UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to_________________
Commission File Number: 1-11917
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FBL Financial Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1411715
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5400 University Avenue, West Des Moines, Iowa 50266-5997
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(Address of principal executive offices) (Zip Code)
(515) 225-5400
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
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 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. |X| Yes |_| No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. |_| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 26,107,440 shares of Class A
common stock and 1,192,990 shares of Class B common stock as of November 2,
2000.
ITEM 1. FINANCIAL STATEMENTS
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market: 2000 - $296,626; 1999 -
$337,794) ............................................................. $ 296,377 $ 339,362
Available for sale, at market (amortized cost: 2000 - $2,083,963; 1999 -
$2,077,341) ........................................................... 2,024,062 2,002,030
Equity securities, at market (cost: 2000 - $36,200; 1999 - $38,147) ........ 33,606 35,345
Mortgage loans on real estate .............................................. 324,794 314,523
Investment real estate, less allowances for depreciation of $2,861 in 2000
and $2,300 in 1999 ....................................................... 22,078 20,119
Policy loans ............................................................... 125,176 123,717
Other long-term investments ................................................ 4,628 8,575
Short-term investments ..................................................... 107,227 106,529
-------------- --------------
Total investments ............................................................. 2,937,948 2,950,200
Cash and cash equivalents ..................................................... 6,738 6,482
Securities and indebtedness of related parties ................................ 47,939 61,309
Accrued investment income ..................................................... 35,531 35,707
Accounts and notes receivable ................................................. 543 1,733
Amounts receivable from affiliates ............................................ 3,441 4,484
Reinsurance recoverable ....................................................... 47,735 4,812
Deferred policy acquisition costs ............................................. 247,151 236,263
Value of insurance in force acquired .......................................... 14,850 15,894
Property and equipment, less allowances for depreciation of $43,066 in 2000
and $40,115 in 1999 ........................................................ 60,567 60,506
Deferred income taxes ......................................................... 1,015 4,616
Goodwill, less accumulated amortization of $4,703 in 2000 and $4,181 in
1999 ....................................................................... 8,729 9,251
Other assets .................................................................. 13,942 15,046
Assets held in separate accounts .............................................. 322,983 256,028
-------------- --------------
Total assets .......................................................... $ 3,749,112 $ 3,662,331
============== ==============
1
FBL FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products .......................................... $ 1,593,864 $ 1,626,042
Traditional life insurance and accident and health products .......... 767,694 752,733
Unearned revenue reserve ............................................. 29,208 27,650
Other policy claims and benefits ........................................ 9,349 10,019
-------------- --------------
2,400,115 2,416,444
Other policyholders' funds:
Supplementary contracts without life contingencies ...................... 167,056 160,848
Advance premiums and other deposits ..................................... 82,026 83,258
Accrued dividends ....................................................... 12,242 13,554
-------------- --------------
261,324 257,660
Short-term debt payable to affiliate ...................................... 11,694 11,694
Amounts payable to affiliates ............................................. 1,610 166
Long-term debt ............................................................ 40,000 40,000
Current income taxes payable .............................................. 486 1,002
Other liabilities ......................................................... 94,639 77,184
Liabilities related to separate accounts .................................. 322,983 256,028
-------------- --------------
Total liabilities .................................................... 3,132,851 3,060,178
Commitments and contingencies
Minority interest in subsidiaries:
Company-obligated mandatorily redeemable preferred stock
of subsidiary trust ..................................................... 97,000 97,000
Other ..................................................................... 190 145
Stockholders' equity:
Preferred stock, without par value, at liquidation value - authorized
10,000,000 shares, issued and outstanding 5,000,000 Series B shares ..... 3,000 3,000
Class A common stock, without par value - authorized 88,500,000 shares,
issued and outstanding 29,831,305 shares in 2000 and 30,307,232 shares
in 1999 ................................................................. 42,776 42,308
Class B common stock, without par value - authorized 1,500,000 shares,
issued and outstanding 1,192,990 shares ................................. 7,556 7,558
Accumulated other comprehensive loss ...................................... (47,900) (49,917)
Retained earnings ......................................................... 513,639 502,059
-------------- --------------
Total stockholders' equity .............................................. 519,071 505,008
-------------- --------------
Total liabilities and stockholders' equity ........................... $ 3,749,112 $ 3,662,331
============== ==============
See accompanying notes.
2
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
Revenues:
Interest sensitive product charges .................. $ 14,778 $ 13,835 $ 44,525 $ 41,208
Traditional life insurance premiums ................. 20,038 19,363 64,504 63,568
Accident and health premiums ........................ 2,172 3,135 9,310 9,897
Net investment income ............................... 55,579 54,870 165,635 169,700
Realized losses on investments ...................... (15,353) (68) (19,562) (796)
Other income ........................................ 4,876 5,072 14,333 14,911
------------- ------------- ------------- -------------
Total revenues ................................... 82,090 96,207 278,745 298,488
Benefits and expenses:
Interest sensitive product benefits ................. 32,963 31,160 96,938 91,380
Traditional life insurance and accident and health
benefits ......................................... 15,056 15,049 47,584 44,844
Increase in traditional life and accident and health
future policy benefits ........................... 2,781 4,191 14,871 14,420
Distributions to participating policyholders ........ 6,045 5,827 18,696 19,039
Underwriting, acquisition and insurance expenses .... 17,840 16,742 54,901 53,584
Interest expense .................................... 956 676 2,727 1,737
Other expenses ...................................... 3,696 3,661 10,787 11,370
------------- ------------- ------------- -------------
Total benefits and expenses ...................... 79,337 77,306 246,504 236,374
------------- ------------- ------------- -------------
2,753 18,901 32,241 62,114
Income taxes ............................................ (289) (6,209) (9,570) (20,274)
Minority interest in earnings of subsidiaries:
Dividends on company-obligated mandatorily
redeemable preferred stock of subsidiary trust ... (1,213) (1,213) (3,638) (3,638)
Other ............................................... 59 7 17 (53)
Equity income, net of related income taxes .............. 571 1,123 10,630 3,013
------------- ------------- ------------- -------------
Net income .............................................. $ 1,881 $ 12,609 $ 29,680 $ 41,162
============= ============= ============= =============
Earnings per common share ............................... $ 0.06 $ 0.39 $ 0.95 $ 1.27
============= ============= ============= =============
Earnings per common share - assuming dilution ........... $ 0.06 $ 0.38 $ 0.94 $ 1.24
============= ============= ============= =============
Cash dividends per common share ......................... $ 0.090 $ 0.083 $ 0.270 $ 0.248
============= ============= ============= =============
See accompanying notes.
3
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
ACCUMULATED
CLASS A CLASS B OTHER TOTAL
PREFERRED COMMON COMMON COMPREHENSIVE RETAINED STOCKHOLDERS'
STOCK STOCK STOCK INCOME (LOSS) EARNINGS EQUITY
---------- ---------- ---------- -------------- ---------- -------------
Balance at January 1, 1999 ......... $ 3,000 $ 42,034 $ 7,558 $ 50,050 $ 480,946 $ 583,588
Comprehensive income (loss):
Net income for nine
months ended September 30,
1999 ........................ -- -- -- -- 41,162 41,162
Change in net unrealized
investment gains/losses ..... -- -- -- (73,260) -- (73,260)
----------
Total comprehensive loss ........ (32,098)
Purchase of 1,038,641 shares
of common stock ............... -- (1,417) -- -- (18,953) (20,370)
Issuance of 96,251 shares of
common stock under
employee benefit and
stock option plans,
including related income
tax benefit ................... -- 1,702 -- -- -- 1,702
Dividends on preferred stock ..... -- -- -- -- (113) (113)
Dividends on common stock ........ -- -- -- -- (8,007) (8,007)
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 1999 ...... $ 3,000 $ 42,319 $ 7,558 $ (23,210) $ 495,035 $ 524,702
========== ========== ========== ========== ========== ==========
Balance at January 1, 2000 ......... $ 3,000 $ 42,308 $ 7,558 $ (49,917) $ 502,059 $ 505,008
Comprehensive income (loss):
Net income for nine
months ended September 30,
2000 ........................ -- -- -- -- 29,680 29,680
Change in net unrealized
investment gains/losses ..... -- -- -- 2,017 -- 2,017
----------
Total comprehensive income ...... 31,697
Purchase of 608,379 shares
of common stock ............... -- (852) -- -- (9,612) (10,464)
Issuance of 132,452 shares of
common stock under employee
benefit and stock option plans,
including related income tax
benefit ....................... -- 1,328 -- -- -- 1,328
Adjustment resulting from
capital transactions of
equity investee ............... -- (8) (2) -- -- (10)
Dividends on preferred stock ..... -- -- -- -- (113) (113)
Dividends on common stock ........ -- -- -- -- (8,375) (8,375)
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 ...... $ 3,000 $ 42,776 $ 7,556 $ (47,900) $ 513,639 $ 519,071
========== ========== ========== ========== ========== ==========
Comprehensive income (loss) totaled $15.0 million in the third quarter of 2000
and ($4.3) million in the third quarter 1999.
See accompanying notes.
4
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------- -------------
OPERATING ACTIVITIES
Net income ....................................................................... $ 29,680 $ 41,162
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances ...................................... 78,566 78,158
Charges for mortality and administration ................................... (44,066) (40,404)
Deferral of unearned revenues .............................................. 2,193 1,783
Amortization of unearned revenue reserve ................................... (540) (914)
Provision for depreciation and amortization ................................... 12,067 11,414
Equity income ................................................................. (10,630) (3,013)
Realized losses on investments ................................................ 19,562 796
Increase in traditional life and accident and health benefit accruals ......... 14,871 15,417
Policy acquisition costs deferred ............................................. (31,022) (24,731)
Amortization of deferred policy acquisition costs ............................. 8,073 9,251
Provision for deferred income taxes ........................................... 1,164 2,450
Other ......................................................................... (5,221) (11,058)
------------ ------------
Net cash provided by operating activities ......................................... 74,697 80,311
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities - held for investment ........................................ 43,561 138,678
Fixed maturities - available for sale ......................................... 158,244 171,084
Equity securities ............................................................. 16,758 6,297
Mortgage loans on real estate ................................................. 30,833 47,482
Investment real estate ........................................................ 644 5,535
Policy loans .................................................................. 23,127 21,785
Other long-term investments ................................................... 503 1,168
Short-term investments - net .................................................. -- 4,136
------------ ------------
273,670 396,165
Acquisition of investments:
Fixed maturities - available for sale ......................................... (194,749) (354,139)
Equity securities ............................................................. (2,368) (6,260)
Mortgage loans on real estate ................................................. (41,194) (62,906)
Investment real estate ........................................................ -- (564)
Policy loans .................................................................. (24,586) (21,862)
Other long-term investments ................................................... -- (519)
Short-term investments - net .................................................. (698) --
------------ ------------
(263,595) (446,250)
5
FBL FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------- -------------
INVESTING ACTIVITIES (CONTINUED)
Proceeds from disposal, repayments of advances and other distributions from
equity investees ............................................................ $ 4,831 $ 8,732
Investments in and advances to equity investees ................................. (555) (5,944)
Net proceeds from sale of discontinued operations ............................... 2,000 1,229
Net purchases of property and equipment and other ............................... (9,067) (11,104)
------------ ------------
Net cash provided by (used in) investing activities ............................. 7,284 (57,172)
FINANCING ACTIVITIES
Receipts from interest sensitive and variable products credited to policyholder
account balances ............................................................ 170,602 163,654
Return of policyholder account balances on interest sensitive and variable
products .................................................................... (231,072) (169,081)
Proceeds from short-term debt with affiliate .................................... -- 3,068
Repayments of short-term debt ................................................... -- (24,500)
Proceeds from long-term debt .................................................... -- 40,000
Repayments of long-term debt .................................................... -- (71)
Distributions on company-obligated mandatorily redeemable preferred stock of
subsidiary trust ............................................................ (3,638) (3,638)
Other contributions (distributions) related to minority interests - net ......... 62 (4,614)
Purchase of common stock ........................................................ (10,464) (20,370)
Issuance of common stock ........................................................ 1,273 1,570
Dividends paid .................................................................. (8,488) (8,120)
------------ ------------
Net cash used in financing activities ........................................... (81,725) (22,102)
------------ ------------
Increase in cash and cash equivalents ........................................... 256 1,037
Cash and cash equivalents at beginning of period ................................ 6,482 4,516
------------ ------------
Cash and cash equivalents at end of period ...................................... $ 6,738 $ 5,553
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest .................................................................... $ 2,728 $ 1,626
Income taxes ................................................................ 13,159 6,897
See accompanying notes.
6
FBL Financial Group, Inc. September 30, 2000
FBL FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of FBL Financial
Group, Inc. (we or the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. Our financial
statements include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of our financial position and results of
operations. Operating results for the three- and nine-month periods ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to our consolidated financial statements and notes for the year ended December
31, 1999 included in our annual report on Form 10-K.
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
2. ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (Statement) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
Statement 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." Statement No. 133 requires companies to record derivatives
on the balance sheet as assets or liabilities, measured at fair value.
Accounting for gains or losses resulting from changes in the values of those
derivatives is dependent on the use of the derivative and whether it qualifies
for hedge accounting. Statement No. 133 also allows companies to transfer
securities classified as held for investment to either the available-for-sale or
trading categories in connection with the adoption of the new standard.
Statement 138 amends Statement 133 to clarify the appropriate accounting for
certain hedging transactions. The Statements are effective for the year
beginning January 1, 2001, with earlier adoption encouraged.
Because of our minimal use of derivatives, we do not anticipate that the
adoption of the new Statements will have a significant effect on our earnings or
financial position. However, at September 30, 2000, we do own 13 convertible
fixed maturity securities with a carrying value of $43.1 million. The conversion
features of these securities are considered embedded derivatives and,
accordingly, after adoption of the Statements, changes in fair value of the
conversion features will be reflected in net income. The fair value of these
embedded derivatives is estimated to be $3.4 million at September 30, 2000.
Since it is not possible to predict future changes in fair value, the impact of
adopting the Statements on these securities cannot be predicted.
3. INVESTMENT OPERATIONS
Fixed maturity securities, comprised of bonds and redeemable preferred stocks
that we have the positive intent and ability to hold to maturity, are designated
as "held for investment." Held for investment securities are reported at cost
adjusted for amortization of premiums and discounts. Changes in the market value
of these securities, except for declines that are other than temporary, are not
reflected in our financial statements. Fixed maturity securities which may be
sold are designated as "available for sale." Available for sale securities are
reported at market value and unrealized gains and losses on these securities are
included directly in stockholders' equity as a component of accumulated other
comprehensive income or loss. The unrealized gains and losses included in
accumulated other comprehensive income or loss are reduced by a provision for
deferred income taxes and adjustments to deferred policy acquisition costs,
value of insurance in force acquired and unearned revenue reserve that would
have been required as a charge or credit to income had such amounts been
realized. Equity securities, comprised of common and non-redeemable preferred
stocks, are reported at market value. The change in unrealized appreciation and
depreciation of equity securities is included directly in stockholders' equity,
net of any related deferred income taxes, as a component of accumulated other
comprehensive income or loss.
7
FBL Financial Group, Inc. September 30, 2000
Net unrealized investment losses as reported were comprised of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(DOLLARS IN THOUSANDS)
Unrealized depreciation on fixed maturity and equity securities available for
sale ...................................................................... $ (62,495) $ (78,113)
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs ......................................... 4,566 5,577
Value of insurance in force acquired ...................................... 741 1,040
Unearned revenue reserve .................................................. (459) (554)
Provision for deferred income taxes ........................................... 20,176 25,217
------------- -------------
(37,471) (46,833)
Proportionate share of net unrealized investment losses of equity investees ... (10,429) (3,084)
------------- -------------
Net unrealized investment losses .............................................. $ (47,900) $ (49,917)
============= =============
During the nine months ended September 30, 2000, equity investees distributed to
us equity securities with a fair value totaling $14.5 million. Also during the
nine months ended September 30, 2000, we received an interest in three real
estate properties with a fair value of $3.0 million in satisfaction of a fixed
maturity security that had been in default. These transactions were treated as
noncash items for purposes of the statement of cash flow.
4. PENDING ACQUISITION AND COINSURANCE AGREEMENT
During September 2000, our board of directors approved a definitive agreement to
acquire the assets and liabilities of Kansas Farm Bureau Life Insurance Company
(Kansas Farm Bureau Life). As consideration for the purchase, we will issue
3,411,000 shares of Series C cumulative voting mandatorily redeemable preferred
stock with an estimated fair value of $80.0 million. The acquisition, which is
subject to regulatory approval, will be accounted for as a purchase. The
transaction is expected to close during the first quarter of 2001.
Kansas Farm Bureau Life sells traditional life insurance and annuity products to
its target market of 125,000 Farm Bureau member families in the state of Kansas.
Kansas Farm Bureau Life also markets variable products through an alliance with
us.
Each share of Series C preferred stock will have a par value of $25.8425 and
voting rights identical to that of Class A common stock. We will pay dividends
on the Series C preferred stock quarterly at a rate equal to the greater of
$0.10 per preferred share or the common stock dividend per share then payable.
The mandatory redemption is structured so that 49.9% of the Series C preferred
stock will be redeemed at par value, or $44.0 million, one year following
issuance with the remaining 50.1% redeemed at par value, or $44.1 million, five
years following issuance. In the event of a change in the control of the
Company, at the option of the holder, each share of Series C preferred stock
will be convertible into one share of Class A common stock or redeemable for
cash at par.
Effective September 1, 2000, we entered into a 100% coinsurance agreement to
reinsure our individual disability income business to an unaffiliated insurer.
At September 1, 2000, the related accident and health reserves totaled $43.6
million and deferred acquisition costs totaled $11.8 million. During the fourth
quarter of 2000, we settled this transaction by transferring cash and
investments equal to the reserves on this business at September 1, 2000. We
received $11.1 million in cash as consideration for the transaction. A loss of
$0.7 million on the transaction has been deferred and is being recognized over
the term of the underlying policies.
5. CREDIT ARRANGEMENTS
We have a note payable to the Federal Home Loan Bank (FHLB) totaling $40.0
million at September 30, 2000 and at December 31, 1999. The note is due
September 17, 2003, and interest on the note is charged at a variable rate equal
to the London Interbank Offered Rate less 0.0475% (6.57% at September 30, 2000
and 5.77% at December 31, 1999). Fixed maturity securities with a carrying value
of $42.3 million are on deposit with the FHLB as collateral for the note. As an
investor in the FHLB, we have the ability to borrow an additional $159.1 million
on
8
FBL Financial Group, Inc. September 30, 2000
the line of credit from the FHLB at September 30, 2000. Any additional borrowing
will require that additional collateral be deposited with the FHLB.
We have a $12.0 million line of credit with Farm Bureau Mutual Insurance Company
(Farm Bureau Mutual), an affiliate, in the form of a revolving demand note.
Borrowings on the note, which totaled $11.7 million at September 30, 2000 and
December 31, 1999, were used to acquire assets that are leased to certain
affiliates, including Farm Bureau Mutual. Interest is payable at a rate equal to
the prime rate of a national bank (9.50% at September 30, 2000 and 8.50% at
December 31, 1999). Rental income from the related leases includes a provision
for interest on the carrying value of the assets.
6. CONTINGENCIES
In the normal course of business, we may be involved in litigation where amounts
are alleged that are substantially in excess of contractual policy benefits or
certain other agreements. At September 30, 2000, management is not aware of any
claims for which a material loss is reasonably possible.
We seek to limit our exposure to loss on any single insured or event and to
recover a portion of benefits paid by ceding insurance to other insurance
enterprises. Reinsurance contracts do not relieve us of our obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, our insurance subsidiaries would be
liable for these obligations, and payment of these obligations could result in
losses. To limit the possibility of such losses, we evaluate the financial
condition of our reinsurers and monitor concentrations of credit risk. No
allowance for uncollectible amounts has been established against our asset for
reinsurance recoverable since all of our receivables are deemed to be
collectible.
In connection with an investment in a real estate limited partnership, we have
agreed to pay any cash flow deficiencies of a medium-sized shopping center owned
by the partnership through January 1, 2001. At September 30, 2000, we assessed
the probability and amount of future cash flows from the property and determined
that no accrual was necessary. At December 31, 1999, we recorded a reserve for
expected future cash flow deficiencies totaling $0.4 million. At September 30,
2000, the limited partnership had a $5.2 million mortgage loan, secured by the
shopping center, with Farm Bureau Mutual.
On March 31, 1998, we sold our wholly-owned subsidiary, Utah Farm Bureau
Insurance Company (Utah Insurance), to Farm Bureau Mutual. We may earn
additional consideration during each of the three years in the period ended
December 31, 2002 in accordance with an earn-out provision included in the
related sales agreement. Under the earn-out arrangement, the Company and Farm
Bureau Mutual share equally in the dollar amount by which the incurred losses on
Utah Insurance's direct business, net of reinsurance ceded, is less than the
incurred losses assumed in the valuation model used to derive the initial
acquisition price. The earn-out calculation is performed and any settlement
(subject to a maximum of $2.0 million per year) is made on a calendar year
basis. We have not accrued any contingent consideration for the three year
period ending December 31, 2002 as such amounts, if any, cannot be reasonably
estimated as of September 30, 2000. Receipts as a result of the earn-out
provision are recorded as an adjustment to the gain on the disposal of the
discontinued segment.
9
FBL Financial Group, Inc. September 30, 2000
7. EARNINGS PER SHARE
The following table sets forth the computation of earnings per common share and
earnings per common share - assuming dilution:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income ....................................... $ 1,881 $ 12,609 $ 29,680 $ 41,162
Dividends on Series B preferred stock ............ (38) (38) (113) (113)
------------- ------------- ------------- -------------
Numerator for earnings per common
share-income available to common
stockholders .............................. $ 1,843 $ 12,571 $ 29,567 $ 41,049
============= ============= ============= =============
Denominator:
Denominator for earnings per common share
- weighted-average shares ..................... 31,026,236 32,077,313 31,082,195 32,399,535
Effect of dilutive securities - employee stock
options ....................................... 376,333 621,745 401,808 639,962
------------- ------------- ------------- -------------
Denominator for diluted earnings per
common share - adjusted weighted-
average shares ............................ 31,402,569 32,699,058 31,484,003 33,039,497
============= ============= ============= =============
Earnings per common share ............................ $ 0.06 $ 0.39 $ 0.95 $ 1.27
============= ============= ============= =============
Earnings per common share - assuming dilution ........ $ 0.06 $ 0.38 $ 0.94 $ 1.24
============= ============= ============= =============
8. SEGMENT INFORMATION
In general, we are organized by the types of products and services we offer for
sale. Our principal and only reportable operating segment is our life insurance
segment. The life insurance segment includes activities related to the sale of
life insurance, annuities and accident and health insurance products. Operations
have been aggregated into the same segment due to the similarity of the
products, including the underlying economic characteristics, the method of
distribution and the regulatory environment. We also have several other
operating segments that do not meet the quantitative threshold for separate
segment reporting and, therefore, are aggregated herein. A summary of these
segments, along with the related source of revenues, is as follows:
SEGMENT SOURCE OF REVENUES
Investment advisory........... Fee income from the management of
investments
Marketing and distribution.... Commissions and distribution fee income
from the sale of mutual funds and
insurance products not issued by us
Leasing....................... Income from operating leases
Corporate..................... Fees from management and administrative
services
10
FBL Financial Group, Inc. September 30, 2000
Financial information concerning our operating segments is as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
Revenues from external customers:
Life insurance ....................... $ 77,095 $ 91,458 $ 263,060 $ 284,192
All other ............................ 11,370 9,830 36,307 29,128
------------- ------------- ------------- -------------
88,465 101,288 299,367 313,320
Eliminations ......................... (6,375) (5,081) (20,622) (14,832)
------------- ------------- ------------- -------------
Consolidated ......................... $ 82,090 $ 96,207 $ 278,745 $ 298,488
============= ============= ============= =============
Intersegment revenues:
Life insurance ....................... $ 540 $ 368 $ 1,567 $ 821
All other ............................ 5,835 4,713 19,055 14,011
------------- ------------- ------------- -------------
6,375 5,081 20,622 14,832
Eliminations ......................... (6,375) (5,081) (20,622) (14,832)
------------- ------------- ------------- -------------
Consolidated ......................... $ -- $ -- $ -- $ --
============= ============= ============= =============
Net income (loss):
Life insurance ....................... $ 1,581 $ 12,705 $ 28,131 $ 41,713
All other ............................ 300 (96) 1,549 (551)
------------- ------------- ------------- -------------
Consolidated ......................... $ 1,881 $ 12,609 $ 29,680 $ 41,162
============= ============= ============= =============
Transactions between segments are recorded at negotiated rates generally
intended to be at levels commensurate with charges that would be assessed to
unaffiliated parties. Our investment in equity method investees and the related
equity income are attributable to the life insurance segment.
9. SUBSEQUENT EVENTS
During the fourth quarter of 2000, we purchased 2,648,537 unregistered shares of
our Class A common stock from nineteen Farm Bureau-related entities for $20.00
per share, or $53.0 million. Included in the shares purchased were 2,151,429
shares owned by the Iowa Farm Bureau Federation, our majority stockholder, and
106,558 shares owned by three affiliated insurance companies managed by us. Also
during the fourth quarter, we purchased 1,101,461 shares of Class A common stock
for $20.00 per share, or $22.0 million, pursuant to a public tender offer
initiated on September 26, 2000. The purchase amounts and related transaction
costs will be allocated partly to Class A common stock based on the average
common stock balance per share on the acquisition dates with the remainder
allocated to retained earnings.
11
FBL Financial Group, Inc. September 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING SECTIONS INCLUDE A SUMMARY OF FBL FINANCIAL GROUP, INC.'S
CONSOLIDATED RESULTS OF OPERATIONS, FINANCIAL CONDITION AND WHERE APPROPRIATE,
FACTORS THAT MANAGEMENT BELIEVES MAY AFFECT FUTURE PERFORMANCE. PLEASE READ THIS
DISCUSSION IN CONJUNCTION WITH THE ACCOMPANYING CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. UNLESS NOTED OTHERWISE, ALL REFERENCES TO FBL
FINANCIAL GROUP, INC. (WE OR THE COMPANY) INCLUDE ALL OF ITS DIRECT AND INDIRECT
SUBSIDIARIES, INCLUDING ITS PRIMARY LIFE INSURANCE SUBSIDIARIES, FARM BUREAU
LIFE INSURANCE COMPANY (FARM BUREAU LIFE) AND EQUITRUST LIFE INSURANCE COMPANY
(EQUITRUST) (COLLECTIVELY, THE LIFE COMPANIES).
Revenues and net income are primarily derived from our life insurance segment.
Revenues and expenses of our other segments, which consist of investment
advisory, marketing and distribution, leasing and management operations, are
principally recorded in the other income and other expense line items on the
Consolidated Statements of Income. See Note 8 of the Notes to Consolidated
Financial Statements (pages 10 and 11) for additional information regarding
segment information.
Our acquisition of the assets and liabilities of Kansas Farm Bureau Life
Insurance Company, if completed, will impact our financial position and results
of operations. See "Pending Acquisition."
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1999
NET INCOME decreased 85.1% in the third quarter of 2000 to $1.9 million and
27.9% in the nine months ended September 30, 2000 to $29.7 million. The
decreases in net income are generally attributable to an increase in realized
losses on investments, due principally to writedowns for other-than-temporary
impairments in value. Adjusted operating income, which does not include the
impact of realized gains and losses on investments, decreased 10.5% in the third
quarter of 2000 to $11.3 million and increased 0.2% in the nine months ended
September 30, 2000 to $41.7 million. Adjusted operating income decreased for the
quarter due primarily to an increase in insurance expenses and a decrease in
equity income. Adjusted operating income increased during the nine months ended
September 30, 2000 due principally to an increase in equity income, partially
offset by a decrease in fee income from mortgage loan prepayments and bond calls
and an increase in interest sensitive life insurance and accident and health
benefits. The following is a reconciliation of net income to adjusted operating
income.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income ................................... $ 1,881 $ 12,609 $ 29,680 $ 41,162
Adjustment - net realized losses on
investments .............................. 9,424 23 11,998 413
-------------- -------------- -------------- --------------
Adjusted operating income .................... $ 11,305 $ 12,632 $ 41,678 $ 41,575
============== ============== ============== ==============
Earnings per common share - assuming
dilution ................................. $ 0.06 $ 0.38 $ 0.94 $ 1.24
============== ============== ============== ==============
Adjusted operating income per common
share - assuming dilution ................ $ 0.36 $ 0.39 $ 1.32 $ 1.25
============== ============== ============== ==============
The adjustment for realized gains and losses on investments noted in the table
above is net of adjustments for that portion of amortization of deferred policy
acquisition costs, unearned revenue reserve, value of insurance in force
acquired and income taxes attributable to such gains and losses.
The change in earnings per common share from period to period is positively
impacted by a decrease in the weighted average common shares outstanding during
the 21-month period ended September 30, 2000. Weighted average common shares
outstanding, assuming dilution, decreased 4.0% in the third quarter of 2000 to
31.4 million
12
FBL Financial Group, Inc. September 30, 2000
and 4.7% in the nine months ended September 30, 2000 to 31.5 million. These
decreases are primarily the result of acquisitions of common stock by the
Company.
Effective September 1, 2000, we entered into a 100% coinsurance agreement to
reinsure our individual disability income business to an unaffiliated insurer.
As a result, the Consolidated Statements of Income include the operating results
from our accident and health business only through August 31, 2000. A loss of
$0.7 million on the coinsurance transaction has been deferred and is being
recognized over the term of the underlying policies. Effective September 1,
2000, we began to offer, to our agents, a long-term disability income product
underwritten by one of our variable alliance partners. We do not share in the
risks, costs or profits of the new product, but earn a commission on new sales.
A summary of our premiums and product charges is as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
Premiums and product charges:
Interest sensitive product charges ........ $ 14,778 $ 13,835 $ 44,525 $ 41,208
Traditional life insurance premiums ....... 20,038 19,363 64,504 63,568
Accident and health premiums .............. 2,172 3,135 9,310 9,897
------------- ------------- ------------- -------------
Total .................................. $ 36,988 $ 36,333 $ 118,339 $ 114,673
============= ============= ============= =============
INTEREST SENSITIVE PRODUCT CHARGES increased 6.8% in the third quarter of 2000
to $14.8 million and 8.0% in the nine months ended September 30, 2000 to $44.5
million. These increases are due primarily to increased cost of insurance
charges resulting from an increase in the volume and age of business in force.
In addition, mortality and expense charges have increased as a result of growth
in variable product account balances.
TRADITIONAL LIFE INSURANCE PREMIUMS increased 3.5% in the third quarter of 2000
to $20.0 million and 1.5% in the nine months ended September 30, 2000 to $64.5
million. Management believes the modest increase in the sale of traditional life
insurance products is the result of a marketing emphasis placed on the sale of
variable universal life insurance contracts. Premiums collected on variable
universal life insurance products increased 19.3% to $36.9 million in the nine
months ended September 30, 2000.
ACCIDENT AND HEALTH PREMIUMS decreased 30.7% in the third quarter of 2000 to
$2.2 million and 5.9% in the nine months ended September 30, 2000 to $9.3
million. These decreases are the result of our exit from the individual
disability income business effective September 1, 2000.
NET INVESTMENT INCOME, which excludes investment income on separate account
assets relating to variable products, increased 1.3% in the third quarter of
2000 to $55.6 million and decreased 2.4% in the nine months ended September 30,
2000 to $165.6 million. The annualized yield earned on average invested assets
decreased to 7.39% in the nine months ended September 30, 2000 period compared
to 7.69% in the respective 1999 period due principally to a decrease in fee
income from mortgage loan prepayments and bond calls. Fee income from mortgage
loan prepayments and bond calls was less than $0.1 million in the quarter and
nine months ended September 30, 2000. Revenue from these sources totaled $0.2
million in the third quarter of 1999 and $4.7 million in the nine-months ended
September 30, 1999. In addition, we recorded $1.7 million in interest income
during the second quarter of 1999 relating to settlement of a fixed maturity
security that had been in default. We had discontinued the accrual of interest
on this security during 1996. For the nine months ended September 30, 2000, the
impact of the decline in annualized yield was partially offset by a 1.5%
increase in average invested assets to $3,015.1 million (based on assets
excluding the impact of recording certain fixed maturity securities at market
value).
REALIZED LOSSES ON INVESTMENTS increased in the third quarter of 2000 to $15.4
million and increased to $19.6 million for the nine months ended September 30,
2000. Realized losses include writedowns of investments that became
other-than-temporarily impaired totaling $14.9 million in the third quarter of
2000 and $1.1 million in the respective 1999 period. For the nine-month periods,
impairment losses totaled $20.4 million in 2000 and $3.9 million in 1999. These
writedowns are the result of sustained operating losses, defaults on loan
payments,
13
FBL Financial Group, Inc. September 30, 2000
declarations of bankruptcy and various other operational or economic factors
that became evident in the respective periods. Approximately $9.1 million of the
impairment losses taken during the third quarter of 2000 were from four
securities that were of investment grade when acquired. The level of realized
gains and losses is subject to fluctuation from period to period depending on
the prevailing interest rate and economic environment and the timing of the sale
of investments.
OTHER INCOME decreased 3.9% in the third quarter of 2000 to $4.9 million and
3.9% in the nine months ended September 30, 2000 to $14.3 million. For the
nine-month period, the decrease is primarily due to a decrease in the level of
leasing and investment advisory services provided to affiliates and third
parties.
A summary of our policy benefits is as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
Policy benefits:
Interest sensitive product benefits .............. $ 32,963 $ 31,160 $ 96,938 $ 91,380
Traditional life insurance and accident and
health benefits ............................... 15,056 15,049 47,584 44,844
Increase in traditional and accident and health
future policy benefits ........................ 2,781 4,191 14,871 14,420
Distributions to participating policyholders ..... 6,045 5,827 18,696 19,039
------------- ------------- ------------- -------------
Total ......................................... $ 56,845 $ 56,227 $ 178,089 $ 169,683
============= ============= ============= =============
INTEREST SENSITIVE PRODUCT BENEFITS increased 5.8% in the third quarter of 2000
to $33.0 million and 6.1% in the nine months ended September 30, 2000 to $96.9
million. The components of interest sensitive product benefits, along with
selected average interest crediting rates, are as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
Interest credited to account balances ............... $ 26,297 $ 26,074 $ 78,566 $ 77,878
Death benefits in excess of related account
balances ......................................... 6,666 5,086 18,372 13,502
Weighted average contractual crediting rates:
Universal life liabilities ....................... 6.01% 6.01% 6.01% 6.01%
Annuity liabilities .............................. 5.76% 5.68% 5.71% 5.68%
The average crediting rate on our product portfolio has been relatively
consistent over the 21-month period ended September 30, 2000. We did increase
the crediting rate on our flexible premium deferred annuity product 0.25%
effective September 1, 2000. Interest sensitive death benefits can tend to
fluctuate from period to period as a result of mortality experience.
TRADITIONAL LIFE INSURANCE AND ACCIDENT AND HEALTH BENEFITS, INCLUDING THE
RELATED CHANGES IN RESERVES, decreased 7.3% in the third quarter of 2000 to
$17.8 million and increased 5.4% in the nine months ended September 30, 2000 to
$62.5 million. Traditional life insurance benefits, including the related change
in reserves, decreased 10.8% in third quarter of 2000 to $15.6 million and 4.3%
in nine-month period of 2000 to $53.3 million. Accident and health benefits,
including the related change in reserves, increased 155.6% in nine-month period
of 2000 to $9.2 million. Traditional life insurance and accident and health
benefits can tend to fluctuate from period to period as a result of changes in
mortality and morbidity experience. As stated above, effective September 1,
2000, all individual disability income benefits are ceded to a third party.
14
FBL Financial Group, Inc. September 30, 2000
DISTRIBUTIONS TO PARTICIPATING POLICYHOLDERS increased 3.7% in the third quarter
of 2000 to $6.0 million and decreased 1.8% in the nine months ended September
30, 2000 to $18.7 million. The increase in the third quarter of 2000 is due to
the impact of a dividend rate decrease recorded during the third quarter of
1999. The average interest rate used in the dividend formula for these policies
was 5.72% at September 30, 2000 and September 30, 1999.
A summary of the our underwriting, acquisition and insurance expenses is as
follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS)
Underwriting, acquisition and insurance expenses:
Commission expense, net of deferrals ............... $ 2,396 $ 2,411 $ 7,776 $ 7,481
Amortization of deferred policy acquisition costs .. 2,236 3,213 8,073 9,251
Other underwriting, acquisition and insurance
expenses, net of deferrals ...................... 13,208 11,118 39,052 36,852
------------- ------------- ------------- -------------
Total ........................................... $ 17,840 $ 16,742 $ 54,901 $ 53,584
============= ============= ============= =============
COMMISSION EXPENSE decreased 0.6% in the third quarter of 2000 to $2.4 million
and increased 3.9% in the nine months ended September 30, 2000 to $7.8 million.
Commission expense increased in the nine-month period due principally to an
increase in direct life insurance premiums collected.
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS decreased 30.4% in the third
quarter of 2000 to $2.2 million and 12.7% in the nine months ended September 30,
2000 to $8.1 million. Amortization decreased during the third quarter and
nine-months ended September 30, 2000 due principally to the impact of realized
gains and losses on investments backing the related policyholder liabilities.
OTHER UNDERWRITING, ACQUISITION AND INSURANCE EXPENSES increased 18.8% in the
third quarter of 2000 to $13.2 million and increased 6.0% in the nine months
ended September 30, 2000 to $39.1 million. Salaries, benefits and other
operating expenses increased in the nine-month period of 2000 primarily due to
increased operating expenses associated with administering our variable product
business and developing variable product alliances. In addition, other
information system expenses, agent training and retirement benefit costs
increased in the nine-month period of 2000 compared to the respective 1999
period. These increases were partially offset by a $1.3 million restructuring
charge incurred in 1999, consisting of $1.6 million in the second quarter and
$(0.3) million in the third quarter, relating to the closing of an
administrative service center. Furthermore, there was a $0.7 million decrease
associated with preparing our computer systems for the Year 2000 date
conversion.
INTEREST EXPENSE increased 41.4% in the third quarter of 2000 to $1.0 million
and 57.0% in the nine months ended September 30, 2000 to $2.7 million due
primarily to an increase in the average debt outstanding.
OTHER EXPENSES increased 1.0% in the third quarter of 2000 to $3.7 million and
decreased 5.1% in the nine months ended September 30, 2000 to $10.8 million. The
decrease for the nine-month period is due principally to a decrease in the level
of leasing and investment advisory services provided to affiliates and third
parties.
INCOME TAXES decreased 95.3% in the third quarter of 2000 to $0.3 million and
52.8% in the nine months ended September 30, 2000 to $9.6 million. The effective
tax rate for the nine months ended September 30, 2000 was 29.7% compared to
32.6% for the respective period in 1999. The effective tax rate was lower than
the federal statutory rate of 35% due primarily to the tax benefit associated
with the payment of dividends on mandatorily redeemable preferred stock of
subsidiary trust, tax-exempt interest and tax-exempt dividend income. The impact
of these permanent differences, which are relatively consistent from period to
period, on the effective tax rate is more significant in the 2000 periods due to
the decreases in pre-tax income.
EQUITY INCOME, NET OF RELATED INCOME TAXES, decreased 49.2% in the third quarter
of 2000 to $0.6 million and increased 252.8% in the nine months ended September
30, 2000 to $10.6 million. Equity income includes our proportionate share of
gains and losses attributable to our ownership interest in partnerships, joint
ventures and certain companies where we exhibit some control but have a minority
ownership interest. Given the timing of
15
FBL Financial Group, Inc. September 30, 2000
availability of financial information from these entities, we will consistently
use information that is as much as three months in arrears for certain of these
entities. Several of these entities are venture capital investment companies,
whose operating results are derived primarily from unrealized and realized gains
and losses generated by their investment portfolios. The income in the
nine-month period of 2000 is primarily driven by unrealized appreciation on two
internet-related equity securities owned by two of these venture capital
investment companies. A substantial portion of the positions held by the equity
investees in these two entities was distributed to us and subsequently sold
during the second quarter of 2000. As is normal with these types of entities,
the level of these gains and losses is subject to fluctuation from period to
period depending on the prevailing economic environment, changes in prices of
equity securities held by the investment partnerships, timing and success of
initial public offerings and other exit strategies, and the timing of the sale
of investments held by the partnerships and joint ventures.
SUBSEQUENT EVENTS - SHARE REPURCHASES AND TENDER OFFER
During the fourth quarter of 2000, we purchased 2,648,537 unregistered shares of
our Class A common stock from nineteen Farm Bureau-related entities for $20.00
per share, or $53.0 million. Also during the fourth quarter, we purchased
1,101,461 shares of Class A common stock for $20.00 per share, or $22.0 million,
pursuant to a public tender offer initiated on September 26, 2000.
PENDING ACQUISITION
During September 2000, our board of directors approved a definitive agreement to
acquire the assets and liabilities of Kansas Farm Bureau Life Insurance Company
(Kansas Farm Bureau Life). As consideration for the purchase, we will issue
3,411,000 shares of Series C cumulative voting mandatorily redeemable preferred
stock with an estimated fair value of $80.0 million. The acquisition, which is
subject to regulatory approval, will be accounted for as a purchase. The
transaction is expected to close during the first quarter of 2001.
Kansas Farm Bureau Life sells traditional life insurance and annuity products to
its target market of 125,000 Farm Bureau member families in the state of Kansas.
Kansas Farm Bureau Life also markets variable products through an alliance with
us.
Each share of Series C preferred stock will have a par value of $25.8425 and
voting rights identical to that of Class A common stock. We will pay dividends
on the Series C preferred stock quarterly at a rate equal to the greater of
$0.10 per preferred share or the common stock dividend per share then payable.
The mandatory redemption is structured so that 49.9% of the Series C preferred
stock will be redeemed at par value, or $44.0 million, one year following
issuance with the remaining 50.1% redeemed at par value, or $44.1 million, five
years following issuance. In the event of a change in the control of the
Company, at the option of the holder, each share of Series C preferred stock
will be convertible into one share of Class A common stock or redeemable for
cash at par.
16
FBL Financial Group, Inc. September 30, 2000
FINANCIAL CONDITION
INVESTMENTS
Our total investment portfolio decreased 0.4% to $2,937.9 million at September
30, 2000 compared to $2,950.2 million at December 31, 1999. This decrease is
primarily the result of net cash outflows on interest sensitive and variable
products, an increase in writedowns on other-than-temporarily impaired
securities and the acquisition of our common stock, partially offset by positive
cash flow from operations.
Over the last several years, the mix of our life insurance business has been
shifting from traditional and interest sensitive products to variable products.
In addition, we have an exchange program for the rollover of universal life
policies to variable universal life policies. We expect the shift to variable
products to continue due to this program and the continued popularity of the
variable products. A majority of premiums received on variable products are
typically invested in our separate accounts as opposed to the general account
investments. This trend is expected to impact the future growth rate of our
investment portfolio and separate account assets.
Internal investment professionals manage our investment portfolio. The
investment strategy is designed to achieve superior risk-adjusted returns
consistent with the investment philosophy of maintaining a largely investment
grade portfolio and providing adequate liquidity for obligations to
policyholders and other requirements. We continually review the returns on
invested assets and change the mix of invested assets as deemed prudent under
the current market environment to help maximize current income.
Our investment portfolio is summarized in the table below:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------- -------------------------------
CARRYING VALUE PERCENT CARRYING VALUE PERCENT
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Fixed maturities:
Public ........................... $ 1,758,392 59.9% $ 1,733,678 58.8%
144A private placement ........... 390,251 13.3 429,269 14.6
Private placement ................ 171,796 5.8 178,445 6.0
-------------- --------------- -------------- ---------------
Total fixed maturities ........... 2,320,439 79.0 2,341,392 79.4
Equity securities .................. 33,606 1.1 35,345 1.2
Mortgage loans on real estate ...... 324,794 11.1 314,523 10.7
Investment real estate:
Acquired for debt ................ 3,343 0.1 783 --
Investment ....................... 18,735 0.6 19,336 0.6
Policy loans ....................... 125,176 4.3 123,717 4.2
Other long-term investments ........ 4,628 0.2 8,575 0.3
Short-term investments ............. 107,227 3.6 106,529 3.6
-------------- --------------- -------------- ---------------
Total investments ............. $ 2,937,948 100.0% $ 2,950,200 100.0%
============== =============== ============== ===============
As of September 30, 2000, 93.9% (based on carrying value) of the fixed maturity
securities were investment grade debt securities, defined as being in the
highest two National Association of Insurance Commissioners (NAIC) designations.
Non-investment grade debt securities generally provide higher yields and involve
greater risks than investment grade debt securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities is usually more limited than for investment grade debt
securities. We regularly review the percentage of our portfolio which is
invested in non-investment grade debt securities (NAIC designations 3 through
6). As of September 30, 2000, the investment in non-investment grade debt was
6.1% of fixed maturity securities. At that time no single non-investment grade
holding exceeded 0.3% of total investments.
The following table sets forth the credit quality, by NAIC designation and
Standard & Poors (S & P) rating equivalents, of fixed maturity securities:
17
FBL Financial Group, Inc. September 30, 2000
FIXED MATURITY SECURITIES BY NAIC DESIGNATION
SEPTEMBER 30, 2000
------------------------------
NAIC DESIGNATION EQUIVALENT S&P RATINGS (1) CARRYING VALUE PERCENT
- ----------------------- ----------------------------------------------- -------------- -------------
(DOLLARS IN THOUSANDS)
1 (AAA, AA, A).................................. $ 1,420,749 61.2%
2 (BBB)......................................... 757,486 32.7
-------------- -------------
Total investment grade........................ 2,178,235 93.9
3 (BB).......................................... 107,083 4.6
4 (B)........................................... 28,606 1.2
5 (CCC, CC, C).................................. 3,437 0.2
6 In or near default............................ 3,078 0.1
-------------- -------------
Total below investment grade.................. 142,204 6.1
-------------- -------------
Total fixed maturities........................ $ 2,320,439 100.0%
============== =============
- -----------
(1) Private placement securities are generally rated by the Securities
Valuation Office of the NAIC. Comparisons between NAIC designations and
S & P ratings are published by the NAIC. S & P has not rated some of
the fixed maturity securities in our portfolio.
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at September 30, 2000:
HELD FOR INVESTMENT
------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Fixed maturities - mortgage-backed
securities ............................. $ 296,377 $ 3,066 $ (2,817) $ 296,626
============== ============== ============== ==============
AVAILABLE FOR SALE
------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Bonds:
United States Government and agencies .. $ 68,837 $ 384 $ (612) $ 68,609
State, municipal and other governments . 60,023 568 (642) 59,949
Public utilities ....................... 131,270 2,358 (2,554) 131,074
Corporate securities ................... 1,028,451 13,975 (55,394) 987,032
Mortgage and asset-backed securities ... 755,904 3,481 (18,721) 740,664
Redeemable preferred stocks ................ 39,478 754 (3,498) 36,734
-------------- -------------- -------------- --------------
Total fixed maturities ..................... $ 2,083,963 $ 21,520 $ (81,421) $ 2,024,062
============== ============== ============== ==============
Equity securities .......................... $ 36,200 $ 306 $ (2,900) $ 33,606
============== ============== ============== ==============
18
FBL Financial Group, Inc. September 30, 2000
The carrying value and estimated market value of our portfolio of fixed maturity
securities at September 30, 2000, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------------- -------------------------------
ESTIMATED ESTIMATED
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
Due in one year or less ................. $ -- $ -- $ 31,055 $ 31,009
Due after one year through five years ... -- -- 249,565 244,409
Due after five years through ten years .. -- -- 407,322 397,676
Due after ten years ..................... -- -- 600,639 573,570
-------------- -------------- -------------- --------------
-- -- 1,288,581 1,246,664
Mortgage and asset-backed securities .... 296,377 296,626 755,904 740,664
Redeemable preferred stocks ............. -- -- 39,478 36,734
-------------- -------------- -------------- --------------
$ 296,377 $ 296,626 $ 2,083,963 $ 2,024,062
============== ============== ============== ==============
Mortgage and other asset-backed securities constitute a significant portion of
our portfolio of securities. These securities are purchased at times when, we
believe, these types of investments provide superior risk-adjusted returns
compared to returns of more conventional investments such as corporate bonds and
mortgage loans. These securities are diversified as to collateral types, cash
flow characteristics and maturity.
The return of principal on mortgage and other asset-backed securities occurs
more frequently and is more variable than that of more traditional fixed
maturity securities. The principal prepayment speeds (e.g., the rate of
individuals refinancing their home mortgages) can vary based on a number of
economic factors that can not be predicted with certainty. These factors include
the prevailing interest rate environment and general status of the economy.
Deviations in actual prepayment speeds from that originally expected can cause a
change in the yield earned on mortgage and asset-backed securities purchased at
a premium or discount. Increases in prepayment speeds, which typically occur in
a decreasing interest rate environment, generally increase the rate at which
discount is accrued and premium is amortized into income. Decreases in
prepayment speeds, which typically occur in an increasing interest rate
environment, generally slow down the rate these amounts are recorded into
income.
The mortgage-backed portfolio includes pass-through and collateralized mortgage
obligation (CMO) securities. With a pass-through security, we receive a pro rata
share of principal payments as payments are made on the underlying mortgage
loans. CMOs consist of pools of mortgages divided into sections or "tranches"
which provide sequential retirement of the bonds. We invest in sequential
tranches, which provide cash flow stability in that principal payments do not
occur until the previous tranches are paid off. In addition, to provide call
protection and more stable average lives, we invest in CMOs such as planned
amortization class (PAC) and targeted amortization class (TAC) securities. CMOs
of these types provide more predictable cash flows within a range of prepayment
speeds by shifting the prepayment risks to support tranches. We do not purchase
certain types of collateralized mortgage obligations that we believe would
subject the investment portfolio to greater than average risk. These include,
but are not limited to, interest only, principal only, floater, inverse floater,
PAC II, Z and support tranches.
19
FBL Financial Group, Inc. September 30, 2000
The following table sets forth the amortized cost, par value and carrying value
of our mortgage and asset-backed securities at September 30, 2000, summarized by
type of security.
PERCENT OF
AMORTIZED CARRYING FIXED
COST PAR VALUE VALUE MATURITIES
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Residential mortgage-backed securities:
Sequential ................................... $ 394,830 $ 399,371 $ 394,197 16.9%
Pass through ................................. 68,401 67,978 66,303 2.9
Planned and targeted amortization class ...... 38,326 38,456 38,307 1.7
Other ........................................ 11,275 11,529 11,271 0.5
------------ ------------ ------------ -------------
Total residential mortgage-backed securities .... 512,832 517,334 510,078 22.0
Commercial mortgage-backed securities ........... 210,263 209,280 201,971 8.7
Other asset-backed securities ................... 329,186 330,843 324,992 14.0
------------ ------------ ------------ -------------
Total mortgage and asset-backed securities ...... $ 1,052,281 $ 1,057,457 $ 1,037,041 44.7%
============ ============ ============ =============
The commercial and other asset-backed securities are primarily sequential
securities. Commercial mortgage-backed securities typically have cash flows that
are less sensitive to interest rate changes than residential securities of
similar types due principally to prepayment restrictions on many of the
underlying commercial mortgage loans. Other asset-backed securities are
principally mortgage related (manufactured housing and home equity loans) which
historically have also demonstrated relatively less cash flow volatility than
residential securities of similar types.
At September 30, 2000, we held $324.8 million or 11.1% of invested assets in
mortgage loans. These mortgage loans are diversified as to property type,
location and loan size, and are collateralized by the related properties. At
September 30, 2000, mortgages more than 60 days delinquent accounted for 0.1% of
the carrying value of the mortgage portfolio. Our mortgage lending policies
establish limits on the amount that can be loaned to one borrower and require
diversification by geographic location and collateral type. Regions with the
largest concentration of our mortgage loan portfolio at September 30, 2000
include: Pacific (30%) which includes California; and West South Central (23%)
which includes Oklahoma and Texas. Mortgage loans on real estate are also
diversified by collateral types with office buildings (46%) and retail
facilities (33%) representing the largest holdings at September 30, 2000.
Our asset-liability management program includes (i) designing and developing
products which encourage persistency and, as a result, create a stable liability
structure; and (ii) structuring the investment portfolio with duration and cash
flow characteristics consistent with the duration and cash flow characteristics
of our insurance liabilities. At September 30, 2000, the weighted average life
of the fixed maturity portfolio, based on market values and excluding
convertible bonds, was approximately 8.2 years. Based on our utilization of the
fixed income analytical system, including our mortgage backed prepayment
assumptions, the effective duration of the fixed income portfolio was 4.4 as of
September 30, 2000.
OTHER ASSETS
Securities and indebtedness of related parties decreased 21.8% to $47.9 million
at September 30, 2000 due primarily to unrealized depreciation on fixed maturity
securities owned by an equity investee. The impact of equity income on the
securities and indebtedness balance during 2000 was offset by the impact of
distributions from the equity investees. Reinsurance recoverable increased
892.0% to $47.7 million at September 30, 2000 due principally to the reinsurance
of our individual disability income business. Deferred policy acquisition costs
increased 4.6% in the 2000 period to $247.2 million. This increase is due to the
capitalization of costs incurred with new sales, partially offset by
amortization and an $11.8 million decrease resulting from the reinsurance of our
individual disability income business. Assets held in separate accounts
increased 26.2%, to $323.0 million at September 30, 2000 due primarily to net
transfers to the separate accounts resulting from sales of our variable
products. At September 30, 2000, we had total assets of $3,749.1 million, a 2.4%
increase from total assets at December 31, 1999.
20
FBL Financial Group, Inc. September 30, 2000
LIABILITIES
Policy liabilities and accruals decreased 0.7% to $2,400.1 million at September
30, 2000. The slight decrease in policy liabilities is partially attributable to
our marketing emphasis on the sale of variable products. As noted under the
"Investments" section above, the shift in sales to variable products will have
an impact on the future growth rate of our policy liabilities and accruals as
well as the separate account liabilities. In addition, future policy benefit
reserves on interest sensitive products decreased due to an increase in
surrender benefits during the nine months ended September 30, 2000. Other
liabilities increased due principally to a $32.6 million payable to a reinsurer
resulting from the reinsurance of our individual disability income business.
This transaction settled during the fourth quarter of 2000. At September 30,
2000, we had total liabilities of $3,132.9 million, a 2.4% increase from total
liabilities at December 31, 1999.
STOCKHOLDERS' EQUITY
Stockholders' equity increased 2.8% to $519.1 million at September 30, 2000,
compared to $505.0 million at December 31, 1999. This increase is principally
attributable to net income offset, in part, by stock repurchases and dividends
paid. During the fourth quarter of 2000, stockholders' equity will be impacted
by the purchase of 3,749,998 shares of Class A common stock for $75.0 million.
See "Subsequent Events - Share Repurchases and Tender Offer."
At September 30, 2000, common stockholders' equity was $516.1 million, or $16.63
per share, compared to $502.0 million, or $15.94 per share at December 31, 1999.
Included in stockholders' equity per common share is ($1.49) at September 30,
2000 and ($1.52) at December 31, 1999 attributable to net unrealized investment
losses resulting from marking our fixed maturity securities classified as
available for sale to market value. The change in unrealized appreciation of
fixed maturity and equity securities classified as available for sale increased
stockholders' equity $2.0 million during the nine months ended September 30,
2000, after related adjustments to deferred policy acquisition costs, value of
insurance in force acquired, unearned revenue reserve and deferred income taxes.
LIQUIDITY
FBL FINANCIAL GROUP, INC.
Parent company cash inflows from operations consist primarily of (i) dividends
from subsidiaries, if declared and paid, (ii) fees that it charges the various
subsidiaries and affiliates for management of their operations, (iii) expense
reimbursements from subsidiaries and (iv) tax settlements between the parent
company and its subsidiaries. Cash outflows are principally for salaries and
other expenses related to providing these management services, dividends on
outstanding stock and interest on parent company debt issued to a subsidiary. In
addition, the parent company will on occasion enter into capital transactions
such as the acquisition of our common stock.
We may receive consideration during each of the three years in the period ending
December 31, 2003 in accordance with an earn-out provision related to our sale
in 1998 of Utah Farm Bureau Insurance Company (Utah Insurance) to Farm Bureau
Mutual Insurance Company (Farm Bureau Mutual). Under the earn-out arrangement,
we and Farm Bureau Mutual share equally in the dollar amount by which the
incurred losses on Utah Insurance's direct business, net of reinsurance ceded,
is less than the incurred losses assumed in the valuation model used to derive
the initial acquisition price. The earn-out calculation is performed and any
settlement (subject to a maximum of $2.0 million per year) is made on a calendar
year basis. Earn-out settlements received, on a pre-tax basis, totaled $2.0
million in the nine months ended September 30, 2000 and $1.2 million in the
respective period of 1999.
During the nine months ended September 30, 2000, we repurchased 608,379 shares
of Class A common stock for $10.5 million. The repurchases were made in
accordance with a $25.0 million stock repurchase plan approved by our Board of
Directors on December 20, 1999. During the fourth quarter of 2000, we purchased
3,749,998 Class A common stock for $75.0 million.
During the nine months ended September 30, 2000, we paid common and preferred
stock dividends totaling $8.5 million. We also paid common and preferred stock
dividends totaling $8.1 million during the corresponding 1999
21
FBL Financial Group, Inc. September 30, 2000
period. It is anticipated dividend requirements for the remainder of 2000 will
be $0.09 per common share and $0.0075 per preferred share, or approximately $2.5
million. In addition, interest payments on the parent company debt issued to a
subsidiary are estimated to be $1.3 million for the remainder of 2000.
FBL Financial Group, Inc. expects to rely on available cash resources, dividends
from Farm Bureau Life and short-term borrowings, if needed, to make any dividend
payments to its stockholders and interest payments on its Notes. In addition, we
expect to use these sources to fund the dividends on and redemption of the
Series C preferred stock to be issued in connection with the acquisition of
Kansas Farm Bureau Life.
The ability of Farm Bureau Life to pay dividends to FBL Financial Group, Inc. is
limited by law to earned profits (statutory unassigned surplus) as of the date
the dividend is paid, as determined in accordance with accounting practices
prescribed by insurance regulatory authorities of the State of Iowa. In
addition, under the Iowa Insurance Holding Company Act, Farm Bureau Life may not
pay an "extraordinary" dividend without prior notice to and approval by the Iowa
insurance commissioner. An "extraordinary" dividend is defined under the Iowa
Insurance Holding Company Act as any dividend or distribution of cash or other
property whose fair market value, together with that of other dividends or
distributions made within the preceding 12 months, exceeds the greater of (i)
10% of policyholders' surplus (total statutory capital stock and statutory
surplus) as of December 31 of the preceding year, or (ii) the statutory net gain
from operations of the insurer for the 12-month period ending December 31 of the
preceding year.
During the remainder of 2000, the maximum amount legally available for
distribution to FBL Financial Group, Inc. without further regulatory approval is
approximately $8.6 million. This takes into account a $32.0 million dividend
paid by Farm Bureau Life during October 2000 to assist with the funding of the
$75.0 million stock repurchases and to provide funds for future dividend and
interest payments. The balance of the $75.0 million stock repurchases was funded
with cash and investments already at the holding company level. As of November
2, 2000, subsequent to the payment of the stock repurchases, FBL Financial
Group, Inc. has cash and investments totaling approximately $21.9 million.
We may from time to time review potential acquisition opportunities. It is
anticipated that funding for any such acquisition would be provided from
available cash resources, debt or equity financing. As of September 30, 2000, we
had no material commitments for capital expenditures other than for the assets
and liabilities of Kansas Farm Bureau Life.
INSURANCE OPERATIONS
The Life Companies' cash inflows consist primarily of premium income, deposits
to policyholder account balances, product charges on variable products, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. The Life Companies' cash outflows are primarily related to
withdrawals of policyholder account balances, investment purchases, payment of
policy acquisition costs, policyholder benefits, income taxes, dividends and
current operating expenses. The Life Companies' liquidity positions continued to
be favorable in the nine-month period ended September 30, 2000, with cash
inflows at levels sufficient to provide the funds necessary to meet their
obligations.
During the nine-month period ended September 30, 2000, the Life Companies
experienced net cash outflows of $4.8 million from continuing operations and
financing activities related to interest sensitive products. The net cash
outflow is primarily a result of increased surrender benefits on interest
sensitive products and rollovers from traditional products to variable products.
This cash outflow was funded with available cash and cash provided from
investing activities. During the nine-month period ended September 30, 1999, the
Life Companies had net cash inflows from continuing operations and financing
activities related to interest sensitive products of $60.5 million. During 1999,
these funds were primarily invested in fixed maturity securities. In developing
their investment strategy, the Life Companies establish a level of cash and
securities which, combined with expected net cash inflows from operations,
maturities of fixed maturity investments and principal payments on mortgage and
asset-backed securities and mortgage loans, are believed adequate to meet
anticipated short-term and long-term benefit and expense payment obligations.
22
FBL Financial Group, Inc. September 30, 2000
Through its membership in the Federal Home Loan Bank of Des Moines (FHLB), Farm
Bureau Life is eligible to establish and borrow on a collateralized line of
credit to provide it additional liquidity. The line of credit available is based
on the amount of capital stock of the FHLB owned by Farm Bureau Life, which
supported a collateralized borrowing capacity of $199.1 million as of September
30, 2000. At September 30, 2000, Farm Bureau Life had outstanding borrowings of
$40.0 million under this arrangement, leaving a collateralized borrowing
capacity of $159.1 million. The outstanding debt is due September 17, 2003, and
interest on the debt is charged at a variable rate equal to the London Interbank
Offered Rate less 0.0475% (6.57% at September 30, 2000). Fixed maturity
securities with a carrying value of $42.3 million are on deposit with the FHLB
as collateral for the note.
We also have a $12.0 million line of credit with Farm Bureau Mutual in the form
of a revolving demand note. Borrowings on the note, which totaled $11.7 million
at September 30, 2000, were used to acquire assets that are leased to certain
affiliates, including Farm Bureau Mutual. Interest is payable at a rate equal to
the prime rate of a national bank (9.50% at September 30, 2000).
We anticipate that funds to meet our short-term and long-term capital
expenditures, cash dividends to stockholders and operating cash needs will come
from existing capital and internally generated funds. We believe that the
current level of cash and available-for-sale and short-term securities, combined
with expected net cash inflows from operations, maturities of fixed maturity
investments, principal payments on mortgage and asset-backed securities,
mortgage loans and its insurance products, are adequate to meet our anticipated
cash obligations for the foreseeable future. Our investment portfolio at
September 30, 2000, included $107.2 million of short-term investments and $279.6
million in carrying value of U.S. Government and U.S. Government agency backed
securities that could be readily converted to cash at or near carrying value.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
From time to time, we may publish statements relating to anticipated financial
performance, business prospects, new products, and similar matters. These
statements and others which include words such as "expect", "anticipate",
"believe", "intend", and other similar expressions, constitute forward-looking
statements under the Private Securities Litigation Reform Act of 1995. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
these types of statements. In order to comply with the terms of the safe harbor,
please note that a variety of factors could cause our actual results and
experiences to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of our business include but are not limited to the following:
* Changes to interest rate levels and stock market performance may impact
our lapse rates, market value of our investment portfolio and our
ability to sell life insurance products, notwithstanding product
features to mitigate the financial impact of such changes.
* The degree to which our products are accepted by customers and agents
(including the agents of our alliance partners) will impact our future
growth rate.
* Extraordinary acts of nature or man may result in higher than expected
claim activity.
* Changes in federal and state income tax laws and regulations may affect
the relative tax advantage of our products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There have been no material changes in the market risks of our financial
instruments since December 31, 1999.
23
FBL Financial Group, Inc. September 30, 2000
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30, 2000:
On September 26, 2000 a Form 8-K was filed in connection with the
announcement of our pending acquisition of the assets and liabilities of
Kansas Farm Bureau Life Insurance Company.
24
FBL Financial Group, Inc. September 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 3, 2000
FBL FINANCIAL GROUP, INC.
By /s/ William J. Oddy
--------------------------------------------
William J. Oddy
Chief Executive Officer (Principal Executive
Officer)
By /s/ James W. Noyce
--------------------------------------------
James W. Noyce
Chief Financial Officer (Principal Financial
and Accounting Officer)
25