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 September 30, 2004
Commission File Number 0-11773
ALFA CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 063-0838024 | |
| (State of Other Jurisdiction of Incorporation or Organization) |
(IRS Employer 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 September 30, 2004 | |
| Common Stock, $1.00 par value | 79,880,942 shares |
INDEX
| Page No. | ||||||
| Part I. | Financial Information (Consolidated Unaudited) | |||||
| Item 1. | Financial Statements | |||||
| Balance Sheets (September 30, 2004 and December 31, 2003 | 3 | |||||
| Statements of Income, Nine Months and Three Months ended September 30, 2004 and 2003 | 4 | |||||
| Statements of Comprehensive Income, Nine and Three Months ended September 30, 2004 and 2003 | 5 | |||||
| Statements of Cash Flows, Nine Months ended September 30, 2004 and 2003 | 6 | |||||
| Notes to Financial Statements | 7 | |||||
| Report of Independent Registered Public Accounting Firm | 17 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. | Market Risk Disclosures | 36 | ||||
| Item 4. | Controls and Procedures | 37 | ||||
| Part II. | Other Information | |||||
| Item 1. | Legal Proceedings | 38 | ||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39 | ||||
| Item 3. | Defaults Upon Senior Securities | 39 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 39 | ||||
| Item 5. | Other Information | 39 | ||||
| Item 6. | Exhibits | 39 | ||||
2
CONSOLIDATED BALANCE SHEETS
| September 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Investments: |
||||||||
| Fixed Maturities Held for Investment, at amortized cost (fair value $130,165 in 2004 and $173,214 in 2003) |
$ | 119,684 | $ | 158,623 | ||||
| Fixed Maturities Available for Sale, at fair value (amortized cost $1,260,626,357 in 2004 and $1,108,673,538 in 2003) |
1,311,679,846 | 1,166,418,720 | ||||||
| Equity Securities, at fair value (cost $85,221,068 in 2004 and $116,063,831 in 2003) |
98,325,064 | 135,082,791 | ||||||
| Investment Real Estate (net of accumulated depreciation of $1,677,073 in 2003) |
— | 2,495,534 | ||||||
| Policy Loans |
57,983,043 | 55,282,441 | ||||||
| Collateral Loans |
119,828,114 | 101,876,180 | ||||||
| Commercial Leases |
122,674,438 | 118,121,257 | ||||||
| Other Long-term Investments |
150,445,172 | 111,450,952 | ||||||
| Short-term Investments |
107,254,177 | 111,252,991 | ||||||
| Total Investments |
1,968,309,538 | 1,802,139,489 | ||||||
| Cash |
10,253,032 | 10,892,516 | ||||||
| Accrued Investment Income |
16,485,220 | 15,569,095 | ||||||
| Accounts Receivable |
18,409,506 | 16,689,765 | ||||||
| Reinsurance Balances Receivable |
3,874,976 | 5,815,682 | ||||||
| Due from Affiliates |
2,433,835 | 2,203,955 | ||||||
| Deferred Policy Acquisition Costs |
181,878,228 | 176,252,537 | ||||||
| Other Assets |
21,074,863 | 15,511,547 | ||||||
| Total Assets |
$ | 2,222,719,198 | $ | 2,045,074,586 | ||||
| Liabilities |
||||||||
| Policy Liabilities and Accruals - Property and Casualty Insurance |
$ | 153,698,994 | $ | 153,831,653 | ||||
| Policy Liabilities and Accruals - Life Insurance - Interest-Sensitive Products |
548,428,414 | 508,592,148 | ||||||
| Policy Liabilities and Accruals - Life Insurance - Other Products |
177,513,064 | 165,161,507 | ||||||
| Unearned Premiums |
190,393,330 | 170,292,775 | ||||||
| Dividends to Policyholders |
10,972,453 | 10,939,667 | ||||||
| Premium Deposit and Retirement Deposit Funds |
6,285,995 | 6,296,861 | ||||||
| Deferred Income Taxes |
43,091,366 | 50,383,545 | ||||||
| Other Liabilities |
102,984,733 | 53,460,552 | ||||||
| Due to Affiliates |
16,033,075 | 16,065,895 | ||||||
| Commercial Paper |
192,525,787 | 164,443,769 | ||||||
| Notes Payable |
70,000,000 | 70,000,000 | ||||||
| Notes Payable to Affiliates |
45,219,261 | 37,093,776 | ||||||
| Total Liabilities |
1,557,146,472 | 1,406,562,148 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Preferred Stock, $1 par value |
— | — | ||||||
| Shares authorized: 1,000,000 Issued: None |
||||||||
| Common Stock, $1 par value |
83,783,024 | 83,783,024 | ||||||
| Shares authorized: 110,000,000 Issued: 83,783,024 Outstanding: 2004 - 79,880,942; 2003 - 80,217,316 |
||||||||
| Capital in Excess of Par Value |
10,926,133 | 8,864,064 | ||||||
| Accumulated Other Comprehensive Income |
33,924,179 | 41,351,404 | ||||||
| Retained Earnings |
576,930,172 | 537,746,631 | ||||||
| Treasury Stock: at cost (2004 - 3,902,082 shares; 2003 - 3,565,708 shares) |
(39,990,782 | ) | (33,232,685 | ) | ||||
| Total Stockholders’ Equity |
665,572,726 | 638,512,438 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 2,222,719,198 | $ | 2,045,074,586 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Nine Months Ended September 30, |
Three Months Ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Revenues |
||||||||||||
| Premiums - Property and Casualty Insurance |
$ | 366,361,371 | $ | 341,215,780 | $ | 124,089,818 | $ | 115,886,943 | ||||
| Premiums - Life Insurance |
27,381,569 | 25,536,915 | 8,813,442 | 8,388,647 | ||||||||
| Policy Charges - Life Insurance |
25,677,169 | 24,617,475 | 8,234,689 | 8,061,831 | ||||||||
| Net Investment Income |
67,258,467 | 63,794,337 | 22,562,539 | 20,803,110 | ||||||||
| Realized Investment Gains |
5,198,742 | 4,167,618 | 1,811,198 | 2,801,614 | ||||||||
| Other Income |
1,061,652 | 2,479,122 | 241,391 | 1,128,926 | ||||||||
| Total Revenues |
492,938,970 | 461,811,247 | 165,753,077 | 157,071,071 | ||||||||
| Benefits and Expenses |
||||||||||||
| Benefits & Settlement Expenses |
291,163,825 | 275,849,720 | 99,698,098 | 95,738,243 | ||||||||
| Dividends to Policyholders |
2,855,278 | 2,822,524 | 892,324 | 884,641 | ||||||||
| Amortization of Deferred Policy |
||||||||||||
| Acquisition Costs |
70,113,452 | 64,557,399 | 23,839,349 | 21,238,756 | ||||||||
| Other Operating Expenses |
37,232,519 | 40,433,598 | 13,385,534 | 13,465,234 | ||||||||
| Total Expenses |
401,365,074 | 383,663,241 | 137,815,305 | 131,326,874 | ||||||||
| Income Before Provision for Income Taxes |
91,573,896 | 78,148,006 | 27,937,772 | 25,744,197 | ||||||||
| Provision for Income Taxes |
24,810,629 | 21,449,501 | 7,217,523 | 6,963,141 | ||||||||
| Net Income |
$ | 66,763,267 | $ | 56,698,505 | $ | 20,720,249 | $ | 18,781,056 | ||||
| Earnings Per Share: |
||||||||||||
| - Basic |
$ | 0.83 | $ | 0.71 | $ | 0.26 | $ | 0.23 | ||||
| - Diluted |
$ | 0.83 | $ | 0.71 | $ | 0.26 | $ | 0.23 | ||||
| Average Shares Outstanding |
||||||||||||
| - Basic |
80,024,581 | 79,645,126 | 79,938,616 | 79,991,986 | ||||||||
| - Diluted |
80,526,003 | 80,241,834 | 80,397,352 | 80,587,725 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Nine Months Ended September 30, |
Three Months Ended September 30, | ||||||||||||||
| 2004 |
2003 |
2004 |
2003 | ||||||||||||
| Net Income |
$ | 66,763,267 | $ | 56,698,505 | $ | 20,720,249 | $ | 18,781,056 | |||||||
| Other Comprehensive (Loss) Income, net of tax: |
|||||||||||||||
| Change in Fair Value of Securities Available for Sale |
(5,380,791 | ) | 9,173,037 | 11,655,714 | 4,166,891 | ||||||||||
| Unrealized Gains (Losses) on Interest Rate Swap Contracts |
1,332,747 | (1,060,844 | ) | (756,681 | ) | 1,241,891 | |||||||||
| Less: Reclassification Adjustment for Realized Investment Gains |
3,379,181 | 2,708,952 | 1,177,278 | 1,821,048 | |||||||||||
| Total Other Comprehensive (Loss) Income |
(7,427,225 | ) | 5,403,241 | 9,721,755 | 3,587,734 | ||||||||||
| Total Comprehensive Income |
$ | 59,336,042 | $ | 62,101,746 | $ | 30,442,004 | $ | 22,368,790 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows From Operating Activities: |
||||||||
| Net Income |
$ | 66,763,267 | $ | 56,698,505 | ||||
| Adjustments to Reconcile Net Income to Net Cash |
||||||||
| Provided by Operating Activities: |
||||||||
| Policy Acquisition Costs Deferred |
(81,139,328 | ) | (75,033,471 | ) | ||||
| Amortization of Deferred Policy Acquisition Costs |
70,113,452 | 64,557,399 | ||||||
| Depreciation and Amortization |
2,209,044 | 282,435 | ||||||
| Provision for Deferred Taxes |
(192,527 | ) | 2,659,855 | |||||
| Interest Credited on Policyholders’ Funds |
20,648,818 | 20,252,244 | ||||||
| Net Realized Investment Gains |
(5,198,742 | ) | (4,167,618 | ) | ||||
| Other |
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