-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EtmM2gxicTjBapc9NM3IfKMUBfvatFm/b3a7gkCr6CoPk3vVTruGCwJ2QeCTsyAu 62+StlTx4slHdc+eopC00w== 0000912057-94-001361.txt : 19940415 0000912057-94-001361.hdr.sgml : 19940415 ACCESSION NUMBER: 0000912057-94-001361 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAURENTIAN CAPITAL CORP/DE/ CENTRAL INDEX KEY: 0000092342 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 591611314 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08748 FILM NUMBER: 94522735 BUSINESS ADDRESS: STREET 1: 640 LEE RD - STE 303 CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 2158897400 MAIL ADDRESS: STREET 1: 640 LEE RD STREET 2: STE 303 CITY: WAYNE STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHLAND CAPITAL INVESTORS INC DATE OF NAME CHANGE: 19840524 10-K/A 1 10-K/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A AMENDMENT NO. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NO. DECEMBER 31, 1993 0-8403 ------------------------ LAURENTIAN CAPITAL CORPORATION ------------- DELAWARE 59-1611314 (State of Incorporation) (IRS Employer ID #) 640 Lee Road Wayne, Pennsylvania 19087 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (610) 889-7400 ------------------------ Securities Registered Pursuant to Section 12(b) of the Act: TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED - --------------------------------------- --------------------------------------- Common Stock, $.05 par value American Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / 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 and 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 _____ Aggregate market value of voting shares held by nonaffiliates of the Registrant as of March 18, 1994: $10,784,265 Number of shares outstanding of the Registrant's Common Stock as of March 18, 1994: Common Stock, $.05 Par Value -- 7,548,757 shares DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy Statement for the 1994 Annual Meeting of Stockholders are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K The following Item 8 is being filed to amend the corresponding Item of the Annual Report on Form 10-K filed by Laurentian Capital Corporation on March 30, 1994, and reflects typographical corrections on pages F-3 and S-3. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized. LAURENTIAN CAPITAL CORPORATION By: /s/ BERNHARD M. KOCH -------------------------------------- Bernhard M. Koch SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY Date: April 14, 1994 LAURENTIAN CAPITAL CORPORATION AND SUBSIDIARIES FORM 10-K, PART II, ITEM 8 YEAR ENDED DECEMBER 31, 1993 LAURENTIAN CAPITAL CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE ---- Report of Independent Accountants.......................................................................... F-2 Consolidated Balance Sheets as of December 31, 1993 and 1992............................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1992 and 1991.......................................................................... F-4 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1993, 1992 and 1991...................................................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991.......................................................................... F-6 Notes to Consolidated Financial Statements................................................................. F-7
FINANCIAL STATEMENT SCHEDULES III Condensed Financial Information of Registrant....................................................... S-1 VI Reinsurance......................................................................................... S-5
All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements or related notes. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Laurentian Capital Corporation We have audited the consolidated financial statements and the financial statement schedules of Laurentian Capital Corporation and Subsidiaries listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Laurentian Capital Corporation and Subsidiaries as of December 31, 1993 and 1992 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993. COOPERS & LYBRAND Philadelphia, Pennsylvania February 11, 1994 F-2 LAURENTIAN CAPITAL CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
DECEMBER 31, -------------------- 1993 1992 --------- --------- ASSETS Investments: Fixed maturities, at amortized cost (market, 1993 - $468,497; 1992 - $406,821)............ $ 458,668 $ 399,012 Equity securities, at market (cost, 1993 - $28,481; 1992 - $19,636)....................... 30,379 19,438 Mortgage loans on real estate............................................................. 29,438 39,579 Investment real estate, net of accumulated depreciation (1993 - $816; 1992 - $828)........ 4,643 7,293 Policy loans.............................................................................. 51,677 54,190 Short-term investments.................................................................... 10,479 23,472 --------- --------- Total investments..................................................................... 585,284 542,984 Cash........................................................................................ 8,722 20,292 Accounts, notes and premiums receivable, net of allowance for uncollectible amounts (1993 - $935; 1992 - $1,656)............................................................... 5,011 4,606 Reinsurance receivables..................................................................... 38,982 38,855 Accrued investment income................................................................... 5,855 5,940 Deferred policy acquisition costs........................................................... 71,745 73,976 Costs in excess of net assets of business acquired, net of accumulated amortization (1993 - $5,219; 1992 - $4,929)............................................................. 7,130 8,335 Property and equipment, net of accumulated depreciation (1993 - $10,542; 1992 - $8,158)..... 11,972 12,782 Other assets................................................................................ 1,780 2,130 Assets held in separate accounts............................................................ 236,251 232,280 --------- --------- $ 972,732 $ 942,180 --------- --------- --------- --------- LIABILITIES Policy liabilities and accruals: Future policy benefits.................................................................... $ 411,951 $ 402,104 Unearned premiums......................................................................... 1,804 1,861 Other policy claims and benefits payable.................................................. 12,629 9,321 --------- --------- 426,384 413,286 Other policyholders' funds.................................................................. 122,409 123,867 Debt........................................................................................ 54,822 54,454 Other liabilities........................................................................... 15,257 15,347 Current income taxes........................................................................ 145 170 Deferred income taxes....................................................................... 11,827 6,140 Liabilities related to separate accounts.................................................... 236,251 232,280 --------- --------- Total liabilities..................................................................... 867,095 845,544 --------- --------- Commitments and contingent liabilities Redeemable preferred stock, Series A Convertible, $.01 par value, at redemption value Shares authorized: 5 million Shares issued: 57,767 Outstanding: 1993 - 41,528; 1992 - 46,062................................................. 4,153 4,606 --------- --------- STOCKHOLDERS' EQUITY Common stock, $.05 par value Shares authorized: 20 million Shares issued: 8,111,496.................................................................. 406 406 Capital in excess of par value.............................................................. 59,071 59,010 Net unrealized gains (losses) on equity securities, net of tax: 1993 - $645; 1992 - $0...... 1,253 (198) Treasury stock, at cost (shares outstanding: 1993 - 562,739; 1992 - 566,831)................ (2,818) (2,837) Retained earnings........................................................................... 43,572 35,649 --------- --------- Total stockholders' equity............................................................ 101,484 92,030 --------- --------- $ 972,732 $ 942,180 --------- --------- --------- ---------
See notes to consolidated financial statements. F-3 LAURENTIAN CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Revenues: Premiums................................................................. $ 81,443 $ 80,186 $ 79,551 Net investment income.................................................... 46,820 46,927 45,307 Realized investment gains................................................ 2,773 53 3,696 Other income............................................................. 3,218 3,232 2,467 ----------- ----------- ----------- 134,254 130,398 131,021 ----------- ----------- ----------- Benefits and expenses: Benefits and settlement expenses......................................... 77,115 72,491 76,304 Amortization of deferred policy acquisition costs........................ 13,226 13,489 12,928 Insurance and other expenses............................................. 32,535 34,241 33,566 ----------- ----------- ----------- 122,876 120,221 122,798 ----------- ----------- ----------- Income before income taxes and cumulative effect of accounting change...................................................... 11,378 10,177 8,223 Income tax expense: Current.................................................................. 250 361 451 Deferred................................................................. 3,334 3,102 2,326 ----------- ----------- ----------- 3,584 3,463 2,777 ----------- ----------- ----------- Income before cumulative effect of accounting change....................... 7,794 6,714 5,446 Cumulative effect of accounting change: Adoption of SFAS 109..................................................... 400 0 0 ----------- ----------- ----------- Net income................................................................. $ 8,194 $ 6,714 $ 5,446 ----------- ----------- ----------- ----------- ----------- ----------- Net income available to common shareholders: Net income............................................................... $ 8,194 $ 6,714 $ 5,446 Less: dividends on preferred stock....................................... 271 290 305 ----------- ----------- ----------- $ 7,923 $ 6,424 $ 5,141 ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share: Income before cumulative effect of accounting change..................... $ 1.00 $ 0.80 $ 0.63 Cumulative effect of accounting change: Adoption of SFAS 109................................................... .05 0 0 ----------- ----------- ----------- Net income............................................................... $ 1.05 $ 0.80 $ 0.63 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average shares outstanding (in thousands)......................... 7,549 7,984 8,111 ----------- ----------- ----------- ----------- ----------- -----------
See notes to consolidated financial statements. F-4 LAURENTIAN CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1993 1992 1991 ----------- --------- --------- Common Stock Balance at beginning and end of year........................................ $ 406 $ 406 $ 406 ----------- --------- --------- Capital in Excess of Par Value Balance at beginning of year................................................ 59,010 58,892 58,892 Elimination of fractional shares resulting from reverse stock split........................................................ 0 0 (8) Conversion of preferred stock to common stock............................... 0 0 8 Redemption of preferred stock............................................... 61 118 0 ----------- --------- --------- Balance at end of year...................................................... 59,071 59,010 58,892 ----------- --------- --------- Net Unrealized Gains (Losses) Balance at beginning of year................................................ (198) (653) (1,789) Change during the year...................................................... 1,451 455 1,136 ----------- --------- --------- Balance at end of year...................................................... 1,253 (198) (653) ----------- --------- --------- Treasury Stock Balance at beginning of year................................................ (2,837) 0 0 Treasury shares purchased................................................... 0 (2,877) 0 Shares issued from treasury................................................. 19 40 0 ----------- --------- --------- Balance at end of year...................................................... (2,818) (2,837) 0 ----------- --------- --------- Retained Earnings Balance at beginning of year................................................ 35,649 29,273 24,132 Net income.................................................................. 8,194 6,714 5,446 Dividends on preferred stock................................................ (271) (338) (305) ----------- --------- --------- Balance at end of year...................................................... 43,572 35,649 29,273 ----------- --------- --------- Total Stockholders' Equity.................................................... $ 101,484 $ 92,030 $ 87,918 ----------- --------- --------- ----------- --------- ---------
See notes to consolidated financial statements F-5 LAURENTIAN CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1993 1992 1991 ------------ ------------ ------------ Cash flow from operations: Net income............................................................ $ 8,194 $ 6,714 $ 5,446 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of adoption of SFAS 109........................... (400) 0 0 Increase in policy liabilities and accruals, policyholders' funds and income taxes................................................... 15,832 10,557 23,598 Decrease (increase) in accrued investment income and accounts and notes receivable................................................... 270 (188) 3,874 Increase (decrease) in other liabilities............................ 1,334 (4,252) (1,084) Amortization of deferred policy acquisition costs................... 13,226 13,489 12,928 Policy acquisition costs deferred................................... (10,996) (9,974) (9,983) Depreciation expense................................................ 1,535 1,324 1,051 Amortization of goodwill............................................ 290 268 339 Realized investment (gains)......................................... (2,773) (53) (3,696) Other, net.......................................................... (3,172) (1,633) (2,339) ------------ ------------ ------------ Net cash provided by operating activities......................... 23,340 16,252 30,134 ------------ ------------ ------------ Cash flow from investing activities: Sale of investments................................................... 15,884 45,324 43,130 Maturity or repayment of investments.................................. 195,081 141,805 39,214 Disposal of property and equipment.................................... 37 36 169 Purchase of investments............................................... (257,214) (184,399) (102,356) Purchase of property and equipment.................................... (1,477) (2,753) (1,550) Short-term investments, net........................................... 12,993 (12,996) (766) Other, net............................................................ 65 2 341 ------------ ------------ ------------ Net cash used in investing activities............................. (34,631) (12,981) (21,818) ------------ ------------ ------------ Cash flow from financing activities: Proceeds from borrowing............................................... 368 257 878 Repayment of debt..................................................... 0 (52) (6) Net (purchases) sales of treasury shares, at cost..................... 19 (2,837) 0 Dividends paid on preferred stock..................................... (271) (303) (297) Redemption of preferred stock......................................... (395) (351) 0 Other, net............................................................ 0 0 (9) ------------ ------------ ------------ Net cash provided by (used in) financing activities............... (279) (3,286) 566 ------------ ------------ ------------ Net increase (decrease) in cash......................................... (11,570) (15) 8,882 Cash at beginning of year............................................... 20,292 20,307 11,425 ------------ ------------ ------------ Cash at end of year..................................................... $ 8,722 $ 20,292 $ 20,307 ------------ ------------ ------------ ------------ ------------ ------------
See notes to consolidated financial statements. F-6 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include, after intercompany eliminations, Laurentian Capital Corporation (individually or collectively with its subsidiaries, the Company), and its wholly-owned subsidiaries, principally Loyal American Life Insurance Company (Loyal), and Prairie States Life Insurance Company (Prairie). Prairie owns Rushmore National Life Insurance Company (Rushmore). The Imperial Life Assurance Company of Canada (Imperial) directly owned approximately 72% of the Company, and Imperial's parent, Laurentian Financial, Inc. directly owned approximately 10% of the Company as of December 31, 1993. Laurentian Financial, Inc. is a wholly-owned subsidiary of The Laurentian Group Corporation (Group). Effective January 1, 1994, Group became a subsidiary of Desjardins Laurentian Financial Corporation (Desjardins Laurentian). The ultimate owner of Desjardins Laurentian is La Confederation des caisses popularies et d'economie Desjardins du Quebec. BASIS OF PRESENTATION -- The accompanying financial statements have been prepared on the basis of generally accepted accounting principles (GAAP), which vary from accounting principles used by its subsidiaries to prepare financial statements filed with state insurance departments. INVESTMENTS -- Investments are reported as follows: - Fixed maturities (bonds, notes and redeemable preferred stocks) -- at cost, adjusted for amortization of premium or discount and other than temporary market value declines. The Company has the ability and intent to hold such investments to maturity and accordingly, reports these investments at amortized cost. - Equity securities (common and nonredeemable preferred stocks) -- at current market value, net of other than temporary impairments in market value. - Mortgage loans on real estate -- at unpaid balances, net of valuation allowances and adjusted for amortization of premium or discount. - Investment real estate -- at cost, net of valuation allowances and less allowances for depreciation computed on the straight-line method. - Policy loans -- at unpaid balances. - Short-term investments -- at cost, which approximates market. Realized gains and losses on sales of investments are recognized in net income. The cost of investments sold is determined on a specific identification basis. Temporary market value changes in equity securities are reflected as unrealized gains or losses directly in stockholders' equity net of related income taxes and, accordingly, have no effect on net income. The rate of amortization of discount or premiums on mortgage-backed securities is adjusted to reflect the current rate of prepayments on the related securities. The amortization adjustments are recorded as net investment income in the period that the rate of prepayment changed. DEFERRED POLICY ACQUISITION COSTS -- The costs of acquiring new business, which vary with and are directly related to the production of new business, have been deferred to the extent that such costs are deemed recoverable. Such costs include commissions, certain costs of policy issuance and underwriting, and certain variable agency expenses. F-7 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Costs deferred related to traditional life and health insurance are amortized over the premium paying period of the related policies, in proportion to the ratio of annual premium revenues to total anticipated premium revenues. Such anticipated premium revenues were estimated using the same assumptions used for computing liabilities for future policy benefits. Costs deferred related to universal life insurance and deferred annuity products are being amortized over the lives of the policies, in relation to the present value of estimated gross profits. Included in deferred policy acquisition costs are amounts representing the present value of future profits on business in force of acquired insurance subsidiaries, which represents the portion of the cost to acquire such subsidiaries that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the dates of acquisition. These amounts are amortized with interest over the estimated remaining life of the acquired policies. COSTS IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED -- The costs in excess of net assets of business acquired are being amortized to expense on a straight-line basis over periods ranging from twenty-five to forty years. PROPERTY AND EQUIPMENT -- Property and equipment is reported at cost. Depreciation is charged to operations over the estimated useful lives of the assets using the straight-line method. CASH -- For purposes of reporting cash flows, cash includes all cash and short-term deposits available on demand, including certificates of deposit with an initial term to maturity of less than three months. POLICY LIABILITIES -- Liabilities for future policy benefits of traditional ordinary life policies are computed using a net level premium method including assumptions as to investment yields, mortality, withdrawals, and other assumptions commensurate with the Company's past experience, modified as necessary to reflect anticipated trends, including possible unfavorable deviations. The liability for future policy benefits for universal life policies is equal to the accumulated fund balance including interest credits at rates declared by the Company. Interest rate assumptions range from 4.25% to 10%. Assumed mortality and withdrawals are based on various industry published tables modified as appropriate for the Company's actual experience. Morbidity and withdrawals are based on actual and projected experience. Life insurance in force, net of reinsurance, as of December 31, 1993 and 1992 was $2.6 billion and $2.9 billion, respectively. Liabilities for other policy claims and benefits payable include provisions for reported claims and an estimate based on ratios developed through prior experience for claims incurred but not reported. ASSETS HELD IN AND LIABILITIES RELATED TO SEPARATE ACCOUNTS -- Investment annuity deposits and related liabilities represent deposits maintained by several banks under a previously offered tax deferred annuity program. The Company receives an annual fee from each bank for sponsoring the program and depositors may elect to purchase an annuity from the Company at which time funds are transferred to the Company. F-8 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMIUM REVENUE AND RELATED EXPENSES -- For traditional life and accident and health products, premiums are recognized as revenue when legally collectible from policyholders. Policy reserves have been established in a manner which allocates policy benefits and expenses on a basis consistent with the recognition of related premiums and generally results in the recognition of profits over the premium-paying period of the policies. For interest-sensitive life and universal life products, premiums are recorded in a policyholder account which is classified as a liability. Revenue is recognized as amounts are assessed against the policyholder account for mortality coverage and contract expenses. Surrender benefits reduce the account value. Death benefits are expensed when incurred, net of the account value. For investment type contracts, principally deferred annuity contracts, premiums are treated as policyholder deposits and are recorded as liabilities. Benefits paid reduce the policyholder liability. Revenues for investment products consist of investment income, with profits recognized as investment income earned in excess of the amount credited to the contracts. Reserves for these contracts represent the premiums received, plus accumulated interest. Contract benefits that are charged to expense include benefit claims incurred in excess of related contract values, and interest credited to contract values. INCOME TAXES -- In 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Prior years' financial statements have not been restated to reflect the provisions of SFAS 109. The adoption of SFAS 109 resulted in a cumulative benefit of $400,000 or $0.05 per common share. REINSURANCE -- In 1993, the Company adopted Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (SFAS 113). In accordance with SFAS 113, insurance liabilities are reported before the effects of reinsurance. Reinsurance receivables, including amounts related to insurance liabilities, are reported as assets. Estimated reinsurance receivables are recognized in a manner consistent with the liabilities related to the underlying reinsured contracts. Except for financial statement presentation, SFAS 113 had no impact on the Company's results. RECENTLY ISSUED ACCOUNTING STANDARDS -- In May 1993, the Financial Accounting Standards Board (FASB), issued Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). This statement addresses the accounting and reporting on the ownership of investment securities. The statement specifically applies to the accounting for fixed income securities, which have historically been reported at amortized cost. SFAS 115 allows for the continued use of amortized cost reporting only for those securities that the Company has the positive intent and ability to hold to maturity. Any held securities not qualifying for amortized cost treatment must be reported at fair value. SFAS 115 is required to be adopted on January 1, 1994 and the effects of this statement on the Company have not been quantified. RECLASSIFICATIONS -- Certain reclassifications have been made in the previously reported financial statements to make the prior year amounts comparable to those of the current year. F-9 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. INVESTMENTS Major categories of net investment income for the years ended December 31 are summarized as follows:
1993 1992 1991 --------- --------- --------- Fixed maturities..................................................... $ 39,243 $ 37,718 $ 33,740 Equity securities.................................................... 485 656 933 Mortgage loans on real estate........................................ 3,331 4,721 5,249 Policy loans......................................................... 3,082 3,301 3,197 Short-term investments............................................... 1,053 1,094 1,571 Investment real estate............................................... 1,820 2,215 2,338 Other investments.................................................... 583 823 1,804 --------- --------- --------- 49,597 50,528 48,832 Less investment expenses............................................. 2,777 3,601 3,525 --------- --------- --------- Net investment income................................................ $ 46,820 $ 46,927 $ 45,307 --------- --------- --------- --------- --------- ---------
Realized investment gains (losses) for the years ended December 31 are summarized as follows:
1993 1992 1991 --------- --------- --------- Fixed maturities..................................................... $ 3,306 $ 2,799 $ 1,954 Equity securities.................................................... 310 658 807 Mortgage loans on real estate........................................ (205) (311) (26) Investment real estate............................................... (671) (3,093) 1,131 Other investments.................................................... 33 0 (170) --------- --------- --------- Total realized investment gains...................................... $ 2,773 $ 53 $ 3,696 --------- --------- --------- --------- --------- ---------
Included in realized investment gains for the years ended December 31 are adjustments for other than temporary impairments to the carrying value of investments, as follows:
1993 1992 1991 --------- --------- --------- Fixed maturities..................................................... $ (17) $ (199) $ (319) Equity securities.................................................... (100) (167) (356) Mortgage loans on real estate........................................ (235) (350) (150) Investment real estate............................................... 0 (3,937) (57) --------- --------- --------- Total impairments.................................................... $ (352) $ (4,653) $ (882) --------- --------- --------- --------- --------- ---------
The increase (decrease) in unrealized gains (losses) on fixed maturities and equity securities for the years ended December 31 is summarized as follows:
1993 1992 1991 --------- --------- --------- Fixed maturities (not tax effected).................................. $ 2,020 $ (6,792) $ 18,018 Equity securities (net of applicable deferred taxes)................. $ 1,451 $ 455 $ 1,136
Gross unrealized gains pertaining to equity securities were $2.4 million and $0.6 million and gross unrealized losses were $0.5 million and $0.8 million, before tax effect, at December 31, 1993 and 1992, respectively. F-10 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. INVESTMENTS (CONTINUED) Certain investments, principally fixed maturities and mortgage loans on which the accrual of interest has been discontinued, amounted to $1.3 million and $2.2 million at December 31, 1993 and 1992, respectively. Certain investments totalling $324.9 million and $313.1 million, principally fixed maturities and mortgages, were on deposit with insurance departments of various states for the protection of policyholders at December 31, 1993 and 1992, respectively. Of the fixed maturity investments, $8.8 million at amortized cost, less other than temporary impairments, were rated as below investment grade as of December 31, 1993. These investments have an associated market value of $9.1 million. As of December 31, 1992, $12.7 million at amortized cost, with an associated market value of $12.7 million were rated as below investment grade. Most of these securities have been evaluated by the National Association of Insurance Commissioners and found to be suitable for reporting at amortized cost. The Company does not expect these investment holdings to result in a material adverse effect on either the financial condition or results of operations. The Company's investment strategy is to hold fixed income instruments to maturity and to recognize other than temporary impairments on those investments where reduction in amounts to be received at maturity is likely. The amortized cost and estimated market values of investments in debt securities are as follows as of December 31, 1993:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- U.S. Treasury securities and obligations of U.S. government or other U.S. government corporations or agencies............................................ $ 135,816 $ 2,975 $ 1,038 $ 137,753 Obligations of states and political subdivisions..... 4,138 57 32 4,163 Debt securities issued by foreign governments........ 1,027 42 0 1,069 Corporate securities................................. 56,690 4,618 201 61,107 Private mortgage-backed securities................... 260,997 4,916 1,508 264,405 ----------- ----------- ----------- ----------- Total................................................ $ 458,668 $ 12,608 $ 2,779 $ 468,497 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Included in U.S. government obligations are $128.5 million of mortgage-backed securities, of which $91.0 million carry a U.S. government or quasi-government guarantee. Included in obligations of states and political subdivisions are $3.3 million of mortgage-backed securities which carry guarantees of various states. F-11 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. INVESTMENTS (CONTINUED) The amortized cost and estimated market value of debt securities as of December 31, 1993, 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.
ESTIMATED AMORTIZED MARKET COST VALUE ----------- ----------- Due in one year or less....................................................... $ 5,248 $ 5,348 Due after one year through five years......................................... 32,288 34,589 Due after five years through ten years........................................ 18,347 19,758 Due after ten years........................................................... 9,938 10,864 ----------- ----------- 65,821 70,559 Mortgage-backed securities.................................................... 392,847 397,938 ----------- ----------- $ 458,668 $ 468,497 ----------- ----------- ----------- -----------
The amortized cost and estimated market values of investments in debt securities are as follows as of December 31, 1992:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ----------- ----------- ----------- U.S. Treasury securities and obligations of U.S. government or other U.S. government corporations or agencies............................................ $ 133,350 $ 1,571 $ 604 $ 134,317 Obligations of states and political subdivisions..... 1,956 116 0 2,072 Debt securities issued by foreign governments........ 3,289 157 0 3,446 Corporate securities................................. 92,660 6,660 904 98,416 Private mortgage-backed securities................... 167,757 1,663 850 168,570 ----------- ----------- ----------- ----------- Total................................................ $ 399,012 $ 10,167 $ 2,358 $ 406,821 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Included in U.S. government obligations as of December 31, 1992 are $126.3 million of mortgage-backed securities, of which $107.8 million carry a U.S. government or quasi-government guarantee. Proceeds from sales, maturities and repayments of investments in fixed maturities for 1993, 1992 and 1991 totalled $128.5 million, $166.2 million, and $65.4 million, respectively. Related gross investment gains and losses for the period were as follows:
1993 1992 1991 --------- --------- --------- Gross gains.................................... $ 3,710 $ 4,286 $ 2,804 Gross losses................................... (387) (1,288) (531)
F-12 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 3. OTHER FINANCIAL INSTRUMENTS The following estimated fair value disclosures are limited to the reasonable estimates of the fair value of the Company's financial instruments, whether or not recognized in the balance sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot necessarily be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The disclosures exclude certain financial and all nonfinancial instruments. Therefore, presentation of the estimated fair value of assets based on the above methodology without a corresponding revaluation of liabilities associated with insurance contracts can be misinterpreted. POLICY LOANS Policy loans are issued with interest rates that range from 3 1/2% to 8%, depending on the terms of the insurance policy. Future cash flows of policy loans are uncertain and difficult to predict. As a result, management deems it impractical to calculate the fair value of policy loans. MORTGAGE LOANS AND REAL ESTATE Mortgage loans are valued at unpaid balances, net of valuation allowances and adjusted for amortization of discount or premium. The Company has not been active in mortgage lending for some time, and the carrying value of the loan portfolio has decreased from $73.0 million as of December 31, 1986 to the current balance of $29.4 million. Approximately 75% of the portfolio consists of commercial loans. After comparing the yield and maturity make-up of the portfolio with current offerings of mortgage-backed securities (both residential and commercial), the Company believes that the fair value of its mortgage loans approximates its current carrying value. Real estate is valued at cost less accumulated depreciation. Appraisals are obtained on a periodic basis and adjustments are made when necessary to ensure carrying values are not in excess of the underlying market values of the property. 4. DEBT Debt as of December 31 is summarized as follows:
1993 1992 --------- --------- Amounts due under Revolving Underwriting Facility....... $ 54,822 $ 54,454 --------- --------- --------- ---------
Repayment of the outstanding indebtedness under the Revolving Underwriting Facility (RUF) is due on April 25, 1994. The Company has been actively pursuing refinancing of its presently outstanding debt obligations. While there can be no assurances that the Company will be able to accomplish a refinancing of its presently outstanding debt, management believes that the Company has the ability to execute a plan which will accomplish the desired objectives before the RUF becomes due. The Company restructured its finances through the implementation of a five year RUF for maximum unsecured borrowings of $55 million on April 25, 1989. Pursuant to the terms of the RUF, the Company pays interest at a variable rate, with a maximum rate equal to 0.30% above the London Interbank Offered Rate (LIBOR). On March 6, 1991, the Company entered into an interest rate swap agreement which fixes the LIBOR component of the RUF at 7.94% beginning April 29, 1991 and continuing through April 25, 1994. There are covenants relating to the Company's activities and F-13 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 4. DEBT (CONTINUED) financial condition. With respect to the financial condition covenants, the Company must maintain a minimum net worth, as defined, and not permit a ratio of outstanding indebtedness, as defined, to net worth to be greater than 1.0 to 1.0. Interest expense included in the consolidated statements of operations was $4.9 million, $5.0 million, and $5.0 million for 1993, 1992 and 1991, respectively. Cash paid for interest was $4.9 million, $5.3 million, and $5.2 million for 1993, 1992 and 1991, respectively. 5. FEDERAL INCOME TAXES Deferred tax assets and liabilities computed at the statutory rate related to temporary differences as of December 31, 1993 are as follows: Deferred Tax Assets: Fixed maturities....................................................... $ 340 Net operating loss and credit carryforwards............................ 12,363 Value of business in force............................................. 2,966 Policyholder liabilities............................................... 1,056 Other assets and liabilities........................................... 3,423 --------- Total deferred tax assets................................................ 20,148 Valuation allowance.................................................... (8,735) --------- Deferred tax assets -- net of valuation allowance........................ 11,413 --------- Deferred Tax Liabilities: Deferred policy acquisition costs...................................... (19,833) Equity securities...................................................... (1,008) Mortgage loans and real estate......................................... (1,850) Property, plant and equipment.......................................... (549) --------- Deferred tax liabilities................................................. (23,240) --------- Total deferred taxes -- net.............................................. $ (11,827) --------- ---------
A valuation allowance of $8.7 million has been established as of December 31, 1993 for certain capital and operating loss carryforwards due to the uncertainty of their eventual realization. The valuation allowance was reduced by $588,000 during 1993 for the realization of benefits associated with the sale of certain real estate assets. During 1994 and in later years the valuation allowance against deferred tax assets will be continually evaluated and adjustments will be reflected in the Statement of Operations as an increase or decrease in income tax expense. For 1992 and 1991, under previously enacted GAAP, the total provision for federal income tax differed from amounts currently payable due to providing deferred taxes on certain items reported for financial statement purposes in periods which differed from those in which they were reported for tax purposes. F-14 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 5. FEDERAL INCOME TAXES (CONTINUED) Details of the deferred tax provision for the years ended December 31 are as follows:
1992 1991 --------- --------- Deferred policy acquisition costs.................................................. $ (1,301) $ 223 Benefit and other policy liability changes......................................... 4,403 2,103 --------- --------- $ 3,102 $ 2,326 --------- --------- --------- ---------
The Company's effective income tax rate varied from the statutory federal income tax rate for the years ended December 31 as follows:
1993 1992 1991 --------- --------- --------- Statutory federal income tax rate applied to pre-tax income.............. $ 3,869 $ 3,460 $ 2,796 Dividends received and tax-exempt interest deduction..................... (36) (44) (125) Reduction in valuation allowance......................................... (588) 0 0 Operating losses for which no benefit has been recognized................ 0 739 812 Permanent differences related to sales of subsidiaries................... 194 0 0 Net effects of purchase accounting adjustments........................... 0 (888) (728) Other items, net......................................................... 145 196 22 --------- --------- --------- Income tax expense on income............................................. $ 3,584 $ 3,463 $ 2,777 --------- --------- --------- --------- --------- ---------
Under previous life insurance company tax laws, a portion of the Company's gain from operations which was not subject to current income taxation was accumulated for tax purposes in memoranda accounts designated as the Policyholders' Surplus Accounts. The aggregate accumulation in these accounts at December 31, 1993 was approximately $9.6 million. The unrecognized deferred tax liability related to this temporary difference is $3.3 million. Should the accumulation in the Policyholders' Surplus Accounts exceed certain stated maximums, or if certain other events occur, all or a portion of the Policyholders' Surplus Accounts may be subject to federal income taxes at rates then in effect. Deferred taxes have not been established for such amounts since the Company does not anticipate paying taxes on the Policyholders' Surplus Accounts. For federal income tax return purposes, the Company has total estimated unused tax loss carryforwards as of December 31, 1993 as follows:
GENERATED AMOUNT EXPIRATION - ------------------------------------------------ --------- ---------------------- Pre-1984........................................ $ 164 1994 through 1998 1984............................................ 41 1999 1985............................................ 0 2000 1986............................................ 5,694 2001 1987............................................ 10,768 2002 1988............................................ 4,855 2003 1989............................................ 10,801 2004 1990............................................ 3,751 2005 1991............................................ 3,816 2006 1992............................................ 2,347 2007 1993............................................ 310 2008 --------- $ 42,547 --------- ---------
F-15 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 5. FEDERAL INCOME TAXES (CONTINUED) For federal income tax purposes, the Company has total estimated investment tax credit carryforwards of $0.2 million which expire in years 1997 through 1999. The Company has a total estimated alternative minimum tax (AMT) carryforwards of $1.0 million which can be utilized in future tax years to reduce current taxes payable. Utilization of this AMT credit is limited to the excess, if any, of the Company's regular tax liability over its AMT liability. However, this credit can be carried forward indefinitely into future tax years. Included in the tax loss and credit carryforwards are certain amounts that may only be utilized by the company that generated the loss. The Company recognized tax benefits of $2.7 million and $2.2 million, in 1992 and 1991, respectively, associated with certain tax loss carryforwards related to previous acquisitions. For 1992 and 1991, under the then enacted GAAP pronouncements, these benefits were recorded as an adjustment to the purchase price allocation and were reflected as decreases in Deferred Income Taxes, Costs In Excess of Net Assets Acquired, and Deferred Policy Acquisition Costs in the consolidated balance sheets. For 1993, under SFAS 109, deferred tax assets have been established for the benefits arising from net loss and credit carryforwards of the Company and its subsidiaries. Future utilization of the net loss and credit carryforwards of the life insurance companies will not affect the Company's effective tax rate in those years because the full tax benefit for these items is reflected in the current year's financial statements. A portion of the benefit realized from the future utilization of the net losses of the non-life companies will affect the Company's effective tax rates in those years because a valuation allowance has been established against some of these deferred tax assets. Cash paid for federal income taxes, principally alternative minimum taxes, was $0.3 million, $0.4 million, and $0.3 million for 1993, 1992 and 1991, respectively. 6. REDEEMABLE PREFERRED STOCK The Company has authorized 5 million shares of preferred stock of which approximately 58,000 shares were issued on July 7, 1987. Each share of Series A Redeemable Preferred Stock is entitled to receive cumulative annual dividends of $6 per share. Each share of the Series A Redeemable Preferred Stock is convertible into 3.75 shares of the Company's common stock until July 7, 1994, and 2.75 shares from July 8, 1994 until July 7, 1997, subject to adjustment in certain events. The stock has a liquidation preference of $100 per share plus accrued dividends and is subject to mandatory redemption provisions which provide that no more than 80% of the original issue will be outstanding at the end of the sixth year after the issuance, with further reductions of 20% of the original issue being required in each of the following four years. During 1993 and 1992, the Company completed tender offers wherein 4,534 and 4,697 shares, respectively, of the redeemable preferred stock were purchased for $87 and $75 per share, respectively, and subsequently retired. The mandatory redemption provision for 1994 has not been satisfied as a result of the 1993 tender offer. In order to satisfy the 1994 mandatory redemption provision, the Company must redeem 6,868 additional shares. The remaining 4.9 million unissued shares of preferred stock may be divided into series with rights and preferences established at the discretion of the Board of Directors. 7. STOCKHOLDERS' EQUITY AND RESTRICTIONS Dividend payments to the Company from its insurance subsidiaries are restricted by state insurance law as to the amount that may be paid without prior notice or approval by insurance regulatory authorities. The maximum dividend distribution which can be made by the Company's insurance subsidiaries during 1994 without prior notice or approval is $7.0 million. Dividend payments of $4.3 million, $2.1 million, and $4.0 million were made to the Company by its insurance subsidiaries during the years ended December 31, 1993, 1992 and 1991, respectively. F-16 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 7. STOCKHOLDERS' EQUITY AND RESTRICTIONS (CONTINUED) In connection with the 1989 acquisition of Rushmore, the policyholders of Rushmore are entitled to 90% of the statutory accounting earnings arising from the existing participating business during the ten years after the acquisition. In addition, the statutory surplus which was in existence at the date of acquisition has been distributed to the policyholders. Approximately 17% of the Company's insurance in force is related to participating insurance policies. A portion of the Company's earnings is allocated to these policies based on excess interest earnings, mortality savings and premium loading experience. Premium income and dividends allocated to participating policies during the past three years were as follows:
1993 1992 1991 --------- --------- --------- Premium income............................................. $ 12,924 $ 15,131 $ 16,877 Dividends allocated........................................ 2,540 3,894 3,695
8. STOCK OPTION AND OTHER INCENTIVE PLANS STOCK OPTION PLAN Under the terms of the Company's Amended and Restated Executive Stock Option Plan (Plan), options to purchase up to the greater of 800,000 shares or 10.3% of the Company's outstanding common stock may be granted to officers and key employees. Options are granted at not less than market value on the date of grant and are exercisable during the term fixed by the Company, but not earlier than six months, nor later than ten years after the date of the grant. Transactions for 1993, 1992, and 1991 are as follows:
1993 1992 1991 --------- --------- --------- (AMOUNTS IN THOUSANDS EXCEPT DOLLAR AMOUNTS) Options outstanding, January 1................................. 351 266 279 Granted........................................................ 190 139 98 Exercised...................................................... 37 8 0 Cancelled...................................................... 49 46 111 --------- --------- --------- Options outstanding, December 31............................... 455 351 266 --------- --------- --------- --------- --------- --------- Option price range at December 31.............................. $2.125 $2.125 $2.125 to to to $6.875 $ 5.25 $ 5.25 Options exercisable at December 31 236 129 118 Options available for grant at December 31 345 449 302
The Plan allows the Company to grant up to 800,000 Rights to officers and key employees. Rights entitle the grantee to receive the appreciation in value of the shares (the difference between market price of a common share at the time of exercise of the Rights and the base price) in cash. The Rights are exercisable during the term fixed by the Company, but in no case sooner than six months or later than ten years after the date of grant. No Rights were exercised or cancelled during 1993. There are currently 349,044 rights granted at exercise prices ranging from $2.125 to $5.50 per share. Compensation expense recorded in 1993, 1992 and 1991 with respect to these Rights was approximately $720,000, $966,000, and $262,000, respectively. F-17 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 8. STOCK OPTION AND OTHER INCENTIVE PLANS (CONTINUED) DEFERRED AND INCENTIVE COMPENSATION PLANS The Company has various incentive and deferred compensation plans administered by the Human Resources Committee of the Board of Directors. In 1993, 1992 and 1991, the Company recognized associated expenses of approximately $698,000, $532,000, and $382,000, respectively. 9. RELATED PARTY MATTERS The Company paid or accrued approximately $209,000, $214,000, and $431,000, to Group and its affiliates for various services in 1993, 1992, and 1991, respectively. During the fourth quarter of 1991, the Company obtained regulatory approval for the acquisition of a block of insurance policies from Imperial. The effect of this acquisition increased total revenues by $1.2 million. 10. EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) profit sharing savings plan for employees who meet certain eligibility requirements. This plan provides for a Company matching contribution of 25-50% of eligible employee contributions up to 6% of salary. Supplemental Company contributions are provided based on consolidated earnings. The Company contributed approximately $148,000, $98,000 and $58,000 to the 401(k) profit sharing savings plan during 1993, 1992 and 1991, respectively, for employee matching. Effective January 1, 1993, the Company instituted a profit sharing element which provides for contributions by the Company ranging from 2-6% of the annual salary of eligible employees. An additional $425,000 was accrued in 1993 for the plan's profit sharing element. In January 1993, the Company filed a standard termination notice with the Pension Benefit Guaranty Corporation (PBGC) for the purpose of terminating the Company's former defined benefit pension plan. The Company ceased to accrue benefits for service cost as of December 31, 1992, and all participants in the plan became fully vested at that date. On March 22, 1993 a favorable determination was issued by the Internal Revenue Service on the plan termination. The Company then distributed plan assets to vested participants in accordance with PBGC established formulas. The Company made funding contributions of $1.1 million to satisfy all plan obligations. Distribution was in the form of either a rollover to the Company 401(k) profit sharing savings plan, a purchase of a non-participating annuity contract, or a lump sum cash payment. Net pension cost associated with the former defined benefit pension plan for 1992 and 1991 included the following components:
1992 1991 ------ ------ Service cost-benefits earned during the year................ $ 387 $ 401 Interest cost on projected benefit obligation............... 465 437 Actual return on plan assets................................ (350) (672) Net amortization and deferral............................... (86) 349 ------ ------ Net pension cost............................................ $ 416 $ 515 ------ ------ ------ ------
The pension cost for 1992 includes a charge of $182,000 relating to a partial settlement of the plan's liabilities resulting from the purchase of certain annuities, and a credit of $262,000 relating to the cessation of service cost accruals as of December 31, 1992 as a result of the Company's decision to terminate the plan. F-18 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) Assumptions used in determining pension cost for the former defined benefit plan in 1992 and 1991 were as follows:
1992 1991 ---- ---- Weighted average discount rate.............................. 8% 8% Rates of increase in compensation level..................... 6% 6% Expected long-term rate of return on assets................. 8% 8%
The funded status of the pension plan as of December 31, 1992 was as follows: Actuarial present value of benefit obligations: Accumulated benefit obligation........................................... $ 3,699 --------- --------- Projected benefit obligation for service rendered to date.................. $ 3,699 Plan assets at fair value.................................................. 2,671 --------- Projected benefit obligation in excess of plan assets...................... 1,028 Unrecognized net (gain) and unrecognized prior service cost................ 0 Unrecognized net transition obligation..................................... 0 --------- Accrued pension costs...................................................... $ 1,028 --------- ---------
11. REINSURANCE The Company is contingently liable with respect to reinsurance ceded in that the liability for such reinsurance would become that of the Company upon the failure of any reinsurer to meet its obligations under a particular reinsurance agreement. The maximum liability which the Company retains on any one life is $125,000 under ordinary and group policies. The Company had reinsured approximately $0.8 billion of life insurance in force as of December 31, 1993 and 1992. Total premium income ceded during the years ended December 31, 1993, 1992, and 1991 was $6.8 million, $6.4 million, and $12.9 million, respectively. Reinsurance recoveries for the years ended December 31, 1993, 1992 and 1991 were $6.8 million, $5.7 million and $10.7 million, respectively. Included in reinsurance receivables are $1.7 million and $2.6 million representing amounts recoverable for claims ceded to reinsurers as of December 31, 1993 and 1992, respectively. Included in other liabilities are $0.4 million and $1.0 million representing amounts payable for premiums ceded to reinsurers as of December 31, 1993 and 1992, respectively. As of December 31, 1993, reinsurance receivables with carrying values of $25.1 million were associated with two reinsurers. 12. COMMITMENTS AND CONTINGENCIES LEASES Other liabilities include a capitalized lease obligation associated with the financing and leasing of Prairie's home office. In addition, the Company leases office space, data processing equipment and certain other equipment under operating leases expiring on various dates during 1994. F-19 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) Aggregate maturities of the capitalized lease obligation and future minimum aggregate rental payments required under non-cancelable operating leases as of December 31, 1993, are as follows:
CAPITALIZED OPERATING LEASE LEASE YEAR ENDING DECEMBER 31, OBLIGATION OBLIGATIONS - ------------------------------------------------------------------ ------------- ------------- 1994.............................................................. $ 314 $ 566 1995.............................................................. 314 0 1996.............................................................. 201 0 1997.............................................................. 0 0 1998.............................................................. 0 0 ----- ----- 829 $ 566 ----- ----- Less amount representing interest................................. 88 ----- $ 741 ----- -----
Rental expense for operating leases was approximately $0.7 million in 1993, $1.7 million in 1992, and $1.6 million in 1991. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to reduce its own exposure to fluctuations in interest rates. As of December 31, 1993, the Company was a party to a five year Revolving Underwriting Facility (RUF) for maximum unsecured borrowings of $55 million maturing in April of 1994. Pursuant to the RUF, the Company pays interest at a variable rate, with a maximum rate equal to 0.30% above the London Interbank Offered Rate (LIBOR). On March 6, 1991, the Company entered into an Interest Rate Swap Agreement (SWAP AGREEMENT) to reduce the impact of changes in interest rates on its floating debt. The SWAP AGREEMENT is with a commercial bank for a notional amount of $55 million. This agreement has effectively changed the Company's interest rate exposure on the RUF from a floating LIBOR rate to a fixed LIBOR rate of 7.94%. The SWAP AGREEMENT matures at the time of the RUF maturity. The Company is exposed to interest rate risk in the event of nonperformance by the commercial bank. INVESTMENT PORTFOLIO CREDIT RISK BONDS: The Company's bond investment portfolio is predominately comprised of investment grade securities. At December 31, 1993, approximately $8.8 million in debt securities (1.9% of debt securities) are considered "below investment grade". Securities are classified as "below investment grade" by utilizing rating criteria employed by independent bond rating agencies. The Company has approximately 87% of its $459 million fixed maturity portfolio invested in assets of either U.S. government agency pass-through mortgages (GNMA, FNMA, or FHLMC) or "private-label" mortgage-backed securities as of December 31, 1993. MORTGAGE LOANS: Mortgage loans are primarily related to underlying real property investments in office and apartment buildings and retail/commercial and industrial facilities. F-20 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) As of December 31, 1993, delinquent mortgage loans (i.e., loans where payments on principal and/ or interest are over 60 days past due) amounted to $1.3 million, or 4.4% of the loan portfolio. The Company had loans outstanding in the states of Colorado and Florida, with principal balances in the aggregate exceeding $4 million. LITIGATION The Company is involved in certain litigation arising in the ordinary course of business. Management does not anticipate any judgments against the Company in excess of liabilities already established which would have a material impact, individually or in the aggregate, on the financial position or results of operations of the Company. 13. STATUTORY FINANCIAL STATEMENTS Insurance subsidiaries of the Company are required to file statutory financial statements with state insurance regulatory authorities. Accounting principles used to prepare these financial statements differ from GAAP. Consolidated net income and shareholders' equity on a statutory basis for the insurance companies for the years ended December 31 are as follows:
1993 1992 1991 --------- --------- --------- Net income................................................. $ 7,625 $ 6,298 $ 6,982 Capital and surplus........................................ 59,167 55,240 48,024
F-21 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 14. SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- 1993 REVENUES: Premiums........................................................... $ 19,664 $ 20,650 $ 21,078 $ 20,051 Net investment income.............................................. 11,353 12,030 12,468 10,969 Realized investment gains.......................................... 236 1,028 851 658 Other income....................................................... 906 952 1,120 240 --------- --------- --------- --------- 32,159 34,660 35,517 31,918 --------- --------- --------- --------- BENEFITS AND EXPENSES: Benefits and settlement expenses................................... 19,442 19,753 20,759 17,161 Amortization of deferred policy acquisition costs.................. 3,164 3,164 2,857 4,041 Insurance and other expenses....................................... 7,156 8,778 8,849 7,752 --------- --------- --------- --------- 29,762 31,695 32,465 28,954 --------- --------- --------- --------- Income before income taxes and cumulative effect of accounting change............................................................ 2,397 2,965 3,052 2,964 INCOME TAX EXPENSE (BENEFIT): Current............................................................ 50 160 190 (150) Deferred........................................................... 645 756 765 1,168 --------- --------- --------- --------- 695 916 955 1,018 --------- --------- --------- --------- Income before cumulative effect of accounting change............... 1,702 2,049 2,097 1,946 CUMULATIVE EFFECT OF ACCOUNTING CHANGE: Adoption of SFAS 109............................................. 400 0 0 0 --------- --------- --------- --------- Net income......................................................... $ 2,102 $ 2,049 $ 2,097 $ 1,946 --------- --------- --------- --------- --------- --------- --------- --------- EARNINGS PER SHARE: Income before cumulative effect of accounting change............... $ 0.22 $ 0.26 $ 0.27 $ 0.25 Cumulative effect of accounting change: Adoption of SFAS 109............................................. 0.05 0.00 0.00 0.00 --------- --------- --------- --------- Net income......................................................... $ 0.27 $ 0.26 $ 0.27 $ 0.25 --------- --------- --------- --------- --------- --------- --------- ---------
F-22 LAURENTIAN CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 14. SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- 1992 REVENUES: Premiums........................................................... $ 19,014 $ 19,999 $ 19,720 $ 21,453 Net investment income.............................................. 11,665 11,029 11,605 12,628 Realized investment gains (losses)................................. 700 813 (506) (954) Other income....................................................... 707 593 721 1,211 --------- --------- --------- --------- 32,086 32,434 31,540 34,338 --------- --------- --------- --------- BENEFITS AND EXPENSES: Benefits and settlement expenses................................... 17,547 18,264 18,014 18,666 Amortization of deferred policy acquisition costs.................. 3,413 2,957 3,163 3,956 Insurance and other expenses....................................... 8,367 8,399 7,990 9,485 --------- --------- --------- --------- 29,327 29,620 29,167 32,107 --------- --------- --------- --------- Income before income taxes......................................... 2,759 2,814 2,373 2,231 INCOME TAX EXPENSE (BENEFIT): Current............................................................ 148 150 162 (99) Deferred........................................................... 1,088 961 473 580 --------- --------- --------- --------- 1,236 1,111 635 481 --------- --------- --------- --------- NET INCOME......................................................... $ 1,523 $ 1,703 $ 1,738 $ 1,750 --------- --------- --------- --------- --------- --------- --------- --------- EARNINGS PER SHARE................................................. $ 0.18 $ 0.20 $ 0.21 $ 0.21 --------- --------- --------- --------- --------- --------- --------- ---------
F-23 SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS LAURENTIAN CAPITAL CORPORATION (PARENT COMPANY) (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, ------------------------ 1993 1992 ----------- ----------- Fixed maturities, at cost............................................................ $ 2,727 $ 3,238 Equity securities, at market......................................................... 10,372 1,403 Investment in real estate............................................................ 450 436 Cash................................................................................. 183 1,774 Investments in and advances to subsidiaries: Investments in subsidiaries*....................................................... 112,802 107,223 Surplus debenture*................................................................. 30,500 35,000 Due from subsidiaries*............................................................. 826 820 Other................................................................................ 1,608 1,108 ----------- ----------- $ 159,468 $ 151,002 ----------- ----------- ----------- ----------- LIABILITIES Accrued expenses and other liabilities............................................... $ 2,800 $ 2,912 Deferred income tax (benefit)........................................................ (3,791) (3,000) Debt................................................................................. 54,822 54,454 ----------- ----------- Total liabilities.............................................................. 53,831 54,366 ----------- ----------- Redeemable preferred stock........................................................... 4,153 4,606 ----------- ----------- STOCKHOLDERS' EQUITY Common stock......................................................................... 406 406 Capital in excess of par value....................................................... 59,071 59,010 Net unrealized gains (losses) on equity securities (substantially all from subsidiaries).............................................................. 1,253 (198) Treasury stock, at cost.............................................................. (2,818) (2,837) Retained earnings (including undistributed income of subsidiaries)................... 43,572 35,649 ----------- ----------- Total stockholders' equity..................................................... 101,484 92,030 ----------- ----------- $ 159,468 $ 151,002 ----------- ----------- ----------- ----------- - ------------------------ * Eliminated in consolidation.
S-1 SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS LAURENTIAN CAPITAL CORPORATION (PARENT COMPANY) (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- REVENUES Income from subsidiaries: Management and service fees*................................................. $ 6,232 $ 6,496 $ 6,550 Dividends*................................................................... 4,332 2,133 4,000 Interest income*............................................................. 2,182 1,791 0 Realized investment loss*.................................................... 0 (1,452) 0 Net investment income.......................................................... 524 541 936 Realized investment gains (losses)............................................. 99 0 (41) Other income................................................................... 8 14 7 --------- --------- --------- 13,377 9,523 11,452 --------- --------- --------- EXPENSES Operating and administrative................................................... 5,041 5,986 5,612 Depreciation and amortization.................................................. 180 246 268 Interest....................................................................... 4,838 4,961 4,884 --------- --------- --------- 10,059 11,193 10,764 --------- --------- --------- Income (loss) before federal income taxes, cumulative effect of accounting change and equity in income of subsidiaries................................... 3,318 (1,670) 688 Income tax benefit............................................................. (347) (500) (161) --------- --------- --------- Income (loss) before cumulative effect of accounting change and equity in income of subsidiaries........................................................ 3,665 (1,170) 849 --------- --------- --------- Cumulative effect of accounting change: Adoption of SFAS 109......................................................... 400 0 0 --------- --------- --------- Income (loss) before equity in income of subsidiaries.......................... 4,065 (1,170) 849 Equity in income of subsidiaries, less dividends received...................... 4,129 7,884 4,597 --------- --------- --------- Net income..................................................................... $ 8,194 $ 6,714 $ 5,446 --------- --------- --------- --------- --------- --------- - ------------------------ * Eliminated in consolidation.
S-2 SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS LAURENTIAN CAPITAL CORPORATION (PARENT COMPANY) (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1993 1992 1991 --------- --------- --------- Cash flow from operations: Net income.................................................................... $ 8,194 $ 6,714 $ 5,446 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of adoption of SFAS 109................................... (400) 0 0 Realized investment losses (gains).......................................... (99) 1,452 41 Depreciation and amortization............................................... 180 246 268 Equity in subsidiaries' earnings*........................................... (8,461) (10,017) (8,597) Dividends from subsidiaries*................................................ 4,332 2,133 4,000 Increase (decrease) in accrued expenses and liabilities..................... (111) 361 87 Increase (decrease) in deferred income taxes................................ (347) (439) (161) Other items, net............................................................ 75 (953) (202) --------- --------- --------- Net cash provided by (used in) operations................................. 3,363 (503) 882 --------- --------- --------- Cash flow from investing activities: Sale of investments to subsidiaries*........................................ 0 4,621 0 Repayments of surplus debenture*............................................ 4,500 0 0 Purchase of real estate..................................................... (13) (12) 0 Purchase of property and equipment.......................................... (172) (129) (96) Purchases of investments.................................................... (8,987) (739) (104) --------- --------- --------- Net cash provided by (used in) investing activities....................... (4,672) 3,741 (200) --------- --------- --------- Cash flow from financing activities: Proceeds from borrowing..................................................... 368 257 878 Net (purchases) sales of treasury shares, at cost........................... 19 (2,837) 0 Redemption of preferred stock............................................... (395) (351) 0 Dividends paid on preferred stock........................................... (271) (303) (297) Other....................................................................... (3) 0 (9) --------- --------- --------- Net cash provided by (used in) financing activities....................... (282) (3,234) 572 --------- --------- --------- Net increase (decrease) in cash................................................. (1,591) 4 1,254 Cash at beginning of year....................................................... 1,774 1,770 516 --------- --------- --------- Cash at end of year............................................................. $ 183 $ 1,774 $ 1,770 --------- --------- --------- --------- --------- --------- - ------------------------ * Eliminated in consolidation.
S-3 LAURENTIAN CAPITAL CORPORATION (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS The condensed financial statements of Laurentian Capital Corporation (the parent company) should be read in conjunction with the Laurentian Capital Corporation and Subsidiaries consolidated financial statements and notes thereto. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying parent company financial statements reflect only the accounts of Laurentian Capital Corporation. The parent company's investment in its subsidiaries is reflected on the equity basis. Intercompany accounts and transactions have not been eliminated since consolidated financial statements are not presented. 2. RELATED PARTY TRANSACTIONS During 1992, the Company restructured its holding in Prairie States Life Insurance Company (Prairie). Following approval by the Division of Insurance for the State of South Dakota, Prairie was sold to a wholly-owned life insurance subsidiary of the Company, Prairie National Life Insurance Company, of Rapid City, South Dakota (Prairie National). As part of the consideration for Prairie National purchasing Prairie, Prairie National issued capital stock and a $35 million surplus debenture to the parent company. Interest and repayment of principal on the debenture is subject to prior approval by the South Dakota Division of Insurance. Since April 4, 1992, the date of the restructuring, the Division of Insurance has approved $2.2 million and $1.8 million in interest payments associated with the surplus debenture for the years ended December 31, 1993 and 1992, respectively. Principal payments of $4.5 million were approved by the Division of Insurance during 1993. During 1992, the parent company sold equity securities to its insurance subsidiaries at fair market value at the dates of sale. Total proceeds, which consisted of cash and marketable securities, amounted to $7.9 million and resulted in a loss on transfer of $1.5 million. S-4 SCHEDULE VI -- REINSURANCE LAURENTIAN CAPITAL CORPORATION AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E COL. F - --------------------------------- ---------- ---------- --------- ---------- --------------- ASSUMED CEDED TO FROM PERCENTAGE OF GROSS OTHER OTHER AMOUNT ASSUMED AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET ---------- ---------- --------- ---------- --------------- Year ended December 31, 1993: Life insurance in force........ $3,426,591 $ 817,980 $ 32,206 $2,640,817 ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Premium: Life insurance............... $ 68,845 $ 6,685 $ 297 $ 62,457 0.5% Accident/health insurance.... 19,091 105 0 18,986 0 ---------- ---------- --------- ---------- Total...................... $ 87,936 $ 6,790 $ 297 $ 81,443 0.4% ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Year ended December 31, 1992: Life insurance in force........ $3,733,568 $ 851,252 $ 13,484 $2,895,800 ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Premium: Life insurance............... $ 68,621 $ 6,289 $ 370 $ 62,702 0.6% Accident/health insurance.... 17,619 135 0 17,484 0 ---------- ---------- --------- ---------- Total...................... $ 86,240 $ 6,424 $ 370 $ 80,186 0.5% ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Year ended December 31, 1991: Life insurance in force........ $4,094,329 $1,059,678 $ 37,838 $3,072,489 ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Premium: Life insurance............... $ 74,842 $ 12,714 $ 1,275 $ 63,403 2.0% Accident/health insurance.... 16,290 142 0 16,148 0 ---------- ---------- --------- ---------- Total...................... $ 91,132 $ 12,856 $ 1,275 $ 79,551 1.6% ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
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