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 September 30, 2004
Commission File No. 0-50167
INFINITY PROPERTY AND CASUALTY CORPORATION
| Incorporated under the Laws of Ohio | IRS Employer Identification Number 03-0483872 |
2204 Lakeshore Drive, Birmingham, Alabama 35209
(205) 870-4000
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 and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer. Yes ¨ No x
As of November 1, 2004, there were 20,657,696 shares of the Registrant’s Common Stock outstanding.
INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q
INDEX
| Page | ||||
| Part I – FINANCIAL INFORMATION |
||||
| Item 1- |
Financial Statements | |||
| Consolidated Statements of Earnings | 3 | |||
| Consolidated Balance Sheets | 4 | |||
| Consolidated Statements of Changes in Shareholders’ Equity | 5 | |||
| Consolidated Statements of Cash Flows | 6 | |||
| Notes to Consolidated Financial Statements | 8 | |||
| Item 2- |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3- |
Quantitative and Qualitative Disclosure of Market Risk | 23 | ||
| Item 4- |
Controls and Procedures | 23 | ||
| Part II – OTHER INFORMATION |
||||
| Item 6- |
Exhibits | 24 | ||
| Signature | 25 | |||
| EXHIBIT INDEX | ||||
| Exhibit 31(a) - |
Certification of the Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | E-1 | ||
| Exhibit 31(b) - |
Certification of the Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | E-2 | ||
| Exhibit 32 - |
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | E-3 | ||
2
INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q
PART I
FINANCIAL INFORMATION
Financial Statements
INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(unaudited)
| Three months ended September 30, |
Nine months ended September 30, | |||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||
| Income: |
||||||||||||
| Earned premiums |
$ | 220,549 | $ | 172,816 | $ | 649,642 | $ | 504,197 | ||||
| Net investment income |
16,071 | 14,237 | 49,162 | 41,854 | ||||||||
| Realized gains on investments |
2,805 | 761 | 5,851 | 1,283 | ||||||||
| Other income |
1,067 | 2,154 | 4,408 | 3,980 | ||||||||
| Total revenue |
240,492 | 189,968 | 709,063 | 551,314 | ||||||||
| Costs and Expenses: |
||||||||||||
| Losses and loss adjustment expenses |
151,563 | 136,651 | 449,760 | 399,777 | ||||||||
| Commissions and other underwriting expenses |
47,037 | 22,376 | 134,389 | 68,123 | ||||||||
| Interest expense |
2,888 | 2,045 | 7,962 | 4,395 | ||||||||
| Corporate general and administrative expenses |
1,529 | 1,904 | 4,764 | 4,994 | ||||||||
| Loss on retirement of long-term debt |
— | — | 3,436 | — | ||||||||
| Other expenses |
6,250 | 4,878 | 14,941 | 15,595 | ||||||||
| Total expenses |
209,267 | 167,854 | 615,252 | 492,884 | ||||||||
| Earnings before income taxes |
31,225 | 22,114 | 93,811 | 58,430 | ||||||||
| Provision for income taxes |
8,272 | 7,161 | 29,096 | 19,674 | ||||||||
| Net Earnings |
$ | 22,953 | $ | 14,953 | $ | 64,715 | $ | 38,756 | ||||
| Earnings per Common Share: |
||||||||||||
| Basic |
$ | 1.12 | $ | 0.73 | $ | 3.15 | $ | 1.90 | ||||
| Diluted |
$ | 1.10 | $ | 0.72 | $ | 3.10 | $ | 1.89 | ||||
| Average number of Common Shares: |
||||||||||||
| Basic |
20,567 | 20,348 | 20,555 | 20,347 | ||||||||
| Diluted |
20,841 | 20,645 | 20,855 | 20,556 | ||||||||
| Cash dividends per Common Share |
$ | 0.055 | $ | 0.055 | $ | 0.165 | $ | 0.110 | ||||
See Notes to Consolidated Financial Statements
3
INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q
INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Investments: |
||||||||
| Fixed maturities – at market (amortized cost – $1,255,491 and $1,192,418) |
$ | 1,303,397 | $ | 1,245,753 | ||||
| Equity securities – at market (cost – $17,662 and $19,184) |
19,085 | 21,375 | ||||||
| Total investments |
1,322,482 | 1,267,128 | ||||||
| Cash and cash equivalents |
122,228 | 125,042 | ||||||
| Accrued investment income |
16,177 | 16,772 | ||||||
| Agents’ balances and premiums receivable, net of allowances for doubtful accounts of $8,934 and $7,902 |
263,331 | 254,026 | ||||||
| Prepaid reinsurance premiums |
25,580 | 42,089 | ||||||
| Amounts recoverable from reinsurers |
29,324 | 31,481 | ||||||
| Deferred policy acquisition costs |
62,217 | 50,858 | ||||||
| Current and deferred income taxes |
7,120 | 8,890 | ||||||
| Prepaid expenses, deferred charges and other assets |
23,208 | 31,178 | ||||||
| Goodwill |
75,275 | 75,275 | ||||||
| Total assets |
$ | 1,946,942 | $ | 1,902,739 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Unpaid losses and loss adjustment expenses |
$ | 671,615 | $ | 709,887 | ||||
| Unearned premiums |
388,489 | 371,716 | ||||||
| Amounts payable to reinsurers |
18,632 | 36,055 | ||||||
| Long-term debt (fair value – $198,386 at September 30, 2004) |
199,291 | 195,500 | ||||||
| Commissions payable |
25,597 | 23,073 | ||||||
| Accounts payable, accrued expenses and other liabilities |
125,222 | 111,138 | ||||||
| Total liabilities |
1,428,846 | 1,447,369 | ||||||
| Shareholders’ Equity: |
||||||||
| Common Stock, no par value - 50,000,000 shares authorized - 20,657,287 and 20,483,958 shares outstanding |
20,657 | 20,484 | ||||||
| Additional paid-in capital |
329,510 | 324,787 | ||||||
| Retained earnings |
136,163 | 74,856 | ||||||
| Unearned compensation (restricted stock) |
(463 | ) | (1,000 | ) | ||||
| Unrealized gain on marketable securities, net |
32,229 | 36,243 | ||||||
| Total shareholders’ equity |
518,096 | 455,370 | ||||||
| Total liabilities and shareholders’ equity |
$ | 1,946,942 | $ | 1,902,739 | ||||
See Notes to Consolidated Financial Statements
4
INFINITY PROPERTY AND CASUALTY CORPORATION 10-Q
INFINITY PROPERTY AND CASUALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
(unaudited)
| Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Unrealized Gain (Loss) |
Unearned Compensation |
Total |
||||||||||||||||||
| Balance at January 1, 2003 |
$ | 1 | $ | 342,743 | $ | 20,000 | $ | 24,059 | $ | — | $ | 386,803 | |||||||||||
| Net earnings |
— | — | 38,756 | — | — | 38,756 | |||||||||||||||||
| Change in unrealized gains |
— | — | — | 15,446 | — | 15,446 | |||||||||||||||||
| Comprehensive income |
54,202 | ||||||||||||||||||||||
| Dividends paid to common stockholders |
— | — | (2,253 | ) | — | — | (2,253 | ) | |||||||||||||||
| Stock split |
20,346 | (20,346 | ) | — | — | — | — | ||||||||||||||||
| Issuance of restricted stock awards |
134 | 2,016 | — | — | (2,150 | ) | — | ||||||||||||||||
| Amortization of unearned compensation |
— | — | — | — | 821 | 821 | |||||||||||||||||
| Exercise of stock options |
3 | 37 | — | — | — | 40 | |||||||||||||||||
| Capital contribution |
— | 2,476 | — | — | — | 2,476 | |||||||||||||||||
| Balance at September 30, 2003 |
$ | 20,484 | $ | 326,926 | $ | 56,503 | $ | 39,505 | $ | (1,329 | ) | $ | 442,089 | ||||||||||
| Net earnings |
$ | — | $ | — | $ | 19,480 | $ | — | $ | — | $ | 19,480 | |||||||||||
| Change in unrealized gains |
— | — | — | (3,477 | ) | — | (3,477 | ) | |||||||||||||||
| Unrealized gain on derivative |
— | — | — | 215 | — | 215 | |||||||||||||||||
| Comprehensive income |
16,218 | ||||||||||||||||||||||
| Dividends paid to common stockholders |
— | — | (1,127 | ) | — | — | (1,127 | ) | |||||||||||||||
| Amortization of unearned compensation |
— | — | — | — | 329 | 329 | |||||||||||||||||
| Other |
— | (2,139 | ) | — | — | — | (2,139 | ) | |||||||||||||||
| Balance at December 31, 2003 |
$ | 20,484 | $ | 324,787 | $ | 74,856 | $ | 36,243 | $ | (1,000 | ) | $ | 455,370 | ||||||||||