-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O6Br3mxMNRjYC7Sv6WCj93Kdr17YIqjEbWyct2nhPna+BTbtnYreE5tPGG2UE5u0 k4/3felFWy0DjeBzWzBpmA== 0000898430-97-003356.txt : 19970814 0000898430-97-003356.hdr.sgml : 19970814 ACCESSION NUMBER: 0000898430-97-003356 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY GENERAL CORP CENTRAL INDEX KEY: 0000064996 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952211612 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12257 FILM NUMBER: 97658249 BUSINESS ADDRESS: STREET 1: 4484 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2139371060 MAIL ADDRESS: STREET 1: LOS ANGELES 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1997 Commission File No. 0-3681 MERCURY GENERAL CORPORATION (Exact name of registrant as specified in its charter) California 95-221-1612 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4484 Wilshire Boulevard, Los Angeles, California 90010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 937-1060 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- At August 8, 1997, the Registrant had issued and outstanding an aggregate of 27,546,075 shares of its Common Stock. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS
June 30, December 31, 1997 1996 ---- ---- A S S E T S Investments: Fixed maturities available for sale (amortized cost $1,036,794 in 1997 and $924,793 in 1996).......................... $1,074,764 $ 954,108 Equity securities available for sale (cost $160,821 in 1997 and $148,264 in 1996)..................................... 160,462 148,112 Short-term cash investments, at cost, which approxi- mates market...................................................... 46,937 66,067 ---------- ---------- Total investments................................................ 1,282,163 1,168,287 Cash................................................................ 5,771 3,605 Receivables: Premiums receivable................................................ 98,021 83,748 Premium notes...................................................... 13,832 12,395 Accrued investment income.......................................... 20,354 18,410 Other.............................................................. 30,317 29,655 ---------- ---------- 162,524 144,208 Deferred policy acquisition costs................................... 52,792 46,783 Fixed assets, net................................................... 30,795 30,060 Other assets........................................................ 22,544 26,984 ---------- ---------- $1,556,589 $1,419,927 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses................................. $ 377,759 $ 336,685 Unearned premiums................................................... 290,924 260,878 Notes payable....................................................... 75,000 75,000 Loss drafts payable................................................. 27,490 29,032 Accounts payable and accrued expenses............................... 39,678 36,463 Current income taxes................................................ 2,227 1,590 Deferred income taxes............................................... 8,037 6,349 Other liabilities................................................... 36,110 32,708 ---------- ---------- Total liabilities............................................... 857,225 778,705 ---------- ---------- Shareholders' equity: Common stock without par value or stated value. Authorized 35,000,000 shares; issued and outstanding 27,544,075 shares in 1997 and 27,503,925 shares in 1996............................................................. 44,017 42,644 Net unrealized investment gains.................................... 24,448 18,956 Unearned ESOP compensation......................................... (1,500) (2,000) Retained earnings.................................................. 632,399 581,622 ---------- ---------- Total shareholders' equity...................................... 699,364 641,222 ---------- ---------- Commitments and contingencies...................................... $1,556,589 $1,419,927 ========== ==========
2 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED JUNE 30, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1997 1996 -------- --------- Revenues: Earned premiums $255,119 $181,254 Net investment income 20,456 17,443 Net realized investment gains (losses) 324 (1,275) Other 1,106 777 -------- -------- Total revenues 277,005 198,199 -------- -------- Expenses: Incurred losses 165,176 119,497 Policy acquisition costs 54,778 38,586 Other operating expenses 7,863 5,493 Interest 1,221 438 -------- -------- Total expenses 229,038 164,014 -------- -------- Income before income taxes 47,967 34,185 Income taxes 12,074 7,602 -------- -------- Net income $ 35,893 $ 26,583 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,483,900 in 1997 and 27,388,979 in 1996) $1.31 $.97 ======== ======== Dividends declared per share $.29 $.24 ======== ========
3 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) SIX MONTHS ENDED JUNE 30, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1997 1996 --------- --------- Revenues: Earned premiums $490,698 $350,817 Net investment income 40,779 33,880 Net realized investment gains (losses) 833 (1,072) Other 2,411 1,574 -------- -------- Total revenues 534,721 385,199 -------- -------- Expenses: Incurred losses 323,200 236,915 Policy acquisition costs 105,280 74,419 Other operating expenses 15,968 11,351 Interest 2,436 909 -------- -------- Total expenses 446,884 323,594 -------- -------- Income before income taxes 87,837 61,605 Income taxes 21,126 13,112 -------- -------- Net income $ 66,711 $ 48,493 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,469,674 in 1997 and 27,374,006 in 1996) $2.43 $1.77 ======== ======== Dividends declared per share $.58 $.48 ======== ========
4 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, AMOUNTS EXPRESSED IN THOUSANDS
1997 1996 ---------- --------- Cash flows from operating activities: Net income $ 66,711 $ 48,493 Adjustments to reconcile net income to net cash provided from operating activities: Increase in unpaid losses and loss adjustment expenses 41,074 13,826 Increase in unearned premiums 30,046 19,921 Increase in premium notes receivable (1,437) (231) Increase in premiums receivable (14,273) (7,652) Increase in deferred policy acquisition costs (6,009) (3,253) Increase (decrease) in loss drafts payable (1,542) 1,674 Increase (decrease) in accrued income taxes, excluding deferred tax on change in unrealized gain (629) 799 Increase in accounts payable and accrued expenses 3,215 2,309 Depreciation 2,322 1,855 Net realized investment (gains) losses (833) 1,072 Bond accretion, net (903) (427) Other, net 6,036 3,501 --------- -------- Net cash provided from operating activities 123,778 81,887 Cash flows from investing activities: Fixed maturities available for sale: Purchases (168,514) (103,277) Sales 24,797 17,985 Calls or maturities 33,118 42,034 Equity securities available for sale: Purchases (212,884) (195,063) Sales 200,661 179,549 Increase (decrease) in short-term cash investments, net 19,130 (6,480) Purchase of fixed assets (3,577) (2,829) Sale of fixed assets 745 84 --------- -------- Net cash used in investing activities $(106,524) $(67,997)
(Continued) 5 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1997 1996 --------- --------- Cash flows from financing activities: Dividends paid to shareholders $(15,934) $(13,139) Proceeds from stock options exercised, net of related tax benefit 846 673 -------- -------- Net cash used in financing activities (15,088) (12,466) -------- -------- Net increase in cash 2,166 1,424 Cash: Beginning of the year 3,605 2,872 -------- -------- End of the year $ 5,771 $ 4,296 ======== ======== Supplemental disclosures of cash flow information: Interest paid during the period $ 2,521 $ 926 Income taxes paid during the period $ 21,532 $ 12,195
6 MERCURY GENERAL CORPORATION & SUBSIDIARIES NOTE TO THE CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The financial data included herein have been prepared by the Company, without audit. In the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the Company's financial position at June 30, 1997 and the results of operations and cash flows for the periods presented have been made. This interim information should be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report on Form 10-K. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Results of Operations - --------------------- Premiums earned in the first half of 1997, including $32.0 million contributed by the American Fidelity Insurance Group (AFI), increased 39.9% from the corresponding period in 1996. Excluding AFI, the year-to-year increase was 30.8% for the first six months and 31.9% for the second quarter. Since the AFI acquisition in December 1996 was accounted for as a purchase, its operating results have been consolidated only in the current reporting period, and year- to-year comparisons are not strictly comparable. California premiums written grew approximately 32% in the period versus approximately 25% for all of 1996, reflecting a new California law effective January 1, 1997, which requires proof of insurance for the registration (new or renewal) of a motor vehicle. The print advertising program instituted in December 1995 has been suspended due to the volume of business generated by the new law. The loss ratio in the first half (loss and loss adjustment expenses related to premiums earned) was 65.9%, compared with 67.5% in 1996. The loss ratio for the second quarter was 64.7% in 1997 versus 65.9% in 1996. The lower loss ratios in 1997 reflect continuing favorable loss experience in the bodily injury line. In addition, 1996 was adversely affected in the first quarter by an increase in weather-related claims associated with heavy rainfall and severe flooding in California. AFI's loss ratio for the six months was 66.2% and 70.2% for the quarter. Seasonal weather patterns tend to influence AFI's loss experience favorably in the first quarter of the year and adversely in the second quarter, in contrast to Mercury's exposure to weather-related losses in California's December to March rainy season. The expense ratio (policy acquisition costs and other expenses related to premiums earned) in the first half of 1997 was 24.7%, compared to 24.5% in 1996. The expense ratio in the second quarter was 24.6% in 1997 versus 24.3% in 1996. The increase reflects higher commission rates paid to California agents and the effect of AFI's higher expense ratio. 7 The combined ratio of losses and expenses (GAAP basis) was 90.6%, compared with 92.0% in 1996, resulting in an underwriting gain for the period of $46.3 million, compared with $28.1 million a year ago. Investment income in the first half, including $3.0 million from AFI, was $40.8 million, compared with $33.9 million in the first half of 1996. The after-tax yield on average investments of $1,195.6 million (fixed maturities at cost, equities at market) was 6.1% compared with 6.6% on average investments of $922.6 million in the 1996 first half. The decrease in realized investment yields reflects the redemption of bonds acquired in earlier, higher interest rate environments, a lower effective yield from equities and a lower after-tax yield on the securities of AFI. New investments in bonds and equities combined are currently being made at after-tax yields of 5.5%. The improvement in market values since December 31, 1996 reflects principally the decrease in interest rates which occurred during the second quarter. Realized investment gains in 1997 were $833,000 in the first half and $324,000 in the quarter, compared with realized losses of $1,072,000 and $1,275,000 in 1996, respectively. The losses in 1996 were primarily related to yield-enhancing bond swaps designed to recapture capital gains taxes paid in prior years. The income tax provision in the first half of $21.1 million represented an effective tax rate of 24.1%, compared with an effective rate of 21.3% in 1996. The higher effective tax rate is principally attributable to the larger proportion of fully taxable underwriting gain compared to the predominantly tax sheltered investment income. Net income in the first half of $66.7 million, or $2.43 per share, compares with $48.5 million, or $1.77 per share, in 1996. AFI's net income contributed $.11 per share to 1997 results on a gross basis, or $.07 per share after the cost of financing related to the acquisition. Net income during the second quarter was $35.9 million in 1997 versus $26.6 million in 1996. Per share results are based on 27.5 million average shares outstanding in 1997 and 27.4 million shares in 1996. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Net cash provided from operating activities during the first half of 1997 was $123.8 million, while funds derived from the sale, call or maturity of investments was $258.6 million, of which approximately 78% was represented by the sale of equities. Fixed-maturity investments, at amortized cost, increased by $112.0 million during the period. Equity investments, including perpetual preferred stocks, increased by $12.6 million at cost, and short-term cash investments decreased by $19.1 million. The amortized cost of fixed-maturities available for sale which were sold or called during the period was $52.7 million. The market value of all investments exceeded amortized cost of $1,244.6 million at June 30, 1997 by $37.6 million. That unrealized gain, reflected in shareholders' equity net of applicable tax effects, was $24.4 million at June 30, 1997, compared with an unrealized gain of $19.0 million at December 31, 1996. The Company's cash and short term investments totaled $52.7 million at June 30, 1997. Together with funds generated internally, such liquid assets are more than adequate to pay claims without the forced sale of investments. 8 It has been the Company's policy not to invest in high yield or "junk" bonds. As the result of downgrades subsequent to purchase, approximately 1.4% of total fixed maturities at June 30, 1997 were rated below investment grade. The average rating of the $971.7 million bond portfolio (at amortized cost) was Aa3/AA-, while the average effective maturity giving effect to anticipated early call, approximates 8.9 years. The modified duration of the bond portfolio approximates 6.6 years. Bond holdings are broadly diversified geographically, and, within the tax-exempt sector, consist largely of revenue issues, including housing bonds subject to sinking funds and special par calls, and other issues, many of which have been pre-refunded and escrowed with U.S. Treasuries. General obligation bonds of the large eastern cities have generally been avoided. Holdings in the taxable sector consist principally of senior public utility issues. Fixed-maturity investments of $1,036.8 million (at cost) include $65.1 million of sinking fund preferreds, principally utility issues. Except for Company-occupied buildings, the Company has no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Equity holdings of $160.5 million at market (cost $160.8 million), including perpetual preferred issues, are largely confined to the public utility and banking sectors and represent about 22.9% of total shareholders' equity. As of June 30, 1997, the Company had no material commitments for capital expenditures. Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer's annual net premiums written to statutory policyholders' surplus should not exceed 3.0 to 1. Based on the combined surplus of all of the licensed insurance subsidiaries of $639.9 million at June 30, 1997 and net written premiums for the twelve months ended on that date of $949.4 million, the ratio of writings to surplus was approximately 1.5 to 1. 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) Mercury General Corporation (the "Company") held its Annual Meeting of Stockholders on May 14, 1997. (c) The matters voted upon at the meeting and the votes cast with respect thereto were as follows:
1. Election of Directors --------------------- Nominee Number of Number of ------- shares voted FOR shares Withheld ---------------- --------------- George Joseph 26,302,856 135,766 Charles E. McClung 26,303,655 134,967 Gloria Joseph 26,305,631 132,991 Donald R. Spuehler 26,307,406 131,216 Richard E. Grayson 26,306,905 131,717 Donald P. Newell 25,976,306 462,316 Bruce A. Bunner 26,307,206 131,416 Nathan Bessin 26,305,956 132,666 Michael D. Curtius 26,304,106 134,516
2. Proposal to amend the Articles of Incorporation to increase the --------------------------------------------------------------- authorized shares of common stock to 35,000,000 from 30,000,000: ----------------------------------------------------------------
FOR AGAINST ABSTAIN --- ------- ------- 25,911,512 513,504 13,606
3. Proposal to approve KPMG Peat Marwick as auditors for the year 1997: --------------------------------------------------------------------
FOR AGAINST ABSTAIN --- ------- ------- 26,091,060 339,147 8,415
Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibits are included herewith: 27 Financial Data Schedule (b) Not applicable. 10 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. MERCURY GENERAL CORPORATION By: GEORGE JOSEPH ------------------------------------------ George Joseph Chairman and Chief Executive Officer By: KEITH L. PARKER ------------------------------------------ Keith L. Parker Chief Financial Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERCURY GENERAL CORP. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1,074,764 0 0 160,462 0 0 1,282,163 5,771 0 52,792 1,556,589 377,759 290,924 0 0 75,000 0 0 44,017 655,347 1,556,589 490,698 40,779 833 2,411 323,200 105,280 15,968 87,837 21,126 66,711 0 0 0 66,711 2.43 0 0 0 0 0 0 0 0
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