SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended
March 31, 1997 Commission File Number 0-15330
___________________________
AMVESTORS FINANCIAL CORPORATION
_______________________________________
(Exact name of registrant as specified in its charter)
Kansas 48-1021516
____________________________ _____________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
555 South Kansas Avenue, Topeka, Kansas 66603
__________________________________________________ __________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (913) 232-6945
Securities registered pursuant to Section 12(g) of the Act:
Common Stock*
_____________
Title of class
*Report being filed pursuant to Section 13 of the act.
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Outstanding March 31, 1997
______ ___________________________
Common Stock, no par value 13,249,115 shares
<PAGE>
AMVESTORS FINANCIAL CORPORATION
INDEX
PARTI. Financial Information: Page Number
Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996 2-3
Consolidated Statements of Earnings-
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity-
Twelve months ended December 31, 1996 and
Three months ended March 31, 1997 5
Consolidated Statements of Cash Flows-
Three months ended March 31, 1997 and 1996 6-7
Notes to Consolidated Financial Statements 8-27
Management's Discussion and Analysis of Financial
Condition and Results of Operations 27-32
PART II. Other Information 33-36
1<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(000's Omitted)
(Unaudited)
ASSETS 1997 1996
____________________________________________ ____________ ______________
Investments:
Debt securities:
Bonds:
Available-for-sale (cost: $2,660,751 and
$2,547,658) .................................. $2,647,055 2,594,293
Trading (cost: $10,049 and $12,198) ............ 10,043 12,291
2,657,098 2,606,584
Equity securities:
Common stock:
Available-for-sale (cost: $2,659 and $1,396) ... 3,518 2,440
Preferred stock:
Available-for-sale (cost: $27,388 and $27,742) . 29,133 30,694
Trading (cost: $286 and $2,516) ............... 250 2,539
32,901 35,673
Other long-term investments 36,626 41,152
Short-term investments 1,801 371
Total investments 2,728,426 2,683,780
Cash and cash equivalents 52,818 132,574
Amounts receivable under reinsurance agreements 235,878 241,458
Amounts receivable on securities settlements in process 1,996 2,395
Accrued investment income 39,222 36,676
Deferred cost of policies produced 205,737 175,837
Deferred cost of policies purchased 44,775 39,865
Goodwill 11,544 11,644
Other assets 23,629 21,246
Total assets................................... $3,344,025 3,345,475
See notes to consolidated financial statements.
2<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(000's Omitted)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
______________________________________________ _______________ __________
Liabilities:
Policy liabilities:
Future policy benefits .............................$ 3,054,786 3,037,005
Other policy liabilities 10,502 6,709
3,065,288 3,043,714
Subordinated debentures payable 65,000 65,000
Amounts due on securities settlements in process 12,591 11,301
Deferred income taxes 3,667 13,302
Accrued expenses and other liabilities 7,845 7,811
Total liabilities 3,154,391 3,141,128
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, authorized -
2,000,000 shares - -
Common stock, no par value, authorized -
25,000,000 shares; issued - 13,297,291
shares in 1997 and 13,167,372 shares in 1996 16,921 16,755
Paid in capital 99,995 98,678
Unrealized investment gains (losses) (net of deferred
cost of policies produced amortization expense
(benefit) of ($3,718) and $18,175 and net of
deferred cost of policies purchased amortization
expense (benefit) of ($1,584) and $5,112 and
deferred income tax expense (benefit) of ($2,093)
and $9,643) (3,697) 17,701
Retained earnings 79,151 73,949
192,370 207,083
Less treasury stock (234) (234)
Less leveraged employee stock ownership trust
(LESOP) ............................................ (2,502) (2,502)
Total stockholders' equity 189,634 204,347
Total liabilities and stockholders' equity ......... $3,344,025 3,345,475
See notes to consolidated financial statements.
3<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended March 31, 1997 and 1996
(000's Omitted, except per share data)
(Unaudited)
1997 1996
Revenue:
Insurance premiums and policy charges.................... $ 4,409 2,457
Net investment income.................................... 50,432 39,169
Net investment gains (losses)............................ 2,443 7,627
Other revenue............................................ 665 25
Total revenue............................................ 57,949 49,278
Benefits and expenses:
Benefits, claims and interest credited to policyholders.. 37,764 30,620
Amortization of deferred cost of policies produced....... 3,879 4,970
Amortization of deferred cost of policies purchased...... 1,786 -
General insurance expenses............................... 3,948 1,921
Premium and other taxes, licenses and fees............... 609 251
Other expenses........................................... 59 60
Total benefits and expenses.............................. 48,045 37,822
Operating earnings........................................... 9,904 11,456
Interest expense............................................. 1,435 125
Earnings before income tax expense........................... 8,469 11,331
Income tax expense........................................... 2,964 3,910
Net earnings................................................. $ 5,505 7,421
Earnings per share of common stock:
Primary:
Net earnings............................................. $ .40 .71
Fully diluted:
Net earnings............................................. $ .37 .71
Average shares outstanding:
Primary 13,750 10,427
Fully diluted............................................ 17,549 10,493
See notes to consolidated financial statements.
4<PAGE>
AMVESTORS AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's Omitted, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Investment
Common Paid-in Gains Retained Treasury
Stock Capital (Losses) Earnings Stock LESOP Total
________ ________ _________ ________ ______ ______ _______
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1996 ......................... $12,904 64,284 45,372 54,714 - (2,829) 174,445
Net earnings ................... - - - 20,862 - - 20,862
Change in unrealized invest-
ment gains (losses) ............. - - (27,671) - - - (27,671)
Cash dividends to stockholders
($.1425 per share on common
stock) ......................... - - - (1,627) - - (1,627)
Issuance of common stock:
upon acquisition of company .....3,464 28,865 - - - - 32,329
upon exercise of options ........ 387 585<F1> - - - - 972
Issuance of warrants:
upon acquisition of company .... - 5,201 - - - - 5,201
Purchase of warrants ............ - (257) - - - - (257)
Acquisition of treasury shares ... - - - - (234) - (234)
Allocation of LESOP shares ...... - - - - - 327 327
_______________________________
Balance as of December 31,
1996 ........................ 16,755 98,678 17,701 73,949 (234) (2,502) 204,347
Net earnings .................. - - - 5,505 - - 5,505
Change in unrealized invest-
ment gains (losses) ......... - - (21,398) - - - (21,398)
Cash dividends to stockholders
($.0225 per share on common
stock) ....................... - - - (303) - - (303)
Issuance of common stock:
upon exercise of options .... 166 1,317<F1> - - - - 1,483
____________________________
Balance as of March 31,
1997 ..................... $16,921 99,995 (3,697) 79,151 (234) (2,502) 189,634
<FN>
<F1> Net of income tax benefit of $377 and $242 for the period ended March 31,
1997 and
December 31, 1996, respectively.
</FN>
</TABLE>
See notes to consolidated financial statements.
5<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Three Months ended March 31, 1997 and 1996
(000's Omitted)
(Unaudited)
1997 1996
Operating Activities:
Net earnings..........................................$ 5,505 7,421
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Interest credited to policyholders.................. 39,778 30,835
Amortization of (discounts) premiums
on debt securities, net............................ (984) (241)
Amortization of deferred cost of policies
produced........................................... 3,879 4,970
Amortization of deferred cost of policies
purchased......................................... 1,786 -
Net investment (gains) losses....................... (2,443) (7,627)
Investment trading activity......................... 4,736 217
Accrued investment income........................... (2,546) (144)
Deferred income taxes............................... (2,100) 737
Other, net.......................................... 4,549 2,779
Net cash provided by operating activities............ 52,160 38,947
Investing Activities:
Purchases of securities:
Available-for-sale................................... (259,546) (261,348)
Proceeds from sale of securities:
Available-for-sale................................... 113,166 135,203
Proceeds from maturity or redemption:
Available-for-sale................................... 35,601 38,558
Other long-term investments, net...................... 4,536 4,977
Short-term investments, net........................... (1,431) 9
Capitalization of deferred cost of policies
produced............................................ (11,885) (9,071)
Other, net............................................ (3,049) (984)
Net cash used in investing activities................ (122,608) (92,656)
Financing Activities:
Premiums received..................................... 117,958 97,144
Surrender and death benefits paid..................... (138,722) (93,786)
Surrender and risk charges collected.................. 3,822 1,880
Securities settlements in process..................... 1,689 11,092
Cash dividends to stockholders........................ (303) (753)
Issuance of common stock.............................. 1,482 105
Other, net............................................ 4,766 2,258
Net cash provided by (used in)
financing activities................................. (9,308) 17,940
Increase (Decrease) in Cash and Cash Equivalents......... (79,756) (35,769)
Cash and Cash Equivalents:
Beginning of year..................................... 132,574 48,281
End of year...........................................$ 52,818 12,512
See notes to consolidated financial statements.
6<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Increase (Decrease) in Cash and Cash Equivalents
Three months ended March 31, 1997 and 1996
(000's Omitted)
(Unaudited)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
1997 1996
Income tax payments (refunds)................. $ 950 315
Interest payments............................. $ - 118
(000's Omitted)
For the Period Ended March 31,
___________________________________
NON-CASH ACTIVITIES: 1997 1996
Change in net unrealized investment gains
(losses)..................................... $ (61,723) (68,368)
Less: Associated (increase) reduction in
amortization of deferred cost of policies
Produced............................... 21,893 19,235
Purchased............................... 6,696 -
Deferred income tax (expense) benefit... 11,736 17,197
Net change in net unrealized gains (losses)... $ (21,398) (31,936)
Investing activities:
Purchase of securities:
Available-for-sale......................... $ 6,490 -
Sales of securities:
Available-for-sale......................... $ 6,490 -
The above represents transactions involving the exchange of one security
for another. For additional information see Note 2 of Notes to Consolidated
Financial Statements.
See notes to consolidated financial statements.
7<PAGE>
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
_______________________________________________
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
AmVestors and its wholly-
owned subsidiaries American Investors Life Insurance Company, Inc.
(American), American Investors Sales Group, Inc. (American Sales), AmVestors
Acquisition Subsidiary, Inc. (AAS), successor through merger with Financial
Benefit Group, Inc. (FBG), AmVestors CBO II, Inc. (CBO II), AmVestors
Investment Group, Inc. (AIG), Annuity International Marketing Corporation
(AIMCOR), Financial Benefit Life Insurance Company (FBL), The Insurance Mart,
Inc. (TIM), and Rainbow Card Pack Publication, Inc. (RBCP), (collectively the
company). All significant intercompany accounts and transactions have been
eliminated.
B. ACCOUNTING PRINCIPLES AND PRACTICES:
The accompanying unaudited consolidated financial statements have
been prepared on the basis of generally accepted accounting principles as
promulgated by the American Institute of Certified Public Accountants. In the
opinion of the company, the consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1997 and the results of
earnings and the statements of cash flows for the three month periods ended
March 31, 1997 and 1996.
C. INVESTMENTS:
Debt securities held-to-maturity are carried at amortized cost,
except that those securities with an other than temporary impairment in value
are carried at estimated net realizable value. Debt securities
available-for-sale are carried at estimated market value, with any unrealized
gains (losses) recorded in stockholders' equity.
Investments are reviewed on each balance sheet date to determine if
they are impaired. In determining whether an investment is impaired, the
company considers whether the decline in market value at the balance sheet
date is an other than temporary decline; if so, then the investment's
carrying value is reduced to a new cost basis which represents estimated fair
value. The decline in value is reported as a realized loss, and a recovery
from the new cost basis is recognized as a realized gain only at sale.
The estimates of fair value are based on information obtained from
published financial information provided by issuers, independent sources such
as broker dealers or the company's independent investment advisor. Such
amounts represent an estimate of the consideration to be received in the
future when the defaulted company's debt is settled through the sale of their
assets or the restructuring of their debt. These estimates do not represent
the discounted present value of these future considerations.
Investments in common and preferred stock are carried at market, with
unrealized gains (losses) recorded in stockholders' equity for securities
available-for-sale.
Investments in debt and equity securities which were purchased
principally for the purpose of selling such securities in the near term are
classified as trading securities and are carried at market. Unrealized gains
(losses) are included currently in the results of earnings.
The cost of securities sold is determined on a specific
identification basis.
Other long-term investments include policy loans and mortgage loans
on real estate which
are carried at cost less principal payments since date of
acquisition, and certain partnership investments which are carried at an
amount equal to the company's share of the partner's estimated market value
with any unrealized gains or (losses) recorded in net investment income.
8<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1. Summary of Significant Accounting Policies (continued):
___________________________________________________________
D. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Estimated fair value amounts have been determined by the company
using available market information and appropriate valuation methodologies.
Due to the fact that considerable
judgment is required to interpret market data to develop the
estimates of fair value, the estimates presented are not necessarily
indicative of the amounts that could be realized in a current market
exchange.
The carrying values and estimated fair values of the company's
financial instruments as of March 31, 1997, and December 31, 1996, were as
follows:
(000's Omitted)
1997 1996
_______________________ ________________________
Carrying Fair Carrying Fair
Value Value Value Value
___________ _________ ___________ _________
Assets:
Debt securities ........... $2,657,098 2,657,098 2,606,584 2,606,584
Equity securities ......... 32,901 32,901 35,673 35,673
Other long-term investments 36,626 36,799 41,152 41,176
Short-term investments .... 1,801 1,801 371 371
Cash and cash equivalents . 52,818 52,818 132,574 132,574
Accounts receivable on
securities settlements in
process ................. 1,996 1,996 2,395 2,395
Accrued investment income . 39,222 39,222 36,676 36,676
Liabilities:
Future policy benefits -
investment contracts ..... 2,815,503 2,631,487 2,767,326 2,583,902
Other policy liabilities .. 10,502 10,502 6,709 6,709
Subordinated debentures
payable .................. 65,000 65,975 65,000 65,325
Amounts due on securities
settlements in process ... 12,591 12,591 11,301 11,301
Accrued expenses and other
liabilities .............. 7,845 7,845 7,811 7,811
DEBT SECURITIES - Fair values are based on quoted market prices or
dealer quotes, if available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
EQUITY SECURITIES - Fair value equals the carrying value as these
securities are carried at quoted market value.
OTHER LONG-TERM INVESTMENTS - For certain homogeneous categories of
mortgage loans, fair value is estimated using quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. Fair value of policy loans and other long-term investments
is estimated to approximate the assets' carrying value.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS - The carrying
amounts reported in the balance sheet approximate the assets' fair value.
AMOUNTS RECEIVABLE ON SECURITIES SETTLEMENTS IN PROCESS - The
carrying amount reported in the balance sheet approximates the fair value of
this asset.
ACCRUED INVESTMENT INCOME - The carrying amounts reported in the
balance sheet for these assets approximate fair value.
9<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1. Summary of Significant Accounting Policies (continued):
___________________________________________________________
FUTURE POLICY BENEFITS FOR INVESTMENT CONTRACTS - The fair values for
deferred annuities were estimated to be the amount payable on demand at the
reporting date as those investment contracts have no defined maturity and are
similar to a deposit liability. The amount payable at the reporting date was c
alculated as the account balance less any applicable surrender charges.
OTHER POLICY LIABILITIES - The carrying amount reported in the
balance sheet approximates the fair value of these liabilities.
SUBORDINATED DEBENTURES PAYABLE - The fair value of the company's
debentures is based on a dealer quote.
AMOUNTS DUE ON SECURITIES SETTLEMENTS IN PROCESS - The carrying
amount reported in the
balance sheet approximates the fair value of this liability.
ACCRUED EXPENSES AND OTHER LIABILITIES - The carrying amount reported
in the balance sheet approximates the fair value of these liabilities.
The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair value
amounts.
E. SIGNIFICANT RISKS AND UNCERTAINTIES:
NATURE OF OPERATIONS - The company specializes in the sale of
deferred annuity products, the earnings on which are not currently taxable to
the annuity owner. Any changes in tax regulations which eliminate or
significantly reduce this advantage of tax deferred income would adversely
impact the operations of the company. The company's products are marketed
nationwide through a network of independent agents licensed in 47 states, the
District of Columbia and the U.S. Virgin Islands. The company is not
dependent on any one agent or agency for a substantial amount of its
business. No single agent accounted for more than 2% of annuity sales in
1996, and the top twenty individual agents accounted for approximately 18% of
1996 annuity sales.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - 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 may differ from those estimates.
CERTAIN SIGNIFICANT ESTIMATES - Certain costs incurred to acquire new
business are deferred and amortized in relation to the incidence of expected
gross profits over the expected life of the policies. Determination of
expected gross profits includes management's estimate of certain elements
over the life of the policies, including investment income, interest to be
credited to the contract, surrenders and resultant surrender charges, deaths
and in the case of life insurance, mortality charges to be collected. These
estimates of expected gross profits are used as a basis for amortizing
deferred costs. These estimates are periodically reviewed by management and,
if actual experience indicates that the estimates should be revised, the
total amortization recorded to date is adjusted by a charge or credit to
earnings.
F. DEFERRED COST OF POLICIES PRODUCED:
The costs of acquiring new business (primarily commissions and policy
expenses), which vary with and are directly related to the production of new
business, have been deferred. The deferred costs related to investment-type
deferred annuity contracts are amortized in relation to the incidence of
expected gross profits over the expected life of the policies. For single
premium life insurance, deferred policy acquisition costs are amortized over
the life of the policies, but not more than 20 years for policies issued
before January l, 1987, and not more than 30 years for policies issued after
December 31, 1986,
10<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1. Summary of Significant Accounting Policies (continued):
___________________________________________________________
based on the expected gross profits for the amortization periods. The
deferred costs related to traditional life contracts are amortized over the
premium paying period for the related policies using the same actuarial
assumptions as to interest, mortality and withdrawals as are used to
calculate the reserves for future benefits.
Estimates of the expected gross profits to be realized in future
years include the
anticipated yield on investments, including realized gains (losses).
Deferred policy acquisition costs will be adjusted in the future based on
actual investment income earned.
G. DEFERRED COST OF POLICIES PURCHASED:
At the date of acquisition of a company, a portion of the purchase
price is allocated to the right to receive future cash flows from the
existing insurance contracts. The amount allocated represents the present
value of the projected future cash flows from the acquired policies. These
projections take into account mortality, surrenders, operating expenses,
yields on the investments held to back the policy liabilities and other
factors known or expected at the valuation date based on the judgment of manag
ement.
The deferred cost of policies purchased is amortized in relation to
the incidence of expected cash flows over the expected life of the policies.
If it is determined that the present value of future cash flows is
insufficient to recover the deferred cost of policies purchased, its carrying
value will be reduced with a corresponding charge to earnings.
H. GOODWILL:
Goodwill represents the excess of the amount paid to acquire a
company over the fair value of the net assets acquired. This balance is
amortized on a straight-line basis over a 30-year period. If it is determined
through an estimate of future cash flows that the goodwill has been impaired,
its carrying value will be reduced with a corresponding charge to earnings.
I. FUTURE POLICY BENEFITS:
Liabilities for future policy benefits under life insurance policies,
other than single
premium life insurance, have been computed by the net level premium
method based upon estimated future policy benefits (excluding participating
dividends), investment yield, mortality and withdrawals giving recognition to
risk of adverse deviation. Interest rates range from 41\2% to 101\4%
depending on the year of issue, with mortality and withdrawal assumptions
based on company and industry experience prevailing at the time of issue.
For single premium life insurance and single premium annuities, the
future policy
benefits are equal to the accumulation of the single premiums at the
credited rate of interest and for single premium whole life, less any
mortality charges.
J. PARTICIPATING POLICIES:
The company issued participating policies on which dividends are paid
to policyholders as determined annually by the Board of Directors. The amount
of dividends declared but undistributed is included in other liabilities.
Policy benefit reserves do not include a provision for estimated future
participating dividends.
K. DEPRECIATION:
The home office buildings are depreciated on the straight-line basis
over estimated lives of 40 years. Other depreciation is provided on the
straight-line basis over useful lives ranging from 3 to 8 years.
11<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1. Summary of Significant Accounting Policies (continued):
___________________________________________________________
L. INCOME TAXES:
The company and its subsidiaries, except for FBL, prepare and file
their income tax returns on a consolidated basis. Under current tax law,
FBLis not eligible for inclusion in a consolidated tax return for a period of
five years following the acquisition.
The company provides for the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
reported in the financial statements on the liability method.
M. EARNINGS PER SHARE:
Primary earnings per share of common stock are computed by dividing
net earnings by the sum of the weighted average number of shares outstanding
during the period plus dilutive common stock equivalents applicable to stock
options and warrants calculated using the treasury stock method. Fully
diluted earnings per share assumes the conversion of the convertible
debentures outstanding with applicable reduction in interest expense related
to the debentures.
N. CONSOLIDATED STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents
includes cash and money market accounts and other securities with original
maturities of three months or less.
O. NEW ACCOUNTING STANDARDS:
Effective for transfer and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" establishes accounting and reporting standards
based on the consistent application of the financial-components approach.
This approach requires the recognition of financial assets and servicing
assets that are controlled by the reporting entity, the derecognition of
financial assets when control is surrendered, and the derecognition of
liabilities when they are extinguished. Specific criteria are established for
determining when control has been surrendered in the transfer of financial
assets. The company does not expect the implementation of this Statement to
have a material effect on its consolidated financial statements.
P. RECLASSIFICATIONS:
Certain reclassifications have been made to conform the March 31,
1996 and December 31, 1996 financial statements to the March 31, 1997
presentation.
12<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments:
_________________
A summary of net investment income and net investment gains (losses) follows:
(000's Omitted)
For the Period Ended March 31,
______________________________________
1997 1996
Net investment income:
Debt securities.................................. $ 47,739 37,781
Equity securities................................ 386 168
Other long-term investments...................... 1,392 1,234
Short-term investments........................... 1,620 715
............................................. 51,137 39,898
Less investment expenses......................... 705 729
Net investment income............................ $ 50,432 39,169
Net investment gains (losses):
Realized investment gains (losses):
Debt securities, available-for-sale.......... $ 736 7,203
Debt securities, trading..................... 290 280
Equity securities, available-for-sale........ 1,371 -
Equity securities, trading................... 199 115
Net realized investment gains (losses)........... 2,596 7,598
Unrealized investment gains (losses):
Debt securities, trading..................... (99) 22
Equity securities, trading................... (59) 7
Other long-term investments.................. 5 -
Net unrealized investment gains (losses)......... (153) 29
Net investment gains (losses).................... $ 2,443 7,627
Certain limited partnership investments are included in income from
other long-term investments. These funds (commonly referred to as hedge
funds) are managed by outside investment advisors. The investment guidelines
of these partnerships provide for a broad range of investment alternatives,
including stocks, bonds, futures, options, commodities, and various other
financial instruments. These investments were purchased with the strategy to
achieve a yield in excess of the S&P 500 Index. The partnerships are carried
at an amount equal to the company's share of the partnerships' estimated
market value with related unrealized gains and losses recorded in net
investment income. In accordance with the permitted guidelines, the
investments purchased by these partnerships may experience greater than
normal volatility which could materially affect the company's earnings for
any given period.
13<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments (continued):
______________________________
The maturity of the company's debt and equity securities portfolio as
of March 31, 1997 was as follows:
(000's Omitted)
As of March 31, 1997
Available-for-Sale Trading
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
Debt securities:
One year or less ........... $ 55,953 54,841 -- --
Two years through five years 545,038 554,376 2,016 2,027
Six years through ten years 1,611,952 1,597,894 6,188 6,178
Eleven years and after ..... 447,808 439,944 1,845 1,838
2,660,751 2,647,055 10,049 10,043
Equity securities ........... 30,047 32,651 286 250
$ 2,690,798 2,679,706 10,335 10,293
These tables include the maturities of mortgage-backed securities
based on the estimated cash flows of the underlying mortgages.
The amortized cost, estimated market value and unrealized market
gains and losses of debt and equity securities as of March 31, 1997 and
December 31, 1996, were as follows:
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
March 31, 1997
_______________
Bonds available-for-sale:
Corporate debt obligations
Investment grade ............... $1,743,015 19,933 31,421 1,731,527
High-yield ..................... 139,102 2,161 3,128 138,135
1,882,117 22,094 34,549 1,869,662
U.S. Treasury obligations ...... 5,399 9 98 5,310
Mortgage-backed securities
Investment grade ............... 768,314 8,122 7,797 768,639
High-yield ..................... 4,921 -- 1,477 3,444
Bonds available-for-sale ...... 2,660,751 30,225 43,921 2,647,055
Bonds trading:
Corporate debt obligations
Investment grade ............... 7,522 83 82 7,523
High-yield ..................... 2,527 11 18 2,520
Bonds trading ................. 10,049 94 100 10,043
Total bonds .................. 2,670,800 30,319 44,021 2,657,098
Equity securities ................ 30,333 3,663 1,095 32,901
$2,701,133 33,982 45,116 2,689,999
14<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments (continued):
_____________________________
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1996
__________________
Bonds available-for-sale:
Corporate debt obligations
Investment grade ............... $1,589,336 38,980 8,831 1,619,485
High-yield ..................... 129,510 3,546 821 132,235
1,718,846 42,526 9,652 1,751,720
U.S. Treasury obligations ...... 44,520 246 437 44,329
Mortgage-backed securities
Investment grade ............... 778,615 18,216 2,561 794,270
High-yield ..................... 5,677 -- 1,703 3,974
Bonds available-for-sale ...... 2,547,658 60,988 14,353 2,594,293
Bonds trading:
Corporate debt obligations
Investment grade ............... 8,824 90 57 8,857
High-yield ..................... 3,374 84 24 3,434
Bonds trading .................. 12,198 174 81 12,291
Total bonds ................... 2,559,856 61,162 14,434 2,606,584
Equity securities ................ 31,654 4,430 411 35,673
$2,591,510 65,592 14,845 2,642,257
The preceding table includes the carrying value and estimated market
value of debt securities which the company has determined to be impaired (othe
r than temporary decline in value) as follows:
(000's Omitted)
Accumulated Estimated
Original Write Carrying Market
Cost Downs Value Value
March 31, 1997 $ 7,545 7,545 - -
December 31, 1996 $ 7,545 7,545 - -
The company defines high-yield securities as those corporate debt
obligations rated below investment grade by Standard & Poor's and Moody's or,
if unrated, those that meet the objective criteria developed by the company's
independent investment advisory firm. Management believes that the return on
high-yield securities adequately compensates the company for additional
credit and liquidity risks that characterize such investments. In some cases,
the ultimate collection of principal and timely receipt of interest is
dependent upon the issuer attaining improved operating results, selling
assets or obtaining financing.
15<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments (continued):
____________________________
The amortized cost, estimated market value and unrealized market
gains (losses) by type of mortgage-backed security as of March 31, 1997 and
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
March 31, 1997 Cost Gains Losses Value
_______________
<S> <C> <C> <C> <C>
Government agency mortgage-backed securities:
Pass-throughs ................................ $ 22 2 -- 24
Total government agency
mortgage-backed securities ......... 22 2 -- 24
Government sponsored enterprise
mortgage-backed securities:
Planned amortization classes ............ 465,091 6,025 3,320 467,796
Targeted amortization classes and
accretion directed classes ............. 27,634 202 -- 27,836
Sequential classes ...................... 8,840 8 36 8,812
Pass-throughs ........................... 2,220 22 10 2,232
Total government-sponsored enterprise
mortgage-backed securities ......... 503,785 6,257 3,366 506,676
Other mortgage-backed securities:
Planned amortization classes ............ 11,825 102 -- 11,927
Sequential classes ...................... 206,865 1,471 3,909 204,427
Pass-throughs ........................... 8 -- -- 8
Mezzanine classes ....................... 12,165 -- 242 11,923
Subordinated classes .................... 38,565 290 1,757 37,098
Total other mortgage-backed securities 269,428 1,863 5,908 265,383
Total mortgage-backed securities ................ $773,235 8,122 9,274 772,083
</TABLE>
16<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments (continued):
___________________________
<TABLE>
<CAPTION>
(000's Omitted)
Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
_________________
<S> <C> <C> <C> <C>
Government agency mortgage-backed securities:
Pass-throughs ................................ $ 23 2 -- 25
Total government agency
mortgage-backed securities ......... 23 2 -- 25
Government sponsored enterprise
mortgage-backed securities:
Planned amortization classes ............ 488,496 13,569 1,400 500,665
Targeted amortization classes and
accretion directed classes ............. 27,596 673 -- 28,269
Sequential classes ...................... 8,883 194 -- 9,077
Pass-throughs ........................... 2,712 31 1 2,742
Total government-sponsored enterprise
mortgage-backed securities ......... 527,687 14,467 1,401 540,753
Other mortgage-backed securities:
Planned amortization classes ............ 13,025 163 -- 13,188
Sequential classes ...................... 204,193 3,054 1,160 206,087
Pass-throughs ........................... 9 -- -- 9
Subordinated classes .................... 39,355 530 1,703 38,182
Total other mortgage-backed securities 256,582 3,747 2,863 257,466
Total mortgage-backed securities ............... $784,292 18,216 4,264 798,244
</TABLE>
Certain mortgage-backed securities are subject to significant
prepayment risk. In periods of declining interest rates, mortgages may be
repaid more rapidly than scheduled as individuals refinance higher rate
mortgages to take advantage of the lower current rates. As a result, holders
of mortgage-backed securities may receive large prepayments on their
investments which they are unable to reinvest at an interest rate comparable
to the rate on the prepaying mortgages. Mortgage-backed pass-through securitie
s and sequential classes, which comprised 28.2% and 27.5% of the carrying
value of the company's mortgage-backed securities as of March 31, 1997 and
December 31, 1996, respectively, are sensitive to this prepayment risk.
A portion of the company's mortgage-backed securities portfolio
consist of planned
amortization class ("PAC"), targeted amortization class ("TAC") and
accretion directed class ("AD") instruments. These securities are designed to
amortize in a more predictable manner by shifting the primary risk of
prepayment to investors in other tranches of the mortgage-backed security.
PAC, TAC and ADsecurities comprised 65.3% and 67.5% of the carrying value of
the company's mortgage-backed securities as of March 31, 1997 and December
31, 1996, respectively.
As of March 31, 1997, 65.2% of the company's mortgage-backed
securities were issued by either government agencies or government-sponsored
enterprises, compared to 67.3% as of December 31, 1996. The credit risk
associated with these securities is generally less than other mortgage-backed
securities. With the exception of seven issues, with a carrying value of
$27,106,340 as of March 31, 1997, all of the company's investments in other
mortgage-backed securities are rated A or better by Standard& Poor's or
Moody's.
17<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Investments (continued):
___________________________
The consideration received on sales of investments, carrying value
and realized gains and losses on those sales were as follows:
(000's Omitted)
For the Period Ended March 31,
1997 1996
Consideration received .......................$ 216,294 180,312
Carrying value ............................... 213,698 172,714
Net realized investment gains (losses) .....$ 2,596 7,598
Investment gains ........................ $ 3,338 8,365
Investment losses ....................... (742) (767)
Net realized investment gains (losses) ... $ 2,596 7,598
Net unrealized gains (losses) on debt securities available-for-sale,
debt securities trading, equity securities available-for-sale, equity
securities trading and other long-term investments changed as follows:
(000's Omitted)
Net Unrealized Gains (Losses)
Debt Equity
Securities Debt Securities Equity Other
Available- Securities Available- Securities Long-term
for-Sale Trading for-Sale Trading Investments
Balance as of
January 1, 1996 ... $ 96,829 (4) 301 10 -
1996 Net Change ..... (50,194) 97 3,695 13 -
Balance as of
December 31, 1996 46,635 93 3,996 23 -
1997 Net Change ..... (60,331) (99) (1,392) (59) 5
Balance as of
March 31, 1997 .. $(13,696) (6) 2,604 (36) 5
18<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. Other Assets:
________________
Other assets consist of the following:
(000's Omitted)
______________________________
March 31, December 31,
1997 1996
_____________ ____________
Property and equipment at cost:
Home office properties
(including land of $1,067)........ $ 19,627 17,605
Furniture and equipment............. 6,007 5,015
Automobiles......................... 224 196
_____________ ____________
25,858 22,816
Less accumulated depreciation.......... 6,260 5,987
_____________ ____________
19,598 16,829
_____________ ____________
Accounts receivable.................... 557 1,051
Other.................................... 3,474 3,366
_____________ ____________
$ 23,629 21,246
_____________ ____________
_____________ ____________
4. Reinsurance:
_______________
The company reinsures portions of insurance it writes. The maximum
amount of risk retained by American on any one life is $150,000, while the
maximum amount of risk retained by FBL on any one life is 25,000.
A summary of reinsurance data follows (000's Omitted):
Ceded to
For the Gross Other Net
Period Ended Descriptions Amount Companies Amount
_____________ ________________________ __________ ___________ ___________
March 31,
1997 Life insurance in force $ 290,846 214,017 76,829
Insurance premiums and
policy charges ....... 4,642 233 4,409
March 31,
1996 Life insurance in force 305,699 234,692 71,007
Insurance premiums and
policy charges ....... 2,649 192 2,457
March 31,
1997 Future policy benefits 3,054,786 232,695 2,822,091
December 31,
1996 Future policy benefits 3,037,005 238,774 2,798,231
The company is contingently liable for the portion of the policies
reinsured under each of its existing reinsurance agreements in the event the
reinsurance companies are unable to pay their portion of any reinsured claim.
Management believes that any liability from this contingency is unlikely.
The company had amounts receivable under reinsurance agreements of
$235,878,214 and $241,458,335 as of March 31, 1997 and December 31, 1996,
respectively. Of the total amounts receivable, $138,065,626 and $140,457,353
were associated with a coinsurance agreement entered into in 1989, which
ceded 90% of the risk on American's block of single premium whole life
policies written prior to 1989 to Employers Reassurance Corporation (ERC).
The agreement provides that ERC assumes 90% of all risks associated with each
policy in the block. Reimbursement received from ERC for amounts paid by
American on the reinsured risks totaled $3,713,355 and $2,416,764 for period
ended March 31, 1997 and 1996, respectively.
19<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. Reinsurance (continued):
___________________________
The following table identifies the components of the amounts
receivable from ERC:
(000's Omitted)
__________________________________
March 31, December 31,
1997 1996
______________ _____________
Reserve for future policy benefits ... $137,209 139,571
Reimbursement for benefit payments and
administrative allowance ............ 825 886
________ ________
$138,034 140,457
________ ________
________ ________
FBL and Philadelphia Life Insurance Company (PLI) are parties to a
reinsurance agreement under which FBL ceded 100% of the risk on certain
deferred annuity policies on a coinsurance basis. As of March 31, 1997 and
December 31, 1996, the company had amounts receivable of $96,144,279 and
$99,335,043 resulting from this agreement.
The following table identifies the components of the amounts
receivable from PLI:
(000's Omitted)
________________________________
March 31, December 31,
1997 1996
___________ _____________
Reserve for future policy benefits ... $93,837 97,602
Reimbursement for benefit payments and
administrative allowance ............ 2,307 1,733
_______ _______
$96,144 99,335
_______ _______
_______ _______
5. Convertible Subordinated Debentures:
_______________________________________
On July 12, 1996, the company closed an offering of $65,000,000 of
Convertible Subordinated Debentures. These securities were placed in Europe
pursuant to Regulation S under the Securities Act of 1933. The debentures pay
an annual cash yield of 3% payable semi-annually, are convertible into the
company's common stock at $17.125, and mature on July 12, 2003 unless
previously converted or redeemed. The debentures are redeemable, in whole or
in part, at the option of the holders, on September 30, 2001, at 124.25% of
their principal amount (which in essence reflects deferred interest at a
compounded rate of 4.25%), plus accrued but unpaid cash interest at the
coupon rate of 3%. The debentures are redeemable, at the company's option, on
or after June 30, 1999, at certain specified declining redemption prices
(starting at 103% of principal value) plus accrued but unpaid cash interest
(at the rate of 3%) and accrued deferred interest (at a compounded rate of
4.25%). The debentures may be redeemed any time after August 15, 1996, at the
company's option at their principal amount plus accrued cash interest (at the
rate of 3%), but with no payment for accrued deferred interest, if the
average closing price of the company's common stock equals or exceeds $23.12 f
or 20 consecutive trading days.
The debentures are unsecured obligations of the company, subordinated
to all existing and future senior indebtedness. Approximately $35,000,000 of
the net proceeds of the offering were used to repay existing bank debt,
$20,000,000 was contributed to American and the balance was used for other
general corporate purposes.
6. Credit Agreement:
____________________
On April 8, 1996, the company entered into a $35,000,000 credit
agreement with The First National Bank of Chicago (First Chicago), Fleet
National Bank (Fleet) and Boatmen's First National Bank of Kansas City
(Boatmen's), as Lenders. On that same date, the company borrowed the entire
$35,000,000, using the proceeds to repay existing bank debt, fund the cash
portion of the acquisition of FBG and for general corporate purposes.
On July 12, 1996, the company paid off the existing bank debt from
the proceeds of the Convertible Subordinated Debentures.
20<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
7. Retirement Plans:
____________________
The company sponsors an Employee Stock Ownership Plan (ESOP) for all
full-time employees with one year of service. Qualifying participants may
contribute an amount not to exceed 10% of covered compensation. As of March
31, 1997 and December 31, 1996, the ESOP held 62,003 shares of AmVestors
common stock. The company made no contributions to this plan during either
the three months ended March 31, 1997 and 1996.
The company sponsors a Leveraged Employee Stock Ownership Plan
(LESOP) for all full-time employees with one year of service.
The LESOP has acquired 370,244 shares of the company's stock through
the proceeds of a note payable to American. The note bears interest at 7.0%
and is payable in annual installments through December 30, 2002. The note had
an unpaid principal balance of $2,662,965 as of March 31, 1997, and December
31, 1996.
Each year the company makes contributions to the LESOP which are to
be used to make loan interest and principal payments. On December 31 of each
year, a portion of the common stock is allocated to participating employees.
Of the 414,450 shares of the company's common stock now owned by the LESOP,
200,222 shares have been allocated to the participating employees with the
remaining 214,228 shares being held by American as collateral for the loan.
On October 24, 1996, the ESOP was merged into the LESOP.
The unallocated portion of the company's common stock owned by the
LESOP has been recorded as a separate reduction of stockholders' equity.
Accrued contributions to the LESOP were $87,459 and $81,738 for three months
ended March 31, 1997 and 1996, respectively.
During 1992, the company's Board of Directors approved retirement
plans for its members and members of the Board of Directors of certain of its
subsidiaries. The plans provide that retired Directors shall serve as
Advisory Members to the Board at a fee of $750 per meeting attended and a
monthly lifetime benefit in the amount of $750 be paid to each qualified
Director upon retirement. In addition, the company has agreed to continue any
life insurance policies being provided as of the date of retirement.
To qualify for this benefit, a Director must reach the age of 60 and
meet years of service requirements thereafter. The plan also calls for a
mandatory retirement on the date the Director's term expires following age
70. A liability in the amount of $429,824, representing the present value of
future benefits, has been established. Charges (credits) to earnings related
to the plans were ($1,535) and $1,986 for the three months ended March 31,
1997 and 1996, respectively.
Effective January 1, 1993, the company adopted an Age-Weighted Money
Purchase Plan for all full-time employees with one year of service. The full
cost of this plan will be paid by the company with qualifying participants
receiving contributions based upon their age at plan implementation and
current salary. Contributions to the Age-Weighted Money Purchase Plan for the
three months ended March 31, 1997 and 1996, were $95,762 and $67,249,
respectively.
Prior to the merger with AmVestors, FBG had approved a
non-contributory Employee Stock Ownership Plan (FBGESOP) and a contributory
401-k Plan for all of its employees. As of March 31, 1997 and December 31,
1996, the FBG ESOP owned 313,031 shares of AmVestors common stock and 76,579
warrants to purchase AmVestors common stock. At that same date, the 401-k
Plan held 15,846 shares of AmVestors common stock and 3,861 warrants to
purchase AmVestors common stock. The company anticipates maintaining these as
separate plans for the benefit of the former FBG employees and is working
with the Internal Revenue Service to correct any qualification problems which
may exist. There were no contributions to the FBG ESOP in 1997 or 1996.
21<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. STOCKHOLDERS' EQUITY:
Dividends by American and FBLto AmVestors are limited by laws
applicable to insurance companies. Under Kansas law, American may pay a
dividend from its surplus profits, without prior consent of the Kansas
Commissioner of Insurance, if the dividend does not exceed the greater of 10%
of statutory capital and surplus at the end of the preceding year or all of
the statutory net gain from operations of the preceding year. As of December
31, 1996, surplus profits of American were $19,936,727 and 10% of statutory
capital and surplus was $10,146,126. American is also required to maintain,
on a statutory basis, paid-in capital stock and surplus (capital in excess of
par value and unassigned surplus) of $400,000 each. As of March 31, 1997 and
December 31, 1996, American's statutory capital and surplus was $101,457,061
and $101,461,258,respectively. The statutory net gain from operations for
1996 was $7,203,263.
Under Florida insurance law and regulations, the aggregate dividends
that FBL may pay without prior regulatory approval is limited to the greater
of the sum of statutory net operating profits and net realized capital gains
for the preceding calendar year (provided there is available surplus from net
operating profits and net realized capital gains) or 10% of its available and
accumulated statutory surplus derived from net operating profits and net
realized capital gains. After payment of a dividend, FBL must have 115% of
required statutory surplus.
On December 31, 1996, FBLhad accumulated statutory surplus derived
from net operating profits and net realized capital gains of $25,384,976. The
sum was statutory net profits and net realized capital gains for 1996 were
$3,811,912. As of March 31, 1997, available surplus from net operating
profits and net realized capital gains was $2,567,059. Required statutory
surplus as of March 31, 1997 was $19,277,236 and actual surplus was
$35,684,447.
In connection with the original establishment of the Interest
Maintenance Reserve (IMR), the Commissioner of Insurance of Kansas, the
company's domiciliary state, ordered that American prepare its December 31,
1992, NAIC Annual Statement Form to equitably allocate 1992 capital gains and
losses, not included in the calculation of the Asset Valuation Reserve (AVR),
on other than government securities, fifty (50%) percent to surplus and fifty
(50%) percent to IMR, after calculation of the AVR pursuant to the
instructions provided by the NAIC. This differs from prescribed statutory
accounting practices. This represented a permitted accounting practice for
regulatory purposes, the effect of which was to increase statutory surplus by
$8,168,000 as of December 31, 1992 ($5,303,927 as of March 31, 1997).
In addition, American received permission from the Commissioner of
Insurance of Kansas to amortize the effects of changing to Actuarial
Guideline No. 32 concerning the Commissioners Annuity Reserve Valuation
Method for individual annuity contracts over a three-year period beginning in
1995 rather than to record the full amount of the change of $2,176,000. The
effect of this permitted accounting practice was to increase statutory
surplus by $497,746 and $679,154 as of March 31, 1997 and December 31, 1996,
respectively.
On August 2, 1996, American was granted a variance from prescribed
statutory accounting practices which allowed the company to contribute
$20,000,000 to be used for the sole purpose of strengthening American's
reserves without experiencing a decrease in Unassigned Funds (Surplus). The
contribution was recorded as a contribution to a Special Surplus Fund and the
resulting reserve strengthening was charged against this Special Surplus
Fund. Total surplus was unaffected by this transaction.
The company currently has two fixed stock option plans; the 1989
Nonqualified Stock Option Plan (1989 Plan), and the 1996 Incentive Stock
Option Plan (1996 Plan). Options granted under the 1989 Plan have an exercise
price equal to the closing price of the company's stock on the date of the
original grant and none may be exercised beyond ten years from the grant
date. A total of 973,820 options to acquire common stock were outstanding
under the 1989 Plan as of March 31, 1997. The 1996 Plan was approved by the
stockholders of the company at its Annual Meeting held on May 16, 1996 and is
intended to qualify as an "incentive stock option plan" under Section 422 of
the Internal Revenue Code of 1986. Options granted under the 1996 Plan have
an exercise price equal to the closing price of
22<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Stockholders' Equity (continued):
____________________________________
the company's stock on the date of the original grant and none may be
exercised beyond ten years from the grant date. No options to acquire common
stock were outstanding under the 1996 Plan as of March 31, 1997.
Both the 1989 Plan and the 1996 Plan are administered by the Board of
Directors and officers of the company and its subsidiaries. The terms of the
options, including the number of shares granted, and the exercise price are
subject to the sole discretion of the Board of Directors.
A summary of the company's stock option plans as of and for the
period ended March 31, 1997 and December 31, 1996 follows:
1997 1996
______________________ ____________________
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
________ ________ ________ ________
Options outstanding,
beginning of period 1,551,556 $ 11.15 839,841 $ 8.97
Options granted ..... 483,247 15.63 804,500 12.96
Options exercised ... (129,919) 10.00 (76,285) 6.52
Options terminated .. - - (16,500) 10.15
__________ ___________ __________ ______
Options outstanding,
end of period ..... 1,904,884 $ 12.46 1,551,556 $ 11.15
__________ ___________ __________ ______
__________ ___________ __________ ______
Options exercisable,
end of period ..... 1,003,211 1,127,630
Options reserved for
future grants,
end of period ..... -0- 483,247
The following table summarizes information about stock options
outstanding under the company's option plans as of March 31, 1997:
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Prices Outstanding Life in Years Price
________ ____________ ______________ __________
$4.84 40,000 - $4.84
$7.03-$7.50 143,073 .59 7.32
$8.75 20,000 7.65 8.75
$10.00-$11.25 353,500 6.90 10.12
$12.66-$13.50 865,064 8.71 12.94
$15.60 483,247 5.07 15.63
__________ __________ __________
1,904,884 6.65 $12.46
__________ __________ __________
__________ __________ __________
23<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Stockholders' Equity (continued):
____________________________________
The following table summarizes information about stock options
exercisable under the company's option plans as of March 31, 1997:
Weighted
Average
Options Exercise
Exercisable Price
____________ __________
40,000 $4.84
143,573 7.32
20,000 8.75
353,500 10.12
446,138 12.83
__________ __________
1,003,211 $10.69
__________ __________
__________ __________
The estimated fair value of options granted in 1995 was $4.77 per
share. The estimated fair value of options granted or modified in 1996 was
$5.00 per share. The company applies Accounting Principles Board Opinion No.
25 and related Interpretations in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for its option
plans. Had compensation expense for the company's option plans been
determined based on the fair value at the grant dates for awards under those p
lans consistent with the method prescribed by SFAS123, the company's net
earnings and fully diluted earnings per share for the quarter ended March 31,
1997 and 1996 would have been reduced to the pro forma amounts indicated
below:
1997 1996
______________ _____________
Net earnings (in thousands):
As reported.............................. $5,505 7,421
Pro forma................................ 5,125 7,350
Fully diluted earnings per share:
As reported.............................. $.37 .71
Pro forma................................ .35 .70
As SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting proforma compensation cost may not be
representative of that to be expected in future years.
The fair value of options granted in 1997 was estimated on the date
of grant using a binomial options-pricing model and the following weighted
average assumptions: (i) expected volatility of 23.9%, (ii) risk-free
interest rate of 5.37%, (iii) dividend yield of .70%, and (iv) an expected
life equal to the contractual expiration.
The fair value of options granted in 1996 was estimated on the date
of grant using a binomial options-pricing model and the following weighted
average assumptions: (i) expected volatility of 29.4% (ii) risk-free interest
rate of 5.14%, (iii) dividend yield of .58%, and (iv) an expected life equal
to the contractual expiration.
On March 17, 1989, the Board of Directors also adopted the 1989 Stock
Appreciation Rights Plan (the SAR Plan) and the 1989 Restricted Stock Plan
(the Restricted Stock Plan). The SAR Plan authorized the Board of Directors
to grant stock appreciation rights to employees, officers and directors in
such amounts and with such exercise prices as it shall determine. No stock
appreciation rights granted under the SAR Plan may be exercised more than
five years from its date of grant. The SAR Plan authorized a maximum of
125,000 shares to be issued pursuant to stock appreciation rights granted
thereunder.
24<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Stockholders' Equity (continued):
____________________________________
For the Period Ended
(000's Omitted)
_____________________________________
March 31, December 31,
1997 1996
________________ ________________
Rights outstanding, beginning of year.. - -
Rights granted......................... - -
Rights exercised....................... - -
Rights expired......................... - -
Rights cancelled....................... - -
________________ ________________
Rights outstanding, end of year........ - -
________________ ________________
________________ ________________
Reserved for future grants............. 35,000 35,000
________________ ________________
________________ ________________
The company recorded no compensation expense relating to stock
appreciation rights for the three months ended March 31, 1997 and 1996,
respectively.
The Restricted Stock Plan authorizes the Board of Directors to make
restricted stock awards to employees, officers and directors in such amounts
as it shall determine. The stock issued pursuant to such awards is subject to
restrictions on transferability for a period of five years. Such stock is
subject to a five-year vesting schedule, and the company is required to
repurchase all vested stock from a grantee if such grantee's employment with
the company is terminated prior to the lapse of the transfer restrictions.
The Restricted Stock Plan authorizes a maximum of 125,000 shares to be issued
thereunder. No restricted stock awards have been granted pursuant to the
Restricted Stock Plan.
In conjunction with a previous bank borrowing, the company issued
ten-year warrants to purchase a total of 170,002 shares of its common stocks
as summarized in the following table:
Warrant Issue Number Exercise Expiration
Holder Date of Shares Price Date
Morgan Guaranty 12/8/88 75,000 $ 3.9688 12/9/98
4/30/92 95,002 6.3855 5/1/02
170,002
In conjunction with the acquisition of FBG, the company issued
warrants to purchase 663,706 shares of its common stock. Also 52,660 warrants
to purchase common stock were issued by the exercise of warrants previously
issued by FBGby conversion. These warrants are exercisable at $16.42 per
share of common stock and expire on April 2, 2002.
In addition to the above, the company assumed warrants previously
issued by FBG to purchase a total of 270,689 shares of its common stock.
Prior to December 31, 1996, 260,305 warrants had been exercised. The
remaining 10,384 warrants have exercise prices ranging from $1.346 to
$3.7198.
9. Other Revenue:
__________________
Effective December 1, 1989, the company entered into a coinsurance
agreement with Employers Reassurance Corporation (ERC) which reinsured 90% of
the risk on the company's block of SPWL policies written prior to 1989. The
agreement provides that ERC assumes 90% of all risks associated with each
policy in the block. These policies continue to be administered by American.
In return, American receives an administrative allowance of $31.50 per policy
per year. The total allowance received during the three months ended March
31, 1997 and 1996 were $26,900 and $29,187, respectively.
25<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Other Revenue (continued):
_____________________________
Other revenue for the three months ended March 31, 1997 includes
override commissions of $415,133 attributable to the marketing efforts of
AIMCORand TIM, and $152,541 of administrative fees received by AIG from
AmVestors CBO Trust I.
10. Income Taxes:
_________________
The provision for income taxes charged to operations was as follows:
(000's Omitted)
For the three months Ended March 31,
1997 1996
Current income tax expense..................... $ 864 3,172
Deferred income tax expense (benefit).......... 2,100 3,738
Total income tax expense (benefit)..........$ 2,964 3,910
11. Acquisition:
________________
On September 8, 1995, the company signed a merger agreement pursuant
to which it acquired all of the outstanding capital stock of FBG, a Delaware
corporation, for $5.31 per share, payable in 2,722,223 shares of the
company's common stock, warrants to purchase 663,706 shares of common stock
and cash of approximately $10,000,000.
FBG was an insurance holding company which owned all of the shares of
FBL, a Florida domiciled insurer, which specializes in the sale and
underwriting of annuity products and is admitted in 41 jurisdictions, which
includes 39 states, the District of Columbia and the U.S. Virgin Islands. FBG
also owned all of the shares of AIMCOR and TIM, both of which specialize in
the distribution and marketing of annuities.
The merger received the approval of the shareholders of both FBG and
the company, and became effective on April 8, 1996. The consolidated
statements of earnings for the three months ended March 31, 1997 include the
results of operations of FBG.
26<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Acquisition (continued):
____________________________
The transaction has been accounted for using the purchase method with
any resulting goodwill being amortized on a straight line basis over a period
not to exceed 30 years. The opening consolidated balance sheet of the
acquired entities follows:
(000's Omitted)
ASSETS
Investments........................................... $ 523,145
Cash and cash equivalents............................. 8,932
Amounts receivable under reinsurance agreements....... 112,875
Accrued investment income............................. 7,373
Deferred cost of policies purchased................... 51,500
Goodwill.............................................. 11,942
Other assets.......................................... 6,621
Total assets......................................... $ 722,388
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities.................................... $ 650,865
Notes payable......................................... 15,500
Deferred income taxes................................. 1,316
Accrued expenses and other liabilities................ 5,930
Total liabilities.................................... 673,611
Stockholders' Equity:
Common stock, no par value............................ -
Paid in capital....................................... 48,777
Total stockholders' equity........................... 48,777
Total liabilities and stockholders' equity........... $ 722,388
12. Commitments and Contingencies:
__________________________________
The company's insurance subsidiaries are subject to state guaranty
association assessments in all states in which they are admitted. Generally,
these associations guarantee specified amounts payable to residents of the
state under policies issued by insolvent insurers. Most state laws permit
assessments or some portion thereof to be credited against future premium
taxes. Charges relating to the guaranty fund assessments impacted the years
1996 and 1995 by approximately $1,913,000 and $1,001,000. The company expects
that further charges to income may be required in the future and will record
such amounts when they become known.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The company specializes in the sale of deferred annuity products. During
each of the past three years, sales of deferred annuities have accounted for
at least 96% of the company's premiums received, while sales of single
premium immediate annuities (SPIAs) and flexible premium universal life
insurance (FPULs) have accounted for virtually all remaining premiums
received.
27<PAGE>
The company's operating earnings are derived primarily from its investment
results, including realized gains (losses), less
interest credited to annuity contracts and expenses. Under GAAP, premiums
received on deferred annuities, SPIAs without life contingencies and FPULs
are not recognized as revenue at the time of sale. Similarly, policy
acquisition costs (principally commissions) related to such sales are not
recognized as expenses but are capitalized as deferred acquisition costs, or
"DAC". As a result of this deferral of costs and the lack of revenue
recognition for premiums received, no profit or loss is realized on these
contracts at the time of sale. Premiums received on deferred annuities, SPIAs
without life contingencies and FPULs are reflected on the company's balance
sheet by an increase in assets equal to the premiums received and by a
corresponding increase in future policy liabilities.
The company's earnings depend, in significant part, upon the persistency
of its annuities. Over the life of the annuity, net investment income, net
investment gains (losses) and policy charges are realized as revenue, and DAC
is amortized as an expense. The timing of DACamortization is based on the
projected realization of profits including realized gains (losses) for each
type of annuity contract and is periodically adjusted for actual experience.
If a policy is terminated prior to its expected maturity, any remaining
related DAC is expensed in the current period. Most of company's annuity
policies in force have surrender charges which are designed to discourage and
mitigate the effect of premature terminations.As a result, the impact on
earnings from surrenders will depend upon the extent to which available
surrender charges offset the associated amortization of DAC.
Recent periods of low interest rates have reduced the company's
investment yields. As a result of the lower investment yields, the company
reduced credited interest rates on its annuity products. Certain annuities
issued by the company include a "bailout" feature which allows policyowners
to withdraw their entire account balance without surrender charges for a
period of 45 to 60 days following the initial determination of a renewal
credited rate below a predetermined level. If a policyowner elects not to
withdraw funds during this period, surrender charges are reinstated. As of
March 31, 1997, approximately $259.0 million, or 11.7% of American's annuity
account values contained a "bailout" provision, the current credited interest
rates on these policies are above the "bailout" rate. The "bailout" rate on
$256.9 million of this amount is 6% or less. As of that same date,
approximately $18.6 million, or 3.8% of FBL's annuity account values
contained a "bailout" provision, the current credited interest rates on these
policies are above the "bailout" rate. The "bailout" rate on the entire $18.6
million is 5.5% or less, with $14.8 million at 5% or less. If the company
reduces credited interest rates below the "bailout" rates on policies
containing "bailout" provisions in the future, it intends to pay any
resulting surrenders from cash provided by operations and premiums received.
In the event such sources are not sufficient to pay surrenders, the company
would have to sell securities at the then current market prices. Management
expects that withdrawals on the company's annuity contracts will increase as
such contracts approach maturity. The company may not be able to realize
investment gains in the future to offset the adverse impact on earnings, shoul
d future "bailout" surrenders occur.
MARGIN ANALYSIS
The company's earnings are impacted by realized investment gains
(losses) and by the associated amortization of the deferred costs of policies
produced and purchased. The actual timing and pattern of such amortization is
determined by the actual profitability to date (which includes realized
investment gains (losses)) and the expected future profitability on a
particular annuity contract. To the extent investment income is accelerated
through realization of investment gains, the corresponding amortization of
deferred costs is also accelerated as the stream of profitability on the
underlying annuities is effectively accelerated. When investment losses are
realized, the reverse is true. The following margin analysis depicts the
effects of realized gains, amortization of DACand other components of profit
on the company's operating earnings:
28<PAGE>
For the three months Ended March 31,
___________________________________________________
1997 1996
(dollars in millions)
(percent of average invested assets)
Average invested assets <F1> $ 2,772.5 100.0% $2,078.4 100.0%
Insurance premiums and
policy charges ............ $ 4.4 .63 $ 2.5 .47%
Net investment income <F2> ... 50.4 7.28 39.2 7.54
Net investment gains
(losses), core <F3> ...... 2.1 .30 .4 .08
Policyholder benefits ....... (37.8) (5.45) (30.6) (5.89)
Gross interest margin ....... 19.1 2.76 11.4 2.20
Associated amortization of
deferred cost of:
Policies produced ...... (3.9) (.56) (2.9) (.57)
Policies purchased ..... (1.5) (.22) - -
Net interest margin ......... 13.7 1.98 8.5 1.63
Net investment gains, other . .4 .06 7.2 1.39
Associated amortization of
deferred cost of:
Policies produced ...... - - (2.0) (.39)
Policies purchased ..... (.3) (.04) - -
Net margin from investment
gains, other ............ .1 .02 5.2 1.00
Total net margin ........... 13.8 2.00 13.7 2.63
Expenses, net ............... (3.9) (.57) (2.2) (.42)
Operating earnings .......... 9.9 1.43 11.5 2.20
Interest expense ............ (1.4) (.21) (.1) (.02)
Earnings before income taxes 8.5 1.22 11.3 2.18
Income tax expense .......... (3.0) (.43)% (3.9) (.75)
Net earnings ................ $ 5.5 .79%$ 1.43%
Operating earnings .......... $ 9.9 1.43%$ 2.20%
Less: Net margin from
investment gains, other . .1 .02 5.2 1.00%
Operating earnings
excluding net margin from
investment gains, other . $ 9.8 1.41% $ 6.3 1.20%
[FN]<F1> Average of cash, invested assets (before SFAS115 adjustment) and net
amounts due
to or from brokers on unsettled security trades at the beginning and end
of
period for 1997 and 1996.
<F2> Net investment income is presented net of investment expense.
<F3> Includes realized and unrealized gains (losses) on trading securities and
realized
gains (losses) on convertible securities where the company has accepted
lower current
yields in anticipation of the equity performance of the underlying common
stock.
Note: Numbers may not add due to rounding.
29<PAGE>
Three Months Ended March 31, 1997, and 1996
INSURANCE PREMIUMS AND POLICY CHARGES increased $1.9 million or 76%,
to $4.4 million in 1997, due primarily to a $1.8 million increase in
surrender charges received on increased surrenders of annuity policies. This
increase results in large part from the acquisition of FBG.
NET INVESTMENT INCOME increased $11.2 million or 29%, to $50.4
million in 1997. This increase reflects an increase in average invested
assets from $2,078.4 million in 1996 to $2,772.5 million in 1997, offset in
part by a decrease in the average yield on invested assets from 7.5% for the
three months ended March 31, 1996, to 7.3% for the same period in 1997. The
increase in average invested assets can be attributed to the acquisition of
FBG. The yield in both periods was impacted by investments in investment
partnerships. These partnerships form a fund of funds totalling $19.2 million
and $18.8 million on March 31, 1997 and 1996, respectively. This fund of
funds is structured in an attempt to consistently provide returns in excess
of the S&P 500 over time without regard to the general direction of financial
markets. This fund generated net income of $.4 million in the 1997 quarter
compared with income of $.7 million in 1996.
NET INVESTMENT GAINS (LOSSES) were $2.4 million in 1997, compared
with $7.6 million in 1996. Gains and losses may be realized upon securities
which are disposed of for various reasons. The net gains realized in both
periods are the result of general portfolio management. Unrealized gains
(losses) in the company's bond portfolio were ($13.7) million, $46.7 million
and $28.1 million as of March 31, 1997, December 31, 1996 and March 31, 1996,
respectively.
OTHER REVENUE increased $.6 million to $.7 million in 1997. This
increase results from $.4 million of commissions received by TIM and AIMCOR
and $.2 million of administrative fees received by AIGfrom AmVestors CBOTrust
I.
BENEFITS, CLAIMS AND INTEREST CREDITED TO POLICYHOLDERS increased
$7.2 million, or 24%, to $37.8 million in 1997 from $30.6 million in 1996.
This increase results primarily from an increase in annuity liabilities to
$2,879.3 million on March 31, 1997, from $2,120.7 million on March 31, 1996.
This increase was partially offset by a decrease in the average interest rate
credited on the company's annuity liabilities, from 6.0% as of March 31,
1996, to 5.7% as of March 31, 1997. Both the increase in annuity liabilities
and the decrease in the average interest rate credited on those liabilities
are largely due to the acquisition of FBG.
Amortization of deferred cost of policies produced decreased $1.0
million, or 26%, to $3.9 million in 1997 from $4.9 million in 1996.
Amortization associated with gross interest margin increased $1.0 million to
$3.9 million in 1997 from $2.9 million in 1996. Amortization associated with
investment gains decreased to $0 on $.4 million of gains in 1997 from $2.0
million on $7.6 million of gains in 1996. Costs incurred during 1997 and
deferred into future policy periods were $11.9 million, compared with $9.1
million in 1996.
Amortization of deferred cost of policies purchased of $1.8 million
represents the amortization of the purchase price allocated to the policies
acquired in the acquisition of FBG. There was no similar expense in the 1996
period.
General insurance expenses increased $2.0 million, or 105%, to $3.9
million for the 1997 three months from $1.9 million for the same period in
1996. This increase can be attributed to increases in business activity,
assets under management and the acquisition of FBG.
Interest expense increased $1.3 million reflecting the $65.0 million
of convertible subordinated debentures issued in July, 1996.
30<PAGE>
Income tax expense decreased $.9 million to $3.0 million in 1997 from
$3.9 million in 1996. Taxes were provided at an effective rate of 35% on both
1997 and 1996 income.
LIQUIDITY AND CAPITAL RESOURCES
The company is an insurance holding company whose principal asset is
the common stock of its insurance subsidiaries. The company's primary cash
requirements are to pay operating expenses, stockholder dividends and debt
service.
As a holding company, the company relies on funds received from
American and FBL to meet its cash requirements at the holding company level.
The company receives funds from American in the form of commissions paid to
American Sales, fees paid to AIG, rent, administrative, printing and data
processing charges and dividends. The insurance laws of Kansas and Florida
generally limit the ability of American and FBL to pay cash dividends in
excess of certain amounts without prior regulatory approval and also require
that certain agreements relating to the payment of fees and charges to the
company by it's insurance subsidiaries be approved by the Insurance
Commissioner of the state of domicile.
The liquidity requirements of American and FBL are met by premiums
received from annuity sales, net investment income received, and proceeds
from investments upon maturity, sale or redemption. The primary uses of funds
are the payment of surrenders, policy benefits, operating expenses and
commissions, as well as the purchase of assets for investment.
For purposes of reporting the company's consolidated statements of
cash flows, financing activities include premiums received from sales of
deferred annuities, surrenders and death benefits paid, and surrender and
policy charges collected on these contracts. The net cash provided by (used
in) these particular financing activities for the three months ended March
31, 1997 and 1996 was ($16.9) million and $5.2 million, respectively.
The decrease in net cash provided by annuity contracts without life
contingencies in 1997 resulted primarily from a $44.9 million increase in
surrender and death benefits paid from $93.8 million (approximately 4% of
beginning reserves for future policy benefits) to $138.7 million
(approximately 5% of beginning reserves for future policy benefits) offset by
a $20.9 million increase in premiums received from $97.1 million to $118.0
million.
Net cash provided by the company's operating activities was $52.2
million and $38.9 million in 1997 and 1996, respectively.
Cash provided by financing and operating activities and by the sale
and maturity of portfolio investments is used primarily to purchase portfolio
investments and for the payment of acquisition costs (commissions and
expenses associated with the sale and issue of policies). To meet its
anticipated liquidity requirements, the company purchases investments taking
into account the anticipated future cash flow requirements of its underlying
liabilities. In addition, the company invests a portion of its assets in
short-term investments with maturities of less than one year (5% and 8% as of
March 31, 1997 and December 31, 1996, respectively). The weighted average
duration of the company's investment portfolio was 4.6 years as of March 31,
1997.
The company continually assesses its capital requirements in light of
business developments and various capital and surplus adequacy ratios which
affect insurance companies. The company has met its capital needs and those
of American through several different sources including bank borrowing, the
issuance of convertible debentures and the sale of both preferred and common
stock.
Recent regulatory actions against certain large life insurers
encountering financial difficulty have prompted the various state guaranty
associations to begin assessing life insurance companies for the resulting
losses. For further information regarding the effects of guaranty fund
assessments, see Note 12 of Notes to Consolidated Financial Statements.
31<PAGE>
REINSURANCE. American and Employers Reassurance Corporation (ERC) are
parties to a reinsurance agreement under which American ceded 90%, on a
coinsurance basis, of the risk on its SPWLpolicies written prior to 1989.
Under the terms of the agreement, American continues to administer the
policies and is reimbursed for all payments made under the terms of the
reinsured policies. For its services, American receives a fee from the
reinsurer for administering such policies. If ERCwere to become insolvent,
American would remain responsible for the payment of all policy liabilities.
As of March 31, 1997 and December 31, 1996, American had amounts receivable
resulting from this agreement of $138.0 million and $140.5 million,
respectively.
FBL and Philadelphia Life Insurance Company (PLI) are parties to a
reinsurance agreement under which FBLceded 100% of the risk on certain
deferred annuity policies on a coinsurance basis. Under the terms of the
agreement, FBL continues to administer the policies and is reimbursed for all
payments made under the terms of the reinsured policies. For its services,
FBLreceives a fee from the reinsurer for administering such policies. If PLI
were to become insolvent, FBL would remain responsible for the payment of all
policy liabilities. As of March 31, 1997 and December 31, 1996, FBL had
amounts receivable resulting from this agreement of $96.1 and $99.3 million.
In addition, American is a party to two assumption reinsurance
agreements with other reinsurers.
EFFECT OF INFLATION AND CHANGES IN INTEREST RATES. The company does
not believe that inflation has had a material effect on its consolidated
results of operations during the past three years. The company seeks to
manage its investment portfolio in part to reduce its exposure to interest
rate fluctuations. In general, the market value of the company's fixed income
securities increases or decreases directly with interest rate changes. For
example, if interest rates decline (as was the case in 1995), the company's
fixed income investments generally will increase in market value, while net
investment income will decrease. Conversely, if interest rates rise (as was
the case in 1996), fixed income investments generally will decrease in market
value, while net investment income will increase.
In a rising interest rate environment, the company's average cost of
funds would increase over time as it prices its new and renewing annuities to
maintain a generally competitive market rate. During such a rise in interest
rates, new funds would be invested in bonds with higher yields than the
liabilities assumed. In a declining interest rate environment, the company's
cost of funds would decrease over time, reflecting lower interest crediting
rates on its fixed annuities.
In addition to the increase in the company's average cost of funds
caused by a rising interest rate environment, surrenders of annuities are no
longer protected by surrender charges increase.
32<PAGE>
PART II. OTHER INFORMATION
AMVESTORS FINANCIAL CORPORATION
Item 1. Legal Proceedings
________________________________
The company has no material legal proceedings pending against it.
Item 2. Changes in Securities
_____________________________________
None
Item 3. Defaults upon Senior Securities
_________________________________________________
None
Item 4. Submission of Matters to a Vote of Security Holders
______________________________________________________________________
None
Item 5. Other Information
________________________________
None
Item 6. Exhibits and Reports on Form 8-K
___________________________________________________
(a)Exhibits (numbered in accordance with Item 601 of Regulations S-K).
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference
<C> <C> <C>
(2)(a) Plan and Agreement of Union dated Exhibit (2) to Registration
July 10, 1986, between AmVestors Statement on Form S-2,
Financial Corporation and American File No. 2-82811 dated
Investors Life Insurance Company, November 26, 1986.
Inc.
(2)(b) Resolutions of the Board of Exhibit (2)(a) to Form 10-Q
Directors dated January 7, 1988, dated May 11, 1988.
providing for succession to the
position of Chairman of the Board
of Directors
(2)(c) Agreement and Plan of Merger dated Exhibit (2.1)to Registration
September 8, 1995, between Financial Statement on Form S-4,
Benefit Group, Inc., AmVestors File No. 333-01309 dated
Financial Corporation and AmVestors March 1, 1996
Acquisition Subsidiary, Inc. as Amended
(3)(a) Articles of Incorporation as Amended Exhibit (3)(a) to Form 10-Q
and Restated dated October 26, 1993
(3)(b) Bylaws of the company Exhibit (4.2) to Registration
Statement on Form S-4, File
No. 333-01309 dated February
28, 1996
(4)(a) Specimen Common Stock Certificate Exhibit (4)(a) to Form 10-K
dated March 30, 1995.
</TABLE>
33<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference
<C> <C> <C>
(4)(b) Common Stock Purchase Warrant Exhibit (10)(o) to Form 10-K
expiring December 9, 1998 dated April 12, 1989
(4)(c) Common Stock Purchase Warrant Exhibit (10)(v) to Form 10-Q
dated May 13, 1992
(4)(d) 1995 Agents Stock Option Plan Exhibit (4.1) to Registration
Statement on Form S-3, File
No. 333-02211 dated April 2,
1996
(4)(e) AmVestors Financial Corporation 1996 Exhibit (4)(a) to Registration
Incentive Stock Option Plan Statement on Form S-8, File
No. 333-14571 dated October 21,
1996
(4)(f) Form of 3% Convertible Subordinated Exhibit (4.2) to Registration
Debentures due 2003 Statement on Form S-3, File No.
333-10101 dated August 29, 1996
(4)(g) Warrant agreement and form of warrant Appendix V to Registration
statement on Form S-4, File No.
333-01309 dated March 1, 1996
(10)(a) Form of Indemnification Agreement between Exhibit (10)(a) to Form 10-K
company and its officers and directors dated March 29, 1988
(10)(b) 1989 Non-Qualified Stock Option Plan Exhibit (10)(q) to Form 10-K
adopted March 17, 1989 dated April 12, 1989
(10)(c) Stock Appreciation Rights Plan adopted Exhibit (10)(r) to Form 10-K
March 17, 1989 dated April 12, 1989
(10)(d) Restricted Stock Plan adopted Exhibit (4.4) to Registration
March 17, 1989 Statement on Form S-8, File
No. 33-31155 dated September
19, 1989
(10)(e) Employment Agreement dated December 17, Exhibit (10)(l) to Form 10-K
1992, among the company, it's dated March 30, 1993
subsidiaries and Mark V. Heitz
(10)(f) Employment Agreement dated October 3, Exhibit (10)(a) to Form 10-Q
1994, among the company, it's dated November 10, 1994
subsidiaries and Ralph W. Laster, Jr.
(10)(g) Bonus Compensation Agreement dated Exhibit (10)(b) to Form 10-Q
September 30, 1994, between the company dated November 10, 1994
and Ralph W. Laster, Jr.
(10)(h) Bonus Compensation Agreement dated Exhibit (10)(c) to Form 10-Q
September 30, 1994, between the company dated November 10, 1994
and Mark V. Heitz
</TABLE>
34<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference
<C> <C> <C>
(10)(i) 1994 Stock Purchase Plan for Non-Employee Exhibit (10)(j) to Form 10-K
Directors effective February 24, 1994 dated March 30, 1995
(10)(j) Incentive Compensation Plan between the Exhibit (10)(k) to Form 10-K
company and certain designated employees dated March 30, 1995
effective for the calendar year 1994
(10)(k) Employment Agreement dated January 1, PP 38-42
1997 between the company and Timothy S.
Reimer
(10)(l) Employment Agreement dated January 1, PP 43-47
1997 between the company and Thomas M.
Fogt
(10)(m) Employment Agreement dated January 1, PP 48-52
1997 between the company and Lynn F.
Hammes
(10)(n) Employment Agreement dated January 1, PP 53-57
1997 between the company and Ronald J.
Stanley
(10)(o) Special Incentive Bonus Agreement dated PP 58-59
March 27, 1997, between the company and
Ralph W. Laster, Jr.
(10)(p) Special Incentive Bonus Agreement dated PP 60-61
March 27, 1997, between the company and
Mark V. Heitz
(10)(q) Employment Agreement dated April 8, Exhibit (10)(p) to Form 10-Q
1996, between the company and dated November 13, 1996
Frank T. Crohn
(10)(r) Employment Agreement dated April 8, Exhibit (10)(p) to Form 10-Q
1996, between the company and dated November 13, 1996
Donna J. Rubertone
(11) Calculation of Earnings per Share P 62
(20) Reports on Form 8-K
There were no reports on Form 8-K for
the three months ended March 31, 1997
</TABLE>
35<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Number or Incorporation
Number Description by Reference
<C> <C> <C>
Exhibit Page Number or Incorporation
(21) Wholly-owned subsidiaries of the
registrant:
American Investors Life Insurance
Company, Inc.
555 South Kansas Avenue
Topeka, Kansas 66603
American Investors Sales Group, Inc.
(formerly Gateway Corporation)
555 South Kansas Avenue
Topeka, Kansas 66603
AmVestors Investment Group, Inc.
(formerly American Investors Sales
Group, Inc.)
555 South Kansas Avenue
Topeka, Kansas 66603
AmVestors Acquisition Subsidiary, Inc.
555 South Kansas Avenue
Topeka, Kansas 66603
AmVestors CBO II, Inc.
555 South Kansas Avenue
Topeka, Kansas 66603
Annuity International Marketing
Corporation
7251 West Palmetto Park Road
Boca Raton, Florida 33433
Financial Benefit Life Insurance Company
555 South Kansas Avenue
Topeka, Kansas 66603
The Insurance Mart, Inc.
7251 West Palmetto Park Road
Boca Raton, Florida 33433
Rainbow Card Pack Publication, Inc.
7251 West Palmetto Park Road
Boca Raton, Florida 33433
(27) Financial Data Schedule
36<PAGE>
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.
AMVESTORS FINANCIAL CORPORATION
By: /c/ Ralph W. Laster, Jr.
_____________________________
Ralph W. Laster, Jr.
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer
and Chief Financial Officer)
(Principal Accounting Officer)
Date: March 14, 1997
____________________
37
</TABLE>
January 1, 1997
Mr. Timothy S. Reimer
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 6+6603
Dear Mr. Reimer:
Re: Employment Agreement With AmVestors Financial Corporation (the
"Company")
This will confirm the Company's employment understanding as follows:
1.
EMPLOYMENT
1.1
Full-time
The Company has agreed to employ you, and you have agreed
to accept Full-time employment in AmVestors Financial
Corporation (the "Company") as set forth below. The term
"Company" in this Agreement shall include all its subsidiaries
and affiliates.
The term "Full-time" shall be construed as meaning you shall
have no other employment, nor shall you engage in any
activity, as a principal, agent, owner, officer, employee,
partner, lender, investor, advisor or consultant, as an
insurance agent or broker, or for or with any enterprise
engaged in, or planning to engage in, business similar to or
planning to engage in, business similar to or resembling those
conducted by the Company.
1.2 Duties
Your title, which may be changed from time to time by the
Chief Executive Officer, or the Board of Directors, in its
discretion, shall be Executive Vice President - Chief
Investment
Officer.
You shall be responsible for the duties of an Executive
Vice President - Chief Investment Officer to include, but not
limited to, those duties shown on the attached
Exhibit A
and such other duties as reasonably assigned
by the
Chief Executive Officer. These duties may be
changed
from time to time by the Chief Executive Officer or the
Board of Directors.
1.3 Time and Place
You shall provide the duties set forth herein at such time and
place and in such manner as the Chief Executive Officer
or the
Board of Directors may, in their sole discretion,
reasonably
direct.
38<PAGE>
2. TERM
2.1 Term of Employment
Subject to the terms and conditions hereof, this Agreement
shall continue in force until December 31, 1997, and shall
automatically renew for successive twelve (12) month periods
unless otherwise terminated pursuant to Section 2.2.
2.2 Termination
a.
For Cause
Notwithstanding any other provision of this Agreement,
your employment may be terminated at the sole discretion
of the Company if you:
(1) Fail to be present for work and perform duties set forth
herein or as reasonably requested from time to time by
the Chief Executive Officer, the President or
the Board
of Directors, except during vacation time, periods of
disability or illness, necessary business travel or if
you have been excused by the Chief Executive Officer.
(2) Divulge any confidential information to third parties
without the Company's prior written consent.
Confidential information shall include that described
in Section 4.1 and including, but not limited to, sales
methods, techniques, procedures or sources.
(3) Commit any act of gross negligence, willful mis-
conduct or dishonesty detrimental to the Company.
(4) Convicted of a felony.
b. Voluntary Severance
Your employment under this Agreement may be
terminated by you, upon thirty (30) days prior written
notice to the Company. All compensation and benefits
provided at the Company's expense, as described in
Section 3 of this Agreement, shall terminate on the date
of your termination under this Section 2.2b.
c. Other Than for Cause
Termination by the Company for reasons other than For
Cause, as specified above, shall be deemed to be
Termination Other Than for Cause. If the Company
terminates your employment Other Than for Cause, you
will be entitled to receive your current salary as set
forth
in Section 3.1 for a period of twelve (12) months
from the
termination date. You shall not be entitled to this twelve
(12) months of current salary if you terminate your
39<PAGE>
employment with the Company.
Disability
This Agreement may be terminated by you or the Company in
the event of your total and permanent disability, in
which
case you shall be entitled to six (6) months'
compensation as
set forth in Section 3 during the period of disability,
which
shall include any portion of such disability pay
received
hereunder prior to such
termination.
3. COMPENSATION
You
shall receive as full compensation for your services
hereunder the payments set forth in this Section 3.
3.1 Salary
You shall receive a salary of $245,000.00 per year,
which may
be increased from time to time by the Company in
its sole
discretion.
3.2 Bonus and Incentive Compensation
You may be eligible to participate in such bonus and incentive
compensation plans as the Board of Directors or Chief
Executive Officer permits.
3.3 Fringe Benefits
You shall be entitled to participate in all group health and
insurance programs and all other fringe benefit, employee
stock option plans, retirement plans or additional compensa-
tion which the Board of Directors may hereafter, in its sole
and absolute discretion, elect to make available to you.
3.4 Expenses
The Company shall reimburse you for your ordinary and
necessary business expenses in accordance with its
normal practices in effect from time to time.
4. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE
4.1 Confidential and Proprietary Information
You acknowledge that certain information you obtain in
the performance of your duties hereunder is confidential
and proprietary information, and you agree not to disclose
such confidential and proprietary information without the
Company's written consent, either during the term of this
Agreement or after its expiration, except as may be required
in the performance of your duties hereunder, as may be
required by law or as the Company may authorize in
writing. All copies of the proprietary and confidential
information in your possession at the termination of your
employment shall be returned to us. Confidential and
40<PAGE>
proprietary information referred to in this paragraph includes
all non-published financial and accounting material, agent
lists, client lists, actuarial and profitability
studies,
marketing test results, and all other information
designated
or
treated
by us as confidential or proprietary.
4.2 Non-Competition During Period of Employment
Since your employment hereunder is to be full-time, you
agree that you will not, during the term of this Agreement,
without the Company's consent:
a. Engage in any other employment.
b. Be interested directly or indirectly as an
officer,
director, shareholder, partner, or owner in any
way of:
(1) Any other business or organization engaged in the
sale of insurance, or annuity, or investment products
whether or not such business or organization now is
or shall then be competing with the Company.
(2) Any other business or organization which is
competing with the Company, the Company's
affiliates or subsidiaries.
4.3 Non-Competition After Period of
Employment
If this agreement is terminated and you receive com-
pensation pursuant to Section 2.2c. or 2.3, you agree that
for one (1) year thereafter (hereinafter called the "Limited
Period"), you shall not, without the Company's prior written
permission, attempt to entice away from the Company or its
affiliates or subsidiaries on behalf of any party whatsoever,
or employ or otherwise engage, contract with or retain
directly or indirectly any employee then employed by the
Company or its affiliates or employed by them any time
during the one (1) year prior to such attempt or employ-
ment. You shall not during such Limited Period do anything
to impair the Company or its affiliates or subsidiaries'
prospects of sales or business retention, and
shall not
solicit for any reason any of the Company's or its
employees,
agency personnel, insureds or applicants, nor accept
commissions directly or indirectly on any policy written in
replacement of any policy produced or written by the
Company or any of its affiliates or subsidiaries, nor
shall
you in any way derogate the Company or its
personnel.
4.4 Enforcement
You acknowledge that the covenants contained
in this
Section 4 are such that their breach are
unlikely to be
adequately compensable by damages and consent
that they
may be enforced by injunction.
5. MISCELLANEOUS
41<PAGE>
`
5.1 Amendment
This Agreement may be amended only by written amendment
executed by both you and the Company.
5.2 Entire Agreement
This Agreement shall constitute the entire agreement of the
parties
with respect to the subject matter. All prior
negotiations and understandings, whether written or oral,
are merged into this Agreement.
5.3 Notices
All notices required or permitted to be given hereunder shall
be in writing. Notices intended for the Company shall be
addressed to the Chief Executive Officer of the Company at
its home offices. Notices intended for you shall be address-
ed to you at your address shown on the Company's current
employment records, if you are then still employed by the
Company, and at your last known address if you are not then
so employed.
5.4 No Assignment
Neither party may assign this Agreement without the prior
written consent of the other.
5.5 Execution and Binding Effect
Your signing and returning the enclosed copy of this letter
will make it a binding contract binding on you, your heirs
and assigns, and upon the Company and its successors
and assigns.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
By: ________________________________
Agreed to:
___________________________________
Timothy S. Reimer
Date: ______________________________
42
January 1, 1997
Mr. Thomas M. Fogt
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 6+6603
Dear Mr. Fogt:
Re: Employment Agreement With AmVestors Financial Corporation (the
"Company")
This will confirm the Company's employment understanding as follows:
1. EMPLOYMENT
1.1 Full-time
The Company has agreed to employ
you, and you have agreed
to accept Full-time employment in
AmVestors Financial
Corporation (the "Company") as
set forth below. The term
"Company" in this Agreement shall
include all its subsidiaries
and affiliates.
The term "Full-time" shall be
construed as meaning you shall
have no other employment, nor
shall you engage in any
activity, as a principal, agent,
owner, officer, employee,
partner, lender, investor,
advisor or consultant, as an
insurance agent or broker, or for
or with any enterprise
engaged in, or planning to engage
in, business similar to or
planning to engage in, business
similar to or resembling those
conducted by the Company.
1.2 Duties
Your title, which may be changed
from time to time by the
Chief Executive Officer, or the
Board of Directors, in its
discretion, shall be Executive
Vice President - Corporate
Development.
You shall be responsible for the
duties of an Executive
Vice President - Corporate
Development to include, but not
limited to, those duties shown on the attached Exhibit A
and such other duties as reasonably assigned
by the
Chief Executive Officer. These duties may be changed
from time to time by the Chief
Executive Officer or the
Board of Directors.
1.3 Time and Place
You shall provide the duties set
forth herein at such time and
place and in such manner as the
Chief Executive Officer or
the Board of Directors may, in
their sole discretion,
reasonably direct.
2. TERM
43<PAGE>
2.1 Term of Employment
Subject to the terms and
conditions hereof, this Agreement
shall continue in force until
December 31, 1997, and shall
automatically renew for
successive twelve (12) month periods
unless otherwise terminated
pursuant to Section 2.2.
2.2 Termination
a.
For Cause
Notwithstanding any other
provision of this Agreement,
your employment may be terminated
at the sole discretion
of the Company if you:
(1) Fail to be present for work
and perform duties set forth
herein or as reasonably requested
from time to time by
the Chief Executive Officer, the President or the Board
of Directors, except during vacation time, periods of
disability or illness, necessary
business travel or if
you have been excused by the
Chief Executive Officer.
(2) Divulge any confidential
information to third parties
without the Company's prior
written consent.
Confidential information shall
include that described
in Section 4.1 and including, but
not limited to, sales
methods, techniques, procedures
or sources.
(3) Commit any act of gross
negligence, willful mis-
conduct or dishonesty detrimental
to the Company.
(4) Convicted of a felony.
b. Voluntary Severance
Your employment under this
Agreement may be
terminated by you, upon thirty
(30) days prior written
notice to the Company. All
compensation and benefits
provided at the Company's
expense, as described in
Section 3 of this Agreement,
shall terminate on the date
of your termination under this
Section 2.2b.
c. Other Than for Cause
Termination by the Company for
reasons other than For
Cause, as specified above, shall
be deemed to be
Termination Other Than for Cause.
If the Company
terminates your employment Other
Than for Cause, you
will be entitled to receive your
current salary as set forth in
Section 3.1 for a period of
twelve (12) months from the
termination date. You shall not
be entitled to this twelve
(12) months of current salary if
you terminate your
employment with the Company.
44<PAGE>
2.3 Disability
This Agreement may be terminated
by you or the Company in
the event of your total and
permanent disability, in which case
you shall be entitled to six (6)
months' compensation as set
forth in Section 3 during the
period of disability, which shall
include any portion of such
disability pay received hereunder
prior to such termination.
3. COMPENSATION
You shall receive as full
compensation for your services
hereunder the payments set forth
in this Section 3.
3.1 Salary
You shall receive a salary of
$206,000.00 per year, which may
be increased from time to time by
the Company in its sole
discretion.
3.2 Bonus and Incentive
Compensation
You may be eligible to
participate in such bonus and incentive
compensation plans as the Board
of Directors or Chief
Executive Officer permits.
3.3 Fringe Benefits
You shall be entitled to
participate in all group health and
insurance programs and all other
fringe benefit, employee
stock option plans, retirement
plans or additional compensa-
tion which the Board of Directors
may hereafter, in its sole
and absolute discretion, elect to
make available to you.
3.4 Expenses
The Company shall reimburse you
for your ordinary and
necessary business expenses in
accordance with its
normal practices in effect from
time to time.
4. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE
4.1 Confidential and Proprietary Information
You acknowledge that certain
information you obtain in
the performance of your duties
hereunder is confidential
and proprietary information, and
you agree not to disclose
such confidential and proprietary
information without the
Company's written consent, either
during the term of this
Agreement or after its
expiration, except as may be required
in the performance of your duties
hereunder, as may be
required by law or as the Company
may authorize in
writing. All copies of the
proprietary and confidential
information in your possession at
the termination of your
employment shall be returned to
us. Confidential and
proprietary information referred
to in this paragraph includes
all non-published financial and
accounting material, agent
45<PAGE>
lists, client lists, actuarial and profitability studies,
marketing test results, and all other information designated or
treated by us as confidential or proprietary.
4.2 Non-Competition During Period of Employment
Since your employment hereunder
is to be full-time, you
agree that you will not, during
the term of this Agreement,
without the Company's consent:
a. Engage in any other employment.
b. Be interested directly or
indirectly as an officer, director,
shareholder, partner, or owner in
any way of:
(1) Any other business or
organization engaged in the
sale of insurance, or annuity, or
investment products
whether or not such business or
organization now is
or shall then be competing with
the Company.
(2) Any other business or
organization which is
competing with the Company, the
Company's
affiliates or subsidiaries.
4.3 Non-Competition After Period of Employment
If this agreement is terminated
and you receive com-
pensation pursuant to Section
2.2c. or 2.3, you agree that
for one (1) year thereafter
(hereinafter called the "Limited
Period"), you shall not, without
the Company's prior written
permission, attempt to entice
away from the Company or its
affiliates or subsidiaries on
behalf of any party whatsoever,
or employ or otherwise engage,
contract with or retain
directly or indirectly any
employee then employed by the
Company or its affiliates or
employed by them any time
during the one (1) year prior to
such attempt or employ-
ment. You shall not during such
Limited Period do anything
to impair the Company or its
affiliates or subsidiaries'
prospects of sales or business retention, and shall not solicit
for any reason any of the Company's or its employees,
agency personnel, insureds or
applicants, nor accept
commissions directly or
indirectly on any policy written in
replacement of any policy
produced or written by the
Company or any of its affiliates
or subsidiaries, nor shall you
in any way derogate the Company
or its personnel.
4.4 Enforcement
You acknowledge that the covenants contained in this
Section 4 are such that their breach are
unlikely to be
adequately compensable by damages and consent that they
may be enforced by injunction.
5. MISCELLANEOUS
`5.1 Amendment
46<PAGE>
This Agreement may be amended
only by written amendment
executed by both you and the
Company.
5.2 Entire Agreement
This Agreement shall constitute
the entire agreement of the
parties with respect to the
subject matter. All prior
negotiations and understandings,
whether written or oral,
are merged into this Agreement.
5.3 Notices
All notices required or permitted
to be given hereunder shall
be in writing. Notices intended
for the Company shall be
addressed to the Chief Executive
Officer of the Company at
its home offices. Notices
intended for you shall be address-
ed to you at your address shown
on the Company's current
employment records, if you are
then still employed by the
Company, and at your last known
address if you are not then
so employed.
5.4 No Assignment
Neither party may assign this
Agreement without the prior
written consent of the other.
5.5 Execution and Binding Effect
Your signing and returning the
enclosed copy of this letter
will make it a binding contract
binding on you, your heirs
and assigns, and upon the Company
and its successors
and assigns.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
By: ________________________________
Agreed to:
___________________________________
Thomas M. Fogt
Date: ______________________________
47
January 1, 1997
Mr. Lynn F. Hammes
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 6+6603
Dear Mr. Hammes:
Re: Employment Agreement With AmVestors Financial Corporation (the
"Company")
This will confirm the Company's employment understanding as follows:
1. EMPLOYMENT
1.1 Full-time
The Company has agreed to employ you, and you have agreed
to accept Full-time employment in AmVestors Financial
Corporation (the "Company") as set forth below. The term
"Company" in this Agreement shall include all its subsidiaries
and affiliates.
The term "Full-time" shall be construed as meaning you shall
have no other employment, nor shall you engage in any
activity, as a principal, agent, owner, officer, employee,
partner, lender, investor, advisor or consultant, as an
insurance agent or broker, or for or with any enterprise
engaged in, or planning to engage in, business similar to or
planning to engage in, business similar to or resembling those
conducted by the Company.
1.2 Duties
Your title, which may be changed from time to time by the
Chief Executive Officer, or the Board of Directors, in its
discretion, shall be Executive Vice President - Accounting
and Finance.
You shall be responsible for the duties of an Executive
Vice President - Accounting and Finance to include, but not
limited to, those duties shown on the attached
Exhibit A
and such other duties as reasonably assigned
by the
Chief Executive Officer. These duties may be
changed
from time to time by the Chief Executive Officer or the
Board of Directors.
1.3 Time and Place
You shall provide the duties set forth herein at such time and
place and in such manner as the Chief Executive Officer or
the Board of Directors may, in their sole discretion,
reasonably direct.
48<PAGE>
2. TERM
2.1 Term of Employment
Subject to the terms and conditions hereof, this Agreement
shall continue in force until December 31, 1997, and shall
automatically renew for successive twelve (12) month periods
unless otherwise terminated pursuant to Section 2.2.
2.2 Termination
a.
For Cause
Notwithstanding any other provision of this Agreement,
your employment may be terminated at the sole discretion
of the Company if you:
1) Fail to be present for work and perform duties set forth
herein or as reasonably requested from time to time by
the Chief Executive Officer, the President or
the Board
of Directors, except during vacation time, periods of
disability or illness, necessary business travel or if
you have been excused by the Chief Executive Officer.
(2) Divulge any confidential information to third parties
without the Company's prior written consent.
Confidential information shall include that described
in Section 4.1 and including, but not limited to, sales
methods, techniques, procedures or sources.
(3) Commit any act of gross negligence, willful mis-
conduct or dishonesty detrimental to the Company.
(4) Convicted of a felony.
b. Voluntary Severance
Your employment under this Agreement may be
terminated by you, upon thirty (30) days prior written
notice to the Company. All compensation and benefits
provided at the Company's expense, as described in
Section 3 of this Agreement, shall terminate on the date
of your termination under this Section 2.2b.
c. Other Than for Cause
Termination by the Company for reasons other than For
Cause, as specified above, shall be deemed to be
Termination Other Than for Cause. If the Company
terminates your employment Other Than for Cause, you
will be entitled to receive your current salary as set
forth
in Section 3.1 for a period of twelve (12) months
from the
termination date. You shall not be entitled to this twelve
(12) months of current salary if you terminate your
employment with the
Company.
49<PAGE>
2.3 Disability
This Agreement may be terminated by you or the Company in
the event of your total and permanent disability, in
which
case you shall be entitled to six (6) months'
compensation as
set forth in Section 3 during the period of disability,
which
shall include any portion of such disability pay
received
hereunder prior to such
termination.
3. COMPENSATION
You
shall receive as full compensation for your services
hereunder the payments set forth in this Section 3.
3.1 Salary
You shall receive a salary of $160,000.00 per year, which may
be increased from time to time by the Company in its sole
discretion.
3.2 Bonus and Incentive Compensation
You may be eligible to participate in such bonus and incentive
compensation plans as the Board of Directors or Chief
Executive Officer permits.
3.3 Fringe Benefits
You shall be entitled to participate in all group health and
insurance programs and all other fringe benefit, employee
stock option plans, retirement plans or additional compensa-
tion which the Board of Directors may hereafter, in its sole
and absolute discretion, elect to make available to you.
3.4 Expenses
The Company shall reimburse you for your ordinary and
necessary business expenses in accordance with its
normal practices in effect from time to time.
4. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE
4.1 Confidential and Proprietary Information
You acknowledge that certain information you obtain in
the performance of your duties hereunder is confidential
and proprietary information, and you agree not to disclose
such confidential and proprietary information without the
Company's written consent, either during the term of this
Agreement or after its expiration, except as may be required
in the performance of your duties hereunder, as may be
required by law or as the Company may authorize in
writing. All copies of the proprietary and confidential
information in your possession at the termination of your
employment shall be returned to us. Confidential and
proprietary information referred to in this paragraph includes
all non-published financial and accounting material, agent
lists, client lists, actuarial and profitability
studies,
50<PAGE>
marketing test results, and all other information
designated
or treated by us as confidential or
proprietary.
4.2 Non-Competition During Period of Employment
Since your employment hereunder is to be full-time, you
agree that you will not, during the term of this Agreement,
without the Company's consent:
a. Engage in any other employment.
b. Be interested directly or indirectly as an
officer,
director, shareholder, partner, or owner in any
way of:
(1) Any other business or organization engaged in the
sale of insurance, or annuity, or investment products
whether or not such business or organization now is
or shall then be competing with the Company.
(2) Any other business or organization which is
competing with the Company, the Company's
affiliates or subsidiaries.
4.3 Non-Competition After Period of
Employment
If this agreement is terminated and you receive com-
pensation pursuant to Section 2.2c. or 2.3, you agree that
for one (1) year thereafter (hereinafter called the "Limited
Period"), you shall
not, without the Company's prior written
permission, attempt to entice
away from the Company or its
affiliates or subsidiaries on behalf of any party whatsoever,
or employ or otherwise engage, contract with or retain
directly or indirectly any employee then employed by the
Company or its affiliates or employed by them any time
during the one (1) year prior to such attempt or employ-
ment. You shall not during such Limited Period do anything
to
impair the Company or its affiliates or subsidiaries'
prospects of sales or business retention, and
shall not
solicit for any reason any of the Company's or its
employees,
agency personnel, insureds or applicants, nor accept
commissions directly or indirectly on any policy written in
replacement of any policy produced or written by the
Company or any of its affiliates or subsidiaries, nor
shall
you in any way derogate the Company or its
personnel.
4.4 Enforcement
You acknowledge that the covenants contained
in this
Section 4 are such that their breach are
unlikely to be
adequately compensable by damages and consent
that they
may be enforced by
injunction.
5. MISCELLANEOUS
` 5.1
Amendment
This Agreement may be amended only by written amendment
51<PAGE>
executed by both you and the Company.
5.2 Entire Agreement
This Agreement shall constitute the entire agreement of the
parties
with respect to the subject matter. All prior
negotiations and understandings, whether written or oral,
are merged into this Agreement.
5.3 Notices
All notices required or permitted to be given hereunder shall
be in writing. Notices intended for the Company shall be
addressed to the Chief Executive Officer of the Company at
its home offices. Notices intended for you shall be address-
ed to you at your address shown on the Company's current
employment records, if you are then still employed by the
Company, and at your last known address if you are not then
so employed.
5.4 No Assignment
Neither party may assign this Agreement without the prior
written consent of the other.
5.5 Execution and Binding Effect
Your signing and returning the enclosed copy of this letter
will make it a binding contract binding on you, your heirs
and assigns, and upon the Company and its successors
and assigns.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
By: ________________________________
Agreed to:
___________________________________
Lynn F. Hammes
Date: ______________________________
52
January 1, 1997
Mr. J. Ronald Stanley
AmVestors Financial Corporation
415 S.W. Eighth Avenue
Topeka, Kansas 6+6603
Dear Mr. Stanley:
Re: Employment Agreement With AmVestors Financial Corporation (the
"Company")
This will confirm the Company's employment understanding as follows:
1. EMPLOYMENT
1.1 Full-time
The Company has agreed to employ you, and you have agreed
to accept Full-time employment in AmVestors Financial
Corporation (the "Company") as set forth below. The term
"Company" in this Agreement shall include all its subsidiaries
and affiliates.
The term "Full-time" shall be construed as meaning you shall
have no other employment, nor shall you engage in any
activity, as a principal, agent, owner, officer, employee,
partner, lender, investor, advisor or consultant, as an
insurance agent or broker, or for or with any enterprise
engaged in, or planning to engage in, business similar to or
planning to engage in, business similar to or resembling those
conducted by the Company.
1.2 Duties
Your title, which may be changed from time to time by the
Chief Executive Officer, or the Board of Directors, in its
discretion, shall be Executive Vice President - Chief
Information Officer.
You shall be responsible for the duties of an Executive
Vice President - Chief Information Officer to include, but not
limited to, those duties shown on the attached
Exhibit A
and such other duties as reasonably assigned
by the
Chief Executive Officer. These duties may be
changed
from time to time by the Chief Executive Officer or the
Board of Directors.
1.3 Time and Place
You shall provide the duties set forth herein at such time and
place and in such manner as the Chief Executive Officer or
the Board of Directors may, in their sole discretion,
reasonably direct.
53<PAGE>
2. TERM
2.1 Term of Employment
Subject to the terms and conditions hereof, this Agreement
shall continue in force until December 31, 1997, and shall
automatically renew for successive twelve (12) month periods
unless otherwise terminated pursuant to Section 2.2.
2.2 Termination
a.
For Cause
Notwithstanding any other provision of this Agreement,
your employment may be terminated at the sole discretion
of the Company if you:
(1) Fail to be present for work and perform duties set forth
herein or as reasonably requested from time to time by
the Chief Executive Officer, the President or
the Board
of Directors, except during vacation time, periods of
disability or illness, necessary business travel or if
you have been excused by the Chief Executive Officer.
(2) Divulge any confidential information to third parties
without the Company's prior written consent.
Confidential information shall include that described
in Section 4.1 and including, but not limited to, sales
methods, techniques, procedures or sources.
(3) Commit any act of gross negligence, willful mis-
conduct or dishonesty detrimental to the Company.
(4) Convicted of a felony.
b. Voluntary Severance
Your employment under this Agreement may be
terminated by you, upon thirty (30) days prior written
notice to the Company. All compensation and benefits
provided at the Company's expense, as described in
Section 3 of this Agreement, shall terminate on the date
of your termination under this Section 2.2b.
c. Other Than for Cause
Termination by the Company for reasons other than For
Cause, as specified above, shall be deemed to be
Termination Other Than for Cause. If the Company
terminates your employment Other Than for Cause, you
will be entitled to receive your current salary as set
forth
in Section 3.1 for a period of twelve (12) months
from the
termination date. You shall not be entitled to this twelve
54<PAGE>
(12) months of current salary if you terminate your
employment with the Company.
2.3
Disability
This Agreement may be terminated by you or the Company in
the event of your total and permanent disability, in
which
case you shall be entitled to six (6) months'
compensation as
set forth in Section 3 during the period of disability,
which
shall include any portion of such disability pay
received
hereunder prior to such
termination.
3. COMPENSATION
You
shall receive as full compensation for your services
hereunder the payments set forth in this Section 3.
3.1
Salary
You shall receive a salary of $150,000.00 per year, which may
be increased from time to time by the Company in its sole
discretion.
3.2 Bonus and Incentive Compensation
You may be eligible to participate in such bonus and incentive
compensation plans as the Board of Directors or Chief
Executive Officer permits.
3.3 Fringe Benefits
You shall be entitled to participate in all group health and
insurance programs and all other fringe benefit, employee
stock option plans, retirement plans or additional compensa-
tion which the Board of Directors may hereafter, in its sole
and absolute discretion, elect to make available to you.
3.4 Expenses
The Company shall reimburse you for your ordinary and
necessary business expenses in accordance with its
normal practices in effect from time to time.
4. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE
4.1 Confidential and Proprietary Information
You acknowledge that certain information you obtain in
the performance of your duties hereunder is confidential
and proprietary information, and you agree not to disclose
such confidential and proprietary information without the
Company's written consent, either during the term of this
Agreement or after its expiration, except as may be required
in the performance of your duties hereunder, as may be
required by law or as the Company may authorize in
writing. All copies of the proprietary and confidential
information in your possession at the termination of your
employment shall be returned to us. Confidential and
proprietary information referred to in this paragraph includes
55<PAGE>
all non-published financial and accounting material, agent
lists, client lists, actuarial and profitability
studies,
marketing test results, and all other information
designated
or treated by us as confidential or
proprietary.
4.2 Non-Competition During Period of Employment
Since your employment hereunder is to be full-time, you
agree that you will not, during the term of this Agreement,
without the Company's consent:
a. Engage in any other employment.
b. Be interested directly or indirectly as an
officer,
director, shareholder, partner, or owner in any
way of:
(1) Any other business or organization engaged in the
sale of insurance, or annuity, or investment products
whether or not such business or organization now is
or shall then be competing with the Company.
(2) Any other business or organization which is
competing with the Company, the Company's
affiliates or subsidiaries.
4.3 Non-Competition After Period of
Employment
`If this agreement is terminated and you receive com-
pensation pursuant to Section 2.2c. or 2.3, you agree that
for one (1) year thereafter (hereinafter called the "Limited
Period"), you shall not, without the Company's prior written
permission, attempt to entice away from the Company or its
affiliates or subsidiaries on behalf of any party whatsoever,
or employ or otherwise engage, contract with or retain
directly or indirectly any employee then employed by the
Company or its affiliates or employed by them any time
during the one (1) year prior to such attempt or employ-
ment. You shall not during such Limited Period do anything
to impair the Company or its affiliates or subsidiaries'
prospects of sales or business retention, and
shall not
solicit for any reason any of the Company's or its
employees,
agency personnel, insureds or applicants, nor accept
commissions directly or indirectly on any policy written in
replacement of any policy produced or written by the
Company or any of its affiliates or subsidiaries, nor
shall
you in any way derogate the Company or its
personnel.
4.4 Enforcement
You acknowledge that the covenants contained
in this
Section 4 are such that their breach are
unlikely to be
adequately compensable by damages and consent
that they
may be enforced by injunction.
5. MISCELLANEOUS
` 5.1
Amendment
This Agreement may be amended only by written amendment
56<PAGE>
executed by both you and the Company.
5.2 Entire Agreement
This Agreement shall constitute the entire agreement of the
parties
with respect to the subject matter. All prior
negotiations and understandings, whether written or oral,
are merged into this Agreement.
5.3 Notices
All notices required or permitted to be given hereunder shall
be in writing. Notices intended for the Company shall be
addressed to the Chief Executive Officer of the Company at
its home offices. Notices intended for you shall be address-
ed to you at your address shown on the Company's current
employment records, if you are then still employed by the
Company, and at your last known address if you are not then
so employed.
5.4 No Assignment
Neither party may assign this Agreement without the prior
written consent of the other.
5.5 Execution and Binding Effect
Your signing and returning the enclosed copy of this letter
will make it a binding contract binding on you, your heirs
and assigns, and upon the Company and its successors
and assigns.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
By: ________________________________
Agreed to:
___________________________________
J. Ronald Stanley
Date: ______________________________
March 27, 1997
Mr. Ralph W. Laster, Jr., CEO
AmVestors Financial Corporation
555 S. Kansas Avenue
Topeka, Kansas 66603
RE: Special Incentive Bonus Agreement
Dear Ralph:
The Board of Directors of AmVestors Financial Corporation ("Corporation")
resolved to allow you to participate in the Special Incentive Bonus
Arrangement ("Arrangement"). This letter outlines the terms of the
Arrangement which could, in the event certain circumstances occur, result in
the payment of a substantial cash bonus to you based upon the Company's 1997
stock performance.
The Board has selected you for participation in the Arrangement as a reward
for your valuable past services to the Corporation and its subsidiaries. In
addition, the Board intends that its extension of the Arrangement to you will
induce you to remain in the service of the Corporation and its subsidiaries,
and continue your valuable and substantial efforts on their behalf.
Eligibility for Bonus
In the event you are not so employed on December 31, 1997, however, you will
still be eligible to receive an unreduced bonus if your termination of
employment was due to your death or disability. For purposes of the
Arrangement, the term "disability" has the meaning set forth in your
Employment Contract. In the event your employment terminates prior to
December 31, 1997, for a reason other than "cause" or a change of control,
you will be eligible to receive a pro rata share of any bonus paid under the
Arrangement based upon the number of days you are employed by the Corporation
or one of its subsidiaries, divided by 365.
In the event your employment is terminated for "cause" pursuant to your
Employment Agreement, you will not be eligible to receive any payment under
the Arrangement.
Amount of Bonus
The cash bonus to be paid under the Arrangement shall be equal to the
following: the difference between the Corporation's per share average
closing common stock price for the last ten (10) trading days in 1997, as
reported in The Wall Street Journal and the per share closing on the price
for the last trading day of 1996. The per share price difference will then
be multiplied by 75,000. It is the intent of the Arrangement, therefore, to
pay you a cash bonus which approximates the growth performance of 75,000
shares of the Corporation's common stock for the 1997 calendar year.
However, in the event that a "change of control" of the Corporation occurs,
you will instead be eligible for a bonus based upon the greater of:
(1) The highest per share price
paid by the person(s) affecting the change of control in acquiring shares of
the Corporation's common stock during the two years prior to the occurrence
of the change of control; or
(2) The average of the share
price of the Corporation's common stock at the close of trading, as later
reported in The Wall Street Journal, for the ten trading days following the
date that the person(s) publicly announce their plan to effect the change of
control.
For purposes of the Arrangement, the term "change of control" has the meaning
set forth in the
58<PAGE>
AmVestors Financial Corporation Employee Stock Ownership
Plan.
Payment of the Bonus
Except for a bonus payment associated with a change of control, the
Corporation will pay any bonus due you under the Arrangement on or before
January 15, 1998. In the event that a change of control occurs, you will be
paid any bonus due under the Arrangement within 14 days after the effective
date of the change of control. The Corporation will withhold from any bonus
payment due under the Arrangement all amounts it deems necessary or
appropriate to satisfy its liability to withhold federal, state, or local
income or other taxes attributable to any such bonus payment.
Miscellaneous
The Arrangement does not confer upon you any right to continue in the employ
of the Corporation or any subsidiary, and it shall not be construed to
interfere with or otherwise limit the right of the Corporation or any
subsidiary to modify or terminate the terms or conditions of your employment.
- -2-
The Board of Directors of the Corporation retains the authority to address
any and all questions which may arise with respect to the interpretation of
the Arrangement, and the Board's determination shall be final and binding as
to all parties.
Please evidence your desire to participate in the Arrangement as described
above by executing this letter and returning it to my attention.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
R. Rex Lee, Chairman
Compensation Committee
Board of Directors of
AmVestors Financial Corporation
ACCEPTED BY:
AMVESTORS FINANCIAL CORPORATION
By: /s/ Mark V. Heitz /s/ Ralph W. Laster, Jr.
________________________ _______________________
Participant
Title: _______________________
March 27, 1997
Mr. Mark V. Heitz, President
AmVestors Financial Corporation
555 S. Kansas Avenue
Topeka, Kansas 66603
RE: Special Incentive Bonus Agreement
Dear Mark:
The Board of Directors of AmVestors Financial Corporation ("Corporation")
resolved to allow you to participate in the Special Incentive Bonus
Arrangement ("Arrangement"). This letter outlines the terms of the
Arrangement which could, in the event certain circumstances occur, result in
the payment of a substantial cash bonus to you based upon the Company's 1997
stock performance.
The Board has selected you for participation in the Arrangement as a reward
for your valuable past services to the Corporation and its subsidiaries. In
addition, the Board intends that its extension of the Arrangement to you will
induce you to remain in the service of the Corporation and its subsidiaries,
and continue your valuable and substantial efforts on their behalf.
Eligibility for Bonus
In the event you are not so employed on December 31, 1997, however, you will
still be eligible to receive an unreduced bonus if your termination of
employment was due to your death or disability. For purposes of the
Arrangement, the term "disability" has the meaning set forth in your
Employment Contract. In the event your employment terminates prior to
December 31, 1997, for a reason other than "cause" or a change of control,
you will be eligible to receive a pro rata share of any bonus paid under the
Arrangement based upon the number of days you are employed by the Corporation
or one of its subsidiaries, divided by 365.
In the event your employment is terminated for "cause" pursuant to your
Employment Agreement, you will not be eligible to receive any payment under
the Arrangement.
Amount of Bonus
The cash bonus to be paid under the Arrangement shall be equal to the
following: the difference between the Corporation's per share average
closing common stock price for the last ten (10) trading days in 1997, as
reported in The Wall Street Journal and the per share closing on the price
for the last trading day of 1996. The per share price difference will then
be multiplied by 45,500. It is the intent of the Arrangement, therefore, to
pay you a cash bonus which approximates the growth performance of 45,500
shares of the Corporation's common stock for the 1997 calendar year.
However, in the event that a "change of control" of the Corporation occurs,
you will instead be eligible for a bonus based upon the greater of:
(1) The highest per share price
paid by the person(s) affecting the change of control in acquiring shares of
the Corporation's common stock during the two years prior to the occurrence
of the change of control; or
(2) The average of the share
price of the Corporation's common stock at the close of trading, as later
reported in The Wall Street Journal, for the ten trading days following the
date that the person(s) publicly announce their plan to effect the change of
control.
60<PAGE>
For purposes of the Arrangement, the term "change of control" has the meaning
set forth in the AmVestors Financial Corporation Employee Stock Ownership
Plan.
Payment of the Bonus
Except for a bonus payment associated with a change of control, the
Corporation will pay any bonus due you under the Arrangement on or before
January 15, 1998. In the event that a change of control occurs, you will be
paid any bonus due under the Arrangement within 14 days after the effective
date of the change of control. The Corporation will withhold from any bonus
payment due under the Arrangement all amounts it deems necessary or
appropriate to satisfy its liability to withhold federal, state, or local
income or other taxes attributable to any such bonus payment.
Miscellaneous
The Arrangement does not confer upon you any right to continue in the employ
of the Corporation or any subsidiary, and it shall not be construed to
interfere with or otherwise limit the right of the Corporation or any
subsidiary to modify or terminate the terms or conditions of your employment.
- -2-
The Board of Directors of the Corporation retains the authority to address
any and all questions which may arise with respect to the interpretation of
the Arrangement, and the Board's determination shall be final and binding as
to all parties.
Please evidence your desire to participate in the Arrangement as described
above by executing this letter and returning it to my attention.
Very truly yours,
AMVESTORS FINANCIAL CORPORATION
R. Rex Lee, Chairman
Compensation Committee
Board of Directors of
AmVestors Financial Corporation
ACCEPTED BY:
AMVESTORS FINANCIAL CORPORATION
By: /s/ Ralph W. Laster /s/ Mark V. Heitz
________________________ _______________________
Participant
Title: _______________________
61
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES EXHIBIT 11
CALCULATION OF EARNINGS (LOSS) PER SHARE
(000's Omitted, except per share data)
For the Three Months Ended March 31,
1997 1996
CALCULATION OF PRIMARY EARNINGS
PER SHARE
Earnings for primary earnings per share ..... $ 5,505 7,421
Average number of shares outstanding ........ 13,208 10,155
Dilutive effect of stock options and warrants
after application of treasury stock method . 542 272
Average number of common shares and
common equivalents outstanding ............. 13,750 10,427
Primary earnings per share .................. $ .40 .71
CALCULATION OF FULLY DILUTED EARNINGS
PER SHARE
Earnings for fully diluted earnings per share $ 5,505 7,421
Add back interest expense on Subordinated
debentures .................................. 932
Earnings for fully diluted earnings per share $ 6,437 7,421
Shares used in calculating primary
earnings per share ......................... 13,750 10,427
Shares resulting from assumed conversion of
Subordinated debentures ..................... 3,796 _
Additional dilutive effect of stock options
and warrants after application of treasury
stock method ............................... 3 66
Average number of common shares outstanding
on a fully diluted basis ................... 17,549 10,493
Fully diluted earnings per share ........... $ .37 .71
62
