Wickes also owns and leases a large fleet of trucks and other vehicles, including vehicles specialized for the delivery of certain of Wickes' products.
Wickes owns its corporate headquarters, located at 706 North Deerpath Drive in Vernon Hills, Illinois.
The following summary of certain consolidated financial data of the Company is derived from the Company's Consolidated Financial Statements included elsewhere herein and should be read in conjunction with those financial statements and notes thereto and "
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained elsewhere herein.
The liquidity requirements of the Parent Company consist primarily of providing funds for payment of debt and related interest, and for operating expenses.
Should the Company not complete the Life Insurance Reorganization or comparable transaction by September 30, in order for the Company to maintain adequate liquidity and to meet the scheduled payments of principal and interest on its indebtedness, the Company would be required to obtain an extension of currently scheduled principal and interest payments, obtain additional financing or sell a
In addition, the $10 million principal amount of the Company's 13% subordinated notes (the "13% Notes") is payable in September 1999. The Company anticipates that in order to repay this principal amount, the Company may need to obtain additional funds through borrowings, issuance of debt or equity securities or sale of assets held by the Parent Company (such as shares of Wickes common stock).
- In August 1995, AFAC advanced to the Parent Company the proceeds of a $1.0 million bridge loan facility it received under an amendment to the Company's bank credit agreement. This advance supplied part of the funds used to exercise the Wickes option.
- On August 14, 1995, the Company exercised its option from Wickes Lumber Investment Partnership to purchase 374,516 shares of Wickes common stock at an aggregate price of $2.3 million. In connection with the option exercise the Company repaid in full a promissory note issued to Fynsyn Capital Corp. of $1.1 million.
- In September 1995, the Company completed the sale of Dependable Insurance Company to MedMarc Insurance Company. Cash generated by the sale net of debt repayments and holdback of funds by the buyer pending further resolution of uncertainties was minimal.
AFAC's liquidity requirements consist primarily of funds required to repay debt and related interest under the Company's bank credit agreement. See "The Parent Company."
Sources of funds available to AFAC consist of surplus note payments from Laurel Life Insurance Company ("Laurel"). Laurel receives dividends from its American Founders subsidiary. In general, Texas statutes limit the amount of dividends American Founders may pay in any year to the greater of prior year's statutory net gain from operations after income taxes or 10% of statutory capital and surplus without state approval. For 1996, American Founders is eligible to pay dividends in excess of the Company's debt service requirements without state approval.
General. During 1995, approximately $26.7 million of cash was used by consolidated operating activities, including deposits and withdrawals of policyholders funds principally as the result of annuity surrenders and payment of death benefits.
Life Insurance Subsidiaries. The Company's investment portfolio is highly liquid, consisting predominately of readily marketable securities. The Company does not expect any material changes in its cash requirements and is not aware of any trends, events or uncertainties that are reasonably likely to have a material effect on life operations' liquidity.
The Company reported results of operations for the years ended December 31, 1995, 1994 and 1993 as follows:
(2) Charge primarily reflects the write off of intangible assets of ($10,790,000) and income tax benefits of $1,910,000.
Although the Company's results historically have not been affected significantly by seasonal factors, the Company's equity investment in Wickes' results can be expected to fluctuate from period to period. Wickes' operations are adversely affected by the weather patterns in the markets in which it operates, which result in decreased levels of construction activity and lower sales historically in the first quarter and frequently, in the fourth quarter. The extent of such decreases in activity is a function of the severity of winter conditions.
The following table provides comparative Wickes total operating statement data and the Company's equity in net income (loss) of Wickes:
Net sales increased $140.1 million, or 16.5%, in 1994 compared to 1993. The additional week in fiscal 1994 accounted for $14 million of additional sales. The acquisition of ten building centers and three component manufacturing facilities in 1994 contributed $24 million of additional sales. Same store sales in 1994 increased 14% over 1993 due to increased prices on wood products, increased housing starts and favorable weather during the fourth quarter which kept sales strong through year-end and offset the impact of severe weather during the first quarter of 1994.
Wickes' continued emphasis on sales to professional builders and the resulting increased sales of lower margin wood products also contributed to the change in 1995. Wickes believes that approximately 50% of the decrease in gross profit percentage is the result of the shift in customer mix from 22% consumer and 78% professional in 1994 to 18% consumer and 82% professional in 1995.
The increased restructuring and unusual items charges in 1995 results from Wickes plan to reduce the number of under-performing building centers, the corresponding overhead to support these building centers and to strengthen its capital structure. Wickes anticipates completion of this plan in 1996 and has recorded a $17.8 million charge related to this strategic restructuring plan. In 1994 Wickes incurred restructuring charges of $2 million primarily as a result of its headquarters cost reduction plan.
The following table sets forth comparative information with respect to the Company's life insurance operations.
Benefits and losses decreased in 1995 due to the sale of the Aztec business. This decrease was partially offset during 1995 by higher death benefits and reserve increases. Benefits and losses decreased during 1994 as a result of reduced interest crediting rates on the Company's annuities and lower death benefits.
Other operating costs and expenses were $5,221,000, $8,076,000, and $15,174,000 in 1995, 1994 and 1993, respectively. Decreased operating expenses in 1995 are due to reduced lease expenses, data processing expense savings, expense reimbursements from third parties for administrative services and staff reductions. Operating expenses decreased significantly in 1994 through savings realized by staff related and other expense reductions in the life insurance subsidiaries. In 1993, cost reductions resulting from life insurance staff reductions were more than offset by a $3.6 million write-off of the excess of cost over fair value of net assets acquired for certain life operations determined to be unrecoverable.
Interest expense for 1995, 1994 and 1993 was $3,280,000 $2,883,000, and $3,245,000, respectively. The increase in interest expense between 1995 and 1994 results principally from the increased indebtedness of AFAC incurred in April 1994 and from higher interest rates. The decreases in interest expense between 1994 and 1993 result from paydowns of debt and lower interest rates.
Investment operations include all invested assets of the life insurance subsidiaries and the Parent Company. Investment income, net of investment expenses, declined 17% from 1994 to 1995 and 15% from 1993 to 1994 as a result of reduced invested assets and lower investment yields as discussed below.
Annualized investment yields on average invested assets were 5.9% in 1995 compared to 6.2% and 6.7% in 1994 and 1993, respectively. The decrease in yields in 1995 and 1994 is primarily due to: (i) the lower yields on funds reinvested in fixed maturities and mortgages, and (ii) loss on real estate assets. Included in net investment income for 1995, 1994 and 1993 were ($316,000), ($353,000), and $668,000, of net real estate income (expenses) respectively.
Mortgage and construction loans on real estate include 162 residential loans aggregating approximately 27% of the dollar value of the Company's mortgage loan portfolio. Of the total residential loans, the Company's mortgage lending operations accounted for five permanent mortgage loans (3% of mortgage portfolio total), which are held for resale to investors under existing agreements, and 34 construction financing loans (13% of mortgage portfolio total). In addition, 48 commercial mortgage loans comprised 73% of the dollar value of the mortgage loan portfolio. As of December 31, 1995 delinquencies were approximately 1% of the mortgage loan portfolio amount.
Included in net loss from discontinued operations for 1993 is approximately $2.4 million of gains resulting from Dependable's sale of several blocks of business. Also in 1993, Dependable incurred claims, net of reinsurance, of $3.2 million pre-tax as a result of damage from the severe winter storm of March 1993.
Included in net loss from discontinued operations is a net loss for 1993 of $4,113,000 for mortgage servicing operations. This loss resulted primarily from accelerated amortization of purchase mortgage servicing rights. On January 3, 1994, the Company sold these operations for their approximate book value.
Financial statements of the Company are set forth herein beginning on page.