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, 1995
[ ] 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, 1995 was 10,010,568.
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,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Investments-Note 1 and 3
Securities available for sale<PAGE>
Fixed maturities, at fair value
(cost: 1995-$464,722; 1994-$232,769) $ 485,305 $ 218,748
Equity securities, at fair value
(cost: 1995-$16,829; 1994-$12,484) 19,741 15,440
Fixed maturities held to maturity, at amortized cost
(fair value: 1995-$362,175; 1994-$338,540) 365,848 378,650
Mortgage loans--at unpaid balance 9,408 1,806
Real estate--at cost, less accumulated depreciation 17,731 16,959
Policy loans--at unpaid balance 79,019 23,082
Short-term investments--at cost,
which approximates fair value 39,862 69,152
Total Investments 1,016,914 723,837
Cash 20,915 8,612
Premiums and other receivables, less
allowance for doubtful accounts 26,318 20,102
Amounts on deposit and due from reinsurers 155,593 41,426
Deferred policy acquisition costs 223,192 225,618
Land, building and equipment-at cost, less
accumulated depreciation 26,571 20,314
Accrued investment income 13,915 8,873
Deferred federal income taxes - 7,262
Other 27,580 19,656
$1,510,998 $1,075,700
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 954,409 $ 620,562
Policy and contract claims 161,859 155,373
Unearned premiums 70,883 76,266
Other 18,192 16,407
1,205,343 868,608
General expenses and other liabilities 45,774 31,793
Amounts due to reinsurers 54,692 5,249
Deferred federal income taxes 3,019 -
Short-term notes payable 9,946 20,093
Long-term notes payable 23,072 2,520
Convertible subordinated debentures 10,150 57,427
1,351,996 985,690
Redeemable Preferred Stock, no par value:
$2.125 cumulative convertible exchangeable
preferred stock
Authorized: 5,000,000 shares
Issued and outstanding:
(1995: 848,900 shares; 1994: 867,300 shares) 21,222 21,682
Stockholders' Equity
Common Stock, $1 par value:
Authorized: 20,000,000 shares
Issued, including shares in treasury
(1995-11,142,868; 1994-6,996,157) 11,143 6,996
Additional paid-in capital 71,383 29,299
Unrealized appreciation (depreciation) of
available-for-sale securities-Note 3 5,036 (7,193)
Retained earnings 60,438 48,960
Less treasury stock at cost
(1995-1,132,300 shares; 1994-1,078,400 shares) (10,220) (9,734)
Total Stockholders' Equity 137,780 68,328
$1,510,998 $1,075,700
See notes to condensed consolidated financial statements.
</TABLE>
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,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Income:
Premiums and policy charges $182,576 $176,190 $523,343 $525,890
Net investment income 17,735 10,614 52,570 31,848
Other income and realized gains
and losses from investments 8,535 7,059 24,611 21,119
208,846 193,863 600,524 578,857
Benefits and expenses:
Benefits 122,226 105,804 352,599 344,567
Insurance and general expenses 65,412 45,098 172,490 133,966
Interest expense 993 1,238 4,316 3,782
Amortization of deferred policy
acquisition costs 15,357 36,988 50,865 78,418
203,988 189,128 580,270 560,733
INCOME BEFORE INCOME TAXES 4,858 4,735 20,254 18,124
Federal income taxes 1,542 1,414 6,623 5,901
NET INCOME 3,316 3,321 13,631 12,223
PREFERRED STOCK DIVIDENDS 451 480 1,354 1,476
INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 2,865 $ 2,841 $ 12,277 $ 10,747
NET INCOME PER COMMON SHARE
Primary $ .32 $ .44 $ 1.74 $ 1.64
Fully Diluted $ .30 $ .32 $ 1.25 $ 1.12
DIVIDENDS DECLARED
PER COMMON SHARE $ .045 $ .0375 $ .135 $ .1125
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 8,865 6,386 7,078 6,552
Fully Diluted 12,649 12,694 12,623 12,860
See notes to condensed consolidated financial statements.
</TABLE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 18,086 $ 12,683
INVESTING ACTIVITIES
Net decrease in
short-term investments 29,752 33,665
Purchases of investments (147,215) (209,132)
Sale of investments 112,714 105,736
Maturities of investments 7,317 56,196
Net purchase of property and equipment (5,474) (5,304)
Purchase of subsidiaries (8,314) -
NET CASH USED BY
INVESTING ACTIVITIES (11,220) (18,839)
FINANCING ACTIVITIES
Increase in notes payable 32,048 -
Repayments of notes payable (23,611) (502)
Proceeds from sale of agent receivables 13,875 17,200
Transfer of collections on previously
sold agent receivables (14,699) (18,802)
Dividends paid - preferred (1,354) (1,388)
Dividends paid - common (799) (477)
Stock options exercised 910 627
Purchase of treasury stock (486) (3,090)
Retirement of preferred stock (460) (1,545)
Other 13 37
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 5,437 (7,940)
INCREASE (DECREASE) IN CASH 12,303 (14,096)
CASH AT BEGINNING OF PERIOD 8,612 23,379
CASH AT END OF PERIOD $ 20,915 $ 9,283
See notes to condensed consolidated financial statements.
</TABLE>
PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1995
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,
1995 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. 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, 1994.
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. (See discussion in
Exhibit 11 on page 16).
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 $113,736,000 and $124,284,000 at September 30, 1995 and December 31, 1994,
respectively. Statutory net income of the insurance subsidiaries amounted to
$1,602,000 and $1,376,000 for the three month periods ended September 30, 1995
and 1994, respectively, and $5,219,000 and $2,693,000 for the nine month periods
ended September 30, 1995 and 1994, respectively.
NOTE 3 -- INVESTMENTS
Realized investment gains for the three month period ended September 30, 1995
were $464,000 compared to realized losses of $254,000 for the same period in
1994. Realized investment gains were $1,879,000 compared to realized losses of
$32,000 for the nine month periods ended September 30, 1995 and 1994,
respectively.
Unrealized appreciation of available-for-sale securities at September 30, 1995
of $5,036,000 included unrealized gains of $23,495,000 less unrealized gains of
$15,747,000 on investments in trust accounts that are guaranteed as to principal
value by reinsurers and taxes of $2,712,000. Unrealized depreciation at
December 31, 1994 of $7,193,000 included unrealized losses of $11,066,000 net of
tax benefits of $3,873,000.
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, reinsurance arbitrations, and other items.
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.
NOTE 5 -- BUSINESS COMBINATION
On January 31, 1995, Pioneer acquired for a cost of $23,700,000 the outstanding
common shares of Connecticut National Life Insurance Company (CNL). The
acquisition was accounted for by the purchase method and, accordingly, the
purchase price was allocated to assets and liabilities acquired based on
estimates of their fair values.
The following unaudited pro-forma consolidated results of operations have been
prepared as if the acquisition had been completed as of January 1, 1994 (in
thousands except per share amounts):
Year-Ended
December 31, 1994
Revenues $ 809,500
Net income 18,700
Net income per share
Primary 2.60
Fully Diluted 1.70
CNL did not prepare quarterly financial statements in accordance with GAAP prior
to the acquisition by Pioneer. The foregoing pro-forma information is not
necessarily indicative of either the results of operations that would have
occurred had the acquisition been effective January 1, 1994 or of the future
results of operations of the consolidated companies.
NOTE 6 -- CONVERTIBLE SUBORDINATED DEBENTURES
In August 1995, the Company accepted the conversion of $46,900,000 of the
outstanding 8% convertible subordinated debentures. The effect of the
conversion was an increase in stockholders' equity of $45,300,000 and a charge
of $3,500,000, net of taxes.
NOTE 7 -- SUBSEQUENT EVENT
In October 1995, the Company signed a letter of intent to purchase all
outstanding stock of Universal Fidelity Life Insurance Company at a total
purchase price of approximately $26 million. Universal Fidelity has annual
premium revenue of approximately $33 million, assets of $40 million and $17.5
million capital and surplus.
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, 1995
compared to 1994.
Division Overview
The income (loss) before income taxes by division for the third quarter and
first nine months of 1995 and 1994 respectively, are as follows (in thousands):
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1995 1994 1995 1994
Group Medical $ 4,602 $ 2,626 $17,054 $ 8,949
Senior Health 3,686 900 7,772 7,970
Life Insurance 2,693 2,627 5,556 6,947
Medical Utilization
Management 698 848 1,477 1,378
Corporate Expenses (6,821) (2,266) (11,605) (7,120)
Total $ 4,858 $ 4,735 $20,254 $18,124
Group Medical
The increase in pre-tax income for the three month period was primarily due to a
$1.7 million charge in the third quarter of 1994 which was the net effect of an
adjustment to the deferred acquisition cost asset and a reduction of group
medical claim reserve margins. (See Consolidated Financial Condition and
Results of Operations section following). The increase in pre-tax income for
the nine month period was due to improvement in major medical loss ratios.
Excluding the reduction in claim reserve margins in 1994, the major medical loss
ratio decreased to 64% from 67% for the three month period and to 63% from 69%
for the nine month period of 1995 as compared to 1994. The improvement in the
loss ratio was due to continued increases in PPO penetration and higher than
projected claim costs in the first two quarters of last year. The significant
improvement in loss ratios was partially offset by a 10% reduction in earned
premium and an increase in general expense ratios, due partially to system
development costs.
Senior Health
Although pre-tax income for the nine period decreased slightly, pre-tax income
for the three month period increased due to improvement in Medicare supplement
loss ratios and an increase in realized investment gains. The Medicare
supplement loss ratios decreased to 65% from 68% for the three month period in
1995 as compared to 1994. Realized investment gains were $2,081,000 in the
third quarter of 1995 compared to $311,000 in the same period of 1994. The
improvements in the third quarter were offset by slightly higher than projected
claims in the first and second quarter on the Company's standardized Medicare
supplement products as well as expenses related to several new marketing
programs. The Medicare supplement loss ratio increased to 67% from 64% for the
nine month period in 1995 as compared to 1994.
Life Insurance
The decrease in pre-tax income for the nine month period was primarily due to an
increase in realized investment losses, higher mortality on an old block of
interest sensitive life business in the first quarter and expenses incurred
subsequent to the January 1995 purchase of Connecticut National Life Insurance
Company (CNL).
Medical Utilization Management
The decrease in the pre-tax income for the three month period was due to
expenses associated with the acquisition of ACMG, Inc. This division showed
improvement in profit for the nine month period. Revenues for the division
increased $2,268,000 or 78% for the three month period and $3,637,000 or 50% for
the nine month period in 1995 as compared to 1994. The increase was due to
expanded sales to unaffiliated clients and the acquisition of ACMG, Inc. in the
third quarter of 1995. In addition, the consolidation of the Milwaukee office
in the second quarter of 1994 resulted in reduced levels of expenses in the
first and second quarters of 1995 compared to the same periods last year.
Corporate Expenses and Interest
Interest expense increased for the nine month period in 1995 as compared to 1994
due to the utilization of a portion of the line of credit by the Company
beginning in the fourth quarter of 1994 and continuing through the second
quarter of 1995. Interest expense decreased for the three month period due to
the conversion of the Company's subordinated debentures in the third quarter.
This decrease partially offset the bond conversion charge of $5,160,000 incurred
in the third quarter of 1995.
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported consolidated net income of $3,316,000 for the quarter ended
September 30, 1995 as compared to $3,321,000 for the comparable period in 1994.
Net income was $13,631,000 for the nine month period in 1995 compared to
$12,223,000 for the same period in 1994.
Total premiums and policy charges increased $6,386,000 or 4% for the three month
period and decreased $2,547,000 for the nine month period in 1995 as compared to
1994. Accident and health premiums decreased $3,708,000 or 2% for the three
month period and $27,579,000 or 6% for the nine month period in 1995 compared to
1994. Of this amount premiums from major medical products decreased $6,499,000
or 6% for the three month period and $27,837,000 or 9% for the nine month period
in 1995 compared to 1994. Total premiums attributable to the remaining mix of
Medicare supplement and long-term care products increased $2,339,000 or 1% and
$2,130,000 for the three and nine month periods in 1995 as compared to 1994.
The decrease in premiums was primarily due to lower average premiums per policy
sold, which resulted from the Company initiating sales of new managed care
products, and lower than projected levels of new business sales. Life insurance
premiums increased $10,094,000 or 90% for the three month period
and $25,032,000 or 75% for the nine month period in 1995 as compared to 1994.
The increase was primarily due to the acquisition of CNL and new business sales.
Net investment income increased $7,121,000 or 67% for the three month period and
$20,722,000 or 65% for the nine month period in 1995 as compared to 1994.
Annualized investment yields increased for the nine month period from 6.3% in
1994 to 7.0% in 1995. The increases are primarily due to the acquisition of CNL
and the general increase in interest rates. Other income and realized
investment gains increased $1,476,000 or 21% for the three month period and
$3,492,000 or 17% for the nine month period in 1995 as compared to 1994. The
increase in other income was due to increased sales to unaffiliated clients by
the medical utilization management division. The remaining other income
generated by the Company's non-insurance subsidiaries remained relatively
unchanged.
Total benefits increased $16,421,000 or 16% for the three month period and
$8,032,000 or 2% for the nine month period in 1995 as compared to 1994.
Accident and health benefits, which include the change in unearned premiums,
increased $10,148,000 or 11% for the three month period and decreased
$13,718,000 or 4% for the nine month period in 1995 as compared to 1994. The
increase was primarily due to slightly higher than projected claims on the
Company's standardized Medicare supplement products as well as a reduction in
the group medical claim reserve margins in the third quarter of 1994. Excluding
the reduction in claim reserve margins in 1994, accident and health loss ratios
decreased to 65% from 67% for the three month period and to 65% from 67% for
the nine month period in 1995 as compared to the same period in 1994. Life and
annuity benefits increased $6,273,000 or 52% for the three month period and
$21,750,000 or 66% for the nine month period in 1995 as compared to 1994. The
increase is due to the acquisition of CNL and higher than projected mortality in
the first quarter of 1995.
Insurance and general expenses (which includes commission compensation to
agents) increased $20,315,000 or 45% for the three month period and $38,524,000
or 29% for the nine month period in 1995 as compared to 1994. Expenses for the
medical utilization management division increased due to the increase in sales
and the acquisition of ACMG. Expenses in the insurance divisions increased due
to the development of new marketing and sales incentive programs, system
development costs, and the acquisition of CNL. Corporate expenses increased
$5.2 million due to the charge related to the August 1995 conversion of the
Company's convertible subordinated debentures.
Amortization of deferred policy acquisition costs decreased $21,631,000 or 58%
for the three month period and $27,553,000 or 35% for the nine month period in
1995 as compared to 1994. The decrease was primarily due to an adjustment in
the third quarter of 1994 to the DAC asset on group and individual medical
business. These blocks of business 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 effective federal income tax rate decreased in the third quarter of 1995 due
to the increased investment in tax-exempt securities included in the Company's
portfolio and utilization of net operating loss carryforwards of a subsidiary.
Investments, premiums and other receivables, amounts on deposit and due from
reinsurers, accrued investment income and other assets increased principally due
to the acquisition of CNL. The decrease in short-term notes payable and the
increase in long-term notes payable resulted from the conversion of the
Company's line of credit agreement at December 31, 1994 to a term loan during
the first quarter of 1995. General expenses and other liabilities, and amounts
due to reinsurers increased due primarily to the acquisition of CNL. The
remaining balance sheet amounts remained relatively consistent with the amounts
at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated liquidity requirements are created and met 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. Payment 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 contributions from the
Company.
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, 1995 and 1994 were $13.9 million and $17.2
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 $57,477,000 of 8% convertible subordinated
debentures due 2000. Net proceeds from the offering totaled approximately
$54,000,000. 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 1995, the Company accepted the conversion of
$46,900,000 of the outstanding 8% convertible subordinated debentures. The
effect of the conversion was an increase in stockholders' equity of $45,300,000
and a charge of $3,500,000, net of taxes.
In August 1993 a subsidiary of the Company borrowed $1,500,000 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 1995, a subsidiary of the Company issued a note in the amount of
$1,660,000 as a portion of the acquisition price of CNL. The principal balance
of the note may be reduced by the former parent of CNL for capital losses
incurred on mortgage loan and real estate holdings until January 31, 1997.
Interest is payable at the average earnings rate of the investments, currently
eight percent.
In March 1995, the Company borrowed $15,000,000 to replace the line of credit
utilized at December 31, 1994. Interest on the note is payable quarterly
currently at five percent. The note requires principal repayments of $535,700
per quarter with a final payment on December 31, 1999. The Company holds
matching certificates of deposit at the bank in an amount equal to the
outstanding principal balance.
At March 31, 1995 a subsidiary of the Company had an unsecured loan of $380,000.
The note bears interest at prime and is payable quarterly with the final payment
due December 31, 1999.
In June 1995, a subsidiary of the Company borrowed $1,200,000. Interest on the
note is payable quarterly at prime. The note requires principal repayments of
$60,000 per quarter with a final payment on May 30, 2000.
The Company has a line of credit arrangement for short-term borrowings with
three banks amounting to $17 million through April 1996, all of which was unused
at September 30, 1995. The line of credit arrangement can be terminated, in
accordance with the agreement, at the Company's option.
In March, June and September 1995, the Company's Board of Directors announced a
quarterly Common Stock dividend of 4.5 cents per share, with an expectation of a
total of 18 cents per share to be paid for 1995.
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. Although the Company has
the ability and intent to hold those securities to maturity, there could occur
infrequent and unusual conditions under which it would sell certain of these
securities. Those conditions would include a significant deterioration of the
issuer's creditworthiness, significant changes in tax law affecting the taxation
of securities, a significant business acquisition or disposition, and changes in
regulatory capital requirements or permissible investments.
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 has signed a letter of intent to purchase all outstanding stock of
Universal Fidelity Life Insurance Company for a total purchase price of
approximately $26 million. Closing on the acquisition is subject to execution
of definitive agreements, approval of Universal Fidelity shareholders, and
regulatory approval. The transaction is expected to close in early 1996.
Universal Fidelity's business is primarily senior citizen health insurance,
including Medicare supplement, long term care and other supplemental insurance.
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 1995.
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 11, 1995 /s/ Peter W. Nauert
Date Peter W. Nauert
Chairman and Chief Executive Officer
November 11, 1995 /s/ David I. Vickers
Date David I. Vickers
Treasurer and Chief Financial Officer
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,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income $ 3,316 $ 3,321 $13,631 $12,223
Average shares outstanding 8,443 6,191 6,764 6,302
Common Stock equivalents from
dilutive stock options,
based on the treasury stock
method using average market
price 422 195 314 250
TOTAL-PRIMARY 8,865 6,386 7,078 6,552
Common Stock equivalents from
dilutive stock options, based
on the treasury stock method
using closing market price 31 - 140 -
Additional shares assuming
conversion of
Preferred Stock 1,358 1,416 1,358 1,416
Additional shares assuming
conversion of
Subordinated Debentures 2,395 4,892 4,047 4,892
TOTAL-FULLY DILUTED 12 649 12,694 12,623 12,860
Net income per share-
Primary* $ .32 $ .44 $ 1.74 $ 1.64
Net income per share-
Fully Diluted** $ .30 $ .32 $ 1.25 $ 1.12
* Primary net income per share was calculated after deducting dividends
on Preferred Stock of $451,000 for the three month period and $1,354,000
for the nine month period ended September 30, 1995, and $480,000 for the
three month period and $1,476,000 for the nine month period ended
September 30, 1994.
** Fully diluted net income per share was calculated after adding tax
effected interest and amortization of offering costs on Subordinated
Debentures of $441,000 for the three month period and $2,130,000 for the
nine month period ending September 30, 1995, and $747,000 and $2,241,000
for the three and nine month periods ending September 30, 1994.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 485,305
<DEBT-CARRYING-VALUE> 365,848
<DEBT-MARKET-VALUE> 362,175
<EQUITIES> 19,741
<MORTGAGE> 9,408
<REAL-ESTATE> 17,731
<TOTAL-INVEST> 1,016,914
<CASH> 20,915
<RECOVER-REINSURE> 12,035
<DEFERRED-ACQUISITION> 223,192
<TOTAL-ASSETS> 1,510,998
<POLICY-LOSSES> 954,409
<UNEARNED-PREMIUMS> 70,883
<POLICY-OTHER> 161,859
<POLICY-HOLDER-FUNDS> 18,192
<NOTES-PAYABLE> 43,168<F1>
<COMMON> 11,143<F2>
0
21,222<F3>
<OTHER-SE> 126,637<F4>
<TOTAL-LIABILITY-AND-EQUITY> 1,510,998
523,343
<INVESTMENT-INCOME> 52,570
<INVESTMENT-GAINS> 1,879
<OTHER-INCOME> 22,732
<BENEFITS> 352,559
<UNDERWRITING-AMORTIZATION> 50,865
<UNDERWRITING-OTHER> 176,806
<INCOME-PRETAX> 20,254
<INCOME-TAX> 6,623
<INCOME-CONTINUING> 13,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,631
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.25
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<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, retained earnings, and unrealized
appreciation less treasury stock.
</FN>
</TABLE>
