<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1994
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 1-10522
PIONEER FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2479273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Golf Road, Schaumburg, Illinois 60173
(Address of principal executive, offices) (Zip Code)
Registrant's telephone number, including area code (708) 995-0400
Indicate by a 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
The number of shares of the registrant's common stock, $1.00 par value
per share, outstanding as of October 31, 1994 was 6,991,902.
<PAGE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per
share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Investments-Note 1 and 3
Securities available for sale
Fixed maturities, at fair value
(cost: $235,477) $ 225,841 $ -
Fixed maturities, at cost
(fair value: $263,263) - 257,717
Equity securities, at fair value
(cost: 1994-$11,735; 1993-$12,382) 15,634 17,436
Fixed maturities held to maturity, at amortized cost
(fair value: 1994-$352,252; 1993-$325,540) 386,777 326,512
Mortgage loans--at unpaid balance 2,112 3,201
Real estate--at cost, less accumulated depreciation 16,547 -
Policy loans--at unpaid balance 22,695 23,988
Short-term investments--at cost,
which approximates fair value 11,687 45,352
Total Investments 681,293 674,206
Cash 9,283 23,379
Premiums and other receivables, less
allowance for doubtful accounts 18,360 20,734
Amounts on deposit and due from reinsurers 75,936 74,366
Deferred policy acquisition costs 231,513 260,432
Land, building and equipment-at cost, less
accumulated depreciation 24,646 22,248
Accrued investment income 9,398 8,482
Deferred federal income taxes 5,982 3,922
Other 22,617 20,502
$1,079,028 $1,108,271
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Policy liabilities:
Future policy benefits $ 610,768 $ 610,734
Policy and contract claims 165,563 189,389
Unearned premiums 76,832 87,945
Other 17,327 15,037
870,490 903,105
General expenses and other liabilities 53,159 48,442
Short-term notes payable 3,798 5,575
Long-term notes payable 2,400 1,125
Convertible subordinated debentures 57,477 57,477
987,324 1,015,724
Redeemable Preferred Stock, no par value:
$2.125 cumulative convertible exchangeable
preferred stock
Authorized: 5,000,000 shares
Issued and outstanding:
(1994: 885,200 shares; 1993: 947,000 shares) 22,130 23,675
Stockholders' Equity
Common Stock, $1 par value:
Authorized: 20,000,000 shares
Issued, including shares in treasury
(1994-6,991,902; 1993-6,900,000) 6,992 6,900
Additional paid-in capital 29,386 28,814
Unrealized appreciation (depreciation) of
available-for-sale securities (3,729) 3,285
Retained earnings 44,787 34,645
Less treasury stock at cost
(1994-870,800 shares; 1993-556,800 shares) (7,862) (4,772)
Total Stockholders' Equity 69,574 68,872
$1,079,028 $1,108,271
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INCOME:
Premiums and policy charges $176,190 $154,132 $525,890 $463,664
Net investment income 10,614 9,919 31,848 29,434
Other income and realized gains
and losses from investments 7,059 5,883 21,119 14,665
193,863 169,934 578,857 507,763
Benefits and expenses:
Benefits 105,804 100,883 344,567 310,163
Insurance and general expenses 45,098 40,181 133,966 119,952
Interest expense 1,238 1,185 3,782 2,157
Amortization of deferred policy
acquisition costs 36,988 22,792 78,418 63,107
189,128 165,041 560,733 495,379
INCOME BEFORE INCOME TAXES 4,735 4,893 18,124 12,384
Federal income taxes 1,414 1,765 5,901 4,334
NET INCOME 3,321 3,128 12,223 8,050
PREFERRED STOCK DIVIDENDS 480 505 1,476 1,518
INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 2,841 $ 2,623 $ 10,747 6,532
NET INCOME PER COMMON SHARE
Primary $ .44 $ .40 $ 1.64 $ .97
Fully Diluted $ .32 $ .31 $ 1.12 $ .91
DIVIDENDS DECLARED
PER COMMON SHARE $ .0375 $ -- $ .1125 $ --
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 6,386 6,591 6,552 6,739
Fully Diluted 12,694 12,272 12,860 9,500
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 12,683 $ 30,056
INVESTING ACTIVITIES
Net decrease (increase) in 33,665 (2,787)
short-term investments
Purchases of investments (209,132) (206,830)
Sale of investments 105,736 138,162
Maturities of investments 56,196 59,285
Net purchase of property and equipment (5,304) (2,569)
Purchase of subsidiaries - (9,685)
NET CASH USED BY
INVESTING ACTIVITIES (18,839) (24,424)
FINANCING ACTIVITIES
Increase in convertible subordinated debentures - 57,477
Repayments of notes payable (502) (31,446)
Proceeds from sale of agent receivables 17,200 16,109
Transfer of collections on previously
sold agent receivables (18,802) (15,447)
Dividends paid (1,865) (1,518)
Stock options exercised 627 166
Purchase of treasury stock (3,090) (4,720)
Retirement of preferred stock (1,545) (205)
Other 37 --
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (7,940) 20,416
INCREASE (DECREASE) IN CASH (14,096) 26,048
CASH AT BEGINNING OF PERIOD 23,379 18,686
CASH AT END OF PERIOD $ 9,283 $ 44,734
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1994
NOTE 1 -- ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
(GAAP) for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the nine
month period ended September 30, 1994 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Pioneer Financial Services, Inc. ("Pioneer"
or "the Company") Annual Report on Form 10-K for the year ended December 31,
1993.
EARNINGS PER SHARE
Primary earnings per share of Common Stock are determined by dividing net
income for the period, less dividends on Preferred Stock, by the weighted
average number of common stock and common stock equivalents (dilutive stock
options) outstanding. Fully diluted earnings per share assumes conversion of
the Preferred Stock outstanding and conversion of the Subordinated Debentures
with related tax-effected interest added back to net income. Where the effect
of the assumed conversion on net earnings would be antidilutive, fully diluted
earnings per share represents the primary amount. (See discussion in Exhibit
11 on page 16).
NEW ACCOUNTING STANDARD
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 115, "Accounting for Certain Investments in
Debt and Equity Securities". As of January 1, 1994 the Company adopted the
provisions of that standard. The effect as of January 1, 1994 of adopting
Statement 115 increased stockholders equity by $3,605,000 (net of adjustments
to deferred income taxes) to reflect the net unrealized holding gains on
securities previously carried at amortized cost; there was no effect on net
income as a result of the adoption of Statement 115. In the nine month period
ended September 30, 1994 those net unrealized holding gains decreased by
$9,868,000 (net of adjustments to deferred income taxes). The net unrealized
depreciation was due primarily to increases in interest rates during the
period.
<PAGE>
NOTE 2 -- STOCKHOLDERS' EQUITY
The statutory accounting practices prescribed for Pioneer's insurance
subsidiaries by regulatory authorities differ from GAAP. The combined
statutory-basis capital and surplus of Pioneer's direct insurance subsidiaries
was $103,820,000 and $106,567,000 at September 30, 1994 and December 31, 1993,
respectively. Statutory net income of the insurance subsidiaries amounted to
$1,376,000 and $2,228,000 for the three month periods ended September 30, 1994
and 1993, respectively, and $2,693,000 and $4,499,000 for the nine month
periods ended September 30, 1994 and 1993, respectively.
NOTE 3 -- INVESTMENTS
Realized investment losses for the three month period ended September 30, 1994
were $254,000 compared to realized gains of $1,585,000 for the same period in
1993. Realized investment losses were $32,000 compared to realized gains of
$1,907,000 for the nine month periods ended September 30, 1994 and 1993,
respectively.
NOTE 4 -- CONTINGENCIES
Pioneer and its subsidiaries are named as defendants in various legal actions,
some claiming significant damages, arising primarily from claims under
insurance policies, disputes with agents, and other items. On May 11, 1994
the California Insurance Department filed complaints against a subsidiary of
the Company for alleged violations of California consumer protection rules.
Pioneer's management and its legal counsel are of the opinion that the
disposition of these actions will not have a material adverse effect on
Pioneer's financial position.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Three and Nine Month Periods ended September 30, 1994
compared to 1993.
Division Overview
The income (loss) before income taxes by division for the third quarter and
first nine months of 1994 and 1993 respectively, are as follows
(in thousands):
Three Months Nine Months
Ended Sept. 3 Ended Sept. 30,
1994 1993 1994 1993
Health Insurance $ 1,320 $ 1,374 $ 6,813 $ 4,324
Life Insurance 2,627 2,839 6,947 7,445
Marketing 2,206 3,886 10,106 6,345
Managed Care 848 (527) 1,378 (787)
Corporate Expenses (2,266) (2,679) (7,120) (4,943)
Total $ 4,735 $ 4,893 $18,124 $12,384
Health Insurance
The increase in pre-tax income for the nine month period was primarily due to
continued cost reduction programs which reduced the general expense ratio
approximately 1%. The decrease in pre-tax income for the three month period
was due to charges totaling $1.7 million in the third quarter of 1994. The
charge was the net effect of a $16.7 million adjustment to the deferred
acquisition cost asset and a reduction of group medical claim reserve margins
of $15 million. (See Consolidated Financial Condition and Results of
Operations Section Following). The accident and health loss ratio decreased
to 58% from 65% for the three month period and to 64% from 65% for the nine
month period in 1994 as compared to the same periods in 1993. The improved
loss ratios were due to a reduction in the group medical claim reserve margins
as a result of improvements in claim processing and monitoring. The reduction
in claim reserves resulted in an 8% loss ratio improvement for the three month
period and a 3% improvement in the nine month period as compared to the same
period in 1993. A small improvement in loss ratios on the medicare supplement
products was offset by higher loss ratios in 1994 due to a change in product
mix from the acquisition of Continental Life & Accident Company (CLAC).
Life Insurance
The results for the three and nine month periods of 1994 were slightly off
from prior year amounts. The unit cost per policy in-force was slightly
improved for the three and nine month period in 1994 as compared to 1993.
The mortality in the first nine months of 1994 was slightly higher than levels
experienced in the same period last year. The higher mortality is on a closed
block of universal life business. Despite the overall decline in the Company's
investment yields in 1994, the interest spread on life and annuity business
continued to improve due to an aggressive crediting rate strategy. Realized
investment gains in the life insurance division decreased from $2,282,000 in
the three month period ended September 30, 1994 compared to $3,000 for the
same period in 1993. Realized investment losses for the nine month period
ended September 30, 1994 were $22,000 compared to gains of $2,416,000 for the
same period in 1993.
<PAGE>
Marketing
The increase in pre-tax income in the first nine months of 1994 as compared to
the same period in 1993 is due to increased revenue coupled with cost
reductions from the consolidation of the divisions career agent distribution
system and revision of the agent training and recruiting programs. The
pre-tax income was down for the third quarter of 1994 due to certain
litigation costs and the write-off of agent balances associated with recently
terminated agents.
Managed Care
Managed care operations showed a continued improvement in profit for the three
and nine month periods ended September 30, 1994. The improvement compared to
losses experienced the last three quarters of 1993 was due to the elimination
of an unprofitable operating subsidiary in the fourth quarter of 1993. The
managed care division also continued to expand sales to unaffiliated clients
with a $355,000 or 37% increase for the three month period and a $1,264,000 or
58% increase for the nine month period in 1994 as compared to 1993. The
consolidation of certain operations in July 1994 resulted in reduced expense
levels in the third quarter.
Corporate Expenses and Interest
Interest expense increased in 1994 as compared to 1993 due to the issuance of
the convertible subordinated debentures in July 1993. The corporate general
expense also increased due to allocation of staff resources at the corporate
and acquisition company level and increases in the investor relations program.
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported consolidated net income of $3,321,000 for the quarter
ended September 30, 1994 as compared to $3,128,000 for the comparable period
in 1993.
Total premiums and policy charges increased $22,058,000 or 14% for the three
month period and $62,226,000 or 13% for the nine month period in 1994 as
compared to 1993. Accident and health premiums increased $20,168,000 or 14%
for the three month period and $56,919,000 or 13% for the nine month period in
1994 compared to 1993. The premium increase was primarily attributable to
increased premiums from major hospital products resulting primarily from the
acquisition of CLAC completed in August 1993. Total premiums attributable to
the remaining mix of Medicare supplement and long-term care products decreased
$2,497,000 or 5% and $14,912,030 or 9% for the three and nine month periods in
1994 as compared to 1993.
Net investment income increased $695,000 or 7% for the three month period and
$2,414,000 or 8% for the nine month period in 1994 as compared to 1993.
Annualized investment yields decreased for the nine month period from 6.9% in
1993 to 6.3% in 1994. The decrease in the investment yield is due to the
shortening of the Company's average duration and the increased emphasis on
tax-exempt securities included in the Company's portfolio.
Other income and realized investment gains increased $1,176,000 or 20% for
<PAGE>
the three month period and $6,454,000 or 44% for the nine month period in 1994
as compared to 1993. The increase in other income was due to the acquisition
of Healthcare Review Corporation and CLAC. In addition, the Company realized
increased sales to unaffiliated customers in both the Marketing and Managed
Care Divisions. Realized investment losses for the three month period ended
September 30, 1994 were $254,000 compared to realized gains of $1,585,000 for
the same period in 1993. Realized investment losses were $32,000 compared to
realized gains of $1,907,000 for the nine month periods ended September 30,
1994 and 1993, respectively. The remaining other income generated by the
Company's non-insurance subsidiaries remained relatively unchanged.
Total benefits increased $4,921,000 or 5% for the three month period and
$34,404,000 or 11% for the nine month period in 1994 as compared to 1993.
Accident and health benefits, which include the change in unearned premiums,
increased $2,503,000 or 3% for the three month period and $31,114,000 or 11%
for the nine month period in 1994 as compared to 1993. The increase for the
period was due primarily to the increased amount of collected premiums. The
accident and health loss ratio decreased to 58% from 65% for the three month
period and to 64% from 65% for the nine month period in 1994 as compared to
the same period in 1993. The improved loss ratios were due to a reduction in
the group medical claim reserve margins as a result of improvements in claim
processing and monitoring. The reduction in claim reserves resulted in an 8%
loss ratio improvement for the three month period and a 3% improvement in the
nine month period as compared to the same periods in 1993. A small improve-
ment in loss ratios on the medicare supplement products was offset by higher
loss ratios due to a change in product mix from the acquisition of CLAC. Life
and annuity benefits increased $2,418,000 or 25% for the three month period
and $3,290,000 or 11% for the nine month period in 1994 as compared to 1993.
The increase is due to higher mortality on a closed block of universal life
and an increase in in-force business.
The general expenses as a percent of premiums decreased for the three month
period in 1994 as compared to the same period in 1993 due to the continued
emphasis on cost reduction in the Health and Life Insurance Units. However,
insurance and general expenses (which includes commission compensation to
agents) increased $4,916,000 or 12% for the three month period and $14,014,000
or 12% for the nine month period in 1994 as compared to 1993 due to the
increase in premium and policy charges for the three and nine month periods,
primarily from the acquisition of CLAC.
Amortization of deferred policy acquisition costs increased $14,196,000 for
the three month period and $15,311,000 for the nine month period in 1994 as
compared to 1993. The increase was due to an adjustment in the third quarter
to the DAC asset on group and individual medical business issued in recent
years. These blocks of business have achieved lower margins than expected due
primarily to mandated state healthcare reforms. The Company is now assuming a
lower level of future profitability on these blocks. The Company continues to
monitor the profitability of its business on a quarterly basis. Increased
lapses or unprofitability on the business could result in an increase in the
amortization rate of deferred policy acquisition costs, which would adversely
impact future earnings.
The effective federal income tax rate decreased in the third quarter of 1994
due to the increased investment in tax-exempt securities included in the
Company's portfolio and utilization of a net operating loss carryforward of a
subsidiary.
<PAGE>
The Company acquired the building containing its corporate headquarters in
Schaumburg, Illinois in January 1994 resulting in the increase in investment
real estate. Other assets increased primarily due to an increase in federal
income tax recoverables, capitalized assessments, and certain investment
receivables. Premiums and other receivables decreased primarily due to a
decrease in uncollected premiums. Amounts on deposit and due from reinsurers
increased due to the timing of payments due from reinsurers. The decrease in
short-term notes payable is consistent with their scheduled maturities.
General expenses and other liabilities increased due to an increase in amounts
due to reinsurers. The remaining balance sheet amounts remained relatively
consistent with the amounts at December 31, 1993. The decrease in cash
provided by operating activities was due primarily to a decrease in policy
liabilities and an increase in federal income tax recoverables.
HEALTHCARE REFORM
Many proposals have been introduced in Congress and various state legislatures
to reform the present healthcare system. Most of these proposals are
specifically directed at the small group healthcare market, a significant
portion of the Company's health business. At the state level, a number of
states have passed or are considering legislation that would limit the
differentials in rates that carriers could charge between new business and
renewal business and with respect to similar demographic groups. Legislation
also has been adopted or is being considered that would make health insurance
available to all small groups by requiring coverage of all employees and their
dependents, by limiting the applicability of pre-existing conditions
exclusions, by requiring carriers to offer a basic plan exempt from certain
mandated benefits as well as a standard plan and by establishing a mechanism
to spread the risk of high risk employees to all small group carriers.
At the federal level, it is not possible to predict which proposal, if any,
will be adopted by Congress next year or when such a proposal may be enacted.
However, we do expect there to be insurance market reforms in any package that
would be passed. The Company is monitoring developments concerning healthcare
reform and preparing its strategic responses to different possible reform
scenarios. In response to existing legislation and in anticipation of future
healthcare reform, the Company has broadened its health insurance, life
insurance and managed care business and has continued to diversify products
and services in selected market areas that the Company believes will be
consistent with its targeted market focus and be less affected by healthcare
reform. It is likely that healthcare reform at the federal and state levels
will require the Company to make significant changes to the way it conducts
its health insurance business, but it is not possible at this time to predict
the nature or effects of healthcare reform or how soon it will be adopted and
implemented, if at all. If state small group reform continues to add
restrictions to insurance business and the federal government assumes
responsibility for regulation and payment of much of the healthcare that is
now handled by the private sector, this would significantly reduce or
eliminate the Company's group medical insurance business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated liquidity requirements are created and met
<PAGE>
primarily by operations of its insurance subsidiaries. The insurance
subsidiaries' primary sources of cash are premiums, investment income, and
investment sales and maturities. The primary uses of cash are operating
costs, policy acquisition costs, payments to policyholders and investment
purchases.
In addition, liquidity requirements of the Company are created by the dividend
requirements of the $2.125 Preferred Stock, common stock dividends, interest
payments on the Convertible Subordinated Debentures and other debt service
requirements. The Company's liquidity requirements are met primarily by
dividends declared by its subsidiaries. Payments of dividends by the
insurance subsidiaries to the Company is subject to certain regulatory
restrictions.
The Company's life and health insurance subsidiaries require capital to fund
acquisition costs incurred in the initial year of policy issuance and to
maintain adequate surplus levels for regulatory purposes. These capital
requirements have been met principally from internally generated funds,
including premiums and investment income, and capital provided from
reinsurance and the financing or sale of agent debit balances.
The Company has offered agent commission financing to certain of its agents
and marketing organizations which consists primarily of annualization of
first year commissions. This means that when the first year premium is paid
in installments, the Company will advance a percentage of the commissions that
the agent would otherwise receive over the course of the first policy year.
The Company through a subsidiary has entered into agreements with an
unaffiliated corporation to provide financing for its agent commission
financing program through the sale of agent receivables. Proceeds from such
sales for the nine month period ended September 30, 1994 and 1993 were $17.2
million and $16.1 million, respectively. The termination date of the current
program is December 31, 1997, subject to extension or termination as provided
therein.
In July 1993 the Company issued $57.5 million of 8% convertible subordinated
debentures due 2000. Net proceeds from the offering totaled approximately $54
million. The debentures are convertible into the Company's common stock at
any time prior to maturity, unless previously redeemed, at a conversion price
of $11.75 per share.
In August 1993 a subsidiary of the Company borrowed $1.5 million to finance
the acquisition of Healthcare Review Corporation. Interest on the note is
payable quarterly at six percent. The note requires principal repayments of
$75,000 per quarter through July 31, 1998.
In July 1994, a subsidiary of the Company borrowed $2 million to finance the
growth of business operations. Interest on the note is payable quarterly at
the prime rate. The note requires principal repayments of $125,000 per
quarter through July 1, 1998.
The Company has a line of credit arrangement for short-term borrowings with
three banks amounting to $20 million through April 1996, of which $1 million
was used at September 30, 1994 to secure a letter of credit. The line of
credit arrangement can be terminated, in accordance with the agreement, at the
Company's option.
In March, June and September 1994, the Company's Board of Directors announced
a quarterly Common Stock dividend of 3.75 cents per share, with an expectation
of a total of 15 cents per share to be paid for 1994.
<PAGE>
Management believes that the diversity of the Company's investment portfolio
and the liquidity attributable to the large concentration of investments in
highly liquid United States government agency securities provide sufficient
liquidity to meet foreseeable cash requirements. Because the Company's
insurance subsidiaries experience strong positive cash flows, including
monthly cash flows from mortgage-backed securities, the Company does not
expect its insurance subsidiaries to be forced to sell the held to maturity
investments prior to their maturities and realize material losses or gains.
However, if the Company experiences changes in credit risk, it may be required
to sell assets whose fair value is less than carrying value and incur losses.
Life insurance and annuity liabilities are generally long term in nature
although subject to earlier surrender as a result of the policyholder's
ability to withdraw funds or surrender the policy, subject to surrender and
withdrawal penalties. The Company believes its policyholder liabilities
should be backed by an investment portfolio that generates predictable
investment returns. The Company seeks to limit exposure to risks associated
with interest rate fluctuations by concentrating its invested assets
principally in high quality, readily marketable debt securities of
intermediate duration and by attempting to balance the duration of its
invested assets with the estimated duration of benefit payments arising from
contract liabilities.
The Company currently has a signed letter of intent to purchase Connecticut
National Life Insurance Company. The purchase is expected to be partially
financed through current banking relationships. Although the Company is
engaged in other ongoing preliminary evaluations of potential acquisitions,
there are no existing agreements with respect to other significant
acquisitions at the present time.
<PAGE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Statement of Computation
of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the third
quarter of 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Pioneer Financial Services, Inc.
November 14, 1994 /s/ Peter W. Nauert
Date ---------------------------------
Peter W. Nauert
Chairman and Chief Executive Officer
November 14, 1994 /s/ David I. Vickers
Date ----------------------------------
David I. Vickers
Treasurer and Chief Financial Officer
<PAGE>
EXHIBIT 11
PIONEER FINANCIAL SERVICES, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net income $ 3,321 $ 3,128 $12,223 $ 8,050
Average shares outstanding 6,191 6,343 6,302 6,624
Common Stock equivalents from
dilutive stock options,
based on the treasury stock
method using average market
price 195 248 250 115
TOTAL-PRIMARY 6,386 6,591 6,552 6,739
Common Stock equivalents from
dilutive stock options, based
on the treasury stock method
using closing market price - 74 - 207
Additional shares assuming
conversion of
Preferred Stock 1,416 1,522 1,416 1,522
Additional shares assuming
conversion of
Subordinated Debentures 4,892 4,085 4,892 1,032
TOTAL-FULLY DILUTED 12,694 12,272 12,860 9,500
Net income per share-
Primary* $ .44 $ .40 $ 1.64 $ .97
Net income per share-
Fully Diluted** $ .32 $ .31 $ 1.12 $ .91
* Primary net income per share was calculated after deducting dividends
on Preferred Stock of $480,000 for the three month period and
$1,476,000 for the nine month period ended September 30, 1994, and
$505,000 for the three month period and $1,518,000 for the nine month
period ended September 30, 1993.
** Fully diluted net income per share was calculated after adding tax
effected interest on Subordinated Debentures of $747,000 for the three
month period and $2,241,000 for the nine month period ending September
30, 1994, and $620,000 for the three and nine month periods ending
September 30, 1993.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 225,841
<DEBT-CARRYING-VALUE> 352,252
<DEBT-MARKET-VALUE> 386,777
<EQUITIES> 15,634
<MORTGAGE> 2,112
<REAL-ESTATE> 16,547
<TOTAL-INVEST> 681,293
<CASH> 9,283
<RECOVER-REINSURE> 3,708
<DEFERRED-ACQUISITION> 231,513
<TOTAL-ASSETS> 1,079,028
<POLICY-LOSSES> 610,768
<UNEARNED-PREMIUMS> 76,832
<POLICY-OTHER> 165,563
<POLICY-HOLDER-FUNDS> 17,327
<NOTES-PAYABLE> 63,675<F1>
<COMMON> 6,992<F2>
0
22,130<F3>
<OTHER-SE> 62,582<F4>
<TOTAL-LIABILITY-AND-EQUITY> 1,079,028
525,890
<INVESTMENT-INCOME> 31,848
<INVESTMENT-GAINS> (32)
<OTHER-INCOME> 21,151
<BENEFITS> 344,567
<UNDERWRITING-AMORTIZATION> 78,418
<UNDERWRITING-OTHER> 137,748
<INCOME-PRETAX> 18,124
<INCOME-TAX> 5,901
<INCOME-CONTINUING> 12,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,223
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.12
<RESERVE-OPEN> 0<F5>
<PROVISION-CURRENT> 0<F5>
<PROVISION-PRIOR> 0<F5>
<PAYMENTS-CURRENT> 0<F5>
<PAYMENTS-PRIOR> 0<F5>
<RESERVE-CLOSE> 0<F5>
<CUMULATIVE-DEFICIENCY> 0<F5>
<FN>
<F1>Includes short-term and long-term borrowings and convertible subordinated
debentures.
<F2>Common stock at par value.
<F3>Redeemable preferred stock at par value.
<F4>Includes additional paid in capital and retained earnings less unrealized
depreciation of securities and treasury stock.
<F5>Available on an annual basis only.
</FN>
</TABLE>
