UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-31698
BROOKE CORPORATION
(Exact name of registrant as specified in its charter)
| Kansas | 48-1009756 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
10950 Grandview Drive, Suite 600, Overland Park, Kansas 66210
(Address of principal executive offices) (Zip Code)
Issuer’s telephone number: (913) 661-0123
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. (Check One): Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 22, 2004 there were 4,680,199 shares of the registrant’s sole class of common stock outstanding.
Brooke Corporation
Consolidated Financial Statements
For the Three Months Ended March 31, 2004 and 2003
| INDEPENDENT ACCOUNTANTS’ REPORT | 3 | |
| CONSOLIDATED FINANCIAL STATEMENTS | 4 | |
| 4-5 | ||
| CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS ENDED MARCH 31, 2004 AND 2003 |
6 | |
| 7 | ||
| 8 | ||
| 9-37 | ||
| Brooke Corporation | 2 | |
INDEPENDENT ACCOUNTANTS’ REPORT
To the Board of Directors
Brooke Corporation:
We have reviewed the accompanying consolidated balance sheets of BROOKE CORPORATION as of March 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three months then ended. These financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
Summers, Spencer & Callison, CPAs, Chartered
Topeka, Kansas
April 23, 2004
| 3 | ||
Item 1. Financial Statements
Consolidated Balance Sheets
(unaudited)
MARCH 31, 2004 and 2003
ASSETS
| 2004 |
2003 |
|||||||
| Current Assets |
||||||||
| Cash |
$ | 7,185,484 | $ | 6,966,734 | ||||
| Accounts and notes receivable, net |
33,060,790 | 12,640,180 | ||||||
| Note receivable, parent company |
— | 608,189 | ||||||
| Other receivables |
2,933,931 | 1,427,275 | ||||||
| Securities |
11,250,051 | 1,198 | ||||||
| Interest-only strip receivable |
2,856,251 | 2,631,245 | ||||||
| Deposits |
151,584 | 44,739 | ||||||
| Prepaid expenses |
581,142 | 823,740 | ||||||
| Total Current Assets |
58,019,233 | 25,143,300 | ||||||
| Investment in Businesses |
366,983 | 366,983 | ||||||
| Property and Equipment |
||||||||
| Cost |
5,352,286 | 4,347,833 | ||||||
| Less: Accumulated depreciation |
(1,818,552 | ) | (1,938,824 | ) | ||||
| Net Property and Equipment |
3,533,734 | 2,409,009 | ||||||
| Other Assets |
||||||||
| Excess of cost over fair value of net assets |
5,341,038 | 2,877,931 | ||||||
| Less: Accumulated amortization |
(755,817 | ) | (475,237 | ) | ||||
| Prepaid finders fee |
— | 13,705 | ||||||
| Contract database |
611,058 | 68,146 | ||||||
| Servicing asset |
1,755,062 | 1,389,763 | ||||||
| Agency assets |
3,895,049 | 310,535 | ||||||
| Restricted cash |
223,496 | 179,585 | ||||||
| Net Other Assets |
11,069,886 | 4,364,428 | ||||||
| Total Assets |
$ | 72,989,836 | $ | 32,283,720 | ||||
| See accompanying notes to financial statements and independent accountants’ review report. | 4 | |
Brooke Corporation
Consolidated Balance Sheets
(unaudited)
MARCH 31, 2004 AND 2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
| 2004 |
2003 |
|||||||
| Current Liabilities | ||||||||
| Accounts payable |
$ | 4,889,316 | $ | 4,647,146 | ||||
| Premiums payable to insurance companies |
6,889,426 | 5,276,979 | ||||||
| Payable under participation agreements |
9,566,167 | — | ||||||
| Unearned buyer assistance plan fees |
650,816 | 1,354,061 | ||||||
| Accrued commission refunds |
715,446 | 436,606 | ||||||
| IBNR loss reserve |
76,645 | — | ||||||
| Income tax payable |
1,158,394 | 660,108 | ||||||
| Deferred income tax payable |
183,684 | 120,222 | ||||||
| Short term debt |
4,068,357 | 863,240 | ||||||
| Current maturities of long-term debt |
7,371,966 | 2,659,019 | ||||||
| Total Current Liabilities |
35,570,217 | 16,017,381 | ||||||
| Non-current Liabilities | ||||||||
| Servicing liability |
43,991 | 51,271 | ||||||
| Long-term debt less current maturities |
30,320,588 | 11,734,203 | ||||||
| Total Liabilities | 65,934,796 | 27,802,855 | ||||||
| Stockholders’ Equity | ||||||||
| Common stock, $1 par value, 9,500,000 shares authorized, 4,674,684 and 4,606,948 shares issued and 4,674,684 and 4,595,898 shares outstanding |
4,674,684 | 4,606,948 | ||||||
| Preferred stock, $75 par value, 1,000 shares authorized, 0 and 781 shares issued and outstanding |
— | 58,600 | ||||||
| Preferred stock, $25 par value, 464,625 shares authorized, 49,667 shares issued and outstanding |
1,241,675 | 1,241,675 | ||||||
| Preferred stock, $32 par value, 34,375 shares authorized, 24,331 shares issued and outstanding issued |
778,592 | 778,592 | ||||||
| Less: Treasury stock, 0 and 11,050 shares at cost |
— | (39,500 | ) | |||||
| Additional paid-in capital |
52,456 | — | ||||||
| Retained earnings (deficit) |
(48,929 | ) | (2,398,821 | ) | ||||
| Accumulated other comprehensive income |
356,562 | 233,371 | ||||||
| Total Stockholders’ Equity |
7,055,040 | 4,480,865 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 72,989,836 | $ | 32,283,720 | ||||
| See accompanying notes to financial statements and independent accountants’ review report. | 5 | |
Consolidated Statements of Income
(unaudited)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
| 2004 |
2003 |
|||||||
| Operating Income | ||||||||
| Insurance commissions |
$ | 16,177,815 | $ | 11,653,601 | ||||
| Interest income (net) |
791,934 | 400,752 | ||||||
| Facilitator fees |
1,434,250 | 540,125 | ||||||
| Gain (loss) on sale of businesses |
203,644 | (163,636 | ) | |||||
| Buyer assistance plan fees |
3,211,055 | 2,211,425 | ||||||
| Gain (loss) on sale of notes receivable |
(194,641 | ) | 902,923 | |||||
| Gain on extinguishment of debt |
25,000 | 5,000 | ||||||
| Insurance premiums earned |
220,459 | — | ||||||
| Policy fee income |
351,872 | 92,448 | ||||||
| Other income |
82,394 | 32,453 | ||||||
| Total Operating Income |
22,303,782 | 15,675,091 | ||||||
| Operating Expenses | ||||||||
| Commissions expense |
11,016,093 | 8,077,815 | ||||||
| Payroll expense |
4,299,593 | 2,624,321 | ||||||
| Depreciation and amortization |
506,767 | 296,554 | ||||||
| Other operating expenses |
2,606,045 | 2,006,974 | ||||||
| Bond interest expense |
166,886 | 162,903 | ||||||
| Total Operating Expenses |
18,595,384 | 13,168,567 | ||||||
| Income from Operations | 3,708,398 | 2,506,524 | ||||||
| Other Expenses | ||||||||
| Interest expense |
423,148 | 95,510 | ||||||
| Total Other Expenses |
423,148 | 95,510 | ||||||
| Income Before Income Taxes | 3,285,250 | 2,411,014 | ||||||
| Income tax expense |
1,047,096 | 819,745 | ||||||
| Net Income | $ | 2,238,154 | $ | 1,591,269 | ||||
| Net Income per Share: |
||||||||
| Basic |
.47 | .34 | ||||||
| Diluted |
.44 | .30 | ||||||
| See accompanying notes to financial statements and independent accountants’ review report. | 6 | |
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
| Common Stock |
Preferred Stock |
Treasury Stock |
Add’l Paid- In Capital |
Retained Earnings |
Accum Other Comprehensive |
Total |
||||||||||||||||||||
| Balances, December 31, 2002 |
$ | 774,973 | $ | 2,078,867 | $ | (39,500 | ) | $ | 1,875,333 | $ | (1,868,981 | ) | $ | 219,980 | $ | 3,040,672 | ||||||||||
| Dividends paid |
(164,467 | ) | (164,467 | ) | ||||||||||||||||||||||
| Equity conversion |
3,819,615 | (1,892,761 | ) | (1,956,642 | ) | (29,788 | ) | |||||||||||||||||||
| Equity issuance |
12,360 | 17,428 | 29,788 | |||||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||
| Interest-only strip receivable, fair market value |
13,391 | 13,391 | ||||||||||||||||||||||||
| Net income |
1,591,269 | 1,591,269 | ||||||||||||||||||||||||
| Total comprehensive income |
1,604,660 | |||||||||||||||||||||||||
| Balances, March 31, 2003 |
$ | 4,606,948 | $ | 2,078,867 | $ | (39,500 | ) | $ | — | $ | (2,398,821 | ) | $ | 233,371 | $ | 4,480,865 | ||||||||||
| Balances, December 31, 2003 |
$ | 4,667,424 | $ | 2,020,267 | $ | — | $ | 29,442 | $ | (1,304,405 | ||||||||||||||||