SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the Quarterly Period Ended June 30, 1995
Commission File Number 0-4690
FINANCIAL INDUSTRIES CORPORATION
(Exact Name of Registrant as specified in its charter)
Texas 74-2126975
(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 ($1.00 par value) at end of
period: 1,085,593
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994....................3-4
Consolidated Statements of Income
For the three and six month periods ended
June 30, 1995 and 1994.................................5-7
Consolidated Statements of Cash Flows
For the three and six month periods ended
June 30, 1995 and 1994.................................8-9
Notes to Consolidated Financial Statements...................10
Management's Discussion and Analysis of
Financial Conditions and Results of Operations.......11-19
Part II
Other Information............................................20
Signature Page...............................................21
Item 1. Financial Statements
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
June 30, Dec. 31,
1995 1994
Unaudited
ASSETS
Investments:
Fixed maturities available for sale,
at market value (amortized cost of
$79,491 and $83,397, respectively) $ 80,789 $ 77,468
Equity securities, at market (cost
approximately $11) 4 4
Policy loans 1,425 1,231
Short-term investments 28,161 28,365
Total investments 110,379 107,068
Cash 2,341 933
Investment in affiliate 38,608 24,912
Accrued investment income 1,094 1,166
Agent advances and other receivables 7,274 6,979
Reinsurance receivables 1,992 2,186
Due and deferred premiums 8,783 9,714
Property and equipment, net 7,454 4,057
Deferred policy acquisition costs 34,542 29,975
Present value of future profits of
acquired business 48,110 50,712
Deferred financing cost 53 389
Other assets 6,843 6,286
Separate account assets 8,562 8,723
Total assets $276,035 $253,100
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
June 30, Dec. 31,
1995 1994
Unaudited
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
deposit funds:
Future policy benefits payable $ 56,252 $ 60,411
Contractholder deposit funds 36,440 30,759
Unearned premiums 150 196
Other policy claims & benefits payable 5,759 6,579
98,601 97,945
Senior loans 10,947 17,060
Subordinated notes payable to affiliate 60,985 60,759
Deferred federal income taxes 11,001 7,010
Other liabilities 13,565 9,807
Separate account liabilities 8,562 8,723
Total liabilities 203,661 201,304
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value,
3,304,200 shares authorized;
1,169,060 shares issued, 1,085,593
shares outstanding in 1995 and 1994 1,169 1,169
Additional paid-in capital 7,225 7,225
Net unrealized gain (loss) on investments in
fixed maturities available for sale 2,294 (12,858)
Net unrealized loss on equity securities (2) (1)
Retained earnings 62,110 56,683
72,796 52,218
Common treasury stock, at cost, 83,467
shares in 1995 and 1994 (422) (422)
Total shareholders' Equity 72,374 51,796
Total Liabilities and Shareholders'
equity $276,035 $253,100
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIOD
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
3 Months Ended
June 30,
1995 1994
Revenues:
Premiums $12,052 $14,087
Premiums ceded (244) (289)
Net premiums 11,808 13,798
Net investment income 1,875 1,455
Earned insurance charges 3,038 2,904
Other 815 954
Total Revenues 17,536 19,111
Benefits and expenses:
Benefits and other expenses 7,145 6,479
Interest on insurance policies 577 529
Amortization of present value
of future profits of acquired
business 1,183 2,977
Amortization of deferred policy
acquisition costs 962 679
Operating expenses 3,255 3,974
Interest expense 1,184 1,174
Total benefits and expenses 14,306 15,812
Income before federal income
taxes and equity in net earnings of
affiliate 3,230 3,299
Provision for federal income taxes 951 823
Income before equity in net earnings
of affiliate 2,279 2,476
Equity in net earnings of affiliate, net
of tax 488 212
Net income $ 2,767 $ 2,688
Per Share Data:
Common stock and common stock equivalents 1,105 1,107
Net income per share available to common
shareholders $ 2.50 $ 2.43
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars, except per share data)
6 Months Ended
June 30,
1995 1994
Revenues:
Premiums $23,401 $27,230
Premiums ceded (460) (563)
Net premiums 22,941 26,667
Net investment income 3,753 3,488
Earned insurance charges 5,266 4,710
Other 1,626 1,661
Total Revenues 33,586 36,526
Benefits and expenses:
Benefits and other expenses 12,810 11,485
Interest on insurance policies 1,108 1,044
Amortization of present value
of future profits of acquired
business 2,602 5,704
Amortization of deferred policy
acquisition costs 1,752 1,350
Operating expenses 6,912 8,246
Interest expense 2,369 2,438
Total benefits and expenses 27,553 30,267
Income before federal income
taxes and equity in net earnings of
affiliate 6,033 6,259
Provision for federal income taxes 1,565 1,545
Income before equity in net earnings
of affiliate 4,468 4,714
Equity in net earnings of affiliate, net
of tax 959 796
Net income $ 5,427 $ 5,510
Per Share Data:
Common stock and common stock equivalents 1,105 1,107
Net income per share available to common
shareholders $ 4.91 $ 4.98
(See Notes to Consolidated Financial Statement)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
3 Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,767 $ 2,688
Adjustments to reconcile net income to net
cash used in operating activities
Amortization of present value of future
profits 1,183 2,977
Amortization of deferred policy acquisition
costs 962 679
Financing costs amortized 195 178
Loss on sale of equipment 203 -0-
Equity in undistributed earnings of
affiliate (12,475) (941)
Changes in assets and liabilities net of
effects from purchase of insurance
subsidiaries:
Decrease in accrued investment income (221) (529)
Increase in agent advances and other
receivables (406) (142)
Decrease (Increase) in due and deferred
premiums 866 (1,290)
Increase in deferred policy acquisition
costs (3,541) (2,370)
(Increase) decrease in other assets 304 (1,442)
Increase (decrease) in policy liabilities
and accruals 374 (381)
Increase (Decrease) in other liabilities 1,977 (1,728)
Increase in policy loans (86) (59)
Increase in deferred federal income taxes 4,111 472
Other, net 1,259 1,104
Net Cash used in operating
activities (2,528) (784)
Investments purchased -0- (5,900)
Proceeds from sale and maturities of
investments 9,195 2,435
Net change in short-term investments 1,454 9,953
Retirement of equipment (5,702) -0-
Purchase of equipment 2,102 -0-
Net cash provided by investing
activities 7,049 6,488
Issuance of subordianted notes payable to
affiliate 226 201
Repayment of debt (4,150) (5,696)
Net cash used in financing activities (3,924) (5,495)
Net increase in cash 597 209
Cash, beginning of period 1,744 1,499
Cash, end of period $ 2,341 $ 1,708
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
(in thousands of dollars)
6 Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,427 $ 5,510
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization of present value of future
profits 2,602 5,704
Amortization of deferred policy acquisition
costs 1,752 1,350
Financing costs amortized 336 321
Loss on sale of equipment 203 -0-
Equity in undistributed earnings of
affiliate (13,696) (2,285)
Changes in assets and liabilities net of
effects from purchase of insurance
subsidiaries:
Decrease(Increase) in accrued investment
income 72 (221)
(Increase) decrease in agent advances and
other receivables (295) 405
Decrease (Increase) in due and deferred
premiums 931 (1,629)
Increase in deferred policy acquisition
costs (6,319) (4,814)
Increase in other assets (363) (2,213)
Increase in policy liabilities
and accruals 656 978
Decrease (Increase) in other liabilities 3,758 (2,636)
Increase in policy loans (194) (131)
Increase (decrease) in deferred federal
income taxes 3,991 (1,306)
Other, net (9) 2,871
Net Cash provided by (used in) operating
activities (1,148) 1,904
Investments purchased -0- (6,869)
Proceeds from sale and maturities of
investments 11,839 2,625
Net change in short-term investments 204 9,175
Retirement of equipment (5,702) -0-
Purchase of equipment 2,102 -0-
Net cash provided by investing activities 8,443 4,931
Issuance of subordianted notes payable to
affiliate 226 201
Repayment of debt (6,113) (7,846)
Net cash used in financing activities (5,887) (7,645)
Net increase (decrease) in cash 1,408 (810)
Cash, beginning of period 933 2,518
Cash, end of period $ 2,341 $ 1,708
(See Notes to Consolidated Financial Statements)
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO THE 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 Commission for financial statements prepared in
accordance with GAAP. Certain prior year amounts have been
reclassified to conform with current year presentation.
The consolidated financial statements include the accounts of
Financial Industries Corporation ("FIC") and its wholly-owned
subsidiaries. The investment of FIC in InterContinental Life
Corporation ("ILCO") is presented using the equity method. All
significant intercompany items and transactions have been
eliminated.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
For the six-month period ended June 30, 1995, FIC's net income
was $5,427,000 ($4.91 per common share), as compared to
$5,510,000 ($4.98 per common share) for the six-month period
ended June 30, 1994.
The decline in long-term interest rates during the first six
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
June 30, 1995, the market value of the fixed maturities available
for sale segment was $80.8 million as compared to a carrying
value of $79.5 million, or an unrealized gain $1.3 million.
There is no assurance that this unrealized gain may be realized
in the future.
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.
The consolidated balance sheets at June 30, 1995 include Separate
Account assets of Family Life Insurance Company ("Family Life")
in the amount of $8.6 million. The Separate Account is
maintained by Family Life, which was acquired by FIC on June 12,
1991. Under the provisions of the purchase agreement between FIC
and Merrill Lynch Insurance Group, Inc., certain life insurance
companies affiliated with Merrill Lynch agreed to assume (on an
assumption reinsurance basis) the variable annuity contracts
related to such Separate Account assets. The transfer of these
assets, in accordance with the provisions of the reinsurance
agreement, is subject to certain regulatory approvals. Such
regulatory approvals have been obtained in a number of
jurisdictions, and the assumption of the business has been
completed in those states. However, the Company has not obtained
a definitive date from Merrill Lynch as to when the remaining
regulatory approvals will be obtained, so as to enable Family
Life to complete the transfer of the balance of the Separate
Account assets.
Equity in Net Income of InterContinental Life Corporation
General
Prior to the acquisition of Family Life in June of 1991, FIC's
primary involvement in the life insurance business was through
its equity interest in InterContinental Life Corporation
("ILCO"). The Company's equity in the net earnings, net of
federal income tax, of ILCO, was $959,000 for the six-month
period ended June 30, 1995, as compared to $796,000 for the
similar period in 1994.
FIC currently owns 1,795,146 shares of ILCO's common stock, and
holds options to acquire an additional 1,702,155 shares. The
options were granted under an Option Agreement between FIC and
ILCO which was entered into in March, 1986. In addition, Family
Life, a subsidiary of FIC, currently owns 171,200 shares of ILCO
common stock. As a result, FIC currently owns, directly and
indirectly through Family Life, 1,966,346 shares (approximately
48%) of ILCO's common stock. If all of FIC's rights under the
Option Agreement were to be presently exercised, FIC's ownership
would amount to approximately 63% of the issued and outstanding
shares of ILCO's common stock.
The fixed maturities available for sale portion of ILCO's
investment assets at June 30, 1995 was $474.1 million. The
amortized cost of the fixed maturities available for sale segment
as of June 30, 1995 was $469.1 million, representing a net
unrealized gain of $5.0 million. This unrealized gains
principally reflects changes in interest rates from the date the
respective investments were purchased. Since FIC owns
approximately 48% of the common stock of ILCO, such unrealized
gains, net of tax, are reflected in FIC's equity interest in
ILCO, and had the effect of increasing the reported value of such
equity interest by approximately $1.6 million.
ILCO's net income for the six-month period ended June 30, 1995,
as compared to the same period in 1994, was affected by an
increase in interest expense. Interest expense was $3.1 million
for the first six months of 1995, as compared to $2.5 million for
the same period in 1994. The increase is attributable to an
increase in the average rate of interest paid on ILCO's senior
loans - 8.77% for the 1995 period, as compared to 6.30% for the
1994 period.
ILCO's results for the first six months of 1995 include the
operations of Investors Life Insurance Company of Indiana
(formerly Meridian Life Insurance Company) for the period from
February 14, 1995 to June 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.
Liquidity and Capital Resources of ILCO
ILCO is a holding company whose principal assets consist of the
common stock of Investors-NA and its subsidiaries -
InterContinental Life Insurance Company ("ILIC") and, since
February, 1995, Investors-IN. ILCO's primary source of funds
consists of payments under the Surplus Debentures from Investors-
NA.
The cash requirements of ILCO consist primarily of its service of
the indebtedness created in connection with the 1988 acquisition
of the Investors Life Companies. As of December 31, 1994, the
unpaid principal of ILCO's Senior Loan was $66.6 million. On
January 2, 1995, ILCO 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
June 30, 1995 of $63.9 million.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest to it by Investors-NA, pursuant
to the terms of the two surplus debentures. The surplus
debentures were originally issued by Standard Life Insurance
Company and its terms were previously approved by the Mississippi
Insurance Commissioner. One of the surplus debentures, in the
original amount of $15 million, was issued in connection with the
1986 acquisition of Standard Life by ILCO; the other, in the
original amount of $140 million was issued in connection with the
1988 acquisition by ILCO of the Investors Life Companies. Upon
the merger of Standard Life into Investors-NA, the obligations of
the surplus debentures were assumed by Investors-NA. As of June
30, 1995, the outstanding principal balance of the surplus
debentures was $7.5 million and $66.3 million, respectively.
Since Investors-NA is domiciled in the State of Washington, the
Washington insurance law applies to the administration of the
terms of 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 debentures. As of June 30, 1995, the statutory capital
and surplus of Investors-NA was $58.8 million, an amount
substantially in excess of the surplus floor. The funds required
by Investors-NA to meet its obligations to ILCO under the terms
of the surplus debentures are generated from operating income
generated from insurance and investment operations.
ILCO's ability to pay dividends to its shareholders is affected,
in part, by receipt of dividends from its insurance subsidiaries.
Under current Washington law, any proposed payment of a dividend
or distribution by the Company's insurance subsidiaries which,
together with dividends or distributions paid during the
preceding twelve months, exceeds the greater of (i) 10% of
statutory surplus as of the preceding December 31 or (ii)
statutory net gain from operations for the preceding calendar
year is called an "extraordinary dividend" and may not be paid
until either it has been approved, or a waiting period shall have
passed during which it has not been disapproved, by the insurance
commissioner.
In July, 1993, Washington amended its insurance code to retain
the "greater of" standard for dividends 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 cash dividends. 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 its 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.
The Form 10-Q of ILCO for each of the quarters ended June 30,
1995 and June 30, 1994, sets forth the business operations and
financial results of ILCO and its life insurance subsidiaries.
Such 10-Q reports of ILCO, including the discussion by ILCO's
management under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" are
incorporated herein by reference.
Results of Operations
For the three-month period ended June 30, 1995, the Company's
income from operations before Federal income taxes and before
equity in net earnings of affiliate, was $3,230,000 on revenues
of $17,536,000, as compared to $3,299,000, on revenues of
$19,111,000 for the same period in 1994.
Premium income, net of reinsurance, for the second quarter of
1995 was $11.8 million, as compared to $13.8 million in the same
period in 1994.
Operating expenses were $3.3 million in the three-month period
ended June 30, 1995, as compared to $4.0 million in the same
period in 1994.
Liquidity and Capital Resources
FIC is a holding company whose principal assets consist of the
common stock of Family Life Insurance Company and its equity
ownership in InterContinental Life Corporation ("ILCO"). FIC's
primary sources of capital consists of cash flow from operations
of its subsidiaries and the proceeds from bank and institutional
borrowings.
The cash requirements of FIC and its subsidiaries consist
primarily of its service of the indebtedness created in
connection with its ownership of Family Life Insurance Company.
As of June 30, 1995 the outstanding balance of such indebtedness
was: (i) $10.9 million on the Senior Loan granted by a group of
banks and (ii) $61.0 million on the Subordinated Notes
granted by Investors-NA.
The principal source of liquidity for FIC's subsidiaries consists
of the periodic payment of principal and interest by Family Life,
pursuant to the terms of a Surplus Debenture. The terms of the
Surplus Debenture were previously approved by the Washington
Insurance Commissioner. Under the provisions of the Surplus
Debenture and current law, no prior approval of the Washington
Insurance Department is required for Family Life to pay interest
or principal on the Surplus Debenture; provided that, after
giving effect to such payments, the statutory surplus of Family
Life is in excess of 6% of assets (the "surplus floor").
However, Family Life 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 June 30, 1995, the statutory capital and surplus
of Family Life was $25.6 million, an amount substantially in
excess of the surplus floor. As of June 30, 1995, the principal
balance of the Surplus Debenture was $54.7 million. The funds
required by Family Life to meet its obligations under the terms
of the Surplus Debenture are generated primarily from premium
payments from policy holders, investment income and the proceeds
from the sale and redemption of portfolio investments.
Effective July 25, 1993, Washington amended its insurance code to
retain the "greater of" standard for dividends 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. Family Life does
not presently have earned surplus as defined by the regulations
adopted by the Washington Insurance Commissioner and, therefore,
is not permitted to pay cash dividends. However, since the new
law applies only to dividend payments, the ability of Family Life
to make principal and interest payments under the Surplus
Debenture is not affected. The Company does not anticipate that
Family Life will have any difficulty in making principal and
interest payments on the Surplus Debenture in the amounts
necessary to enable Family Life Corporation to service its
indebtedness for the foreseeable future.
The sources of funds for Family Life consist of premium payments
from policy holders, investment income and the proceeds from the
sale and redemption of portfolio investments. These funds are
applied primarily to provide for the payment of claims under
insurance and annuity policies, operating expenses, taxes,
investments in portfolio securities, shareholder dividends and
payments under the provisions of the Surplus Debenture.
FIC's net cash flow provided by (used in) operating activities
was $(1.1) million in the six-month period ended June 30, 1995,
as compared to $1.9 million for the corresponding period of 1994.
Net cash flow used in financing activities was $5.9 million for
the six-month period ended June 30, 1995, as compared to $7.6
million for the corresponding period of 1994.
In connection with the purchase of the Investors Life Companies
by ILCO, the purchase of Investors-IN by ILCO and Investors-NA
and the purchase of Family Life Insurance Company by a wholly-
owned subsidiary of FIC, FIC guaranteed the payment of the
indebtedness created in connection with such acquisitions. After
giving effect to the refinancing of the ILCO Senior Loan, the
repayment of the ILCO Subordinated Loans and the indebtedness
created in connection with the acquisition of Investors-IN, the
guaranty commitments of FIC with respect to the debt obligations
of ILCO relate to ILCO's senior loan, with an outstanding balance
at June 30, 1995 of $63.9 million.
The guaranty commitments of FIC under the loans incurred in
connection with the acquisition of Family Life (after taking into
account the repayments and new loans which occurred in July,
1993) relate to: (i) the Senior Loan of Family Life Corporation
to a bank group, with a balance of $10.9 million at June 30,
1995, (ii) the $22.5 million note issued by Family Life
Corporation to Investors Life Insurance Company of North America,
and (iii) the $34.5 million loaned by Investors-NA to two
subsidiaries of FIC.
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.
There are no trends, commitments or capital asset requirements
that are expected to have an adverse effect on the liquidity of
FIC.
Investments
As of June 30, 1995, the Company's invested assets totaled $110.4
million, as compared to $107.1 million as of December 31, 1994.
The level of short-term investments at June 30, 1995 was $28.2
million, as compared to $28.4 million as of December 31, 1994.
The fixed maturities available for sale portion represents $80.8
million of invested assets at June 30, 1995, as compared to $77.5
million at December 31, 1994. The amortized cost of fixed
maturities available for sale as of June 30, 1995 was $79.5
million representing a net unrealized gain of approximately $1.3
million. This unrealized gain principally reflects changes in
interest rates from the date the respective investments were
purchased. There is no assurance that this unrealized gain may
be realized in the future. 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 Family Life 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 generally does not select new
investments which are commonly referred to as "high yield" or
"non-investment grade."
The Company's fixed maturities portfolio, as of June 30, 1995,
consisted solely of fixed maturities investments which, in the
annual statements of the companies as filed with state insurance
departments, were designated under the National Association of
Insurance Commissioners ("NAIC") rating system as a "1" (highest
quality). As of December 31, 1994, approximately 96.3% of the
fixed maturities portfolio consisted of investments with an NAIC
rating of "1" and the remaining portion were designated with an
NAIC rating of "2" (high quality).
Management believes that the absence of "high-yield" or "non-
investment grade" investments (as defined above) in the
portfolios of its life insurance subsidiary 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.
FINANCIAL INDUSTRIES 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
FINANCIAL INDUSTRIES CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FINANCIAL INDUSTRIES CORPORATION
/s/ James M. Grace
James M. Grace
Treasurer
Date: August 11, 1995