property has traditionally been used for lodging of visiting agents, and entertainment of prospective agents and current agents. Some of these business guests remain for conferences and seminars conducted by the Company for periods from one to fourteen days. The Company also owns approximately nine motor vehicles and substantial office equipment, including printing and computer equipment.
The following table sets forth selected consolidated financial data of the Company for the five years ended September 30, 1993 through 1997. 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.
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997, 1996 AND 1995
Independent Research Agency for Life Insurance, Inc. (IRA, Inc.) was chartered in Texas in December 1980. The Company began operations in March 1981 and is the continuation of a business formerly operated as Independent Research Agency for Life Insurance, a Texas partnership.
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 149 cities located in 41 states, 1 U.S. territory and 3 foreign countries.
In November, 1996, IRA, Inc. received approval from the Office of Thrift Supervision to organize and operate a denovo Federal Savings Bank. In March, 1997, First Command Bank (the Bank) was formed as a wholly-owned subsidiary and began operations on April 21, 1997. The Bank generates commercial and consumer loans and receives deposits primarily from clients of IRA, Inc. and its subsidiaries.
The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. The Bank's loans are generally secured by specific items of collateral including consumer assets and business assets.
Agent loans and advances consist of both secured and unsecured obligations. The majority of the loans relate to the purchase of computer equipment and are secured by future commissions receivable. The book value of the loans are considered to approximate fair value.
Property and equipment is carried at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives: Estimated Lives
Buildings and improvements 7-40 years Other property and equipment 3-10 years
Loans are stated at their unpaid principal balances, less the allowance for loan losses. Interest on loans is recognized over the term of the loan and is calculated using the simple-interest method on principal amounts outstanding.
The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, specific impaired loans, economic conditions, and other risks inherent in the portfolio. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge- offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Accrual of interest on a loan is discontinued when management believes, after considering economics, business
Earnings per share is calculated based on the weighted average of shares outstanding during the period. For the years ended September 30, 1997, 1996 and 1995, the weighted average of shares outstanding were 937,502, 937,224 and 935,048, respectively.
As of September 30, 1997, 1996 and 1995, nearly all of the investment securities of IRA, Inc. are in publicly traded mutual funds. At September 30, 1997, 1996 and 1995, the investment securities portfolio was comprised of securities classified as available for sale. The investment securities portfolio at September 30, 1997, 1996 and 1995, is carried at market.
The determination of classifying the marketable securities as either current or noncurrent is based upon management's intention to liquidate specific securities within one year. The aggregate cost and market values of IRA, Inc.'s marketable securities as of September 30, 1997, 1996 and 1995, are as follows:
There were no sales of investment securities for the years ended September 30, 1997, 1996, and 1995. The average cost method is used to determine the cost of each security at the time of sale.
Loans from insurance companies represent non-interest bearing loans from five insurance companies which IRA, Inc. represents as general agent. The amounts of the loans are adjusted monthly and are calculated to be equal to the difference between the total amount of first year commissions on certain insurance policies sold by IRA, Inc. and the amount of the first year commissions earned by IRA, Inc. on the policies.
As consideration for the repurchase of stock, IRA, Inc. issued notes payable to some stockholders. As of September 30, 1997 there are notes payable outstanding to three former stockholders. These notes payable have interest rates ranging from 5.0% to 5.5% with each having a maturity date of January 2, 1998. These notes payable are unsecured.
Based on borrowing rates currently available to IRA, Inc. for loans with similar terms and maturities, the book value of notes payable as of September 30, 1997 are considered to approximate fair value.
At September 30, 1997, 1996 and 1995, the common stock of IRA, Inc. is as follows:
During the year ended September 30, 1997, IRA, Inc. issued 149,050 shares of Class B treasury stock at $27.04 per share. This provided total proceeds of $4,030,312 of which $28,687 was used to pay stock issuance costs. This increased additional paid-in capital by $3,998,644 and decreased treasury stock by $2,981. 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.
During the years ended September 30, 1997, 1996 and 1995, IRA, Inc. repurchased a total of 78,485 shares, 129,963 shares, and 39,325 shares, respectively, of its previously outstanding Class B common stock in accordance with the terms of its stock agreements with shareholders. The total cost of the stock repurchased was $2,122,235 for the year ended September 30, 1997, $3,382,449 for the year ended September 30, 1996, and $916,006 for the year ended September 30, 1995.
Certain items of income and expense are recognized in different years for financial reporting and income tax purposes. Deferred income taxes are provided in recognition of these temporary differences. The items comprising the deferred tax balances as of September 30, 1997, 1996 and 1995 are as follows:
Income tax at the federal statutory rate is reconciled to the Companies' actual income tax expense for the years ended September 30, 1997, 1996 and 1995 as follows:
The components of the provision for income taxes as of September 30, 1997, 1996 and 1995 are as follows:
During the year ended September 30, 1993, IRA, Inc. established a Deferred Career Commission Plan for the benefit of its sales agents. This is a nonqualified plan under which commissions accrue for its sales agents until their business relationship with the Company terminates. The sales agents receive no paid commissions under this Plan prior to their termination date. Commissions which are accrued are determined annually based upon IRA, Inc.'s business needs. These accrued commissions payable to the sales agents do not have any superior claims to the assets of IRA, Inc. Deferred Career Commission Plan expense was $3,704,855, $4,704,578 and $4,390,805 for the years ended September 30, 1997, 1996 and 1995, respectively. This expense is included in commissions and agent expenses on the accompanying statements of income.
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, 1997, 1996 and 1995 amounted to $1,344,249, $1,151,997 and $1,041,671 respectively, and is included on the accompanying statements of income with general and administrative expenses.
The composition of loans as of September 30, 1997 is as follows:
A summary of certificates of deposit by maturity as of September 30, 1997 is as follows:
During the ordinary course of business the Company is subject to litigation from a number of areas. Currently, the Company is involved in one law suit filed after the end of its fiscal year, which management believes is without merit and has a very low probability of loss.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Lamar C. Smith - Having previously been an agent, District Agent, Regional Vice President*, Senior Vice President and Director of Marketing, Mr. Smith was elected President and Chief Operating Officer of the Company in December 1985, and became President and Chief Executive Officer in December 1990, in which capacities he served until January 1992 at which time he became Chairman of the Board and Chief Executive Officer, in which positions he continues to serve.
Hal N. Craig - Having previously been an agent, and Director of Programming, Mr. Craig became the Director of Insurance Services in 1988. In 1990 Mr. Craig became the Director of Management Information Systems and was elected Vice President effective January 1992. He was elected a Director effective January 1, 1993. He became Chief Information Officer in 1994.
Jerry D. Gray - Having previously been an agent and District Agent, Mr. Gray became an Assistant Regional Agent in 1982, and was elected a Director and Regional Vice President in 1986, in which capacities he served until 1988, at which time he was elected a Vice President and became the Director of Client Services. Beginning in 1990, he was reelected a Director and Regional Vice President, in which capacities he served through 1993. In 1994 and 1997 he was reelected a Director.
Clinton C. Hayes - Having previously been an agent and District Agent, Mr. Hayes became an Assistant Regional Agent in 1988 in which position he served until October 1992 when he became a Regional Agent. Mr. Hayes was elected a Director and Regional Vice President effective December 1992, in which capacities he served through 1993. In 1994 he was reelected a Director.
Arnold L. Punaro - Mr. Punaro was elected as a Director in July, 1997. He is a Senior Vice President of the Science Applications International Corporation and a Brigadier General in the U.S. Marine Corps Reserve. In the latter capacity, his current assignment is Commanding General of the 4th Marine Division, USMC. He previously served as the Commanding General, Marine Corps Reserve Support Command, and for Senator Sam Nunn (1973 - 1996), and as Staff Director of the Senate Armed Services Committee (SASC) or as Staff Director of the Minority of the SASC from 1983 through 1996. He serves on the faculty of the Marine Corps University and is an adjunct professor in the graduate school at Georgetown University. He is a member of the Secretary of Defense Reserve Forces Policy Board, and the Board of Governors of the Marine Corps Association.
Carroll H. Payne II - Mr. Payne was elected a Director in 1983 and continues to serve in this capacity. An established Architect, he was principally employed as such by Albert S. Komatsu and Associates, Fort Worth, Texas From 1984 and 1988 and is currently self-employed.
C. Involvement In Certain Legal Proceedings - None of the Directors or Executive Officers of the Company have been during the past five years, nor are currently, involved in any regulatory, or civil or criminal court proceedings of any kind.
(1) - Contribution paid on the employee's behalf into a profit sharing retirement plan. See B. below.
No other compensation not covered by the immediately preceding paragraphs such as personal benefits, securities, or property, was paid or distributed during the Company's fiscal year ending September 30, 1997, to the individuals named or identified as members of the group above, the aggregate amount of which, as to any of such individuals, was either the lesser of $50,000 or ten percent (10%) of the cash compensation described above.
Directors who are Company employees or agents of the Company actively engaged in sales or sales management are paid $600 for personal attendance at full Board meetings. All other Directors are paid a quarterly retainer of $4,000 plus a meeting fee of $600. If these latter Directors serve at a Board committee meeting in conjunction with a Board or other Company meeting, they are paid $300 for such committee meeting. If they serve at a Board committee meeting not in conjunction with any other Company meeting, they are paid $500 for such meeting. If one of this latter group of Directors participates in a telephone/teleconference or video-conference Board or Board committee meeting, they are paid $300 for such participation. Expenses of all Directors required to travel to a meeting are either paid or reimbursed. Additionally, Directors in the latter group described above are reimbursed at the rate of $50 per hour for travel time. During the Company's fiscal year ending September 30, 1997, a total of $72,775 was paid by the Company to its Directors. No fees are paid for serving as a Director of a subsidiary except for three Directors of First Command Bank who are not otherwise employed by Company or its subsidiaries. These individuals are paid $1,000 plus travel expenses each time they personally attend a full Board meeting of First Command Bank. This totaled $12,000 for the period ended September 30, 1997.
ITEM - 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. In August 1997, pursuant to the offering of the Company's stock under a registration statement on Form S-1, effective June 1997, 18,300 shares of the Class B non-voting common stock of the Company were issued to individuals who were either Officers and/or Directors of the Company during the year ended September 30, 1997 for the total consideration of $494,832 ($27.04 per share). A total of 149,050 shares of Class B non- voting common stock of the Company were sold during the offering for the total consideration of $4,030,312 ($27.04 per share).
In September 1996, pursuant to the offering of the Company's stock under a registration statement on Form S-1, effective May 30, 1996, 15,500 shares of the Class B non-voting common stock of the Company were issued to individuals who were either Officers and/or Directors of the Company during the year ended September 30, 1996 for the total consideration of $411,680 ($26.56 per share). A total of 104,700 shares of Class B non- voting common stock of the Company were sold during the offering for the total consideration of $2,780,832 ($26.56 per share). In May 1995 pursuant to the offering of the Company's stock under a registration statement on Form S-1, effective February 8, 1995, 20,842 shares of the Class B non-voting common stock of the Company were issued to individuals who were either Officers and/or Directors of the Company during the year ended September 30, 1995 for the total consideration of $488,536 ($23.44 per share). A total of 147,742 shares of Class B non-voting common stock of the Company were sold during the offering for the total consideration of $3,463,072 ($23.44 per share).
Page (a)(1) The following financial statements are included in Part II, Item 8: Report of Independent Certified Public Accountants . . . . . . . . 12 Consolidated Balance Sheets - September 30, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Consolidated Statements of Income - Years ended September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 16 Consolidated Statements of Changes in Stockholders' Equity - Years ended September 30, 1997, 1996 and 1995. . . . . . 18 Consolidated Statements of Cash Flows - Years ended September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . 20 Notes to Consolidated Financial Statements . . . . . . . . . . . . 23
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits included herein: Exhibit 3 - Articles of Incorporation and Bylaws Incorporated herein by reference to Exhibit 3.a. and 3.b. in the Registrant's Form S-1 Registration Statement filed May, 1997. Exhibit 10 - Material contracts (a) Stock Agreement - Payne Family (b) Stock Agreement - Class B Nonvoting Stock (c) Stock Agreement - Class A Voting Stock Incorporated herein by reference to Exhibits 10a., 10b. and 10c., respectively, in the Registrant's Form S-1 Registration Statement filed May, 1996. Exhibit 21 - Subsidiaries of the Registrant. . . . . . . . . . . . 43
United Services Planning Association, Inc. (Texas) 100% Independent Research Agency for Life Insurance, Inc. (Hawaii) 100% Independent Research Agency for Life Insurance, Inc. (Wyoming) 100% Independent Research Agency for Life Insurance, Inc. (Montana) 100% Independent Research Agency for Life Insurance, Inc. (New York) 100% Independent Research Agency for Life Insurance, Inc. (Nevada) 100% Independent Research Agency for Life Insurance, Inc. (Alabama) 100% First Command Bank 100%
By /S/ Lamar C. Smith By /S/Martin R. Durbin Lamar C. Smith Martin R. Durbin Chairman of the Board and Chief Treasurer and Chief Executive Officer and Director Financial Officer, (Duly Authorized Officer) (Principal Financial and Accounting Officer)