<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999 Commission File No. 0-6764
-------
Mobile America Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1218935
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10475 Fortune Parkway, Jacksonville, Florida 32256
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 363-6339
---------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 [ ]
(APPLICABLE ONLY TO CORPORATE ISSUERS)
There were 7,167,542 shares of common stock, par value $.025 per share,
outstanding as of the close of business on August 6, 1999.
<PAGE> 2
PART I
Mobile America Corporation
INDEX
<TABLE>
<CAPTION>
Financial Statements: Page
<S> <C> <C>
Part I
------
Unaudited Consolidated Balance Sheets 1
Unaudited Consolidated Statements of Operations 2
Unaudited Consolidated Statements of Comprehensive Income 3
Unaudited Consolidated Statements of Cash Flows 4
Unaudited Consolidated Statements of Changes in
Stockholders' Equity 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis
of the Unaudited Consolidated Statements of Operations 9-12
Exhibit 11 - Computations of Earnings Per Share 14
Part II
-------
Other Information, and Signatures 13
</TABLE>
<PAGE> 3
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
Assets 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Investments:
Securities held to maturity
at amortized cost (fair value
$24,793,134 and $30,811,888) $ 24,733,586 $ 30,321,793
Securities available for sale at fair value
(amortized cost $26,019,492
and $27,240,132) 26,222,325 27,919,593
Short-term investments 11,616,630 21,210,230
-------------------------------------
Total investments 62,572,541 79,451,616
-------------------------------------
Cash 1,459,124 1,082,422
Receivables:
Insurance premiums 2,655,206 3,041,656
Accrued investment income 805,267 904,692
Reinsurance, paid losses and other 10,856 398,395
Reinsurance recoverable, unpaid losses 18,184,048 17,688,861
Other receivables 683,429 933,253
Current income taxes 3,983,685 2,747,359
-------------------------------------
Total receivables 26,322,491 25,714,216
-------------------------------------
Deferred income tax 1,498,394 985,578
Ceded unearned premium 13,381,588 16,372,379
Deferred policy acquisition costs (1,580,059) (2,743,281)
Property and equipment 2,078,188 2,153,357
Equity in pools and associations 1,129,662 1,132,210
Other assets 479,377 514,919
-------------------------------------
$ 107,341,306 $ 124,663,416
=====================================
<CAPTION>
Liabilities and Stockholders' Equity 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Insurance loss reserves, including
life insurance policy benefits of $ 31,064,693 $ 29,106,729
$17,741 and $17,741
Unearned premium 27,364,656 26,913,770
Unearned service fees 193,777 448,117
Contractholders funds 1,842,577 11,485,618
Reinsurance funds withheld and
balances payable 1,280,761 6,664,985
Claim payments outstanding 3,672,757 2,073,901
Accrued expenses and other liabilities 1,493,721 1,579,854
Deferred income tax on net unrealized gains on
securities available for sale 68,963 231,017
Note payable 8,400,000 9,600,000
-------------------------------------
Total liabilities 75,381,905 88,103,991
-------------------------------------
Stockholders' equity:
Common stock, $.025 par value per share
Authorized - 18,000,000 shares
Issued - 7,644,414 shares 191,110 191,110
Preferred stock, $.10 par value per share
Authorized - 500,000 shares
Issued and outstanding - none 0 0
Capital in excess of par value 4,348,842 4,348,842
Accumulated other comprehensive income:
Net unrealized appreciation on securities
available for sale net of deferred
income taxes of $68,963 and $231,017 133,870 448,444
Treasury stock at cost, 476,580 and
476,580 shares (1,233,069) (1,233,069)
Retained earnings 28,518,648 32,804,098
-------------------------------------
Total stockholders' equity 31,959,401 36,559,425
-------------------------------------
$ 107,341,306 $ 124,663,416
=====================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Operations
Quarters ended June 30, 1999 and 1998, Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Quarters Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
------------------------ --------------------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned net of
premiums ceded of $9,483,587, $11,171,372,
$20,693,167 and $22,326,041 $ 7,565,290 $ 9,072,620 $ 15,997,935 $19,497,196
Service fees earned 1,430,199 2,152,962 3,310,401 4,604,770
Investment income 919,077 1,116,436 1,920,658 2,349,159
Other 7,476 30,280 14,929 33,740
Net realized gains (losses) on investments 65,397 (6,375) 57,306 (30,299)
-------------------------- ---------------------------
Total revenues 9,987,439 12,365,923 21,301,229 26,454,566
-------------------------- ---------------------------
Expenses:
Losses and loss adjustment expenses, net of
reinsurance recoveries of $12,933,684,
$8,576,121, $21,479,422 and $18,150,816 8,951,509 6,546,835 16,506,346 12,768,376
Policy acquisition costs 3,625,641 742,983 3,386,381 2,021,976
Salaries and wages 1,730,073 1,824,270 3,350,566 4,108,154
General and administrative expenses 2,154,073 1,650,927 3,662,620 3,730,810
Interest expense 163,616 229,432 342,383 470,434
-------------------------- ---------------------------
Total expenses 16,624,912 10,994,447 27,248,296 23,099,750
-------------------------- ---------------------------
Income (loss) before provision for income taxes (6,637,473) 1,371,476 (5,947,067) 3,354,816
-------------------------- ---------------------------
Provision and (benefit) for income taxes:
Current (2,493,871) 169,291 (1,931,911) 630,154
Deferred (106,867) 191,330 (512,816) 367,893
-------------------------- ---------------------------
Total provision for income taxes (2,600,738) 360,621 (2,444,727) 998,047
-------------------------- ---------------------------
Net income (loss) $(4,036,735) $ 1,010,855 $ (3,502,340) $ 2,356,769
========================== ===========================
Basic and diluted earnings (loss) per share:
Net income (loss) $ (0.56) $ 0.14 $ (0.49) $ 0.33
========================== ===========================
=========================== ===========================
Dividends per share $ 0.00 $ 0.00 $ 0.11 $ 0.35
=========================== ===========================
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
Mobile America Corporation and Subsidiaries
Unaudited Statements of Comprehensive Income
Quarters Ended June 30,1999 and 1998 and Six Months Ended June 30,1999 and 1998
<TABLE>
<CAPTION>
Quarters Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $(4,036,735) $ 1,010,855 $(3,502,340) $2,356,769
----------- ----------- ----------- ----------
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains (losses) arising
during period net of taxes $(82,113),
$(15,870), $(151,960) and $127,123 (159,397) (30,807) (294,982) 246,767
Reclassification adjustment for (gain) losses
included in net income (loss) net of taxes
$(13,107), $(6,032), $(10,093) and $1,487 (25,443) (11,709) (19,593) 2,887
----------- ----------- ----------- ----------
Other comprehensive income (184,840) (42,516) (314,575) 249,654
----------- ----------- ----------- ----------
Comprehensive income (loss) $(4,221,575) $ 968,339 $(3,816,915) $2,606,423
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30,1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (3,502,340) $ 2,356,769
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Provision for depreciation 188,409 102,543
Loss (gain) on sale of investments (57,306) 30,299
Change in assets and liabilities:
Insurance premiums receivable 388,998 (865,798)
Accrued investment income and other receivables 349,249 291,979
Deferred policy acquisition costs (1,163,222) 997,815
Prepaid expenses and other assets 35,542 236,062
Insurance loss reserves 1,957,964 (9,548,810)
Unearned premium 450,886 (1,416,959)
Contractholder funds (9,643,041) (1,272,534)
Reinsurance funds held and balances payable (5,384,224) (3,675,820)
Claim payments outstanding 1,598,856 (427,621)
Accrued expenses (86,133) (139,817)
Current income taxes (1,236,326) 316,170
Deferred income taxes (512,816) 367,893
Ceded unearned premium 2,990,791 (1,622,455)
Reinsurance receivable (107,648) 3,954,395
Unearned service fees (254,340) 11,275
-----------------------------------
Net cash used in
operating activities (13,986,701) (10,304,614)
-----------------------------------
Cash Flows from Investing Activities:
Net change in short term investments 9,593,600 3,837,528
Purchase of investments (4,222,339) (6,474,912)
Proceeds from sale and maturity of investments 11,088,492 13,586,992
Purchase of property and equipment (113,240) (654,749)
-----------------------------------
Net cash provided in investing
activities 16,346,513 10,294,859
-----------------------------------
Cash Flows from Financing Activities:
Purchase of Treasury stock 0 (3,666)
Dividends paid to stockholders (783,110) (2,492,629)
Principal Payment, note payable (1,200,000) (1,200,000)
-----------------------------------
Net cash used in
financing activities (1,983,110) (3,696,295)
-----------------------------------
Net change in cash 376,702 (3,706,050)
Cash, beginning of period 1,082,422 4,518,020
-----------------------------------
Cash, end of period $ 1,459,124 $ 811,970
===================================
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 7
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Common stock:
No Change during period $ 191,110 $ 191,110
-----------------------------------
Preferred stock:
No Change during period 0 0
-----------------------------------
Capital in excess of par value:
No Change during period 4,348,842 4,348,842
-----------------------------------
Accumulated other comprehensive income:
Net unrealized appreciation on securities
available for sale:
Balance at beginning of period 448,444 78,861
Increase (decrease) (476,628) 378,265
Deferred taxes on unrealized gains 162,054 (128,610)
-----------------------------------
Balance at end of period 133,870 328,516
-----------------------------------
Treasury stock:
Balance at beginning of period (1,233,069) (1,229,403)
Purchases of 0 and 292 Shares 0 (3,666)
-----------------------------------
Balance at end of period (1,233,069) (1,233,069)
-----------------------------------
Retained earnings:
Balance at beginning of period 32,804,098 36,296,261
Net income (loss) (3,502,340) 2,356,770
Cash dividends $.11 and $.35
per share (783,110) (2,492,629)
-----------------------------------
Balance at end of period 28,518,648 36,160,402
-----------------------------------
Total stockholders' equity at end of period $ 31,959,401 $ 39,795,801
===================================
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 8
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
In the opinion of management, the accompanying balance sheets and related
interim statements of income, comprehensive income and cash flows include all
adjustments (which include reclassifications and normal recurring adjustments)
necessary to present fairly the financial position and results of operations and
cash flows at June 30, 1999 and for all periods presented. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual results
may differ from these estimates. Interim results are not necessarily indicative
of results for a full year. The information included in this Form 10-Q should be
read in conjunction with Management's Discussion and Analysis and financial
statements and notes thereto included in the Mobile America Corporation 1998
10-K.
Certain amounts in prior years' financial statements have been reclassified to
conform to the 1999 presentation.
Note 2. Earnings Per Share
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share presents
the dilutive effect of options using the treasury stock method.
<TABLE>
<CAPTION>
Quarters Ended June 30 Six Months Ended June 30
---------------------- ------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Income (loss) available to common shareholders $(4,036,735) $1,010,855 $(3,502,340) $2,356,769
=========== ========== =========== ==========
Denominator:
Basic earnings per share
weighted average shares 7,167,542 7,167,584 7,167,542 7,167,670
Effect of dilution:
Employee stock options 1,200 33,729 4,372 50,971
----------- ---------- ----------- ----------
Diluted earnings per share adjusted weighted
average shares and assumed conversions 7,168,742 7,201,313 7,171,914 7,218,641
=========== ========== =========== ==========
Basic earnings (loss) per share $ (0.56) $ 0.14 $ (0.49) $ 0.33
=========== ========== =========== ==========
Diluted earnings (loss) per share $ (0.56) $ 0.14 $ (0.49) $ 0.33
=========== ========== =========== ==========
</TABLE>
-6-
<PAGE> 9
Mobile America Corporations and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 3. Business Segments
The Company and its subsidiaries operate exclusively in Florida within
principally six business segments: automobile insurance, excess surplus lines
property insurance, fee for service administration, premium finance, corporate
and other miscellaneous. The automobile insurance segment sells personal lines
automobile insurance through independent insurance agents primarily in south
Florida. The excess surplus lines segment writes specialized property insurance
coverage. The fee for service segment contracts as a servicing carrier for the
Florida Residential Property and Casualty Joint Underwriting Association, the
Florida Automobile Joint Underwriting Association and as a subcontractor for
Policy Management Systems Corporation performing various underwriting and claims
administration services for a fee. The premium finance segment finances policies
written through the Registrant. The corporate segment includes home office
revenues and assets that are not specific to any particular segment. The other
category is attributable to a life insurance company and other small inactive
companies that do not meet the quantitative thresholds for a separate segment.
Management evaluates performance and allocates assets based on the separate
entities owned by the Registrant. The reportable segments are business units
that offer different products or services. The reportable segments are each
managed separately.
The following schedule presents segment revenues and profit before taxes for the
quarters and six months ended June 30,1999 and 1998 and assets by operating
segment at June 30,1999 and December 31,1998. The reconciling items for revenues
and assets include adjusting available for sale securities to market value and
the reclassification of reinsurance recoverable balances and the elimination of
intercompany holdings. There have been no significant differences from the last
annual 10K report in the basis of measuring segment profit or loss. There have
been no material changes in the amount of assets for any operating segment since
the last annual 10K report except the decline in the assets in the automobile
insurance segment due to negative operating cash flows and in the corporate
segment due to the repayment of principal on the note payable.
-7-
<PAGE> 10
Mobile America Corporations and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 3. Business Segments (continued)
<TABLE>
<CAPTION>
Quarters Ended June 30 Six Months Ended June 30
---------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Segment revenues:
<S> <C> <C> <C> <C>
Automobile insurance $ 8,325,060 $ 10,046,905 $ 17,658,902 $ 21,785,358
Excess and surplus lines insurance 1,052,865 969,155 1,952,355 2,026,988
Fee for service 391,149 745,045 1,027,384 1,489,875
Corporate 347,963 433,220 690,037 905,961
Premium finance (54,303) 153,170 137,594 292,709
Other 53,916 74,430 108,486 156,818
------------ ------------ ------------ ------------
Total segment revenues $ 10,116,650 $ 12,421,925 $ 21,574,758 $ 26,657,709
Intercompany eliminations (129,211) (56,002) (273,529) (203,143)
------------ ------------ ------------ ------------
Total consolidated revenues $ 9,987,439 $ 12,365,923 $ 21,301,229 $ 26,454,566
============ ============ ============ ============
Segment profit (loss) before taxes:
Automobile insurance $ (6,155,241) $ 650,560 $ (6,128,471) $ 2,163,564
Excess and surplus lines insurance 341,930 458,531 639,724 582,546
Fee for service 43,619 263,107 342,322 525,291
Corporate (741,536) (153,005) (798,783) (77,655)
Premium finance (145,012) 126,450 (42,236) 116,978
Other 18,767 25,833 40,377 44,092
------------ ------------ ------------ ------------
Total consolidated profit (loss) before tax $ (6,637,473) $ 1,371,476 $ (5,947,067) $ 3,354,816
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Segment assets:
<S> <C> <C>
Automobile insurance $ 61,420,769 $ 69,603,743
Excess and surplus lines insurance 9,728,881 9,589,246
Fee for service 6,093,629 6,250,161
Corporate 32,467,477 35,101,117
Premium finance 3,230,610 3,494,370
Other 3,242,970 3,180,653
------------- -------------
Total segment assets $ 116,184,336 $ 127,219,290
GAAP adjustments & reclassifications 32,780,072 39,067,228
Intercompany eliminations (41,623,102) (41,623,102)
------------- -------------
Total consolidated segment assets $ 107,341,306 $ 124,663,416
============= =============
</TABLE>
-8-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Operations
The Registrant reports a net loss of $3,502,340 ($.49 a share) for the six
months ended June 30, 1999. This compares to net income of $2,356,769 ($.33 a
share) reported during the first half of 1998. The loss for the period is due to
lower earned revenues and increased loss experience, partially offset by lower
operating expenses.
Consolidated revenues decreased 19.5% compared to the same period last year due
to a 17.9% reduction in earned insurance premiums, a 28.1% reduction in service
fee income and lower investment income.
Direct earned premium in the automobile segment declined 13.0% to $34,550,415
from $39,722,867 earned during the first half of 1998. The decline reflects the
reduction in direct written premium resulting from increased competition and
processing backlogs from computer modification problems during the Year 2000
conversion process. Earned premium in the automobile segment net of reinsurance
ceded declined 18.6% to $14,625,226 from $17,959,825 reported in 1998, following
the trend in direct business.
Direct written premium in the automobile segment decreased 9.7% to $34,653,440
during the current six months period compared to the comparable period in 1998.
Direct excess and surplus lines earned premium increased 4.4% to $2,131,724
during the current period. Net earned premium declined 7.7% to $1,364,547
reflecting higher reinsurance costs for excess loss coverage. Direct written
premium increased 21.6% to $2,478,026 during the first six months of 1999 over
the same period in 1998.
The processing backlog problems resulting from computer modification problems
during the Year 2000 conversion process which were experienced during the second
half of 1998 and the first quarter of 1999 have been addressed with increased
staffing and the use of outsourcing assistance. The Registrant has eliminated
most of the backlog and has returned to a more normal operating pattern during
the second quarter of 1999. The Registrant believes that it will now be able to
recapture market share and better service the needs of its insureds and agents.
Service fee revenue, which includes fee-for-service revenue, premium finance
revenue and Mobile America Insurance Group, Inc.'s agency revenue, declined
28.1% over the same period last year. Revenues from fee-for-service business
declined 36.7% to $1,018,490 reflecting a continued decline in the Florida
property and automobile joint underwriting associations' pools of available
business. Premium finance revenues of $357,572 were adversely affected by a
$223,500 write-off in receivable balances. Agency fee revenue, which is directly
related to the production of new business, totaled $2,157,839 for the period
compared to $2,724,261 reported in 1998.
Investment income declined 18.3% over the first half of 1998 as a result of a
decrease in invested assets and the reinvestment of maturing securities at lower
interest rates.
Consolidated expenses increased 18.0% compared to the same period last year due
to an increase in incurred losses and policy acquisition costs offset by lower
salary and operating expenses.
Net loss and loss adjustment expenses incurred increased 29.3% for the first
half of 1999 compared to the same period last year. The ratio of incurred loss
and loss expense to earned premium is 103.2% in 1999 compared to 65.5% in 1998.
-9-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
During 1999 net incurred loss and loss expenses in the automobile segment
increased 32.8% to $15,717,505, driven by an increase in the frequency and
severity of losses in the personal injury protection automobile line. Direct
paid loss and loss adjustment expenses declined 9.9% to $35,527,147. However,
this decline was more than offset by a reduction in the amount of losses ceded
($20,955,992 in 1999 versus $21,994,620 in 1998) and by amounts set aside for
reserves. During the first half of 1999, $1,146,350 was added to reserves for
the automobile segment while for the same period in 1998 reserves were drawn
down by $5,582,806, which equates to a $6,729,156 difference in expense levels
between the two periods. The net loss and loss expense ratio in this segment was
107.5% in 1999 and 65.9% in 1998.
Excess and surplus lines net incurred loss and loss expenses totaled $774,283 in
1999, 15.7% lower than in 1998. Direct loss and loss expense payments totaled
$486,100 in 1999 compared to $1,040,390 reported during 1998, primarily due to
storm damage incurred during the first quarter of 1998. For 1999 the net
incurred loss and loss expense ratio was 56.7% compared to 62.1% in 1998.
There is inherent uncertainty in estimating reserves for losses and loss
adjustment expenses, which are estimates of the amounts necessary to settle
reported and unreported claims and the related administrative and legal costs of
doing so. No assurance can be made that the ultimate liability will not exceed
the amounts reserved, resulting in an adverse effect on the Registrant.
The loss and loss adjustment expense experienced on the business which the
Registrant originates and cedes to its reinsurers may also adversely affect the
Registrant's profitability in the future. The Registrant decreased the ceding
percentage to 60% from 75% on certain lines effective January 1, 1999. If the
Registrant's ratio of loss and loss adjustment expenses to earned premium
deteriorates it is likely that, over time, the Registrant's cost of reinsurance
would increase, and ultimately not be obtainable on economically viable terms.
The decrease in reinsurance participation will enhance top-line growth over time
and reduce reinsurance costs; however, the Registrant will be responsible for a
higher percentage of loss.
Policy acquisition costs increased in 1999, reflecting reduced reinsurance
participation and the reduction of reinsurance commission allowances due to the
cession of higher incurred losses in the automobile segment. These charges were
offset in part by the elimination of one quota share reinsurance agreement
covering automobile business that resulted in a commission credit of
approximately $1,000,000.
Salary and wages are 18.4% lower in 1999 due to a general downsizing and the
curtailment of bonuses due to the loss reported in 1998. General and
administrative expenses declined 1.8% compared to the same period last year but
were adversely affected by one-time executive retirement costs. Adjusting for
those expenses would result in a 15.2% reduction in general expenses in 1999
compared to 1998.
Financial Position, Liquidity and Capital Resources
Net cash flow from operations was negative in 1999 as loss and loss adjustment
expense payments, operating expense payments and debt payments exceeded
premiums, fees and investment revenues. Through acceleration of settlement
procedures the Registrant continues to reduce the number of outstanding claims
in the minimum limits automobile personal injury protection line of business.
Accelerated settlement of loss payments contributes to the negative cash flow
the Registrant is currently experiencing. However, the Registrant believes this
practice will ultimately improve overall loss and loss expense experience by
reducing ultimate loss settlement costs, administrative and litigation expenses
and thereby improving cash flow. The Registrant's practice of maintaining a
highly liquid investment portfolio has allowed the Registrant to meet cash
demands. The Registrant is optimistic that cash flow will improve as rate
increases take effect, premium volume improves and the settlement of losses
returns to a more normal pattern.
The Registrant maintains sufficient liquidity to meet operational needs. Cash
requirements for operating expenses, debt service and capital expenditures will
be provided by operations and investment activities. The investment policy
continues to emphasize higher quality securities matched closely with the short
liability duration.
-10-
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Operations
The Registrant reports a net loss of $4,036,735 for the three months ended June
30, 1999 compared to net income of $1,010,855 reported during the same period of
1998. The items impacting the June 30, 1999 year to date operating results had
an adverse effect on second quarter 1999 operating results.
Net insurance premiums earned decreased 16.6% to $7,565,290 in 1999 from
$9,072,620 reported in 1998 due to declines in premiums written in the
automobile segment and higher reinsurance costs in the excess and surplus lines
segment, partially offset by excess and surplus lines earned premium. Service
fees decreased 33.6% to $1,430,199 from $2,152,962 reflecting a continuing
decline in the pools of available business from the Florida property and
automobile joint underwriting associations, a decline in agency fee revenue and
a write-off of $223,500 in premium finance receivables. Investment income
continued to decline as investments matured and the proceeds were used to fund
operating needs.
Net loss and loss adjustment expenses increased 36.7% to $8,951,509 in 1999 from
$6,546,835 reported in 1998, resulting primarily from a strengthening of
reserves. Policy acquisition costs increased by $2,882,658 due to the impact of
loss sharing arrangements in reinsurance treaties.
Salaries and wages declined by $94,197 while general and administrative expenses
rose by $503,146, primarily reflecting one-time executive retirement costs.
Year 2000 Disclosure
The Registrant is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as virtually every computer system will be affected in
some way by the rollover of the two-digit value to "00". The issue is whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail.
In the ordinary course of business, the Registrant has installed various
software and hardware that is Year 2000 compliant. The Registrant's telephone
system is not completely Year 2000 compliant but the Registrant expects to
install the necessary upgrades prior to September 30, 1999. The Registrant
believes all other mission critical systems to be Year 2000 compliant.
The Registrant has confirmed with its primary processing vendors that they have
or will make the necessary software and hardware upgrades prior to the end of
1999.
As a result of installing a new Year 2000 compliant premium and claims
processing system the Registrant experienced an increase in the backlog of
policies, endorsements and cancellations to be processed. Progress continues to
be made in this area and, with the exception of endorsements, operations have
returned to normal levels during the second quarter of 1999. The Registrant
anticipates eliminating the backlog of endorsements during the third quarter.
Failure of the Registrant, or its significant third party suppliers and vendors,
to become fully Year 2000 compliant prior to December 31, 1999 could have a
material adverse impact on the Registrant's results of operations, financial
position and cash flows. The Registrant has identified certain third parties
that could service its major lines of business in the event that critical system
applications should fail as a result of the date roll-over to January 1, 2000.
The Registrant has conducted a comprehensive review of its underwriting
guidelines and has determined that there is very little Year 2000 exposure in
the insurance policies it sells. The Registrant believes that its exposure to
Year 2000 claims will not be material. However, changing social and legal trends
may create unintended coverage for exposures by reinterpreting insurance
contracts and exclusions. It is impossible to predict what exposure, if any,
insurance companies may ultimately have for Year 2000 claims whether coverage
for the issue is specifically excluded or included.
-11-
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Market Risk - Interest Rate Risk
The Registrant's exposure to market risk for changes in interest rates is
concentrated in its investment portfolio. There have been no material changes in
the Registrant's exposure to market risk since December 31, 1998.
Other Items
On May 25, 1999 the Registrant's President and Chief Executive Officer, Allan J.
McCorkle, resigned and retired from the company. On August 1, 1999, J. John
Wortman joined the Registrant as its new President and Chief Executive Officer.
On August 9, 1999 Arthur L. Cahoon succeeded Allan J. McCorkle as Chairman of
the Board.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of
section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are deemed by the Registrant to be covered by and to
qualify for safe harbor protection provided by the Private Securities Litigation
Reform Act of 1995. Investors and prospective investors are referred to the
Registrant's Annual Report on Form 10K for the fiscal year ended December 31,
1998 for a more detailed discussion of the factors that could cause actual
results to differ. These forward-looking statements relate to, among other
things, (a) the expected benefits from (i) the award of a three year servicing
contract by the Florida Automobile Joint Underwriting Association, and (ii) the
extension of a service contract by the Florida Residential Property and Casualty
Joint Underwriting Association, and (b) the improvement of cash flow as a result
of rate increases and a return to a more normal pattern of loss settlements.
Such statements reflect the current views of the Registrant and are subject to
certain risks and uncertainties that include, but are not limited to, obtaining
policy volume service levels under the Joint Underwriting Association service
contracts, continued market acceptance of premium rate increases in the
automobile minimum limits personal injury protection line of business and
adequacy of loss reserves. The Registrant disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
-12-
<PAGE> 15
Part II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a Exhibits:
11. Unaudited computations of earnings per share.
27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8K
On May 25, 1999, the Registrant filed a Current Report on Form 8-K
reporting (a) the resignation on that date of its President and Chief
Executive Officer, Allan J. McCorkle, (b) the continued availability of
Mr. McCorkle's services to the company through a Consulting and
Non-Competition Agreement, (c) the election of Arthur L. Cahoon as
interim President and Chief Executive Officer, (d) the election of
Holly J. McCorkle to the board of directors and (e) the creation of a
shareholder's agreement between Mr. McCorkle and company director R.
Lee Smith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on it's behalf by the undersigned
thereunto duly authorized.
MOBILE AMERICA CORPORATION
Registrant
August 13, 1999 By/s/ Arthur L. Cahoon
- --------------- -----------------------
Date Arthur L. Cahoon
President and
Chief Executive Officer
-13-
<PAGE> 1
EXHIBIT 11
Mobile America Corporations and Subsidiaries
Unaudited Computations of Earnings per share
Quarters ended June 30, 1999 and 1998 and Six Months ended June 30,1999 and 1998
See Note 2 to financial statements.
14
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MOBILE AMERICA CORPORATION FOR THE 6 MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 24,533,639
<DEBT-CARRYING-VALUE> 24,733,586
<DEBT-MARKET-VALUE> 24,793,134
<EQUITIES> 1,688,686
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 62,572,541
<CASH> 1,459,124
<RECOVER-REINSURE> 10,856
<DEFERRED-ACQUISITION> (1,580,059)
<TOTAL-ASSETS> 107,341,306
<POLICY-LOSSES> 31,064,693
<UNEARNED-PREMIUMS> 27,364,656
<POLICY-OTHER> 3,672,757
<POLICY-HOLDER-FUNDS> 1,842,577
<NOTES-PAYABLE> 8,400,000
0
0
<COMMON> 191,110
<OTHER-SE> 31,768,291
<TOTAL-LIABILITY-AND-EQUITY> 107,341,306
15,997,935
<INVESTMENT-INCOME> 1,920,658
<INVESTMENT-GAINS> 57,306
<OTHER-INCOME> 3,325,330
<BENEFITS> 16,506,346
<UNDERWRITING-AMORTIZATION> 3,386,381
<UNDERWRITING-OTHER> 7,355,569
<INCOME-PRETAX> (5,947,067)
<INCOME-TAX> (2,444,727)
<INCOME-CONTINUING> (3,502,340)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,502,340)
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
<RESERVE-OPEN> 11,400,127
<PROVISION-CURRENT> 13,004,834
<PROVISION-PRIOR> 3,486,954
<PAYMENTS-CURRENT> 5,397,837
<PAYMENTS-PRIOR> 9,631,174
<RESERVE-CLOSE> 12,862,904
<CUMULATIVE-DEFICIENCY> 3,486,954
</TABLE>
