-----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, GNh5JVgrskiw966bQ3FPLXZrIovZiEuwp1M7BuG5ReVKD12m/+T0ZuZy5iruecm+ u5sEiC5qfZGucpv4HNzt0Q== 0000950144-99-010108.txt : 19990816 0000950144-99-010108.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950144-99-010108 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOBILE AMERICA CORP CENTRAL INDEX KEY: 0000067199 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 591218935 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06764 FILM NUMBER: 99688079 BUSINESS ADDRESS: STREET 1: 10475 FORTUNE PARKWAY STREET 2: SUITE 110 CITY: JACKSONVILLE STATE: FL ZIP: 32256 BUSINESS PHONE: 9043636339 MAIL ADDRESS: STREET 1: 10475 FORTUNE PARKWAY STREET 2: SUITE 110 CITY: JACKSONVILLE STATE: FL ZIP: 32256 10-Q 1 MOBILE AMERICA CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1999 Commission File No. 0-6764 ------- Mobile America Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-1218935 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10475 Fortune Parkway, Jacksonville, Florida 32256 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (904) 363-6339 --------------- N/A - -------------------------------------------------------------------------------- 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 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 [ ] (APPLICABLE ONLY TO CORPORATE ISSUERS) There were 7,167,542 shares of common stock, par value $.025 per share, outstanding as of the close of business on August 6, 1999. 2 PART I Mobile America Corporation INDEX
Financial Statements: Page Part I ------ Unaudited Consolidated Balance Sheets 1 Unaudited Consolidated Statements of Operations 2 Unaudited Consolidated Statements of Comprehensive Income 3 Unaudited Consolidated Statements of Cash Flows 4 Unaudited Consolidated Statements of Changes in Stockholders' Equity 5 Notes to Financial Statements 6-8 Management's Discussion and Analysis of the Unaudited Consolidated Statements of Operations 9-12 Exhibit 11 - Computations of Earnings Per Share 14 Part II ------- Other Information, and Signatures 13
3 Mobile America Corporation and Subsidiaries Unaudited Consolidated Balance Sheets June 30, 1999 and December 31, 1998
Assets 1999 1998 - --------------------------------------------------------------------------------------------- Investments: Securities held to maturity at amortized cost (fair value $24,793,134 and $30,811,888) $ 24,733,586 $ 30,321,793 Securities available for sale at fair value (amortized cost $26,019,492 and $27,240,132) 26,222,325 27,919,593 Short-term investments 11,616,630 21,210,230 ------------------------------------- Total investments 62,572,541 79,451,616 ------------------------------------- Cash 1,459,124 1,082,422 Receivables: Insurance premiums 2,655,206 3,041,656 Accrued investment income 805,267 904,692 Reinsurance, paid losses and other 10,856 398,395 Reinsurance recoverable, unpaid losses 18,184,048 17,688,861 Other receivables 683,429 933,253 Current income taxes 3,983,685 2,747,359 ------------------------------------- Total receivables 26,322,491 25,714,216 ------------------------------------- Deferred income tax 1,498,394 985,578 Ceded unearned premium 13,381,588 16,372,379 Deferred policy acquisition costs (1,580,059) (2,743,281) Property and equipment 2,078,188 2,153,357 Equity in pools and associations 1,129,662 1,132,210 Other assets 479,377 514,919 ------------------------------------- $ 107,341,306 $ 124,663,416 ===================================== Liabilities and Stockholders' Equity 1999 1998 - --------------------------------------------------------------------------------------------- Insurance loss reserves, including life insurance policy benefits of $ 31,064,693 $ 29,106,729 $17,741 and $17,741 Unearned premium 27,364,656 26,913,770 Unearned service fees 193,777 448,117 Contractholders funds 1,842,577 11,485,618 Reinsurance funds withheld and balances payable 1,280,761 6,664,985 Claim payments outstanding 3,672,757 2,073,901 Accrued expenses and other liabilities 1,493,721 1,579,854 Deferred income tax on net unrealized gains on securities available for sale 68,963 231,017 Note payable 8,400,000 9,600,000 ------------------------------------- Total liabilities 75,381,905 88,103,991 ------------------------------------- Stockholders' equity: Common stock, $.025 par value per share Authorized - 18,000,000 shares Issued - 7,644,414 shares 191,110 191,110 Preferred stock, $.10 par value per share Authorized - 500,000 shares Issued and outstanding - none 0 0 Capital in excess of par value 4,348,842 4,348,842 Accumulated other comprehensive income: Net unrealized appreciation on securities available for sale net of deferred income taxes of $68,963 and $231,017 133,870 448,444 Treasury stock at cost, 476,580 and 476,580 shares (1,233,069) (1,233,069) Retained earnings 28,518,648 32,804,098 ------------------------------------- Total stockholders' equity 31,959,401 36,559,425 ------------------------------------- $ 107,341,306 $ 124,663,416 =====================================
See notes to consolidated financial statements. 4 Mobile America Corporation and Subsidiaries Unaudited Consolidated Statements of Operations Quarters ended June 30, 1999 and 1998, Six Months Ended June 30, 1999 and 1998
Quarters Ended June 30 Six Months Ended June 30 1999 1998 1999 1998 ------------------------ -------------------------- Revenues: Insurance premiums earned net of premiums ceded of $9,483,587, $11,171,372, $20,693,167 and $22,326,041 $ 7,565,290 $ 9,072,620 $ 15,997,935 $19,497,196 Service fees earned 1,430,199 2,152,962 3,310,401 4,604,770 Investment income 919,077 1,116,436 1,920,658 2,349,159 Other 7,476 30,280 14,929 33,740 Net realized gains (losses) on investments 65,397 (6,375) 57,306 (30,299) -------------------------- --------------------------- Total revenues 9,987,439 12,365,923 21,301,229 26,454,566 -------------------------- --------------------------- Expenses: Losses and loss adjustment expenses, net of reinsurance recoveries of $12,933,684, $8,576,121, $21,479,422 and $18,150,816 8,951,509 6,546,835 16,506,346 12,768,376 Policy acquisition costs 3,625,641 742,983 3,386,381 2,021,976 Salaries and wages 1,730,073 1,824,270 3,350,566 4,108,154 General and administrative expenses 2,154,073 1,650,927 3,662,620 3,730,810 Interest expense 163,616 229,432 342,383 470,434 -------------------------- --------------------------- Total expenses 16,624,912 10,994,447 27,248,296 23,099,750 -------------------------- --------------------------- Income (loss) before provision for income taxes (6,637,473) 1,371,476 (5,947,067) 3,354,816 -------------------------- --------------------------- Provision and (benefit) for income taxes: Current (2,493,871) 169,291 (1,931,911) 630,154 Deferred (106,867) 191,330 (512,816) 367,893 -------------------------- --------------------------- Total provision for income taxes (2,600,738) 360,621 (2,444,727) 998,047 -------------------------- --------------------------- Net income (loss) $(4,036,735) $ 1,010,855 $ (3,502,340) $ 2,356,769 ========================== =========================== Basic and diluted earnings (loss) per share: Net income (loss) $ (0.56) $ 0.14 $ (0.49) $ 0.33 ========================== =========================== =========================== =========================== Dividends per share $ 0.00 $ 0.00 $ 0.11 $ 0.35 =========================== ===========================
See notes to consolidated financial statements. -2- 5 Mobile America Corporation and Subsidiaries Unaudited Statements of Comprehensive Income Quarters Ended June 30,1999 and 1998 and Six Months Ended June 30,1999 and 1998
Quarters Ended June 30 Six Months Ended June 30 1999 1998 1999 1998 ----------- ----------- ----------- ---------- Net income (loss) $(4,036,735) $ 1,010,855 $(3,502,340) $2,356,769 ----------- ----------- ----------- ---------- Other comprehensive income: Unrealized gains on securities: Unrealized holding gains (losses) arising during period net of taxes $(82,113), $(15,870), $(151,960) and $127,123 (159,397) (30,807) (294,982) 246,767 Reclassification adjustment for (gain) losses included in net income (loss) net of taxes $(13,107), $(6,032), $(10,093) and $1,487 (25,443) (11,709) (19,593) 2,887 ----------- ----------- ----------- ---------- Other comprehensive income (184,840) (42,516) (314,575) 249,654 ----------- ----------- ----------- ---------- Comprehensive income (loss) $(4,221,575) $ 968,339 $(3,816,915) $2,606,423 =========== =========== =========== ==========
See notes to consolidated financial statements. -3- 6 Mobile America Corporation and Subsidiaries Unaudited Consolidated Statements of Cash Flows Six Months Ended June 30,1999 and 1998
1999 1998 ----------------------------------- Cash Flows from Operating Activities: Net income (loss) $ (3,502,340) $ 2,356,769 Adjustments to reconcile net income (loss) to net cash used in operating activities: Provision for depreciation 188,409 102,543 Loss (gain) on sale of investments (57,306) 30,299 Change in assets and liabilities: Insurance premiums receivable 388,998 (865,798) Accrued investment income and other receivables 349,249 291,979 Deferred policy acquisition costs (1,163,222) 997,815 Prepaid expenses and other assets 35,542 236,062 Insurance loss reserves 1,957,964 (9,548,810) Unearned premium 450,886 (1,416,959) Contractholder funds (9,643,041) (1,272,534) Reinsurance funds held and balances payable (5,384,224) (3,675,820) Claim payments outstanding 1,598,856 (427,621) Accrued expenses (86,133) (139,817) Current income taxes (1,236,326) 316,170 Deferred income taxes (512,816) 367,893 Ceded unearned premium 2,990,791 (1,622,455) Reinsurance receivable (107,648) 3,954,395 Unearned service fees (254,340) 11,275 ----------------------------------- Net cash used in operating activities (13,986,701) (10,304,614) ----------------------------------- Cash Flows from Investing Activities: Net change in short term investments 9,593,600 3,837,528 Purchase of investments (4,222,339) (6,474,912) Proceeds from sale and maturity of investments 11,088,492 13,586,992 Purchase of property and equipment (113,240) (654,749) ----------------------------------- Net cash provided in investing activities 16,346,513 10,294,859 ----------------------------------- Cash Flows from Financing Activities: Purchase of Treasury stock 0 (3,666) Dividends paid to stockholders (783,110) (2,492,629) Principal Payment, note payable (1,200,000) (1,200,000) ----------------------------------- Net cash used in financing activities (1,983,110) (3,696,295) ----------------------------------- Net change in cash 376,702 (3,706,050) Cash, beginning of period 1,082,422 4,518,020 ----------------------------------- Cash, end of period $ 1,459,124 $ 811,970 ===================================
See notes to consolidated financial statements. -4- 7 Mobile America Corporation and Subsidiaries Unaudited Consolidated Statements of Changes in Stockholders' Equity Six Months Ended June 30, 1999 and 1998
1999 1998 ----------------------------------- Common stock: No Change during period $ 191,110 $ 191,110 ----------------------------------- Preferred stock: No Change during period 0 0 ----------------------------------- Capital in excess of par value: No Change during period 4,348,842 4,348,842 ----------------------------------- Accumulated other comprehensive income: Net unrealized appreciation on securities available for sale: Balance at beginning of period 448,444 78,861 Increase (decrease) (476,628) 378,265 Deferred taxes on unrealized gains 162,054 (128,610) ----------------------------------- Balance at end of period 133,870 328,516 ----------------------------------- Treasury stock: Balance at beginning of period (1,233,069) (1,229,403) Purchases of 0 and 292 Shares 0 (3,666) ----------------------------------- Balance at end of period (1,233,069) (1,233,069) ----------------------------------- Retained earnings: Balance at beginning of period 32,804,098 36,296,261 Net income (loss) (3,502,340) 2,356,770 Cash dividends $.11 and $.35 per share (783,110) (2,492,629) ----------------------------------- Balance at end of period 28,518,648 36,160,402 ----------------------------------- Total stockholders' equity at end of period $ 31,959,401 $ 39,795,801 ===================================
See notes to consolidated financial statements. -5- 8 Mobile America Corporation and Subsidiaries Notes to Unaudited Consolidated Financial Statements Note 1. Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income, comprehensive income and cash flows include all adjustments (which include reclassifications and normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows at June 30, 1999 and for all periods presented. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis and financial statements and notes thereto included in the Mobile America Corporation 1998 10-K. Certain amounts in prior years' financial statements have been reclassified to conform to the 1999 presentation. Note 2. Earnings Per Share Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share presents the dilutive effect of options using the treasury stock method.
Quarters Ended June 30 Six Months Ended June 30 ---------------------- ------------------------ 1999 1998 1999 1998 Numerator: Income (loss) available to common shareholders $(4,036,735) $1,010,855 $(3,502,340) $2,356,769 =========== ========== =========== ========== Denominator: Basic earnings per share weighted average shares 7,167,542 7,167,584 7,167,542 7,167,670 Effect of dilution: Employee stock options 1,200 33,729 4,372 50,971 ----------- ---------- ----------- ---------- Diluted earnings per share adjusted weighted average shares and assumed conversions 7,168,742 7,201,313 7,171,914 7,218,641 =========== ========== =========== ========== Basic earnings (loss) per share $ (0.56) $ 0.14 $ (0.49) $ 0.33 =========== ========== =========== ========== Diluted earnings (loss) per share $ (0.56) $ 0.14 $ (0.49) $ 0.33 =========== ========== =========== ==========
-6- 9 Mobile America Corporations and Subsidiaries Notes to Unaudited Consolidated Financial Statements Note 3. Business Segments The Company and its subsidiaries operate exclusively in Florida within principally six business segments: automobile insurance, excess surplus lines property insurance, fee for service administration, premium finance, corporate and other miscellaneous. The automobile insurance segment sells personal lines automobile insurance through independent insurance agents primarily in south Florida. The excess surplus lines segment writes specialized property insurance coverage. The fee for service segment contracts as a servicing carrier for the Florida Residential Property and Casualty Joint Underwriting Association, the Florida Automobile Joint Underwriting Association and as a subcontractor for Policy Management Systems Corporation performing various underwriting and claims administration services for a fee. The premium finance segment finances policies written through the Registrant. The corporate segment includes home office revenues and assets that are not specific to any particular segment. The other category is attributable to a life insurance company and other small inactive companies that do not meet the quantitative thresholds for a separate segment. Management evaluates performance and allocates assets based on the separate entities owned by the Registrant. The reportable segments are business units that offer different products or services. The reportable segments are each managed separately. The following schedule presents segment revenues and profit before taxes for the quarters and six months ended June 30,1999 and 1998 and assets by operating segment at June 30,1999 and December 31,1998. The reconciling items for revenues and assets include adjusting available for sale securities to market value and the reclassification of reinsurance recoverable balances and the elimination of intercompany holdings. There have been no significant differences from the last annual 10K report in the basis of measuring segment profit or loss. There have been no material changes in the amount of assets for any operating segment since the last annual 10K report except the decline in the assets in the automobile insurance segment due to negative operating cash flows and in the corporate segment due to the repayment of principal on the note payable. -7- 10 Mobile America Corporations and Subsidiaries Notes to Unaudited Consolidated Financial Statements Note 3. Business Segments (continued)
Quarters Ended June 30 Six Months Ended June 30 ---------------------- ------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Segment revenues: Automobile insurance $ 8,325,060 $ 10,046,905 $ 17,658,902 $ 21,785,358 Excess and surplus lines insurance 1,052,865 969,155 1,952,355 2,026,988 Fee for service 391,149 745,045 1,027,384 1,489,875 Corporate 347,963 433,220 690,037 905,961 Premium finance (54,303) 153,170 137,594 292,709 Other 53,916 74,430 108,486 156,818 ------------ ------------ ------------ ------------ Total segment revenues $ 10,116,650 $ 12,421,925 $ 21,574,758 $ 26,657,709 Intercompany eliminations (129,211) (56,002) (273,529) (203,143) ------------ ------------ ------------ ------------ Total consolidated revenues $ 9,987,439 $ 12,365,923 $ 21,301,229 $ 26,454,566 ============ ============ ============ ============ Segment profit (loss) before taxes: Automobile insurance $ (6,155,241) $ 650,560 $ (6,128,471) $ 2,163,564 Excess and surplus lines insurance 341,930 458,531 639,724 582,546 Fee for service 43,619 263,107 342,322 525,291 Corporate (741,536) (153,005) (798,783) (77,655) Premium finance (145,012) 126,450 (42,236) 116,978 Other 18,767 25,833 40,377 44,092 ------------ ------------ ------------ ------------ Total consolidated profit (loss) before tax $ (6,637,473) $ 1,371,476 $ (5,947,067) $ 3,354,816 ============ ============ ============ ============
June 30, 1999 December 31, 1998 ------------- ----------------- Segment assets: Automobile insurance $ 61,420,769 $ 69,603,743 Excess and surplus lines insurance 9,728,881 9,589,246 Fee for service 6,093,629 6,250,161 Corporate 32,467,477 35,101,117 Premium finance 3,230,610 3,494,370 Other 3,242,970 3,180,653 ------------- ------------- Total segment assets $ 116,184,336 $ 127,219,290 GAAP adjustments & reclassifications 32,780,072 39,067,228 Intercompany eliminations (41,623,102) (41,623,102) ------------- ------------- Total consolidated segment assets $ 107,341,306 $ 124,663,416 ============= =============
-8- 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Operations The Registrant reports a net loss of $3,502,340 ($.49 a share) for the six months ended June 30, 1999. This compares to net income of $2,356,769 ($.33 a share) reported during the first half of 1998. The loss for the period is due to lower earned revenues and increased loss experience, partially offset by lower operating expenses. Consolidated revenues decreased 19.5% compared to the same period last year due to a 17.9% reduction in earned insurance premiums, a 28.1% reduction in service fee income and lower investment income. Direct earned premium in the automobile segment declined 13.0% to $34,550,415 from $39,722,867 earned during the first half of 1998. The decline reflects the reduction in direct written premium resulting from increased competition and processing backlogs from computer modification problems during the Year 2000 conversion process. Earned premium in the automobile segment net of reinsurance ceded declined 18.6% to $14,625,226 from $17,959,825 reported in 1998, following the trend in direct business. Direct written premium in the automobile segment decreased 9.7% to $34,653,440 during the current six months period compared to the comparable period in 1998. Direct excess and surplus lines earned premium increased 4.4% to $2,131,724 during the current period. Net earned premium declined 7.7% to $1,364,547 reflecting higher reinsurance costs for excess loss coverage. Direct written premium increased 21.6% to $2,478,026 during the first six months of 1999 over the same period in 1998. The processing backlog problems resulting from computer modification problems during the Year 2000 conversion process which were experienced during the second half of 1998 and the first quarter of 1999 have been addressed with increased staffing and the use of outsourcing assistance. The Registrant has eliminated most of the backlog and has returned to a more normal operating pattern during the second quarter of 1999. The Registrant believes that it will now be able to recapture market share and better service the needs of its insureds and agents. Service fee revenue, which includes fee-for-service revenue, premium finance revenue and Mobile America Insurance Group, Inc.'s agency revenue, declined 28.1% over the same period last year. Revenues from fee-for-service business declined 36.7% to $1,018,490 reflecting a continued decline in the Florida property and automobile joint underwriting associations' pools of available business. Premium finance revenues of $357,572 were adversely affected by a $223,500 write-off in receivable balances. Agency fee revenue, which is directly related to the production of new business, totaled $2,157,839 for the period compared to $2,724,261 reported in 1998. Investment income declined 18.3% over the first half of 1998 as a result of a decrease in invested assets and the reinvestment of maturing securities at lower interest rates. Consolidated expenses increased 18.0% compared to the same period last year due to an increase in incurred losses and policy acquisition costs offset by lower salary and operating expenses. Net loss and loss adjustment expenses incurred increased 29.3% for the first half of 1999 compared to the same period last year. The ratio of incurred loss and loss expense to earned premium is 103.2% in 1999 compared to 65.5% in 1998. -9- 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations During 1999 net incurred loss and loss expenses in the automobile segment increased 32.8% to $15,717,505, driven by an increase in the frequency and severity of losses in the personal injury protection automobile line. Direct paid loss and loss adjustment expenses declined 9.9% to $35,527,147. However, this decline was more than offset by a reduction in the amount of losses ceded ($20,955,992 in 1999 versus $21,994,620 in 1998) and by amounts set aside for reserves. During the first half of 1999, $1,146,350 was added to reserves for the automobile segment while for the same period in 1998 reserves were drawn down by $5,582,806, which equates to a $6,729,156 difference in expense levels between the two periods. The net loss and loss expense ratio in this segment was 107.5% in 1999 and 65.9% in 1998. Excess and surplus lines net incurred loss and loss expenses totaled $774,283 in 1999, 15.7% lower than in 1998. Direct loss and loss expense payments totaled $486,100 in 1999 compared to $1,040,390 reported during 1998, primarily due to storm damage incurred during the first quarter of 1998. For 1999 the net incurred loss and loss expense ratio was 56.7% compared to 62.1% in 1998. There is inherent uncertainty in estimating reserves for losses and loss adjustment expenses, which are estimates of the amounts necessary to settle reported and unreported claims and the related administrative and legal costs of doing so. No assurance can be made that the ultimate liability will not exceed the amounts reserved, resulting in an adverse effect on the Registrant. The loss and loss adjustment expense experienced on the business which the Registrant originates and cedes to its reinsurers may also adversely affect the Registrant's profitability in the future. The Registrant decreased the ceding percentage to 60% from 75% on certain lines effective January 1, 1999. If the Registrant's ratio of loss and loss adjustment expenses to earned premium deteriorates it is likely that, over time, the Registrant's cost of reinsurance would increase, and ultimately not be obtainable on economically viable terms. The decrease in reinsurance participation will enhance top-line growth over time and reduce reinsurance costs; however, the Registrant will be responsible for a higher percentage of loss. Policy acquisition costs increased in 1999, reflecting reduced reinsurance participation and the reduction of reinsurance commission allowances due to the cession of higher incurred losses in the automobile segment. These charges were offset in part by the elimination of one quota share reinsurance agreement covering automobile business that resulted in a commission credit of approximately $1,000,000. Salary and wages are 18.4% lower in 1999 due to a general downsizing and the curtailment of bonuses due to the loss reported in 1998. General and administrative expenses declined 1.8% compared to the same period last year but were adversely affected by one-time executive retirement costs. Adjusting for those expenses would result in a 15.2% reduction in general expenses in 1999 compared to 1998. Financial Position, Liquidity and Capital Resources Net cash flow from operations was negative in 1999 as loss and loss adjustment expense payments, operating expense payments and debt payments exceeded premiums, fees and investment revenues. Through acceleration of settlement procedures the Registrant continues to reduce the number of outstanding claims in the minimum limits automobile personal injury protection line of business. Accelerated settlement of loss payments contributes to the negative cash flow the Registrant is currently experiencing. However, the Registrant believes this practice will ultimately improve overall loss and loss expense experience by reducing ultimate loss settlement costs, administrative and litigation expenses and thereby improving cash flow. The Registrant's practice of maintaining a highly liquid investment portfolio has allowed the Registrant to meet cash demands. The Registrant is optimistic that cash flow will improve as rate increases take effect, premium volume improves and the settlement of losses returns to a more normal pattern. The Registrant maintains sufficient liquidity to meet operational needs. Cash requirements for operating expenses, debt service and capital expenditures will be provided by operations and investment activities. The investment policy continues to emphasize higher quality securities matched closely with the short liability duration. -10- 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Operations The Registrant reports a net loss of $4,036,735 for the three months ended June 30, 1999 compared to net income of $1,010,855 reported during the same period of 1998. The items impacting the June 30, 1999 year to date operating results had an adverse effect on second quarter 1999 operating results. Net insurance premiums earned decreased 16.6% to $7,565,290 in 1999 from $9,072,620 reported in 1998 due to declines in premiums written in the automobile segment and higher reinsurance costs in the excess and surplus lines segment, partially offset by excess and surplus lines earned premium. Service fees decreased 33.6% to $1,430,199 from $2,152,962 reflecting a continuing decline in the pools of available business from the Florida property and automobile joint underwriting associations, a decline in agency fee revenue and a write-off of $223,500 in premium finance receivables. Investment income continued to decline as investments matured and the proceeds were used to fund operating needs. Net loss and loss adjustment expenses increased 36.7% to $8,951,509 in 1999 from $6,546,835 reported in 1998, resulting primarily from a strengthening of reserves. Policy acquisition costs increased by $2,882,658 due to the impact of loss sharing arrangements in reinsurance treaties. Salaries and wages declined by $94,197 while general and administrative expenses rose by $503,146, primarily reflecting one-time executive retirement costs. Year 2000 Disclosure The Registrant is aware of the issues associated with the programming code in existing computer systems as the Year 2000 approaches. The "Year 2000" problem is pervasive and complex, as virtually every computer system will be affected in some way by the rollover of the two-digit value to "00". The issue is whether computer systems will properly recognize date-sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or fail. In the ordinary course of business, the Registrant has installed various software and hardware that is Year 2000 compliant. The Registrant's telephone system is not completely Year 2000 compliant but the Registrant expects to install the necessary upgrades prior to September 30, 1999. The Registrant believes all other mission critical systems to be Year 2000 compliant. The Registrant has confirmed with its primary processing vendors that they have or will make the necessary software and hardware upgrades prior to the end of 1999. As a result of installing a new Year 2000 compliant premium and claims processing system the Registrant experienced an increase in the backlog of policies, endorsements and cancellations to be processed. Progress continues to be made in this area and, with the exception of endorsements, operations have returned to normal levels during the second quarter of 1999. The Registrant anticipates eliminating the backlog of endorsements during the third quarter. Failure of the Registrant, or its significant third party suppliers and vendors, to become fully Year 2000 compliant prior to December 31, 1999 could have a material adverse impact on the Registrant's results of operations, financial position and cash flows. The Registrant has identified certain third parties that could service its major lines of business in the event that critical system applications should fail as a result of the date roll-over to January 1, 2000. The Registrant has conducted a comprehensive review of its underwriting guidelines and has determined that there is very little Year 2000 exposure in the insurance policies it sells. The Registrant believes that its exposure to Year 2000 claims will not be material. However, changing social and legal trends may create unintended coverage for exposures by reinterpreting insurance contracts and exclusions. It is impossible to predict what exposure, if any, insurance companies may ultimately have for Year 2000 claims whether coverage for the issue is specifically excluded or included. -11- 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk - Interest Rate Risk The Registrant's exposure to market risk for changes in interest rates is concentrated in its investment portfolio. There have been no material changes in the Registrant's exposure to market risk since December 31, 1998. Other Items On May 25, 1999 the Registrant's President and Chief Executive Officer, Allan J. McCorkle, resigned and retired from the company. On August 1, 1999, J. John Wortman joined the Registrant as its new President and Chief Executive Officer. On August 9, 1999 Arthur L. Cahoon succeeded Allan J. McCorkle as Chairman of the Board. Forward-Looking Statements This Form 10-Q contains certain forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are deemed by the Registrant to be covered by and to qualify for safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. Investors and prospective investors are referred to the Registrant's Annual Report on Form 10K for the fiscal year ended December 31, 1998 for a more detailed discussion of the factors that could cause actual results to differ. These forward-looking statements relate to, among other things, (a) the expected benefits from (i) the award of a three year servicing contract by the Florida Automobile Joint Underwriting Association, and (ii) the extension of a service contract by the Florida Residential Property and Casualty Joint Underwriting Association, and (b) the improvement of cash flow as a result of rate increases and a return to a more normal pattern of loss settlements. Such statements reflect the current views of the Registrant and are subject to certain risks and uncertainties that include, but are not limited to, obtaining policy volume service levels under the Joint Underwriting Association service contracts, continued market acceptance of premium rate increases in the automobile minimum limits personal injury protection line of business and adequacy of loss reserves. The Registrant disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. -12- 15 Part II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a Exhibits: 11. Unaudited computations of earnings per share. 27. Financial Data Schedule (for SEC use only) (b) Reports on Form 8K On May 25, 1999, the Registrant filed a Current Report on Form 8-K reporting (a) the resignation on that date of its President and Chief Executive Officer, Allan J. McCorkle, (b) the continued availability of Mr. McCorkle's services to the company through a Consulting and Non-Competition Agreement, (c) the election of Arthur L. Cahoon as interim President and Chief Executive Officer, (d) the election of Holly J. McCorkle to the board of directors and (e) the creation of a shareholder's agreement between Mr. McCorkle and company director R. Lee Smith. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on it's behalf by the undersigned thereunto duly authorized. MOBILE AMERICA CORPORATION Registrant August 13, 1999 By/s/ Arthur L. Cahoon - --------------- ----------------------- Date Arthur L. Cahoon President and Chief Executive Officer -13- EX-11 2 UNAUDITED COMPUTATIONS OF EARNINGS PER SHARE 1 EXHIBIT 11 Mobile America Corporations and Subsidiaries Unaudited Computations of Earnings per share Quarters ended June 30, 1999 and 1998 and Six Months ended June 30,1999 and 1998 See Note 2 to financial statements. 14 EX-27 3 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MOBILE AMERICA CORPORATION FOR THE 6 MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 24,533,639 24,733,586 24,793,134 1,688,686 0 0 62,572,541 1,459,124 10,856 (1,580,059) 107,341,306 31,064,693 27,364,656 3,672,757 1,842,577 8,400,000 0 0 191,110 31,768,291 107,341,306 15,997,935 1,920,658 57,306 3,325,330 16,506,346 3,386,381 7,355,569 (5,947,067) (2,444,727) (3,502,340) 0 0 0 (3,502,340) (0.49) (0.49) 11,400,127 13,004,834 3,486,954 5,397,837 9,631,174 12,862,904 3,486,954
-----END PRIVACY-ENHANCED MESSAGE-----