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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 Quarterly Period Ended March 31, 2005

 

Commission File Number 0-11773

 

 

ALFA CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware   63-0838024

(State or other jurisdiction

incorporation or organization)

  

(I.R.S Employer

Identification No.)

2108 East South Boulevard

P.O. Box 11000, Montgomery, Alabama

   36191-0001
(Address of principal executive offices)   (Zip-Code)

 

Registrant’s Telephone Number including Area Code (334) 288-3900

 

 

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

  

Outstanding April 30, 2005

Common Stock, $1.00 par value   80,081,004 shares

 

Table of Contents

ALFA CORPORATION

 

INDEX

 

            Page No.
Part I.       Financial Information (Consolidated Unaudited)    
    Item 1.   Financial Statements    
        Balance Sheets - March 31, 2005 and December 31, 2004   3
        Statements of Income, Three Months ended March 31, 2005 and 2004   4
        Statements of Comprehensive Income, Three Months ended March 31, 2005 and 2004   5
        Statements of Cash Flows, Three Months ended March 31, 2005 and 2004   6
        Notes to Financial Statements   7
        Report of Independent Registered Public Accounting Firm   18
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   19
    Item 3.   Quantitative and Qualitative Disclosures about Market Risk   35
    Item 4.   Controls and Procedures   35
Part II.       Other Information    
    Item 1.   Legal Proceedings   36
    Item 2.   Unregistered Sales of Equity 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   37
        Signatures   38

 

2

Table of Contents

PART I. FINANCIAL INFORMATION (CONSOLIDATED UNAUDITED)

 

ITEM 1. FINANCIAL STATEMENTS

 

ALFA CORPORATION

CONSOLIDATED BALANCE SHEETS

 

    

March 31,

2005

     December 31,
2004
  
     (Unaudited)        
Assets                 

Investments:

                 

Fixed Maturities Held for Investment, at amortized cost
(fair value $113,377 in 2005 and $123,935 in 2004)

    $ 106,265     $ 114,708  

Fixed Maturities Available for Sale, at fair value
(amortized cost $1,360,807,420 in 2005 and $1,305,288,027 in 2004)

      1,392,863,311       1,354,507,490  

Equity Securities Available for Sale, at fair value
(cost $90,713,241 in 2005 and $83,445,562 in 2004)

      103,004,211       99,701,250  

Policy Loans

      59,330,527       58,476,569  

Collateral Loans

      112,864,157       110,792,974  

Commercial Leases

      3,397,617       4,155,791  

Other Long-Term Investments

      146,024,632       145,474,366  

Short-Term Investments

      54,523,385       80,988,969  
    
 

Total Investments

      1,872,114,105       1,854,212,117  

Cash

      14,787,928       20,052,493  

Accrued Investment Income

      16,664,961       16,726,050  

Accounts Receivable

      69,802,173       50,452,538  

Reinsurance Balances Receivable

      3,243,359       5,279,560  

Deferred Policy Acquisition Costs

      192,464,499       183,258,224  

Assets Classified as Held for Sale

      75,256,273       77,450,278  

Goodwill

      13,803,306       —    

Other Intangible Assets (net of accumulated amortization of $172,325 in 2005)

      9,053,675       —    

Other Assets

      17,182,681       15,266,244  
    
 

Total Assets

    $ 2,284,372,960     $ 2,222,697,504  
    
 
Liabilities and Stockholders’ Equity                 

Policy Liabilities and Accruals - Property and Casualty Insurance

    $ 147,281,822     $ 154,107,730  

Policy Liabilities and Accruals - Life Insurance Interest-Sensitive Products

      578,703,393       555,733,736  

Policy Liabilities and Accruals - Life Insurance Other Products

      184,353,173       180,410,535  

Unearned Premiums

      210,947,874       185,856,467  

Dividends to Policyholders

      11,139,667       11,262,132  

Premium Deposit and Retirement Deposit Funds

      6,362,471       6,369,125  

Deferred Income Taxes

      37,976,283       43,100,038  

Liabilities Associated with Assets Classified as Held for Sale

      540,760       340,876  

Other Liabilities

      79,454,509       73,877,730  

Due to Affiliates

      18,263,594       29,995,986  

Commercial Paper

      223,879,995       204,303,206  

Notes Payable

      70,000,000       70,000,000  

Notes Payable to Affiliates

      15,887,635       15,887,635  
    
 

Total Liabilities

      1,584,791,176       1,531,245,196  
    
 

Commitments and Contingencies

                 

Stockholders’ Equity :

                 

Preferred Stock, $1 par value

                 

Shares authorized: 1,000,000

      —         —    

Issued: None

                 

Common Stock, $1 par value

                 

Shares authorized: 110,000,000

                 

Issued: 83,783,024

                 

Outstanding: 80,212,604 in 2005 and 79,833,467 in 2004

      83,783,024       83,783,024  

Capital in Excess of Par Value

      13,269,027       10,961,782  

Accumulated Other Comprehensive Income
(unrealized gains on securities available for sale, net of tax of $26,584,609 in 2005 and $39,450,553 in 2004; unrealized (losses) on interest rate swap contract, net of tax of ($618,028) in 2005 and ($1,406,747) in 2004; unrealized gains on other long-term investments, net of tax of $133,548 in 2005 and $16,565 in 2004)

      26,100,129       38,060,371  

Retained Earnings

      614,150,908       599,609,509  

Treasury Stock, at cost
(shares, 3,570,420 in 2005 and 3,949,557 in 2004)

      (37,718,304 )     (40,962,378 )
    
 

Total Stockholders’ Equity

      699,584,784       691,452,308  
    
 

Total Liabilities and Stockholders’ Equity

    $ 2,284,375,960     $ 2,222,697,504  
    
 

 

See accompanying Notes to Consolidated Financial Statements.

 

3

Table of Contents

ALFA CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended March 31,
     2005
    2004

Revenues

              

Premiums - Property and Casualty Insurance

    $ 134,357,779    $ 120,043,668

Premiums - Life Insurance

      11,090,951      10,146,938

Policy Charges - Life Insurance

      9,329,426      8,990,197

Net Investment Income

      22,975,156      21,901,161

Realized Investment Gains

      1,117,228      1,457,349

Other Income

      877,326      916,767
    
  

Total Revenues

      179,747,866      163,456,080
    
  

Benefits, Losses and Expenses

              

Benefits, Claims, Losses and Settlement Expenses

      111,019,236      90,573,888

Dividends to Policyholders

      1,077,474      1,042,724

Amortization of Deferred Policy Acquisition Costs

      25,836,126      22,905,300

Other Operating Expenses

      13,365,726      13,072,942
    
  

Total Benefits, Losses and Expenses

      151,298,562      127,594,854
    
  

Income Before Provision for Income Taxes

      28,449,304      35,861,226

Provision For Income Taxes

      6,878,960      10,384,339
    
  

Net Income

    $ 21,570,344    $ 25,476,887
    
  

Net Income Per Share

              

- Basic

    $ 0.27    $ 0.32
    
  

- Diluted

    $ 0.27    $ 0.32
    
  

Weighted Average Shares Outstanding

              

- Basic

      80,165,952      80,097,071
    
  

- Diluted

      80,680,958      80,652,201
    
  

 

See accompanying Notes to Consolidated Financial Statements.

 

4

Table of Contents

ALFA CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended March 31,
  
     2005
     2004
  

Net Income

    $ 21,570,344     $ 25,476,887  

Other Comprehensive (Loss) Income, net of tax:

                 

Change in Fair Value of Securities Available for Sale

      (12,139,748 )     11,145,163  

Unrealized Gain (Loss) on Interest Rate Swap Contract

      788,720       (751,491 )

Unrealized Gain (Loss) on Other Long-term Investments

      116,984       (319,469 )

Less: Reclassification Adjustment for Realized Investment Gains

      726,198       947,277  
    
 

Total Other Comprehensive (Loss) Income

      (11,960,242 )     9,126,926  
    
 

Total Comprehensive Income

    $ 9,610,102     $ 34,603,813  
    
 

 

See accompanying Notes to Consolidated Financial Statements.

 

5

Table of Contents

ALFA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended March 31,
  
     2005
     2004
  

Cash Flows From Operating Activities:

                 

Net Income

    $ 21,570,344     $ 25,476,887  

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

                 

Policy Acquisition Costs Deferred

      (33,707,877 )     (27,247,151 )

Amortization of Deferred Policy Acquisition Costs

      25,836,126       22,905,300  

Depreciation and Amortization

      991,638       742,845  

Provision for Deferred Taxes

      620,171       725,570  

Interest Credited on Policyholders’ Funds

      6,912,270       6,743,557  

Net Realized Investment Gains

      (1,117,228 )     (1,457,349 )

Other

      2,926,091       (1,875,240 )

Changes in Operating Assets and Liabilities:

                 

Accrued Investment Income

      61,089       (929,388 )

Accounts Receivable

      (15,800,799 )     (1,857,118 )

Reinsurance Balances Receivable

      2,036,201       148,398  

Due to Affiliates

      (11,732,392 )     (6,072,905 )

Other Assets

      (1,298,361 )     (1,920,138 )

Liability for Policy Reserves

      (4,156,006 )     1,430,829  

Liability for Unearned Premiums

      25,091,407       8,540,745  

Amounts Held for Others

      (129,119 )     (197,902 )

Other Liabilities

      7,650,700       8,970,435  
    
 

Net Cash Provided by Operating Activities

      25,754,255       34,127,375  
    
 

Cash Flows from Investing Activities:

                 

Maturities and Redemptions of Fixed Maturities Held for Investment

      8,410       15,146  

Maturities and Redemptions of Fixed Maturities Available for Sale

      83,500,171       68,602,136  

Maturities and Redemptions of Other Investments

      955,011       445,332  

Sales of Fixed Maturities Available for Sale

      49,655,126       6,329,942  

Sales of Equity Securities

      28,414,808       72,324,921  

Sales of Other Investments

      1,651,896       448,497  

Purchases of Fixed Maturities Available for Sale

      (189,497,314 )     (216,267,760 )

Purchases of Equity Securities

      (32,025,079 )     (35,337,270 )

Purchases of Other Investments