-----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, VYSpEdU6s97lU19syxBUuu5o+Bw5qv61r0Cla+2gX8IZ0Ut1zNHdRV8Axz3bX0Vl YC0BPxbPPV7g8GemujHJEw== 0000898430-97-002050.txt : 19970514 0000898430-97-002050.hdr.sgml : 19970514 ACCESSION NUMBER: 0000898430-97-002050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97602477 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 March 31, 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 May 8, 1997, the Registrant had issued and outstanding an aggregate of 27,532,925 shares of its Common Stock. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MERCURY GENERAL CORPORATION AND SUBSIDIARIES (WITH AFI) CONSOLIDATED BALANCE SHEETS (UNAUDITED) AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS A S S E T S
March 31, December 31, 1997 1996 ---------- ---------- Investments: Fixed maturities available for sale (amortized cost $984,854 in 1997 and $924,793 in 1996)............................ $1,002,504 $ 954,108 Equity securities available for sale (cost $156,695 in 1997 and $148,264 in 1996)..................................... 154,321 148,112 Short-term cash investments, at cost, which approxi- mates market...................................................... 46,798 66,067 --------- --------- Total investments............................................ 1,203,623 1,168,287 Cash.................................................................. 6,291 3,605 Receivables: Premiums receivable................................................ 96,002 83,748 Premium notes...................................................... 12,938 12,395 Accrued investment income.......................................... 17,832 18,410 Other.............................................................. 27,679 29,655 --------- --------- 154,451 144,208 Deferred policy acquisition costs..................................... 50,650 46,783 Fixed assets, net..................................................... 30,306 30,060 Other assets.......................................................... 25,323 26,984 --------- --------- $1,470,644 $1,419,927 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses................................... $ 348,976 $ 336,685 Unearned premiums..................................................... 281,434 260,878 Notes payable......................................................... 75,000 75,000 Loss drafts payable................................................... 27,443 29,032 Accounts payable and accrued expenses................................. 32,584 36,463 Current income taxes.................................................. 8,679 1,590 Deferred income taxes................................................. 745 6,349 Other liabilities..................................................... 39,560 32,708 -------- -------- Total liabilities............................................ 814,421 778,705 -------- -------- Shareholders' equity: Common stock without par value or stated value. Authorized 30,000,000 shares; issued and outstanding 27,531,425 shares in 1997 and 27,503,925 shares in 1996............................................................ 43,568 42,644 Net unrealized investment gains................................... 9,930 18,956 Unearned ESOP compensation........................................ (1,750) (2,000) Retained earnings................................................. 604,475 581,622 -------- -------- Total shareholders' equity.................................. 656,223 641,222 -------- -------- Commitments and contingencies..................................... $1,470,644 $1,419,927 ========= =========
MERCURY GENERAL CORPORATION AND SUBSIDIARIES (WITH AFI) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1997 1996 -------- -------- Revenues: Earned premiums $235,579 $169,563 Net investment income 20,323 16,437 Net realized investment gains 509 203 Other 1,305 797 -------- -------- Total revenues 257,716 187,000 -------- -------- Expenses: Losses and loss adjustment expenses 158,024 117,418 Policy acquisition costs 50,502 35,833 Other operating expenses 8,105 5,858 Interest 1,215 471 -------- -------- Total expenses 217,846 159,580 -------- -------- Income before income taxes 39,870 27,420 Income taxes 9,052 5,510 -------- -------- Net income $ 30,818 $ 21,910 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,455,289 in 1997 and 27,359,034 in 1996) $ 1.12 $ .80 ======== ======== Dividends declared per share $ .29 $ .24 ======== ========
MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31 AMOUNTS EXPRESSED IN THOUSANDS
1997 1996 ---------- --------- Cash flows from operating activities: Net income $ 30,818 $ 21,910 Adjustments to reconcile net income to net cash provided from operating activities: Increase in unpaid losses and loss adjustment expenses 12,291 8,258 Increase in unearned premiums 20,556 10,146 Decrease (increase) in premium notes receivable (543) 209 Increase in premiums receivable (12,254) (4,195) Increase in deferred policy acquisition costs (3,867) (1,646) Increase (decrease) in loss drafts payable (1,589) 2,393 Increase in accrued income taxes, excluding deferred tax on change in unrealized gain 6,346 4,857 Increase (decrease) in accounts payable and accrued expenses (3,879) 2,370 Depreciation 1,121 881 Net realized investment gains (509) (203) Bond amortization (accretion), net (433) (165) Other, net 11,540 4,705 -------- -------- Net cash provided from operating activities 59,598 49,520 Cash flows from investing activities: Fixed maturities available for sale: Purchases (81,219) (58,288) Sales 5,228 9,132 Calls or maturities 18,991 27,526 Equity securities available for sale: Purchases (121,014) (104,735) Sales 110,464 98,554 Decrease (increase) in short-term cash investments, net 19,269 (12,822) Purchase of fixed assets (1,572) (1,638) Sale of fixed assets 205 37 -------- -------- Net cash used in investing activities $(49,648) $(42,234)
(Continued) MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1997 1996 -------- ------- Cash flows from financing activities: Dividends paid to shareholders $(7,965) $(6,568) Proceeds from stock options exercised 701 472 ------- ------- Net cash used in financing activities (7,264) (6,096) ------- ------- Net increase in cash 2,686 1,190 Cash: Beginning of the year 3,605 2,872 ------- ------- End of the year $ 6,291 $ 4,062 ======= ======= Supplemental disclosures of cash flow information: Interest paid during the period $ 1,205 $ 533 Income taxes paid during the period $ 2,520 $ 550
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 March 31, 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 quarter of 1996, including $15.7 million contributed by the American Fidelity Insurance Group (AFI), increased 38.9% from the corresponding period in 1996. Excluding AFI, the year-to-year increase was 29.7%. 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 34% in the quarter 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 quarter (loss and loss adjustment expenses related to premiums earned) was 67.1%, compared with 69.2% in 1996. The lower loss ratio in 1997 reflects continuing favorable loss experience in the bodily injury line. In addition, 1996 was adversely affected by an increase in weather-related claims associated with heavy rainfall and severe flooding in California. AFI's loss ratio for the period was 63.1%. Seasonal weather patterns tend to influence AFI's loss experience favorably in the first quarter of the year, 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 1997 was 24.9%, compared to 24.6% in 1995. Excluding AFI, the expense ratio was 24.5%, virtually unchanged from 1996. The combined ratio of losses and expenses (GAAP basis) was 92.0%, compared with 93.8% in 1995, resulting in an underwriting gain for the period of $18.9 million, compared with $10.5 million a year ago. Investment income in the quarter, including $1.5 million from AFI, was $20.3 million, compared with $16.4 million in the first quarter of 1996. The after-tax yield on average investments of $1,169.7 million (fixed maturities at cost, equities at market) was 6.2%, compared with 6.52% on average investments of $910.3 million in the 1996 first quarter. 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 yield on the securities of AFI. New investments in bonds are currently being made at after-tax yields ranging from approximately 5.5%-5.75%, while after-tax dividends on equities being purchased range from approximately 6.35% to 6.5%. The decrease in market values since December 31, 1996 reflects principally the increase in interest rates which occurred during the period. Realized investment gains were $509,000 in the 1997 first quarter, compared with realized gains of $203,000 in 1995. The income tax provision in the first quarter of $9.1 million represented an effective tax rate of 22.7%, compared with an effective rate of 20.1% in the 1996 first quarter. The higher effective tax rate is principally attributable to the larger proportion of fully taxable underwriting gain compared to the predominantly tax-exempt investment income. Net income in the quarter of $30.8 million, or $1.12 per share, compares with $21.9 million, or $.80 per share, in 1996. AFI's net income contributed $.07 per share to 1997 results, $.05 per share after the cost of financing related to the acquisition. 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 quarter of 1997 was $59.6 million, while funds derived from the sale, call or maturity of investments was $134.7 million, of which approximately 82% was represented by the sale of equities. Fixed-maturity investments, at amortized cost, increased by $60.1 million during the period. Equity investments, including perpetual preferred stocks, increased by $8.4 million at cost, and short-term cash investments decreased by $19.3 million. The amortized cost of fixed-maturities available for sale which were sold or called during the period was $18.7 million. The market value of all investments (fixed-maturities and equities) held at market as "Available for Sale" exceeded amortized cost of $1,141.5 million at March 31, 1997 by $15.3 million. That unrealized gain, reflected in shareholders' equity net of applicable tax effects, was $9.9 million at March 31, 1997 compared with an unrealized gain of $19.0 million at December 31, 1996. The Company's cash and short term investments totaled $53.1 million at March 31, 1997. Together with funds generated internally, such liquid assets are more than adequate to pay claims without the forced sale of investments. 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 1.5% of total fixed maturities at March 31, 1997 were rated below investment grade. The average rating of the $917.2 million bond portfolio (at amortized cost) was A, while the average effective maturity, excluding AFI, giving effect to anticipated early call, approximates 9.1 years. The modified duration of the bond portfolio, excluding AFI, approximates 6.7 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 $984.9 million (at cost) include $67.6 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 $154.3 million at market (cost $156.7 million), including perpetual preferred issues, are largely confined to the public utility and banking sectors and represent about 23.5% of total shareholders' equity. As of March 31, 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 $610.9 million at March 31, 1997 and net written premiums for the twelve months ended on that date of $917.4 million, the ratio of writings to surplus was approximately 1.5 to 1. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibits are included herewith: 27 Financial Data Schedule (b) Not applicable. 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: /s/ GEORGE JOSEPH ------------------------------------------ George Joseph Chairman and Chief Executive Officer By: /s/ KEITH L. PARKER ------------------------------------------ Keith L. Parker Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,002,504 0 0 154,321 0 0 1,203,623 6,291 0 50,650 1,470,644 348,976 281,434 0 0 75,000 0 0 43,568 612,655 1,470,644 235,579 20,323 509 1,305 158,024 50,502 8,105 39,870 9,052 30,818 0 0 0 30,818 1.12 0 0 0 0 0 0 0 0
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