-----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, Kb1J98TGkL4uTjjcw891PWCTnskRQt2oJDM9Z+sdljV7X4hdZwbVLe8UAW28GCiZ i3Xmqprd5cpOQb2bdAt82Q== 0000050982-95-000025.txt : 19951119 0000050982-95-000025.hdr.sgml : 19951119 ACCESSION NUMBER: 0000050982-95-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCONTINENTAL LIFE CORP CENTRAL INDEX KEY: 0000050982 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 221890938 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07288 FILM NUMBER: 95591951 BUSINESS ADDRESS: STREET 1: THE AUSTIN CENTRE STREET 2: 701 BRAZOS 12TH FL CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124045050 MAIL ADDRESS: STREET 1: 701 BRAZOS STE 1400 STREET 2: ATTN KELLYE S SEEKATZ CITY: AUSTIN STATE: TX ZIP: 78701 FORMER COMPANY: FORMER CONFORMED NAME: INTERCONTINENTAL FINANCIAL CORP DATE OF NAME CHANGE: 19781019 FORMER COMPANY: FORMER CONFORMED NAME: INTERCONTINENTAL LIFE CO DATE OF NAME CHANGE: 19600201 10-Q 1 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 the Quarterly Period Ended September 30, 1995 Commission File Number 2-39310 INTERCONTINENTAL LIFE CORPORATION New Jersey 22-1890938 (State of Incorporation) (I.R.S. Employer Identification Number) The Austin Centre,701 Brazos, 12th Floor Austin, Texas 78701 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (512)404-5000 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 Number of common shares outstanding ($.22 Par Value) at end of period: 4,145,329. INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES INDEX Page No. Part I - Financial Information Consolidated Balance Sheets September 30, 1995 and December 31, 1994.......... Consolidated Statements of Income For the three and nine month periods ended September 30, 1995 and 1994....................... Consolidated Statements of Cash Flows For the three and nine month periods ended September 30, 1995 and 1994....................... Notes to Consolidated Financial Statements............. Management's Discussion and Analysis of Financial Conditions and Results of Operations.... Part II Computations of Earnings Per Share..................... Part III Other Information....................................... Signature Page.......................................... Item 1. Financial Statements INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars) Sept. 30, December 31, 1995 1994 Unaudited ASSETS Investments: Fixed maturities, at amortized cost (market value approximates $18,879 and $24,175) $ 17,027 $ 23,776 Fixed maturities available for sale at market value (amortized cost of $463,268 and $388,263) 469,354 357,084 Equity securities at market (cost approximates $408 and $368) 1,612 1,243 Policy loans 52,879 48,096 Mortgage loans 16,415 17,055 Invested real estate and other invested assets 14,729 5,580 Short-term investments 83,925 94,841 Total investments 655,941 547,675 Cash and cash equivalents 1,118 5,563 Notes receivable from affiliates 60,985 60,759 Accrued investment income 8,868 8,495 Agent advances and other receivables 15,879 19,778 Reinsurance receivables 13,315 14,066 Property and equipment, net 4,493 4,418 Real estate occupied by the Company, net 36,169 34,418 Deferred policy acquisition costs 24,082 25,282 Present value of future profits of acquired businesses 51,016 46,153 Deferred financing costs 1,855 2,462 Other assets 9,002 6,506 Separate account assets 409,095 373,419 Total Assets $1,291,818 $1,148,994 (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars) Sept. 30, December 31, 1995 1994 Unaudited LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Policy liabilities and contractholder deposit funds Future policy benefits $ 126,527 $ 117,761 Contractholder deposit funds 550,187 490,232 Unearned premiums 11,514 12,203 Other policy claims & benefits payable 7,864 8,621 696,092 628,817 Other policyholders' funds 2,740 2,669 Senior loans 63,885 66,585 Deferred federal income taxes 19,028 2,662 Other liabilities 19,165 24,781 Separate account liabilities 406,135 371,173 Total liabilities 1,207,045 1,096,687 Commitments and contingencies Redeemable preferred stock: Class A Preferred, $1 par value, 5,000,000 shares authorized and issued 5,000 5,000 Class B Preferred, $1 par value, 15,000,000 shares authorized and issued 15,000 15,000 20,000 20,000 Redeemable Preferred Treasury Stock at cost, 20,000,000 shares (20,000) (20,000) -0- -0- Shareholders' equity: Common stock, $.22 par value, 10,000,000 shares authorized; 5,136,239 and 5,107,239 shares issued, 4,145,329 and 4,116,329 shares outstanding in 1995 and 1994 1,130 1,124 Additional paid-in capital 3,190 2,854 Net unrealized appreciation of equity securities 782 568 Net unrealized gain (loss) on invest- ments in fixed maturities available for sale 3,956 (20,266) Retained earnings 78,733 71,045 87,791 55,325 Common Treasury stock, at cost, 990,910 shares in 1995 and 1994 (3,018) (3,018) Total Shareholders' equity 84,773 52,307 Total Liabilities and Shareholders' $1,291,818 $1,148,994 Equity (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (in thousands of dollars, except per share data) 3 Months Ended September 30, 1995 1994 Revenues: Premiums $ 3,342 $ 4,429 Premiums ceded (805) (997) Net premiums 2,537 3,432 Earned insurance charges 10,279 9,121 Net investment income 16,779 14,495 Other 858 547 Total 30,453 27,595 Benefits and expenses: Interest expense 1,443 1,252 Interest on insurance policies 8,213 7,458 Benefits and other expenses 17,025 15,657 Total 26,681 24,367 Income from operations 3,772 3,228 Provision for federal income taxes 1,274 1,129 Net income $ 2,498 $ 2,099 Per Share Data: Common stock and common stock equivalents 5,372 5,378 Net income per share available to common shareholders $ .50 $ .42 (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (in thousands of dollars, except per share data) 9 Months Ended September 30, 1995 1994 Revenues: Premiums $ 10,945 $ 14,173 Premiums ceded (2,733) (2,991) Net premiums 8,212 11,182 Earned insurance charges 30,278 29,177 Net investment income 48,760 43,230 Other 2,639 2,768 Total 89,889 86,357 Benefits and expenses: Interest expense 4,550 3,774 Interest on insurance policies 24,252 22,500 Benefits and other expenses 49,260 49,281 Total 78,062 75,555 Income from operations 11,827 10,802 Provision for federal income taxes 4,139 3,780 Net income $ 7,688 $ 7,022 Per Share Data: Common stock and common stock equivalents 5,372 5,378 Net Income per share available to common shareholders $ 1.52 $ 1.37 (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (in thousands of dollars) 3 Months Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994 Net Income $ 2,498 $ 2,099 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization of present value of future profits of acquired businesses 1,447 1,990 Amortization of deferred policy acquisition costs 1,014 1,214 Depreciation (11) 1,303 Net gain on sales of investments 54 (885) Financing costs amortized 274 330 Changes in assets and liabilities Decrease (increase) in accrued investment income 57 (445) Decrease in agent advances and other receivables 7,608 6,842 Policy acquisition costs deferred (590) (959) Decrease in policy liabilities and contract holder deposit funds (4,911) (2,050) Increase in other policyholders' funds 31 48 Decrease in other liabilities (6,975) (5,105) Decrease (increase) in deferred federal income taxes 1,661 (834) Increase in other assets (1,478) (559) Other, net (1,446) 278 Net cash (used in) provided by activities $ (767) $ 3,267 (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (in thousands of dollars) 9 Months Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994 Net Income (Loss) $ 7,688 $ 7,022 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization of present value of future profits of acquired businesses 4,584 4,876 Amortization of deferred policy acquisition costs 2,749 3,274 Depreciation -0- 1,314 Net gain on sales of investments -0- (1,105) Financing costs amortized 607 1,074 Changes in assets and liabilities Decrease (increase) in accrued investment income 1,081 (129) Decrease in agent advances and other receivables 6,527 962 Policy acquisition costs deferred (1,549) (2,610) (Decrease) increase in policy liabilities and contract holder deposit funds (22,327) (11,501) Decrease in other policyholders' funds (309) (34) Decrease in other liabilities (7,029) (2,645) Decrease (increase) in deferred federal income taxes 16,141 (8,925) Increase in other assets (2,496) (1,157) Other, net (2,303) (1,050) Net cash provided by (used in) operating activities $ 3,364 $(10,634) (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (In thousands of dollars) 3 Months Ended September 30, CASH FLOWS FROM INVESTING ACTIVITIES 1995 1994 Investments purchased $ (2,703) $(35,694) Proceeds from sale and maturities of investments 12,054 11,990 Net change in short-term investments (11,080) 24,099 Payment for purchase of insurance sub- sidiary, net of cash acquired -0- -0- Purchase & retirement of equipment, net 247 (3,216) Net cash provided by investing activities (1,482) (2,821) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 72 -0- Issuance of senior loan -0- -0- Repayment of debt -0- -0- Net cash used in financing activities 72 -0- Net (decrease) increase in cash and cash equivalents (2,177) 446 Cash and cash equivalents, beginning of 3,295 5,622 period $ 1,118 $ 6,068 Cash and cash equivalents, end of period (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (In thousands of dollars) 9 Months Ended September 30, CASH FLOWS FROM INVESTING ACTIVITIES 1995 1994 Investments purchased $(17,561) $(103,419) Proceeds from sale and maturities of investments 18,682 84,899 Net change in short-term investments 10,916 51,227 Payment for purchase of insurance subsidiary, net of cash acquired (17,492) -0- Purchase & retirement of equipment, net 10 (3,213) Net cash (used in) provided by investing activities (5,445) 29,494 CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 336 42 Issuance of senior loan 15,000 -0- Repayment of debt (17,700) (17,415) Net cash used in financing activities (2,364) (17,373) Net (decrease) increase in cash and cash equivalents (4,445) 1,487 Cash and cash equivalents, beginning of period 5,563 4,581 Cash and cash equivalents, end of period $ 1,118 $ 6,068 (See Notes to Consolidated Financial Statements) INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) The financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the interim results. The statements have been prepared to conform to the requirements of Form 10-Q and do not necessarily include all disclosures required by generally accepted accounting principles (GAAP). The reader should refer to Form 10-K for the year ended December 31, 1994 previously filed with the Securities and Exchange Commission for financial statements prepared in accordance with GAAP. Certain prior year amounts have been reclassified to conform with current year presentation. Acquisition of Insurance Subsidiary On February 14, 1995, the Company, through Investors-NA, purchased from Meridian Mutual Insurance Company the stock of Meridian Life Insurance Company, an Indianapolis-based life insurer, for a cash purchase price of $17.1 million. After the aquisition, Meridian Life changed its name to Investors Life Insurance Company of Indiana ("Investors-IN"). Investors-IN is licensed in ten states and markets a variety of individual life and annuity products through independent agents. This is not considered a significant subsidiary for Securities and Exchange Commission reporting purposes. Under the terms of the purchase agreement, the Company acquired approximately 82% of the outstanding stock of Investors-IN for $14 million and Investors-NA acquired approximately 18% of the outstanding stock of Investors-IN for the remainder of the purchase price. Immediately following the closing of the transaction, the Company contributed the shares acquired by it to the unassigned surplus of Investors-NA. As a result, Investors- IN will be a wholly-owned subsidiary of Investors-NA. This transaction was financed, in part, through a $15 million increase in the Company's Senior Loan. New Accounting Pronouncement In May 1993, the FASB issued FAS No. 114, "Accounting by Creditors for Impairment of a Loan", effective for fiscal years beginning after December 15, 1994. This statement requires that impaired loans be valued at the present value of the expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. It further amends FAS No. 5, "Accounting for Contingencies," to require that all contractual principal and interest payments be considered in determining the impairment of a loan. The adoption of FAS No. 114 in January 1995 did not have a material effect on the Company's financial statements. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operation: For the nine-month period ended September 30, 1995, ILCO's net income was $7,688,000 ($1.52 per common share), as compared to $7,022,000 ($1.37 per common share) for the similar period in 1994. The results for the first nine months of 1995 include the operations of Investors Life Insurance Company of Indiana (formerly known as Meridian Life Insurance Company) for the period from February 14, 1995 to September 30, 1995. Investors Life Insurance Company of Indiana (Investors-IN) was purchased by ILCO and Investors Life Insurance Company of North America (Investors-NA) for an adjusted purchase price of $17.1 million; the transaction was completed on February 14, 1995. The name change was completed in May, 1995. The statutory earnings of the Company's insurance subsidiaries, as required to be reported to insurance regulatory authorities, before interest expense, capital gains and losses, and federal income taxes were $18.4 million for the nine-month period ended September 30, 1995, as compared to $15.2 million for the nine- month period ended September 30, 1994. These statutory earnings are the source to provide for the repayment of ILCO's indebtedness. The operating strategy of the Company's management emphasizes several key objectives: expense management; marketing of competitively priced insurance products which are designed to generate an acceptable level of profitability; maintenance of a high quality portfolio of investment grade securities; and the provision of quality customer service. Premium income, net of reinsurance, for the first nine months of 1995 was $8.2 million, as compared to $11.2 million in the same period of 1994. The decline is primarily attributable to the decision to discontinue the writing of credit life and accident and health insurance, as well as the reduction in premiums received for traditional (non-universal) life insurance and accident and health insurance policies. This decline was partially offset by the premium income resulting from the inclusion of Investors-IN. Reinsurance premiums ceded were $2.7 million in the first nine months of 1995, as compared to $3.0 million for the similar period in 1994. Earned insurance charges for the first nine months of 1995 were $30.3 million, as compared to $29.2 million for the similar period in 1994. This source of revenues is related to the universal life insurance book of business of Investors-NA. Interest expense was $4.6 million for the first nine months of 1995, as compared to $3.8 million for the first nine months of 1994. The increase is attributable to an increase in the average rate of interest paid on the senior loan - 8.72% for the first nine months of 1995 as compared to 6.56% for the 1994 period. The decline in long-term interest rates during the first nine months of 1995, which was related to general economic conditions, had a positive effect upon the market value of the fixed maturities available for sale segment of the portfolio. As of September 30, 1995, the market value of the fixed maturities available for sale segment was $469.4 million as compared to a carrying value of $463.3 million, or an unrealized gain $6.1 million. There is no assurance that this unrealized gain may be realized in the future. The investment income earned on the Company's portfolio affects the level of interest rates which the Company credits to its universal life insurance, whole life insurance and annuity products. The objective of the Company is to maintain an appropriate margin between the rate of interest which it earns on its investments and the rate which it credits to policyholders. During the first six months of 1994, management completed its review of the credit life and credit disability business of the Company. As a result of this review, management determined that these product lines were not producing desired profitability objectives. Accordingly, management announced that the Company's subsidiaries which underwrote credit insurance would discontinue the writing of new credit life and credit disability insurance. For the full year of 1995, this action is expected to have a negative effect on premium income in the amount of $2.9 million. Total assets as of September 30, 1995 ($1.29 billion) increased from the level as of December 31, 1994 ($1.15 billion). The increase in total assets is primarily attributable to (a) the inclusion of Investors-IN and (ii) an increase in the amount of separate account assets. On January 31, 1995, ILCO, through Investors-NA, purchased, as an investment property, an office building project known as One Bridgepoint Office Square in Austin, Texas for a cash purchase price of $9.75 million. The property, which is 100% leased to third-party tenants, consists of 20 acres of land, a five-story office building with 83,474 square feet of rentable space and a 550-car parking garage. Results of Operations: For the quarter ended September 30, 1995, the Company's income from operations before Federal income taxes was $3,772,000 on revenues of $30,453,000, as compared to $3,228,000, on revenues of $27,595,000 for the third quarter of 1994. For the three-month period ended September 30, 1995, the lapse rate with respect to universal life insurance policies increased from the lapse rate experienced in the similar period in 1994. The rate for the 1995 period was 8.0%, as compared to 6.6% in the 1994 period. The lapse rate with respect to traditional (non- universal) life insurance policies increased from the levels experienced in the third quarter of 1994. The rate for the three-month period ended September 30, 1995 was 9.8%, as compared to 8.7% in the similar period in 1994. The lapse rates experienced during these periods were within the ranges anticipated by management. Liquidity and Capital Resources: ILCO is a holding company whose principal assets consist of the common stock of Investors Life Insurance Company of North America and its subsidiaries - Investors Life Insurance Company of Indiana (formerly known as Meridian Life Insurance Company) and InterContinental Life Insurance Company ("ILIC"). ILCO's primary source of funds consists of payments under two Surplus Debentures from Investors-NA. As of December 31, 1994, the outstanding principal balance of the ILCO's senior loan obligations was $66.6 million. On January 2, 1995, the Company made a scheduled payment of $4.5 million under its Senior Loan. In connection with the acquisition of Investors-IN in February, 1995, ILCO borrowed an additional $15 million under its Senior Loan to help finance the purchase. On April 3, 1995, a principal payment in the amount of $13.2 million was made, which prepaid the Senior Loan until October 1, 1995. As a result, the Senior Loan had a principal balance at September 30, 1995 of $63.9 million. ILCO's principal source of liquidity consists of the periodic payment of principal and interest by Investors-NA, pursuant to the terms of the Surplus Debentures. The Surplus Debentures were originally issued by Standard Life Insurance Company and their terms were previously approved by the Mississippi Insurance Commissioner. Upon the merger of Standard Life into Investors- NA, the obligations of the Surplus Debentures were assumed by Investors-NA. As of September 30, 1995, the outstanding principal balance of the Surplus Debentures was $7.2 million and $64.3 million, respectively. Since Investors-NA is domiciled in the State of Washington, the provisions of Washington insurance law apply to the Surplus Debentures. Under the provisions of the Surplus Debentures and current law, no prior approval of the Washington Insurance Commissioner is required for Investors-NA to pay interest or principal on the Surplus Debentures; provided that, after giving effect to such payments, the statutory surplus of Investors-NA is in excess of $10 million (the "surplus floor"). However, Investors-NA has voluntarily agreed with the Washington Insurance Commissioner that it will provide at least five days advance notice of payments which it will make under the surplus debenture. As of September 30, 1995, the statutory surplus of Investors-NA was $60.0 million, an amount substantially in excess of the surplus floor. The funds required by Investors-NA to meet its obligations to the Company under the terms of the Surplus Debentures are generated from operating income generated from insurance and investment operations. In addition to the payments under the terms of the Surplus Debentures, ILCO has received dividends from Standard Life (now, from Investors-NA). Effective July 25, 1993, Washington amended its insurance code to retain the "greater of" standard for payment of dividends to shareholders, but enacted requirements that prior notification of a proposed dividend be given to the Washington Insurance Commissioner and that cash dividends may be paid only from earned surplus. Investors-NA does not presently have earned surplus as defined by the regulations adopted by the Washington Insurance Commissioner and, therefore, is not permitted to pay a cash dividend. However, since the new law applies only to dividend payments, the ability of Investors-NA to make principal and interest payments under the Surplus Debentures is not affected. ILCO does not anticipate that Investors-NA will have any difficulty in making principal and interest payments on the Surplus Debentures in the amounts necessary to enable ILCO to service the Senior Loan for the foreseeable future. Investors-IN is domiciled in the State of Indiana. Under the Indiana insurance code, a domestic insurer may make dividend distributions upon proper notice to the Department of Insurance, as long as the distribution is reasonable in relation to adequate levels of policyholder surplus and quality of earnings. Under Indiana law the dividend must be paid from earned surplus. Extraordinary dividend approval would be required where a dividend exceeds the greater of 10% of surplus or the net gain from operations for the prior fiscal year. Investors-IN currently has earned surplus. ILCO's net cash flow provided by (used in) operating activities was $3,364,000 for the nine-month period ended September 30, 1995, as compared to $(10,634,000) for the same period in 1994. This change is primarily due to fluctuations in the amount of deferred federal income taxes, related to the market value of the portion of investments assets that are fixed maturities available for sale. Management believes that its cash, cash equivalents and short term investments are sufficient to meet the needs of its business and to satisfy debt service. Investments: As of September 30, 1995, the book value of the Company's invested assets totaled $655.9 million, as compared to $547.7 million as of December 31, 1994. This change was affected primarily by the inclusion of Investors-IN, which added approximately $93 million in investment assets. The level of short-term investments as of September 30, 1995 was $83.9 million, as compared to $94.8 million as of December 31, 1994. The decline in the level of short-term investments reflects the actions of management to diversify the investment portfolio of the Company. The fixed maturities available for sale portion of invested assets at September 30, 1995 was $469.4 million. The amortized cost of the fixed maturities available for sale segment as of September 30, 1995 was $463.3 million, representing a net unrealized gain of $6.1 million. This unrealized gain principally reflects changes in interest rates from the date the respective investments were purchased. To reduce the exposure to interest rate changes, portfolio investments are selected so that diversity, maturity and liquidity factors approximate the duration of associated policyholder liabilities. The assets held by ILCO's life insurance subsidiaries must comply with applicable state insurance laws and regulations. In selecting investments for the portfolios of its life insurance subsidiaries, the Company's emphasis is to obtain targeted profit margins, while minimizing the exposure to changing interest rates. This objective is implemented by selecting primarily short- to medium-term, investment grade fixed income securities. In making such portfolio selections, the Company does not select new investments which are commonly referred to as "high yield" or "non-investment grade." The Company's fixed maturities portfolio (including short-term investments), as of September 30, 1995, included a non-material amount (0.57% of total fixed maturities and short-term investments) of debt securities which, in the statements of the companies as filed with state insurance departments, were designated under the National Association of Insurance Commissioners ("NAIC") rating system as "3" (medium quality) or below. As of December 31, 1994, the comparable percentage was 1.1%. Of these non-investment grade investments, .30% were in the medium quality (or "3") category, with only .27% receiving an NAIC rating of "4" (low quality) or below. The consolidated balance sheets of the Company as of September 30, 1995 include $60.985 million of "Notes receivable from affiliates", represented by: (i) a loan of $22.5 million from Investors-NA to Family Life Corporation and a $2.5 million loan from Investors-CA to Financial Industries Corporation (which is now owned by Investors-NA as a result of the merger of Investors- CA into Investors-NA) and $1.485 million of additions to the $2.5 million note made in accordance with the terms of such note; these loans were granted in connection with the 1991 acquisition of Family Life Insurance Company by a wholly-owned subsidiary of FIC, (ii) a loan of $30 million by Investors-NA to Family Life Corporation made in July, 1993, in connection with the prepayment by the FIC subsidiaries of indebtedness which had been previously issued to Merrill Lynch as part of the 1991 acquisition and (iii) a loan of $4.5 million by Investors-NA to Family Life Insurance Investment Company made in July, 1993, in connection with the same transaction described above. The NAIC has assigned a rating of "3" to the $30 million note and the $4.5 million note described above. These loans have not been included in the preceding description of NAIC rating percentages. Management believes that the absence of any material amounts of "high-yield" or "non-investment grade" investments (as defined above) in the portfolios of its life insurance subsidiaries enhances the ability of the Company to service its debt, provide security to its policyholders and to credit relatively consistent rates of return to its policyholders. Accounting Developments: In May 1993, the FASB issued FAS No. 114, "Accounting by Creditors for Impairment of a Loan", effective for fiscal years beginning after December 15, 1994. This statement requires that impaired loans be valued at the present value of the expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. It further amends FAS No. 5, "Accounting for Contingencies," to require that all contractual principal and interest payments be considered in determining the impairment of a loan. The adoption of FAS No. 114 in January, 1995, did not have a material impact on the Company's financial statements. INTERCONTINENTAL LIFE CORPORATION PART II ITEM 6(A) Net income per share is based on the weighted average common and common equivalent shares outstanding during each year. 3 Months Ended 9 Months Ended Sept. 30, Sept. 30, 1995 1994 1995 1994 (in thousands) Net income $ 2,498 $ 2,099 $ 7,688 $ 7,022 Interest expense reduc- tion net of income tax effect 162 136 484 354 Net income available to common shareholders $ 2,660 $ 2,235 $ 8,172 $ 7,376 Divide by: Common shares out- standing, treasury stock 4,145 3,291 4,145 3,291 Dilutive common share equivalents 1,227 2,087 1,227 2,087 Common stock and common stock equivalents 5,372 5,378 5,372 5,378 Net income per share available to common shareholders $ .50 $ .42 $ 1.52 $ 1.37 INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES Part III. Other Information Item 1. Legal Proceedings The Company and its subsidiaries are defendants in certain legal actions related to the normal business operations of the Company. Management believes that the resolution of such legal actions will not have a material impact upon the financial statements. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Form 10-K Annual Report of Registrant for the year ended December 31, 1994 heretofore filed by Registrant with the Securities and Exchange Commission, which is hereby incorporated by reference. (b) Reports on Form 8-K: None INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERCONTINENTAL LIFE CORPORATION /s/ James M. Grace James M. Grace Treasurer Date: November 13, 1995 EX-27 2
7 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 SEP-30-1995 469,354 17,027 18,879 1,612 16,415 14,729 655,941 1,118 15,879 24,082 1,291,818 126,527 11,514 550,187 7,864 63,885 1,130 0 0 83,643 1,291,818 8,212 48,760 0 2,639 35,441 2,749 11,070 11,827 4,139 7,688 0 0 0 7,688 1.52 1.52 0 0 0 0 0 0 0
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