Mercury Insurance 2008 Annual Report Download - page 55

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Share Repurchases
Under the Company’s stock repurchase program, the Company may purchase over a one-year period up to $200 million
of Mercury General’s common stock. The purchases may be made from time to time in the open market at the discretion of
management. The program will be funded by dividends received from the Company’s insurance subsidiaries that generate cash
flow through the sale of lower yielding tax-exempt bonds and internal cash generation. Since the inception of the program in
1998, the Company has purchased 1,266,100 shares of common stock at an average price of $31.36. The purchased shares were
retired. No stock has been purchased since 2000.
Capital Expenditures
The Company has no direct investment in real estate that it does not utilize for operations. In February 2008, the
Company acquired an 88,300 square foot office building in Folsom, California for approximately $18.4 million. Since January
2009, when a lease on previously occupied space expired, the building has been occupied by the Company’s Northern California
employees. The Company financed the transaction through an $18 million secured bank loan.
The NextGen project began in 2002 and total capital investment has been approximately $41 million as of December 31,
2008. The Mercury First project began in 2006 and the total capital investment has been approximately $24 million as of
December 31, 2008. Although the majority of the related software development costs have been expended, there will be some
Mercury First development and implementation costs and NextGen implementation costs in the future.
Contractual Obligations
The Company has obligations to make future payments under contracts and credit-related financial instruments and
commitments. At December 31, 2008, certain long-term aggregate contractual obligations and credit-related commitments are
summarized as follows:
Total 2009 2010 2011 2012 2013 Thereafter
Debt (including interest) 301,395$ 13,644$ 13,644$ 135,217$ 120,765$ 18,125$ -$
Lease obligations 36,693 10,172 9,563 7,550 6,241 2,988 179
Losses and loss adjustment expenses 1,133,508 718,372 276,701 99,269 31,555 7,611 -
Contingent consideration * 34,700 - 17,350 17,350 - - -
Total Contractual Obligations 1,506,296$ 742,188$ 317,258$ 259,386$ 158,561$ 28,724$ 179$
Payments Due by Period
(Amounts in thousands)
Contractual Obligations
* Based on the projected performance of the AIS business, the Company does not expect to pay the contingent consideration over
the two years.
Notes to Contractual Obligations Table:
The interest included in the Company’s debt obligations was calculated using the fixed rates of 7.25% on $125 million of
senior notes, 4.25% under an $18 million credit facility, and 3.18% under a $120 million credit facility. The Company is
party to an interest rate swap of its fixed rate on $125 million of senior notes for a floating rate of six month LIBOR plus
107 basis points. Using the 2008 actual effective annual interest rate of 3.3% for the remaining term of $125 million of
senior notes, the total contractual obligations would be approximately $13 million lower than the total debt contractual
obligations stated above.
The Company’s outstanding debt contains various terms, conditions and covenants which, if violated by the Company,
would result in a default and could result in the acceleration of the Company’s payment obligations thereunder.
Unlike many other forms of contractual obligations, loss and loss adjustment expenses do not have definitive due dates
and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and loss
adjustment expense payments to be made by period, as shown above, are estimates.
The table excludes FIN No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”) liabilities of $5 million
related to uncertainty in tax settlements as the Company is unable to reasonably estimate the timing of related future
payments.
The table excludes the contingent consideration arrangement related to the AIS acquisition.