The following table sets forth selected consolidated financial data of the Company for the five years ended September 30, 1992 through 1996. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related notes thereto included elsewhere herein. The selected consolidated financial data was derived from the audited financial statements of the Company.
Income before income taxes has remained fairly constant as a percentage of commission revenues for the past few years. For the years ended September 30, 1996, 1995 and 1994 income before income taxes has been 9.7%, 9.3% and 10.5% of total commission revenues.
The Company has land which is intended to be used as a future site for the construction of a building. The Company is planning to accumulate $3,800,000 annually through 1998, for a total accumulation of $19,000,000, for the construction of this additional office facility for the Home Office. The Company is also planning to start a financial institution in early 1997. This financial institution inititative will require approximately $6,000,000 in capitalization funds. Once the financial institution begins operations, it is not expected to have a significant impact on the operating income of the Company. The remaining retained earnings of the Company have been accumulated in anticipation of other future capital expenditures and as an additional reserve against contingencies.
Return on total equity was 19% and 21% for 1996 and 1995, respectively. Management has goals of maintaining a return of 15% to 25% in the future.
The accompanying consolidated financial statements of Independent Research Agency for Life Insurance, Inc. and Subsidiaries as of September 30, 1996, 1995 and 1994 and for the years ended September 30, 1996, 1995 and 1994 are presented in accordance with Regulation S-X. Independent Research Agency for Life Insurance, Inc. is subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934.
Consolidated Balance Sheets - September 30, 1996, 1995 and 1994. . . 13
Consolidated Statements of Income - Years ended September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Cash Flows - Years ended September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 20
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Independent Research Agency for Life Insurance, Inc. and Subsidiaries as of September 30, 1996, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
IRA, Inc. acquired United Services Planning Association, Inc., a Texas corporation (USPA), and Independent Research Agency for Life Insurance, Inc., a Hawaii Corporation (IRA Hawaii), in March 1981. IRA, Inc. organized Independent Research Agency for Life Insurance, Inc., a Wyoming Corporation (IRA Wyoming), in April 1982; Independent Research Agency for Life Insurance, Inc., a Montana Corporation (IRA Montana), in February 1983; Independent Research Agency (New York), Inc., a New York Corporation (IRA New York), in September 1983; Independent Research Agency for Life Insurance, Inc., a Nevada Corporation (IRA Nevada), in January 1988; and Independent Research Agency for Life Insurance, Inc., an Alabama Corporation (IRA Alabama), in June 1994.
The subsidiaries IRA Hawaii, IRA Wyoming, IRA Montana, IRA New York, IRA Nevada and IRA Alabama are maintained solely to permit IRA, Inc. to do business in those states.
IRA, Inc., IRA Hawaii, IRA Wyoming, IRA Montana, IRA New York, IRA Nevada and IRA Alabama are engaged in the sale of life insurance to United States professional military personnel. USPA is engaged in the sale of mutual funds to United States professional military personnel as a broker-dealer registered with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. The companies share common employees, sales agents and representatives, and office facilities. Home offices are located in Fort Worth, Texas. The companies' agents and representatives maintain offices in approximately 145 cities located in 41 states, 1 U.S. territory and 2 foreign countries.
Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives: Estimated Lives
Depreciation expense amounted to $1,172,430, $1,083,853, and $984,501 for the years ended September 30, 1996, 1995 and 1994, respectively.
For purposes of the statement of cash flows, cash and cash equivalents includes Cash - Demand deposits and Cash - Money market mutual fund accounts. The funds in the money market mutual fund accounts are with various investment companies. The invested funds earn interest at prevailing rates while on deposit and may be withdrawn on demand by check.
temporary cash investments and marketable securities with financial institutions and investment companies. IRA, Inc. limits the amount of credit exposure to any one company or institution. Concentrations of credit risk with respect to commissions receivable are limited due to the number of investment and insurance companies comprising IRA, Inc.'s customer base. As of September 30, 1996, 1995 and 1994, IRA, Inc. had no significant concentrations of credit risk.
Earnings per share is calculated based on the weighted average of shares outstanding during the period. For the years ended September 30, 1996, 1995 and 1994, the weighted average of shares outstanding were 937,224, 935,048, and 928,830, respectively.
Proceeds from sales of investment securities were $5,694,192 for the year ended September 30, 1994. The realized gains on these sales amounted to $1,380,492. There were no sales of investment securities for the years ended September 30, 1996 and 1995. The average cost method is used to determine the cost of each security at the time of sale.
The net change in the unrealized holding gain as reflected in a separate component of stockholders' equity as of September 30, 1996, 1995 and 1994 was calculated as follows:
NOTE 5 - NOTES PAYABLE AND REVOLVING LINE OF CREDIT - Continued
During the year ended September 30, 1996, IRA, Inc. issued 104,700 shares of Class B treasury stock at $26.56 per share. This provided total proceeds of $2,780,832 of which $40,881 was used to pay stock issuance costs. This increased additional paid-in capital by $2,737,857 and decreased treasury stock by $2,094. During the year ended September 30, 1995, IRA, Inc. issued 147,742 shares of Class B treasury stock at $23.44 per share. This provided total proceeds of $3,463,072 of which $62,136 was used to pay stock issuance costs. This increased additional paid-in capital by $3,397,981 and decreased treasury stock by $2,955.
4. IRA, Inc. has the right, on thirty (30) days written notice to stockholder, to repurchase that number of shares of common stock from stockholder representing the shares in excess of five percent of the Company's outstanding shares of common stock.
On December 1, 1995, a cash dividend of $4.50 per share ($4,550,796) was paid by IRA, Inc. from retained earnings on its Class B common stock to its shareholders of record as of September 30, 1995.
Income tax at the federal statutory rate is reconciled to the Companies' actual income tax expense for the years ended September 30, 1996, 1995 and 1994 as follows:
The components of the provision for income taxes as of September 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994 Current tax expense $5,439,394 $ 4,345,551 $ 4,647,717 Deferred tax benefit (1,596,755) (928,527) (1,086,655) Provision for Income Taxes $3,842,639 $ 3,417,024 $ 3,561,062
USPA has in effect a qualified, non-contributory employee Profit Sharing Plan, which covers substantially all of the Company's employees. The Profit Sharing Plan contribution expense for the years ended September 30, 1996, 1995 and 1994 amounted to $1,151,997, $1,041,671, and $1,038,863, respectively, and is included on the accompanying statements of income with general and administrative expenses.
A cash dividend of $7.63 per share ($7,498,703) is to be paid on December 2, 1996 by IRA, Inc. from retained earnings on its Class B common stock to its shareholders of record as of September 30, 1996.