UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-22404
ALLIED Life Financial Corporation
(Exact name of registrant as specified in its charter)
Iowa
(State or other jurisdiction of incorporation or organization)
42-1406716
(I.R.S. Employer Identification No.)
701 Fifth Avenue, Des Moines, Iowa
(Address of principal executive offices)
50391-2003
(Zip Code)
515-280-4211
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
Indicate the number of outstanding shares of each of the issuer's classes of
common stock, as of August 1, 1997:
4,370,251 shares of Common Stock.
This document contains 20 pages.
<PAGE>
PART I
Item 1. Financial Statements
ALLIED Life Financial Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1997 1996
Assets
Investments
Fixed maturities
Held to maturity at amortized cost
(fair value $0 in 1997 and
$205,347,823 in 1996 - see note 6) $ -------- $199,208,835
Available for sale, at fair value
(amortized cost $708,160,687 in 1997
and $492,686,241 in 1996 - see note 6) 720,280,862 500,289,070
Equity securities at fair value 9,142,696 6,406,552
Mortgage loans on real estate 1,122,363 1,456,688
Policy loans 10,768,311 10,306,724
Other invested assets 3,385,835 3,751,415
Short-term investments, at cost 1,916,342 919,687
Total investments 746,616,409 722,338,971
Accrued investment income 10,051,650 9,738,060
Accounts receivable 1,013,995 607,737
Reinsurance ceded receivables 5,609,167 5,786,434
Current income taxes recoverable 895,894 -------
Deferred policy acquisition costs 93,417,549 92,417,588
Other assets 7,648,636 4,710,933
Total assets $865,253,300 $835,599,723
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
1
<PAGE>
ALLIED Life Financial Corporation Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1997 1996
Liabilities
Policy liabilities
Policyholder account balances
Annuity contracts $484,568,954 $467,504,991
Universal life contracts 189,825,970 182,726,695
Other 7,920,753 8,846,156
Future policy benefits 35,440,924 33,473,558
Policy and contract claims 3,390,163 3,735,623
Other policyholder funds 2,205,490 1,575,995
723,352,254 697,863,018
Checks drawn in excess of bank balances 2,481,037 3,163,318
Current income taxes payable -------- 940,576
Deferred income taxes 4,529,434 8,008,946
Indebtedness to affiliates 3,902,488 2,188,068
Note payable (note 2) 18,880,000 20,470,000
Other liabilities 3,487,949 3,024,175
Total liabilities 756,633,162 735,658,101
Stockholders' equity
Preferred stock, no par value, issuable in series,
authorized 7,500,000 shares
6.75% Series, authorized 2,440,000 shares, issued and
outstanding of 2,216,650 in 1997 and 2,143,691 in 1996 24,050,652 23,259,047
ESOP Series, authorized 300,000 shares, issued
and outstanding 107,329 in 1997 and 93,982 in 1996 1,569,554 1,327,186
Common stock, no par value, $1 stated value,
authorized 25,000,000 shares, issued and outstanding
4,368,832 in 1997 and 4,497,238 in 1996 4,368,832 4,497,238
Additional paid-in capital 44,559,376 46,596,171
Retained earnings 25,178,711 21,751,088
Unrealized appreciation of investments, net 8,893,013 2,510,892
Total stockholders' equity 108,620,138 99,941,622
Total liabilities and stockholders' equity $865,253,300 $835,599,723
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
2
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues
Insurance revenues
Policyholder assessments on
universal life contracts $ 5,429,777 $ 5,086,608 $ 10,813,215 $ 10,253,908
Surrender charges 605,655 567,911 1,224,749 1,196,371
Life insurance premiums 3,651,607 3,212,473 6,897,777 6,045,360
Other insurance income 1,352,938 886,819 2,576,636 1,692,247
Reinsurance premiums ceded (2,452,590) (2,203,904) (4,750,409) (4,267,624)
Total insurance revenues 8,587,387 7,549,907 16,761,968 14,920,262
Investment income 12,851,595 11,936,957 25,534,722 23,686,874
Realized investment gains (losses) 140,436 (60,290) (252,319) (144,474)
Other income 338,873 270,109 662,014 558,095
21,918,291 19,696,683 42,706,385 39,020,757
Benefits and Expenses
Policyholder benefits
Interest credited to policyholder
account balances
Annuity contracts 6,437,051 6,056,648 12,621,285 11,857,101
Universal life contracts 2,487,882 2,348,317 5,180,694 4,723,579
Other 89,299 87,572 215,430 171,769
Death benefits 2,077,940 1,724,322 4,884,466 4,363,397
Other policyholder benefits 1,338,757 2,075,341 2,543,556 3,432,601
Reinsurance recoveries (95,301) (847,120) (383,373) (1,982,775)
Total policyholder benefits 12,335,628 11,445,080 25,062,058 22,565,672
Amortization of deferred policy
acquisition costs 2,556,992 2,109,686 4,712,923 3,842,280
Commissions 1,011,805 807,240 1,884,297 1,476,571
Affiliated operating expenses 158,027 286,429 301,443 609,585
Other insurance operating expenses 1,838,973 1,407,346 3,538,051 2,841,367
17,901,425 16,055,781 35,498,772 31,335,475
Income before income taxes 4,016,866 3,640,902 7,207,613 7,685,282
Income Taxes
Current 1,917,763 1,405,807 2,242,379 2,474,868
Deferred (579,841) (229,000) 159,488 49,019
1,337,922 1,176,807 2,401,867 2,523,887
Net Income $ 2,678,944 $ 2,464,095 $ 4,805,746 $ 5,161,395
Net income applicable to
common stock $ 2,252,448 $ 2,066,844 $ 3,959,753 $ 4,372,859
Earnings Per Common Share $ 0.51 $ 0.45 $ 0.89 $ 0.95
Weighted average number of
common shares outstanding 4,446,153 4,635,778 4,473,721 4,634,490
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
June 30,
1997 1996
Cash Flow From Operating Activities
Net income $ 4,805,747 $ 5,161,395
Adjustments to reconcile net income to net cash provided by
operating activities
Policyholder assessments on universal life contracts (10,813,215) (10,253,908)
Surrender charges (1,224,749) (1,196,371)
Interest credited to policyholder account balances 18,017,409 16,752,449
Realized investment losses 252,319 144,471
Change in
Accrued investment income (313,590) (512,610)
Reinsurance ceded receivables 177,267 2,252,163
Deferred policy acquisition costs (3,540,922) (4,386,713)
Liabilities for future policy benefits 1,967,366 2,400,213
Policy and contract claims and other policyholder funds 284,035 (1,068,787)
Income taxes
Current (1,836,470) 1,751,951
Deferred 159,488 49,022
Other, net (1,335,610) (458,680)
Net cash provided by operating activities 6,599,075 10,634,595
Cash Flows from Investing Activities
Purchase of fixed maturities held to maturity (7,593,891) (18,090,047)
Maturities, calls, and principal reductions of fixed maturities
held to maturity 8,022,208 33,366,232
Purchase of fixed maturities available for sale (99,272,578) (86,967,282)
Proceeds from sale of fixed maturities available for sale 71,303,779 30,467,664
Maturities, calls, and principal reductions of fixed maturities
available for sale 11,035,484 15,799,671
Purchase of equity securities (3,045,556) (1,013,190)
Proceeds from sale of equity securities 1,145,911 --------
Proceeds from repayment of mortgage loans 334,550 92,420
Change in other invested assets -------- (4,145,000)
Change in policy loans, net (461,588) (626,574)
Purchase of property, plant and equipment (1,713,325) (337,181)
Net cash used in investing activities (20,245,006) (31,453,287)
Cash Flows from Financing Activities
Change in checks drawn in excess of bank balances (682,282) (603,165)
Deposits to policyholder account balances 55,295,645 47,710,920
Withdrawals from policyholder account balances (38,099,295) (25,644,914)
Change in note payable, net (1,590,000) 325,000
Change in note payable from affiliates 2,227,869 --------
Proceeds from issuance of stock, net 555,287 348,133
Repurchase of stock (2,478,131) --------
Dividends paid to stockholders (586,507) (511,797)
Net cash provided by financing activities 14,642,586 21,624,177
Net Increase in Cash and Short-term Investments 996,655 805,485
Cash and short-term investments at beginning of year 919,687 721,612
Cash and short-term investments at end of quarter $ 1,916,342 $ 1,527,097
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
ALLIED Life Financial Corporation (the Company) and its subsidiaries on a
consolidated basis.
At June 30, 1997, ALLIED Mutual Insurance Company (ALLIED Mutual), an affiliated
property-casualty insurance company, controlled 56% of the voting stock of the
Company and the ALLIED Life Financial Corporation Employee Stock Ownership Trust
owned 2%. The remainder was owned by public stockholders.
The accompanying interim consolidated financial statements should be read in
conjunction with the following notes and with the Notes to Consolidated
Financial Statements included in the ALLIED Life Financial Corporation's Annual
Report on 10K for the year ended December 31, 1996. The interim consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles (GAAP) and include all adjustments which are in the
opinion of management necessary for a fair presentation of the results for the
interim periods. In the opinion of management, all such adjustments are of a
normal and recurring nature. All significant intercompany balances and
transactions have been eliminated.
(2) Transactions with Affiliates
The Company and its affiliates pool their excess cash pursuant to the
Intercompany Cash Concentration Fund Agreement. The fund, administered by AID
Finance Services, Inc. (an affiliate of the Company), also issues short-term
loans (30 days or less) to affiliated companies in accordance with the current
intercompany borrowing policy. At June 30, 1997, the Company had an investment
balance in the intercompany fund of $1,659,941. Pursuant to the Agreement, AID
Finance Services, Inc. receives a management fee of 5 basis points which the
fund participants pay in the form of an additional 0.05% in the interest rate
for borrowings and a 0.05% reduction in the interest rate on invested funds.
The Company has a note payable with ALLIED Mutual. At June 30, 1997 the
outstanding balance of the note payable was $3,845,217.
(3) Note Payable to Nonaffiliates
ALLIED Life Insurance Company, a wholly owned subsidiary, has a line of credit
agreement with the Federal Home Loan Bank (FHLB) to make available borrowings of
$25,000,000. Interest is payable at either an adjustable interest rate with the
interest rate set and charged daily on the outstanding advance amount or at a
fixed rate with the interest rate set at issuance. As of June 30, 1997,
borrowings on this line of credit agreement were $18,880,000 at an interest rate
of 5.75% per annum. All borrowings with the FHLB are secured by securities with
a carrying value of $29,747,880.
(4) New Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) Issued
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share".
SFAS 128 supersedes Opinion 15, "Earnings Per Share"and specifies the
5
<PAGE>
ALLIED Life Financial Corporation and Subsidiaries
Notes to Interim Consolidated Financial Statements (continued)
computation, presentation, and disclosure requirements for earnings per share
(EPS). It replaces the presentation of primary EPS and fully diluted EPS with
basic EPS and diluted EPS. Basic EPS includes weighted common shares outstanding
and excludes all dilutive securities. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stocks were exercised or converted into common stock. Diluted EPS is computed
similarly to fully diluted EPS under APB 15. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Management has determined that the implementation will not have a
material effect on its earnings per share calculations.
(5) Stock Repurchase Program
Effective May 13, 1997, the Board of Directors approved a stock repurchase
program to acquire up to 150,000 shares of the Company common stock on the open
market pursuant to rule 10b-18 under the Securities Exchange Act of 1934. The
Company completed the program during the second quarter of 1997 and repurchased
and cancelled 150,000 shares at an average cost of $16.52 per share.
(6) Transfer of Securities to Available For Sale
Effective May 13, 1997, the Company transferred its remaining securities
classified as held to maturity ($196 million) to available for sale. In
accordance with SFAS 115 the Company now carries all of its securities at fair
value and as a result a $1.2 million increase to stockholders' equity was made.
The Company made the transfer to allow for more flexibility with regards to
selling securities from its investment portfolio. The Company has no intent of
putting future purchases in the held to maturity portfolio.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
The following analysis of the consolidated results of operations and financial
condition of the Company should be read in conjunction with the interim
consolidated financial statements and related footnotes included elsewhere
herein, and with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
ALLIED Life Financial Corporation is an insurance holding company formed by
ALLIED Mutual Insurance Company (ALLIED Mutual) in 1993. The financial
statements include the accounts of ALLIED Life Insurance Company (ALLIED Life),
ALLIED Life Brokerage Agency, Inc. (ALBA), and ALLIED Group Merchant Banking
Corporation (AGMB). ALLIED Life accounts for substantially all of the Company's
operations and sells primarily universal life insurance, term life insurance,
and annuity products.
The following table reflects ALLIED Life's production information and pretax
operating results excluding realized investment gains (losses) and related
amortization of deferred policy acquisition costs for the periods indicated.
Life Insurance Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Production information
Life insurance
Face amount in force
Directly produced by agents
Universal Life $ 4,485,388 $ 4,244,770
Term life 4,468,907 3,758,407
Whole life 50,630 49,392
9,004,925 8,052,569
Other 378,839 386,416
$9,383,764 $8,438,985
Face amount of new life insurance sold
Directly produced by agents
Universal Life $ 141,707 $ 88,742 $ 299,346 $ 187,068
Term life 358,491 366,919 630,678 660,752
Whole life 2,723 1,182 4,479 2,159
502,921 456,843 934,503 849,979
Other 1,475 6,858 3,249 11,205
$ 504,396 $ 463,701 $ 937,752 $ 861,184
Termination rate
Universal Life 6.4% 6.5% 6.6% 6.8%
Term life 16.5% 17.5% 16.9% 17.6%
Annuities
Account balance $ 484,569 $ 433,197
First-year annuity premiums $ 18,933 $ 16,830 $ 32,957 $ 26,097
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Life Insurance Operations (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Profitability
Investment income $ 12,840 $ 11,924 $ 25,512 $ 23,663
Interest credited on
Annuities 6,437 6,057 12,858 11,857
Universal life 2,488 2,348 4,944 4,724
Other 89 87 215 171
Total interest expense 9,014 8,492 18,017 16,752
Investment spread 3,826 3,432 7,495 6,911
Fee income
Universal life charges 5,831 5,500 11,669 11,185
Annuity surrender charges 204 155 369 265
Total fee income 6,035 5,655 12,038 11,450
Other insurance income 2,552 1,895 4,724 3,470
Adjusted insurance revenues 12,413 10,982 24,257 21,831
Other expenses
Amortization of deferred policy
acquisition costs (1) 2,486 2,131 4,922 3,893
Renewal commissions 805 591 1,493 1,159
Other operating expenses 1,857 1,664 3,569 3,261
Total acquisition and operating
expenses 5,148 4,386 9,984 8,313
Death benefits, net 1,968 1,371 4,294 2,874
Other policyholder benefits, net 1,353 1,582 2,751 2,939
Total other expenses 8,469 7,339 17,029 14,126
Income before income taxes and realized
investment gains (losses) from
insurance operations $ 3,944 $ 3,643 $ 7,228 $ 7,705
<FN>
(1) Excludes excess amortization of deferred policy acquisition costs resulting
from net realized investment gains (losses).
</FN>
</TABLE>
RESULTS OF OPERATIONS
Consolidated revenues for the six months ended June 30, 1997 were $42.7 million,
a 9.5% increase over the $39 million reported for the first six months of 1996.
The increase was primarily attributable to higher insurance revenues, which rose
12.3% to $16.8 million from $14.9 million. Investment income rose 7.8% to $25.5
million from $23.7 million.
For the second quarter only, consolidated revenues grew 11.3% to $21.9 million
in 1997 from $19.7 million in 1996. This was due primarily to the 13.7% increase
in insurance revenues.
8
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Operating income decreased 6.8% to $7.3 million from $7.8 million for the six
months ended 1997 and 1996, respectively. Net income decreased 6.9% to $4.8
million ($0.89 per common share) from $5.2 million ($0.95 per common share) for
the same time periods. Operating earnings per common share for the first six
months of 1997 were $0.90 compared to $0.96 for the first six month of 1996. For
the second quarter only, operating income increased 7.3% to $3.9 million from
$3.7 million. Net income increased to $2.7 million ($0.51 per common share) from
$2.5 million ($0.45 per common share) for the same time periods. Operating
earnings per common share for the second quarter of 1997 were $0.50 compared to
$0.45 for the second quarter of 1996.
Life Insurance Operations
The following analysis of life insurance operations should be read with
reference to the preceding tables.
Total life insurance in force grew 11.2% to $9.4 billion at June 30, 1997 from
$8.4 billion at June 30, 1996. The increase was due to improved policy retention
and life insurance sales.
The face amount of new life insurance sold directly by agents through June 30,
1997 increased 9.9% to $934.5 million from $850 million through June 30, 1996.
The primary factor was a 60% increase in the face amount of new universal life
insurance sold to $299.3 million from $187.1 million. For the second quarter
only, the face amount of new universal life insurance sold increased 59.7% to
$141.7 million from $88.7 million. Universal life policyholder account balances
were up 8.4% to $189.8 million from $172.5 million .
The face amount of new term life insurance sold directly by agents decreased
4.6% to $630.7 million through June 30, 1997 from $660.8 million through June
30, 1996. For the second quarter only, the face amount of new term life
insurance sold decreased 2.3% to $358.5 million from $366.9 million. ALLIED Life
continues to sell mainly ten and twenty-year term policies within this product
line.
First-year annuity premiums increased 26.3% to $33 million through June 30, 1997
from $26.1 million through June 30, 1996. For the second quarter only, first
year annuity premiums increased 12.5% to $18.9 million from $16.8 million. The
total annuity account balance increased 11.9% to $484.6 million at June 30, 1997
from $433.2 million at June 30, 1996.
The increases in sales of universal life insurance and annuity premiums are the
result of the improved agent recruiting efforts of the Company. Year to date
they have signed 854 net new producer contracts, a 134% increase over 1996's
year to date total of 365. Term life insurance sales were slightly down as the
market for this product line remains price competitive.
Adjusted insurance revenues increased 11.1% to $24.3 million for the first six
months of 1997 from $21.8 million for the first six months of 1996. The growth
in life insurance in force and policyholder account balances permitted invested
assets, on a cost basis, to increase 9.6% to $732.4 million at June 30, 1997
from $668 million at June 30, 1996, allowing investment income to increase by
7.8%. ALLIED Life's return on invested assets through June 30, 1997 decreased to
7.26% from 7.43% through June 30, 1996. The decrease was due to the fact that
ALLIED Life was reinvesting maturing investments at lower interest rates.
Investment spread for the first six months of 1997 and 1996 grew to $7.5 million
from $6.9 million. For the second quarter only, the investment spread grew to
$3.8 million from $3.4 million. Annual average interest credited rates on
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
universal life contracts decreased to 5.30% from 5.49% and on annuities
decreased to 5.41% from 5.62%. The ratio of investment spread to investment
income increased to 29.4% from 29.2% despite the volatile interest rate
environment. This increase is evidence of ALLIED Life's ability to adjust
interest credited to policyholder accounts to reflect trends in investment
earnings.
Amortization of deferred policy acquisition costs for the first six months of
1997 and 1996 increased 26.4% to $4.9 million from $3.9 million. For the second
quarter only, amortization of deferred policy acquisition costs increased 16.6%
to $2.5 million from $2.1 million. Other operating expenses increased 9.5% to
$3.6 million from $3.3 million. For the second quarter only, other operating
expenses increased 11.6% to $1.9 million from $1.7 million. Operating expenses
grew as a result of agent recruiting, and overall growth.
Death benefits net of reinsurance for the first six months of 1997 and 1996
increased 49.4% to $4.3 million ($0.47 per common share) from $2.9 million
($0.32 per common share). For the second quarter only, death benefits net of
reinsurance increased 43.5% to $2 million ($0.21 per common share) from $1.4
million ($0.16 per common share). Other policyholder benefits net of reinsurance
decreased 6.4% to $2.8 million from $2.9 million. For the second quarter only,
they decreased 14.4% to $1.4 million from $1.6 million.
ALLIED Life's operating income through June 30, 1997 and 1996 decreased 6.2% to
$7.2 million from $7.7 million. For the second quarter only, operating income
increased 8.3% to $3.9 million from $3.6 million. For the year and quarter to
date the Company has experienced higher death benefits and amortization of
deferred policy acquisition costs. For the quarter, these were offset by higher
investment spread and adjusted insurance revenues and lower increases in other
policyholder benefits.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated
Life insurance companies generally produce a positive cash flow from operations.
Its adequacy is measured by the companies' liquidity. There should be sufficient
cash to meet benefit obligations to policyholders and normal operating expenses
as they are incurred and sufficient excess to help meet future policy benefit
payments and to write new business. ALLIED Life's liquidity position continued
to be favorable for the second quarter 1997. Cash inflows were at levels
sufficient to provide the grounds necessary to meet its obligations.
The Company's cash inflows consist primarily of deposits to policyholder account
balances, income from sales, maturities and calls of investments, and repayments
of investment principal. The Company's cash outflows primarily are related to
policyholder account withdrawals, investment purchases, policy acquisition
costs, policyholder benefits, and current operating expenses. These outflows
typically are met from normal annual premium and net investment cash inflows.
For the first six months of 1997 the Company operations provided cash inflows of
$6.6 million and financing activities provided cash inflows of $14.6 million.
For the first six months of 1996 it was $10.6 million and $21.6 million,
respectively. These inflows were used primarily to increase the Company's fixed
maturity investment portfolio.
Matching the investment portfolio maturities to the cash flow demands of the
insurance coverages being provided is an important consideration. The Company
continually monitors benefit and claims statistics to project future cash
requirements. As part of this monitoring process, the Company performs cash-flow
testing of its assets and liabilities under various scenarios to evaluate
10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
the adequacy of reserves. In developing its investment strategy, the Company
establishes a level of cash and securities that when combined with expected net
cash inflows from operations, maturities of fixed-maturity investments,
principal payments on mortgage-backed securities, and its insurance products is
believed to be adequate to meet anticipated short-term and long-term benefit and
expense payment obligations.
A source of cash flows for the holding company is dividend payments from ALLIED
Life. Through the second quarter of 1997, the Company paid cash dividends on
common stock of $532,000. ALLIED Life paid to the Company dividends of $875,000
to fund the Company's dividend requirements and its note payment on the
indebtedness to affiliates.
The Company has a line of credit agreement that provides additional liquidity.
The agreement makes $25 million available through March 13, 1998. Interest is
payable at a current rate upon issuance. From time to time, the Company has also
borrowed funds from its affiliates on an arms-length basis. At June 30, 1997,
the Company had outstanding borrowings of $18.8 million under the line of credit
agreements and $3.8 million from affiliates.
Management anticipates that funds to meet the Company's short-term and long-term
capital expenditures, cash dividends, and operating cash needs will come from
existing capital and internally generated funds and believes the total is
adequate to meet expected cash obligations. As of June 30, 1997, the Company had
no material commitments for capital expenditures. As additional capital needs
arise, the Company will consider taking on additional debt or issuing equity.
Specific methods for meeting such needs will depend upon financial market
conditions at the time.
11
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 13, 1997.
(b) Harold S. Evans and George D. Milligan were elected to serve as
directors of the Company for a term of three years which
expires in 2000. Current directors whose terms expire in 1998
are James W. Callison and Dennis H. Kelly, Jr. A current
director whose term expires in 1999 is John E. Evans.
(c) With respect to the voting on the election of directors:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For Withheld Broker Non Votes
Harold S. Evans 5,984,490 1,164 0
George D. Milligan 5,984,490 1,164 0
</TABLE>
(d) None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.41 - Amendment Dated June 12, 1997 to the ALLIED
Life Financial Corporation Short Term
Management Incentive Plan
Exhibit 10.42 - Second Amendment dated May 13, 1997 to
Consulting Agreement between John E. Evans and
ALLIED Group, Inc., ALLIED Mutual Insurance
Company,and ALLIED Life Financial Corporation.
Exhibit 10.43 - Promissory Note dated June 26, 1997
between ALLIED Mutual Insurance Company and
ALLIED Life Financial Corporation.
Exhibit 10.44 - 1997 Incentive Plan ALLIED Life Vice
President Marketing
Exhibit 11 - Statement re Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule
(b) There were no reports filed on Form 8-K during the second quarter
of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIED Life Financial Corporation
(Registrant)
Date: August 14, 1997 By: /s/ Wendell P. Crosser
Wendell P. Crosser, Vice President and Treasurer
Principal Financial Officer
and Principal Accounting Officer)
12
AMENDMENT DATED JUNE 12, 1997
ALLIED LIFE FINANCIAL CORPORATION
SHORT TERM MANAGEMENT INCENTIVE PLAN
The ALLIED Life Financial Corporation Short Term Management Incentive Plan
(the "Plan") was amended by the Compensation Committee of the Board of Directors
of ALLIED Life Financial Corporation on June 12, 1997 to reflect the change set
forth below. Capitalized terms used herein shall have the meaning as assigned
thereto in the Plan.
Change in Exhibit A. Exhibit A of the Plan is amended by the replacement of
the Growth goals as follows:
Threshold Goal Maximum
Growth 7.5% 10.25% 13.5%
13
SECOND AMENDMENT
TO CONSULTING AGREEMENT
This Amendment is made this 13th day of May, 1997, by and between John E.
Evans ("Evans") and ALLIED Group, Inc. ("AGI"), ALLIED Mutual Insurance Company
("Mutual"), and ALLIED Life Financial Corporation ("ALFC"). AGI, Mutual, and
ALFC shall be known collectively as "ALLIED".
Whereas, on December 14, 1994, ALLIED and Evans entered into a Consulting
Agreement setting forth the services which Evans was to render to ALLIED
following his retirement.
Whereas, on December 18, 1996, ALLIED and Evans amended the Consulting
Agreement;
Whereas, the parties desire to amend the Consulting Agreement as set forth
herein;
Now, therefore, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Effective June 1, 1997, Section III of the Consulting Agreement is
amended by deleting "$250,000" and replacing it with "$180,000".
2. All other terms and conditions remain in full force and effect.
In witness whereof, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
By:/s/ John E. Evans By: /s/ Douglas L.Andersen
John E. Evans Douglas L. Andersen,Presdent
ALLIED Group, Inc. ALLIED Life Financial Corporation
By:/s/ Douglas L. Andersen By:/s/ Samuel J. Wells
Douglas L. Andersen, Presedent Samual J. Wells, President
14
PROMISSORY NOTE
No. 01306297 Des Moines, Iowa June 26, 1997 $2,500,000
For value received, the undersigned promises to pay, to the order of ALLIED
Mutual Insurance Company at its office in Des Moines, Iowa the sum of Two
Million Five Hundred Thousand Dollars, with interest thereon payable August 26,
1997 at the rate of 6.05% per annum from June 26, 1997. All interest computed
for the actual number of days elapsed (with no penalty for prepayment and with
a pro rata refund on any unearned finance charge) under the commercial method
on the basis of a360 day year. Principal and interest not paid when due shall
draw interest at the rate of 1 1/2 % per month during any period of delinquency.
ALLIED Life Financial Corporation
By:/s/ Wendell P. Crosser
Wendell P. Crosser, Vice President
& Treasurer
15
1997 INCENTIVE PLAN
ALLIED LIFE
VICE PRESIDENT MARKETING
PURPOSE
The purpose of the plan is to emphasize attainment of 1997 production goals.
ELIGIBILITY
Joe Ross, the Vice President Marketing will be eligible to participate in the
plan based on goals.
COMPENSATION
In addition to Base Salary, the participant will be eligible for the following:
1. Monthly
A production incentive will be paid monthly as earned according to the
following:
1.75% of all net PCPs above the 1996 adjusted monthly total.
2. Quarterly
PCP Growth will be measured quarterly against the previous year's same quarter.
Growth thresholds will be established each year. Incentive compensation will be
paid in accordance with the attained PCP growth increase as follows:
PCP Growth Percent Bonus Dollars
120% over same quarter 1996 $ 5,000 125% over same quarter 1996 $10,000 130%
over same quarter 1996 $15,000
Any quarterly bonus that is missed by not reaching the minimum growth level may
be recaptured at year-end by attaining the minimum growth percent level for the
entire year. Any quarterly bonus paid out during the year will be netted against
the year-end bonus payable.
3. Annually
PCP growth will be measured against the previous year's total. Incentive
compensation will be paid in accordance with the attained PCP growth increase as
follows.
16
<PAGE>
PCP Growth Percent Bonus Dollars
120% over 1996 total $20,000 125% over 1996 total $40,000 130% over 1996 total
$60,000
DEFINITIONS
"Net Production Credit Premiums" - PCPs personally produced by agents, general
agents, regional supervisors, and regional managers, MGAs, LGAs who are coded
under the participant's supervision will qualify for attainment of goal and for
bonus purposes. PCP credit will be allowed for split business; i.e., business
which is credit both to the life producer and the agent.
EMPLOYMENT
To be eligible for the bonus, the participant must be an employee of ALLIED as
of the date of distribution. Nothing contained herein modifies or alters the
fact that employment with ALLIED is on an at will basis. This means that you or
ALLIED can terminate your employment relationship at any time for any reason.
ADMINISTRATION
Annual goals will be set by The President of ALLIED Life Insurance Company.
The bonus will be pro-rated if the participant is in the position less than the
full year. Pro-ration will be based on each full week in the position.
Participants who are promoted or transferred or who leave ALLIED will not
receive the benefit of any changes which occur after the effective date of
departure, including adjustments to goal, business transactions or changes in
the Plan.
The amount paid, if any, in accordance with the settlement analysis prepared by
ALLIED will represent a full and final settlement of all bonuses due and/or
which were to become due.
ALLIED reserves the right to make changes to this Plan at any time including,
but not limited to, changes in goals, products, fee, salaries, draws, bonus
amounts, prices, contract terms, commissions schedules, discount rates,
crediting or debiting provisions, administration provisions, and other
provisions. Resolution of all questions concerning interpretation of this plan
shall be the exclusive province of ALLIED.
17
Exhibit 11
ALLIED Life Financial Corporation and Subsidiaries
Computation of Per Share Earnings
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Primary
Net income $ 2,678,944 $ 2,464,095 $ 4,805,746 $5,161,395
Preferred stock dividends (426,496) (397,251) (845,993) (788,536)
Adjusted net income $ 2,252,448 $ 2,066,844 $ 3,959,753 $4,372,859
Earnings per share $ 0.51 $ 0.45 $ 0.89 $ 0.95
Weighted average number of
common shares outstanding 4,446,153 4,635,778 4,473,721 4,634,490
Fully Diluted
Net income $ 2,678,944 $ 2,464,095 $ 4,805,746 $5,161,395
Preferred stock dividends (426,496) (397,251) (845,993) (788,536)
Adjusted net income $ 2,252,448 $ 2,066,844 $ 3,959,753 $4,372,859
Earnings per share $ 0.51 $ 0.45 $ 0.89 $ 0.95
Weighted average number of
common shares outstanding 4,446,153 4,635,778 4,473,721 4,634,490
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> Jun-30-1997
<DEBT-HELD-FOR-SALE> 720,281
<DEBT-CARRYING-VALUE> 720,281
<DEBT-MARKET-VALUE> 720,281
<EQUITIES> 9,142
<MORTGAGE> 1,122
<REAL-ESTATE> 0
<TOTAL-INVEST> 746,616
<CASH> 0
<RECOVER-REINSURE> 5,609
<DEFERRED-ACQUISITION> 93,418
<TOTAL-ASSETS> 865,253
<POLICY-LOSSES> 38,831
<UNEARNED-PREMIUMS> 107
<POLICY-OTHER> 2,099
<POLICY-HOLDER-FUNDS> 682,316
<NOTES-PAYABLE> 22,782
0
25,620
<COMMON> 4,369
<OTHER-SE> 78,631
<TOTAL-LIABILITY-AND-EQUITY> 865,253
3,665
<INVESTMENT-INCOME> 25,535
<INVESTMENT-GAINS> (252)
<OTHER-INCOME> 13,759
<BENEFITS> 25,062
<UNDERWRITING-AMORTIZATION> 4,712
<UNDERWRITING-OTHER> 5,724
<INCOME-PRETAX> 7,204
<INCOME-TAX> 2,402
<INCOME-CONTINUING> 4,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,806
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
