
General and administrative expense(18,984,571) (17,310,695) (6,789,781) (6,052,816)
------------ ------------ ------------ ------------
Total Operating Expenses (84,944,354) (82,548,508) (29,302,917) (28,420,950)
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 5,932,602 4,107,480 2,016,070 822,279
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 642,171 592,444 188,229 177,547
Investment income 4,719,985 3,200,377 12,946 20,044
Rental and other income 158,736 186,208 40,717 79,814
Gain (Loss) on disposal of equipme 0 4,247 0 4,247
Interest expense (48,214) (40,121) (15,266) (19,026)
------------ ------------ ------------ ------------
Total Other Income 5,472,678 3,943,155 226,626 262,626
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 11,405,280 8,050,635 2,242,696 1,084,905
PROVISION FOR INCOME TAXES (3,728,593) (2,622,683) (770,601) (406,627)
------------ ------------ ------------ ------------
NET INCOME $ 7,676,687 $ 5,427,952 $ 1,472,095 $ 678,278
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 933,332 944,652 907,805 898,816
============ ============ ============ ============
NET INCOME PER SHARE $ 8.23 $ 5.75 $ 1.62 $ 0.75
============ ============ ============ ============
<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>
Nine Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 7,676,687 $ 5,427,952
Adjustments for non cash items 847,253 (3,239,857)
Changes in operating assets and liabilities 1,502,374 4,854,955
------------ ------------
Net Cash Provided by Operating Activities 10,026,314 7,043,050
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (2,688,255) (745,838)
Net increase in loans made by First Command Bank (3,822,134)
Purchase of property and equipment (616,790) (453,598)
------------ ------------
Net Cash Used for Investing Activities (7,127,179) (1,199,436)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net receipts (payments) on loans from insurance
companies 3,859,948 (1,392,137)
Net increase in deposits by First Command Bank 5,066,889
Purchase of treasury stock (2,105,689) (3,289,078)
Dividends paid (7,498,703) (4,550,795)
------------ ------------
Net Cash Used for Financing Activities (677,555) (9,232,010)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 2,221,580 (3,388,396)
CASH AND CASH EQUIVALENTS - Beginning of Period 19,448,932 16,773,197
------------ ------------
CASH AND CASH EQUIVALENTS - End of Period $ 21,670,512 $ 13,384,801
============ ============
<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 and began operations on April 21, 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 June 30, 1997, the
Condensed Consolidated Statement of Income for the three months and
nine months ended June 30, 1997 and 1996, and the Condensed
Consolidated Statement of Cash Flows for the nine months ended June
30, 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 nine months
ended June 30, 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 nine months ended June 30, 1997, stockholders' equity was changed by the fo
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 77,860 shares
of treasury stock (2,104,130) (1,559)
Payment of dividend (7,498,703)
Net income 7,676,687
Net change in unrealized
holding gain on securities
available for sale 3,499,736
Balance - --------- ------------ ------------ ------------ ------------
June 30, 1997 $ 55,739 $ 726,130 $ 31,401,372 $ 13,375,136 $ (37,639)
========= ============ ============ ============ ============
</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
NINE MONTHS ENDED JUNE 30, 1997 AND 1996 - COMPARISON
During the nine months ended June 30, 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
nine months ended June 30, 1997, increased 4.8% to $90,834,961 from
$86,655,988 recorded during the comparable period in 1996. This
overall increase in commission revenue is a trend which has been
maintained 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.
First Command Bank commenced operations in April of 1997. Through
strong loan and deposit growth combined with an initial
capitalization of $6 million from IRA, Inc., net interest income
totalled $99,520. This income was partially offset by the
establishment of a reserve for possible losses on loans funded
during the period.
Commissions, bonuses, and agent expenses for the nine months ended
June 30, 1997 increased 1.1% or $721,970 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 $1,624,000 from the comparative nine month period in 1996.
Eclusive of the DCCP; commissions, bonuses, and agent expenses would
have increased 4.1% from the comparative period.
General and administrative expenses for the nine months ended June
30, 1997 increased 9.7%, or $1,673,876, 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, start-up costs
associated with First Command Bank and general inflationary factors
contributed to higher operating costs.
The total of other income for the initial nine months of fiscal
year 1997 increased 38.8% to $5,472,678 from $3,943,155 earned in
the comparable nine 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 JUNE 30, 1997 AND 1996 - COMPARISON
Income from operations for the current quarter increased
$1,193,791, or 145.2%, from the comparable period in 1996. The
increase is attributable to a 7.0% improvement in commission revenue
for the quarter. This favorable change was partially offset by a
12.2% increase in general and administrative expenses and by a .6%
increase in commissions, bonuses and agent expenses.
First Command Bank commenced operations in April of 1997. Through
strong loan and deposit growth combined with an initial
capitalization of $6 million from IRA, Inc., net interest income
totalled $99,520. This income was partially offset by the
establishment of a reserve for possible losses on loans funded
during the period.
The total of other income for the current quarter of 1997 decreased
to $226,626 from $262,626 earned in the comparable three month
period in 1996. This reduction is primarily attributable to lower
rental and other 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 .59 to 1 and .86 to 1 at
June 30, 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 June 30, 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
$900,000.
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 June 30, 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 August 12, 1997 By /S/ Lamar C. Smith
----------------- --------------------
LAMAR C. SMITH
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)
Date August 12, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 15014784
<RECEIVABLES> 2782167
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 72414970
<PP&E> 12383732
<TOTAL-ASSETS> 103377350
<SHORT-TERM> 0
<PAYABLES> 57856612
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 55739
<OTHER-SE> 45464999
<TOTAL-LIABILITY-AND-EQUITY> 103377350
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 642171
<COMMISSIONS> 90834961
<INVESTMENT-BANKING-REVENUES> 4761980
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 48214
<COMPENSATION> 65959783
<INCOME-PRETAX> 11405280
<INCOME-PRE-EXTRAORDINARY> 7676687
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7676687
<EPS-PRIMARY> 8.23
<EPS-DILUTED> 8.23
</TABLE>
