SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2003 Commission File Number 0-11773
ALFA CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 063-0838024 | |
| (State of Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification No.) |
2108 East South Boulevard, Montgomery, Alabama 36116
(Mail: P. O Box 11000, Montgomery, Alabama 36191-0001)
(Address and Zip Code of Principal Executive Offices)
Registrant’s Telephone Number Including Area Code (334) 288-3900
None
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the close of the period covered by this report.
| Class |
Outstanding June 30, 2003 | |
| Common Stock, $1.00 par value | 79,833,758 shares |
ALFA CORPORATION
| Page No. | ||||||
| Part I. Financial Information |
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| (Consolidated Unaudited) | ||||||
| Item 1. | Financial Statements | |||||
| Balance Sheets –June 30, 2003 and December 31, 2002 | 3 | |||||
| Statements of Income, Six Months and Three Months ended June 30, 2003 and 2002 | 4 | |||||
| Statements of Comprehensive Income, Six Months and Three Months ended June 30, 2003 and 2002 | 5 | |||||
| Statements of Cash Flows, Six Months ended June 30, 2003 and 2002 | 6 | |||||
| Notes to Financial Statements | 7 | |||||
| Independent Accountants’ Review Report | 16 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
| Item 3. | Market Risk Disclosures | 33 | ||||
| Item 4. | Controls and Procedures | 34 | ||||
| Part II. Other Information |
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| Item 1. | Legal Proceedings | 35 | ||||
| Item 2. | Changes in Securities and Use of Proceeds | 36 | ||||
| Item 3. | Defaults Upon Senior Securities | 36 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 36 | ||||
| Item 5. | Other Information | 36 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 37 | ||||
2
CONSOLIDATED BALANCE SHEETS
| June 30, 2003 |
December 31, 2002 |
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| (Unaudited) | ||||||||
| Assets |
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| Investments: |
||||||||
| Fixed Maturities Held for Investment, at amortized cost (fair value $233,189 in 2003 and $320,145 in 2002) |
$ | 213,541 | $ | 294,633 | ||||
| Fixed Maturities Available for Sale, at fair value (amortized cost $1,003,030,401 in 2003 and $1,064,816,587 in 2002) |
1,079,365,329 | 1,129,943,756 | ||||||
| Equity Securities, at fair value (cost $106,035,041 in 2003 and $63,037,993 in 2002) |
117,172,710 | 65,286,596 | ||||||
| Mortgage Loans on Real Estate |
14,451 | 38,332 | ||||||
| Investment Real Estate (net of accumulated depreciation of $1,624,313 in 2003 and $1,575,711 in 2002) |
2,561,424 | 2,594,545 | ||||||
| Policy Loans |
54,962,503 | 53,324,458 | ||||||
| Collateral Loans |
109,239,714 | 105,431,900 | ||||||
| Commercial Leases |
94,470,828 | 93,945,299 | ||||||
| Goodwill |
3,449,982 | 3,449,982 | ||||||
| Other Long-term Investments |
114,073,827 | 111,131,030 | ||||||
| Short-term Investments |
195,905,925 | 101,697,650 | ||||||
| Total Investments |
1,771,430,234 | 1,667,138,181 | ||||||
| Cash |
18,709,018 | 9,761,820 | ||||||
| Accrued Investment Income |
14,754,104 | 15,704,004 | ||||||
| Accounts Receivable |
8,779,628 | 12,745,349 | ||||||
| Reinsurance Balances Receivable |
4,172,762 | 3,417,121 | ||||||
| Due from Affiliates |
107,973 | 2,177,759 | ||||||
| Deferred Policy Acquisition Costs |
167,590,328 | 159,716,008 | ||||||
| Other Assets |
16,461,331 | 13,394,434 | ||||||
| Total Assets |
$ | 2,002,005,378 | $ | 1,884,054,676 | ||||
| Liabilities |
||||||||
| Policy Liabilities and Accruals—Property and Casualty Insurance |
$ | 148,999,395 | $ | 148,457,016 | ||||
| Policy Liabilities and Accruals—Life Insurance Interest-Sensitive Products |
493,792,148 | 461,915,553 | ||||||
| Policy Liabilities and Accruals—Life Insurance Other Products |
159,997,934 | 152,897,184 | ||||||
| Unearned Premiums |
166,926,004 | 153,345,832 | ||||||
| Dividends to Policyholders |
10,635,076 | 10,558,507 | ||||||
| Premium Deposit and Retirement Deposit Funds |
6,279,917 | 6,353,594 | ||||||
| Deferred Income Taxes |
46,078,021 | 40,969,533 | ||||||
| Other Liabilities |
92,373,862 | 81,992,466 | ||||||
| Due to Affiliates |
16,019,739 | 15,555,574 | ||||||
| Commercial Paper |
136,499,389 | 133,422,926 | ||||||
| Notes Payable |
70,000,000 | 70,000,000 | ||||||
| Notes Payable to Affiliates |
45,559,841 | 42,488,787 | ||||||
| Total Liabilities |
1,393,161,326 | 1,317,956,972 | ||||||
| Commitments and Contingencies |
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| Stockholders’ Equity |
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| Preferred Stock, $1 par value |
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| Shares authorized: 1,000,000 |
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| Issued: None |
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| Common Stock, $1 par value |
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| Shares authorized: 110,000,000 |
||||||||
| Issued: 83,783,024 |
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| Outstanding: 2003—79,833,758; 2002—79,278,345 |
83,783,024 | 83,783,024 | ||||||
| Capital in Excess of Par Value |
7,611,582 | 5,531,384 | ||||||
| Accumulated Other Comprehensive Income |
43,586,676 | 32,832,254 | ||||||
| Retained Earnings |
510,038,786 | 484,454,615 | ||||||
| Treasury Stock: at cost (2003—3,949,266 shares; 2002—4,504,679 shares) |
(36,176,016 | ) | (40,503,573 | ) | ||||
| Total Stockholders’ Equity |
608,844,052 | 566,097,704 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 2,002,005,378 | $ | 1,884,054,676 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Six Months Ended June 30, |
Three Months Ended June 30, | |||||||||||
| 2003 |
2002 |
2003 |
2002 | |||||||||
| Revenues |
||||||||||||
| Premiums—Property and Casualty Insurance |
$ | 225,328,837 | $ | 209,411,645 | $ | 113,852,038 | $ | 106,020,678 | ||||
| Premiums—Life Insurance |
17,148,268 | 15,622,372 | 8,153,768 | 8,019,295 | ||||||||
| Policy Charges—Life Insurance |
16,555,644 | 16,040,454 | 7,839,604 | 7,533,502 | ||||||||
| Net Investment Income |
42,991,083 | 43,970,149 | 21,337,096 | 21,877,803 | ||||||||
| Realized Investment Gains |
1,366,006 | 1,209,549 | 3,161,916 | 303,324 | ||||||||
| Other Income |
1,350,196 | 1,161,130 | 754,566 | 933,555 | ||||||||
| Total Revenues |
304,740,034 | 287,415,299 | 155,098,988 | 144,688,157 | ||||||||
| Benefits and Expenses |
||||||||||||
| Benefits & Settlement Expenses |
180,111,477 | 170,200,308 | 92,139,705 | 88,007,273 | ||||||||
| Dividends to Policyholders |
1,937,883 | 1,885,785 | 915,370 | 897,831 | ||||||||
| Amortization of Deferred Policy |
||||||||||||
| Acquisition Costs |
42,664,143 | 38,104,974 | 21,517,754 | 19,587,617 | ||||||||
| Other Operating Expenses |
27,622,720 | 30,426,056 | 13,734,442 | 14,560,592 | ||||||||
| Total Expenses |
252,336,223 | 240,617,123 | 128,307,271 | 123,053,313 | ||||||||
| Income Before Provision for Income Taxes |
52,403,811 | 46,798,176 | 26,791,717 | 21,634,844 | ||||||||
| Provision for Income Taxes |
14,486,362 | 12,798,690 | 7,603,896 | 6,103,504 | ||||||||
| Net Income |
$ | 37,917,449 | $ | 33,999,486 | $ | 19,187,821 | $ | 15,531,340 | ||||
| Earnings Per Share: |
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| Net Income |
||||||||||||
| —Basic |
$ | 0.48 | $ | 0.43 | $ | 0.24 | $ | 0.20 | ||||
| —Diluted |
$ | 0.47 | $ | 0.43 | $ | 0.24 | $ | 0.20 | ||||
| Average Shares Outstanding |
||||||||||||
| —Basic |
79,468,821 | 78,607,284 | 79,605,514 | 78,771,794 | ||||||||
| —Diluted |
80,065,414 | 79,432,866 | 80,226,873 | 79,605,279 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Six Months Ended June 30, |
Three Months Ended June 30, |
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| 2003 |
2002 |
2003 |
2002 |
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| Net Income |
$ | 37,917,449 | $ | 33,999,486 | $ | 19,187,821 | $ | 15,531,340 | ||||||||
| Other Comprehensive Income (Loss), net of tax: |
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| Change in Fair Value of Securities Available for Sale |
5,006,146 | (1,902,438 | ) | 6,212,467 | 4,857,707 | |||||||||||
| Unrealized (Losses) on Interest Rate Swap Contracts |
(2,302,735 | ) | (1,018,030 | ) | (1,503,316 | ) | (1,018,030 | ) | ||||||||
| Less: Reclassification Adjustment for Realized Investment Gains |
887,904 | 786,207 | 2,055,246 | 197,161 | ||||||||||||
| Total Other Comprehensive Income (Loss) |
1,815,507 | (3,706,675 | ) | 2,653,905 | 3,642,516 | |||||||||||
| Total Comprehensive Income |
$ | 39,732,956 | $ | 30,292,811 | ||||||||||||