FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Period Ended: JUNE 30, 1995
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Commission File Number: 0-10306
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INDEPENDENCE HOLDING COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 58-1407235
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(State of Incorporation) (I.R.S. Employer Identification No.)
96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-8000
NOT APPLICABLE
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Former name, former address and fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days Yes x . No .
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15,036,040 SHARES OF COMMON STOCK, $1.00 PAR VALUE*
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Common Stock outstanding as of August 9, 1995
* Does not include 4,377,900 shares held by wholly owned
subsidiaries of the Registrant.
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NO.
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Consolidated Balance Sheets -
June 30, 1995 (unaudited) and December 31, 1994....... 2
Consolidated Statements of Operations -
Three Months and Six Months Ended
June 30, 1995 and 1994 (unaudited).................... 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 (unaudited)... 4
Notes to Consolidated Financial Statements (unaudited). 5 - 9
Management's Discussion and Analysis of Results of
Operations and Financial Condition.................... 10 - 15
PART II - OTHER INFORMATION
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Item 4 - Submission of Matters to a Vote of
Security Holders.............................. 16
Item 6 - Exhibits and Reports on Form 8-K.............. 16
Signatures............................................. 17
- 1 -
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31,
1995 1994
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(UNAUDITED)
ASSETS:
Cash and cash equivalents........................$ 13,720,000 $ 21,271,000
Short-term investments........................... 7,492,000 708,000
Securities purchased under agreements to resell.. 16,843,000 18,660,000
Fixed maturities (Note 2)........................ 133,729,000 129,817,000
Equity securities (Note 2)....................... 11,704,000 6,383,000
Other investments................................ 24,735,000 24,288,000
Trade accounts, notes and other receivables...... 13,489,000 10,590,000
Inventories (Note 3)............................. 11,159,000 10,497,000
Deferred insurance acquisition costs............. 9,728,000 10,979,000
Property, plant and equipment, net............... 3,984,000 4,447,000
Due from reinsurers.............................. 44,169,000 39,336,000
Due from brokers................................. 7,145,000 596,000
Other assets..................................... 5,158,000 4,786,000
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TOTAL ASSETS................................$303,055,000 $282,358,000
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LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Future insurance policy benefits.................$ 98,216,000 $ 95,277,000
Unearned premiums................................ 14,725,000 14,680,000
Future annuity policy benefits................... 34,465,000 34,436,000
Insurance policy claims.......................... 6,572,000 4,434,000
Other policyholders' funds....................... 2,118,000 2,161,000
Financial instruments sold, but not yet
purchased (Note 2).............................. 4,330,000 1,571,000
Due to brokers................................... 25,947,000 22,006,000
Due to reinsurers................................ 4,211,000 4,225,000
Accounts payable, accruals and other liabilities. 19,415,000 20,836,000
Income taxes, principally deferred (Note 5)...... 4,650,000 5,780,000
Long-term debt................................... 23,200,000 21,258,000
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TOTAL LIABILITIES............................ 237,849,000 226,664,000
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STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share (50,000,000
shares authorized; 15,316,730 and 15,528,730
shares issued and outstanding, respectively,
net of 4,377,900 shares in treasury)............ 15,317,000 15,529,000
Paid-in capital.................................. 69,916,000 69,800,000
Unrealized losses on investments, net
of deferred tax benefits of ($344,000)
and ($906,000), respectively.................... (2,086,000) (9,168,000)
Accumulated deficit.............................. (17,941,000) (20,467,000)
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TOTAL STOCKHOLDERS' EQUITY................... 65,206,000 55,694,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...$303,055,000 $282,358,000
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
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REVENUES:
Insurance premiums.......$ 13,725,000 $ 12,818,000 $ 26,930,000 $ 25,389,000
Net investment income.... 3,397,000 2,849,000 6,672,000 6,332,000
Net realized and un-
realized gains (losses). 362,000 (725,000) (406,000) 160,000
Sales.................... 9,917,000 9,784,000 20,067,000 18,646,000
Equity income (loss)..... (189,000) 93,000 (422,000) 276,000
Other income............. 637,000 183,000 1,377,000 826,000
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27,849,000 25,002,000 54,218,000 51,629,000
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EXPENSES:
Insurance benefits,
claims and reserves..... 9,337,000 8,834,000 18,849,000 18,156,000
Amortization of deferred
insurance acquisition
costs................... 989,000 1,231,000 2,060,000 2,495,000
Cost of sales............ 7,504,000 7,438,000 15,293,000 14,406,000
Interest expense......... 481,000 296,000 923,000 574,000
Selling, general and
administrative expenses. 7,808,000 6,312,000 14,800,000 12,585,000
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26,119,000 24,111,000 51,925,000 48,216,000
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Operating income before
income taxes............. 1,730,000 891,000 2,293,000 3,413,000
Income tax expense
(benefit)................ (59,000) (316,000) (233,000) 434,000
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Net income................$ 1,789,000 $ 1,207,000 $ 2,526,000 $ 2,979,000
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INCOME PER COMMON SHARE:
Net income................$ .12 $ .08 $ .16 $ .19
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING....... 15,342,000 15,813,000 15,414,000 15,817,000
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................$ 2,526,000 $ 2,979,000
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Amortization of deferred insurance acquisition
costs........................................... 2,060,000 2,495,000
Net realized losses (gains) on sales of
investment securities........................... 790,000 (154,000)
Unrealized gains on trading securities........... (384,000) (6,000)
Equity loss (income)............................. 422,000 (276,000)
Depreciation..................................... 346,000 276,000
Deferred tax expense (benefits).................. (1,280,000) 194,000
Income taxes credited to paid-in capital......... 599,000 297,000
Other............................................ 403,000 407,000
Change in assets and liabilities:
Net (purchases) sales of trading securities...... (120,000) 2,560,000
Change in future insurance policy benefits,
claims and other policy liabilities............. 5,974,000 5,697,000
Additions to deferred insurance acquisition costs (809,000) (865,000)
Change in income tax liability................... (411,000) (89,000)
Change in net amounts due from and to reinsurers. (4,847,000) (3,858,000)
Change in trade accounts, notes and other
receivables..................................... (2,948,000) (4,378,000)
Other............................................ (2,381,000) (662,000)
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Net cash (used) provided by operating
activities................................. (60,000) 4,617,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Change in net amount due from and to brokers..... (2,608,000) (13,963,000)
Sales and maturities of short-term investments... 370,000 3,087,000
Purchases of short-term investments.............. (7,152,000) (1,126,000)
Net sales of resale and repurchase agreements.... 1,818,000 10,475,000
Sales of fixed maturities........................ 157,393,000 105,627,000
Purchases of fixed maturities....................(154,470,000) (119,047,000)
Sales of equity securities....................... 48,329,000 20,370,000
Purchases of equity securities................... (50,503,000) (18,105,000)
Proceeds on sale of other investments............ 2,400,000 892,000
Additional investments in other investments,
net of distributions............................ (3,255,000) (230,000)
Sales (additions) to property, plant and
equipment....................................... 116,000 (365,000)
Other............................................ - (541,000)
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Net cash used by investing
activities................................. (7,562,000) (12,926,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock....................... (694,000) (297,000)
Payments of investment type insurance contracts.. (866,000) (866,000)
Increase in long-term debt....................... 2,950,000 1,433,000
Repayment of long-term debt...................... (1,008,000) (125,000)
Dividends paid................................... (311,000) (316,000)
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Net cash provided (used) by financing
activities................................. 71,000 (171,000)
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Decrease in cash and cash equivalents............ (7,551,000) (8,480,000)
Cash and cash equivalents, beginning of year..... 21,271,000 19,613,000
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Cash and cash equivalents, end of period.........$ 13,720,000 $ 11,133,000
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
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NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) BUSINESS AND ORGANIZATION
Independence Holding Company and subsidiaries (the "Company"
or "IHC") is a diversified financial company primarily engaged in
insurance activities through Madison National Life Insurance
Company, Inc. and its subsidiaries ("Madison Life"), and Standard
Security Life Insurance Company of New York and its subsidiaries
including First Standard Security Insurance Company ("Standard
Life") (collectively, the "Insurance Group"), and in manufacturing
commercial signs through Zimmerman Sign Company ("Zimmerman" or the
"Manufacturing Group").
Geneve Corporation, a diversified financial holding company,
and its affiliated entities ("Geneve") hold approximately 53% of
IHC's outstanding common stock at June 30, 1995.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in
accordance with the requirements for quarterly reports on Form 10-
Q. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) that are necessary for a fair
presentation of the consolidated results of operations for the
interim periods have been included. The consolidated results of
operations for the three months and six months ended June 30, 1995
are not necessarily indicative of the results to be anticipated for
the entire year. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and
the notes included in IHC's Annual Report on Form 10-K for the year
ended December 31, 1994. Certain amounts in the prior year's
consolidated financial statements and notes thereto have been
restated to conform to the 1995 presentation.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2. INVESTMENT SECURITIES
The cost (amortized cost with respect to certain fixed income
securities) and market value of IHC's investment securities as of
June 30, 1995 and December 31, 1994 are as follows:
JUNE 30, 1995
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GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
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(DOLLARS IN THOUSANDS)
AVAILABLE-FOR-SALE SECURITIES:
FIXED MATURITIES
Corporate securities.......$ 34,007 $ 131 $ (1,750) $ 32,388
U.S. Government and
agencies obligations...... 31,776 236 (223) 31,789
Government National
Mortgage Association...... 68,319 152 (501) 67,970
Obligations of states
and political sub-
divisions................. 1,621 30 (69) 1,582
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$135,723 $ 549 $ (2,543) $133,729
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EQUITY SECURITIES
Common stock...............$ 6,667 $ 495 $ (254) $ 6,908
Preferred stock............ 2,333 60 (144) 2,249
Options.................... 851 52 (28) 875
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$ 9,851 $ 607 $ (426) $ 10,032
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FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock...............$ (3,089) $ - $ (641) $ (3,730)
Options.................... (168) 33 (8) (143)
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$ (3,257) $ 33 $ (649) $ (3,873)
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TRADING SECURITIES:
EQUITY SECURITIES
Common stock...............$ 1,380 $ 292 $ - $ 1,672
======= ===== ======= =======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock...............$ (361) $ - $ (16) $ (377)
Options.................... (54) - (26) (80)
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$ (415) $ - $ (42) $ (457)
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- 6 -
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2. INVESTMENT SECURITIES (CONTINUED)
The average market value of trading options sold, but not yet
purchased, was $36,000 for the period ended June 30, 1995.
DECEMBER 31, 1994
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GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
AVAILABLE-FOR-SALE SECURITIES:
FIXED MATURITIES
Corporate securities.......$ 34,590 $ 6 $ (4,035) $ 30,561
U.S. Government and
agencies obligations...... 46,885 - (2,781) 44,104
Government National
Mortgage Association...... 54,658 - (1,790) 52,868
Obligations of states
and political sub-
divisions................. 2,422 11 (149) 2,284
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$138,555 $ 17 $ (8,755) $129,817
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EQUITY SECURITIES
Common stock...............$ 2,711 $ 41 $ (309) $ 2,443
Preferred stock............ 2,241 - (327) 1,914
Options.................... 1,471 - (844) 627
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$ 6,423 $ 41 $ (1,480) $ 4,984
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FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock...............$ (563) $ - $ (31) $ (594)
Options.................... (525) 134 - (391)
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$ (1,088) $ 134 $ (31) $ (985)
======= ======= ======= =======
TRADING SECURITIES:
EQUITY SECURITIES
Common stock...............$ 1,421 $ - $ (40) $ 1,381
Options.................... 80 - (62) 18
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$ 1,501 $ - $ (102) $ 1,399
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FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock...............$ (481) $ - $ (36) $ (517)
Options.................... (72) 3 - (69)
------- ------- ------- -------
$ (553) $ 3 $ (36) $ (586)
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- 7 -
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2. INVESTMENT SECURITIES (CONTINUED)
The average market value of trading long options was $36,000
and the average market value of trading options sold but not yet
purchased was $26,000 for the year ended December 31, 1994.
The amortized cost and market value of fixed maturities at
June 30, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
JUNE 30, 1995
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AMORTIZED MARKET
COST VALUE
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(DOLLARS IN THOUSANDS)
Due in one year or less.................$ 3,204 $ 3,234
Due after one year through
five years............................. 5,094 5,103
Due after five years through
ten years.............................. 33,483 32,762
Due after ten years..................... 25,623 24,660
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67,404 65,759
Government National
Mortgage Association................... 68,319 67,970
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Totals..................................$135,723 $133,729
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For the three and six months ended June 30, 1995, gross gains
of approximately $3,055,000 and $5,106,000, respectively, and gross
losses of approximately $2,826,000 and $5,795,000, respectively,
were realized on sales of available-for-sale securities.
For the three and six months ended June 30, 1994, gross gains
of approximately $2,679,000 and $5,334,000, respectively, and gross
losses of approximately $3,410,000 and $5,267,000, respectively,
were realized on sales of available-for-sale securities.
Approximately $524,000 of gains were realized on sales of
options available-for-sale and no gains or losses were realized on
options held for trading or future contracts available-for-sale for
the three months ended June 30, 1995.
Approximately $2,153,000 of losses were realized on sales of
options available-for-sale, $74,000 of losses were realized on
options held for trading and $1,194,000 of losses were realized on
sales of future contracts available-for-sale for the six months
ended June 30, 1995.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 3. INVENTORIES
Inventories at June 30, 1995 and December 31, 1994 are as
follows:
JUNE 30, DECEMBER 31,
1995 1994
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(DOLLARS IN THOUSANDS)
Raw materials..................$ 4,968 $ 4,558
Work in progress............... 4,808 4,078
Finished goods................. 1,383 1,861
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$11,159 $10,497
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NOTE 4. INCOME PER COMMON SHARE
The computations of income per common share were based upon
the weighted average common shares outstanding of 15,342,005 and
15,813,055 for the three months ended June 30, 1995 and 1994,
respectively, and 15,413,774 and 15,816,786 for the six months
ended June 30, 1995 and 1994, respectively. Common stock
equivalents represented by warrants and stock options were not
utilized in the calculations as the effect of their assumed
exercise would have been anti-dilutive.
NOTE 5. INCOME TAXES
Effective July 1, 1993, the Insurance Group became included
in the Company's consolidated Federal income tax return. The
provision for income taxes shown in the consolidated statements of
operations was computed based on the Company's estimate of its
effective tax rates, including the expected tax impact of the
life/nonlife consolidation.
Federal income tax benefits (expense) amounting to $599,000
and $297,000 for the six months ended June 30, 1995 and 1994,
respectively, and $336,000 and ($63,000) for the three months ended
June 30, 1995 and 1994, respectively, resulting from changes in the
utilization of net operating loss carryforwards existing at
December 31, 1980 (the date of quasi-reorganization of IHC), were
credited (debited) to paid-in capital.
NOTE 6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
JUNE 30,
------------------------
1995 1994
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(DOLLARS IN THOUSANDS)
Cash payments for:
Interest..................$ 888 $ 337
Income taxes..............$ 866 $ 86
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
------------------------------------------------
Independence Holding Company and subsidiaries (the "Company"
or "IHC") has two operating segments: the Insurance Group and the
Manufacturing Group. The Insurance Group consists of the Company's
wholly-owned insurance subsidiaries, Madison National Life
Insurance Company, Inc. ("Madison Life") and its subsidiaries, and
Standard Security Life Insurance Company of New York and its
subsidiaries including First Standard Security Insurance Company
("Standard Life"). The Manufacturing Group consists of the
Company's majority owned sign manufacturing subsidiary, Zimmerman
Sign Company ("Zimmerman"). All remaining income, principally
income from parent company liquidity (cash, cash equivalents,
resale agreements and marketable securities) and expense items
associated with parent company activities, the Company's remaining
real estate operations and certain other investments of the Company
are included in Corporate.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED JUNE 30, 1994
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The Company's net income applicable to common shares was $1.8
million or $.12 per share for the three month period ended June 30,
1995 as compared to $1.2 million or $.08 per share for the
comparable period of 1994, while operating income increased to $1.7
million in the second quarter of 1995 from $.9 million in the
second quarter of 1994.
INSURANCE GROUP
---------------
Standard Life underwrites specific and aggregate excess
medical insurance coverage ("stop loss") sold to employers who
self-fund their employees' health benefits, short-term statutory
disability benefits law business ("DBL") and group life insurance.
Standard Life also performs auditing and marketing services in
connection with its stop loss business. Standard Life has existing
business in-force in the following lines of business which are in
runoff status: individual accident and health, individual life,
single premium immediate annuities, and miscellaneous business. In
addition, Standard Life actively seeks opportunities to enter into
cooperative underwriting and reinsurance arrangements with other
life insurers, reinsurers and managed care companies.
Madison Life markets group long-term and short-term disability
and group life products as well as credit life and credit accident
and health products. Its existing blocks of individual ordinary
life, individual accident and health, and annual and single premium
deferred annuity business are in runoff status. Madison Life
historically has purchased, on an assumption reinsurance basis,
- 10 -
blocks of group credit life and credit disability insurance and
individual ordinary life insurance business to increase overall
profitability.
The Insurance Group had operating income of $1.6 million for
the three months ended June 30, 1995 versus operating income of $.9
million for the three months ended June 30, 1994. Operating income
includes net realized and unrealized gains of $.4 million for the
quarter ended June 30, 1995 compared to $.7 million of losses for
the comparable quarter of 1994. Operating income excluding net
securities gains was $1.2 million in the second quarter of 1995 as
compared to $1.6 million for the second quarter of 1994. Premium
revenues increased $.9 million from the second quarter of 1994 to
the second quarter of 1995. Premium revenues at Madison Life
increased $.5 million primarily from an increase in group term life
and group long term disability as a result of additional written
premiums. Standard Life had a $.4 million increase in premiums
resulting from an increase in stop loss premiums of $.5 million, a
$.3 million increase in premiums from group accident and health
business assumed, and a $.1 million increase in premiums from a new
managed health care product, partially offset by a $.5 million
decrease in DBL premiums due to a higher level of lapses
experienced. Total investment income increased $.1 million from
1994 to 1995. Equity income decreased $.3 million due to expenses
sustained on certain start-up insurance related partnerships.
Other income increased $.5 million from 1994 to 1995 resulting from
an increase in stop loss fees earned at Standard Life of $.1
million. In addition, a charge of $.4 million against other income
was made in 1994 for a stop loss treaty at Madison Life.
Insurance benefits, claims and reserves increased $.5 million,
representing an increase of $.6 million at Madison Life and a
decrease of $.1 million at Standard Life. The increase at Madison
Life is primarily due to a $.3 million increase in group term life
claims as a result of the continued growth of this line of business
and a $.3 million increase in credit life and credit accident and
health claims. The decrease at Standard Life is comprised of an
increase of stop loss claims and reserves of $.3 million, offset by
a decrease in claims and reserves on the assumed block of group
accident and health business of $.1 million, and a decrease of DBL
reserves of $.3 million. Amortization of deferred acquisition
costs and general and administrative expenses for the Insurance
Group increased $1.1 million; Madison Life's expenses increased $.3
million and Standard Life's expenses increased $.8 million
primarily due to an increase in consulting and employee costs
related to the acquisition and writing of new business at both
subsidiaries.
MANUFACTURING GROUP
-------------------
The second quarter of 1995 continued to reflect excellent
results at Zimmerman. Operating income of $.9 million for the three
months ended June 30, 1995 equalled the comparable 1994 period.
Sales increased $.1 million to $9.9 million in the second quarter
- 11 -
of 1995, while cost of sales remained constant. This resulted in
gross profit margins of 24.3% for the three months ended June 30,
1995 as compared to 24.0% for the same three month period of 1994.
Interest expense increased $.1 million due to higher borrowing
levels. Selling, general and administrative expenses remained
constant.
CORPORATE
---------
Net operating expenses for the three months ended June 30,
1995 amounted to $.8 million, compared to net operating expenses of
$.9 million for the same period of 1994. Investment income
increased $.4 million from 1994, primarily attributable to more
profitable returns on certain hedged equity positions. Realized
gains remained constant. Interest expense increased $.1 million due
to higher interest rates on the debt of a corporate subsidiary,
while general and administrative expenses increased $.2 million.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
-------------------------------------------------------------------------
The Company's net income applicable to common shares was $2.5
million or $.16 per share for the six months ended June 30, 1995 as
compared to $3.0 million or $.19 per share for the six months ended
June 30, 1994, while operating income decreased to $2.3 million in
the first six months of 1995 from $3.4 million in the first six
months of 1994.
INSURANCE GROUP
---------------
The Insurance Group had operating income of $2.2 million for
the six months ended June 30, 1995 versus $3.1 for the first six
months of 1994. Operating income includes net realized and
unrealized losses of $.4 million for the six months ended June 30,
1995 versus $.1 million of gains for the six months ended June 30,
1994. Operating income excluding net securities gains was $2.6
million for the six months ended June 30, 1995 as compared to $3.0
million for the six months ended June 30, 1994. Premium revenues
increased $1.5 million. Madison Life had an increase of $.9
million primarily due to an increase of $.7 million in group term
life and group long term disability as a result of additional
written premiums and a $.2 million increase in other life and
health lines of business. Premium revenues at Standard Life
increased $.6 million due to an increase in stop loss premiums of
$.6 million, a $.6 million increase in premiums from group accident
and health business assumed, along with a $.1 million increase from
a new managed health care product. These increases were partially
offset by a $.7 million decrease in DBL premiums due to a higher
level of lapses experienced. Net investment income increased $.2
million due to an increase in interest income. Equity income
decreased $.7 million due to expenses sustained from certain start-
up insurance related partnerships. Other income increased $.5
million resulting from an increase of $.2 million in stop loss fees
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at Standard Life and a charge against other income of $.3 million
made in 1994 for a stop loss treaty at Madison Life.
Insurance benefits, claims and reserves increased by $.7
million for the six months ended June 30, 1995 compared to the same
period of 1994. Madison Life's expenses increased $.8 million due
to an increase of $.5 million in group term life and group long
term disability claims attributable to the additional writings in
these lines of business, and a $.3 million increase in credit life
and credit accident and health claims. Standard Life's expenses
decreased $.1 million due to an increase in stop loss claims and
reserves of $.4 million and an increase of claims on the assumed
block of group accident and health business of $.4 million, offset
by a decrease of DBL reserves of $.9 million.
Amortization of deferred acquisition costs and general and
administrative expenses for the Insurance Group increased $1.3
million. Standard Life's expenses increased by $1.0 million
resulting from an increase in commissions of $.3 million from
higher premiums and an increase in general expenses of $.7 million.
Madison Life's general expenses increased by $.3 million. The
increase in general expenses for both Standard Life and Madison
Life resulted from an increase in employee costs related to the
growth in new business.
MANUFACTURING GROUP
-------------------
Operating income increased $.1 million to $1.8 million for the
six months ended June 30, 1995 as compared to the same period of
1994. Sales increased $1.4 million while cost of sales increased
$.9 million, resulting in a gross profit margin of 23.8% in 1995
versus 22.7% in 1994. Interest expense increased $.2 million due
to higher borrowings supporting the increase in sales. Selling,
general and administrative expenses increased $.2 million due to
the higher sales volume in 1995.
CORPORATE
---------
Net operating expenses increased $.3 million from 1994 levels.
Investment income increased $.1 million. Interest expense
increased $.1 million due to higher interest rates on the debt of
a corporate subsidiary, while general and administrative expenses
increased $.3 million.
LIQUIDITY
---------
CASH FLOWS - GENERAL
--------------------
For the first six months of 1995, net cash utilized by
operating activities amounted to $.1 million, while investing
activities used $7.6 million of cash. Cash provided by financing
activities of $.1 million resulted from the repurchase of shares of
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the Company's common stock for $.7 million, the payment of
investment type insurance contracts of $.9 million and the payment
of a dividend on common stock of $.3 million declared in 1994,
offset by a net increase in long-term debt of $2.0 million.
INSURANCE GROUP
---------------
The Insurance Group normally provides cash flow from
operations, from the receipt of scheduled principal payments on its
portfolio of fixed income securities and from earnings on short-
term investments. Such cash flow is used partially to finance
liabilities for insurance policy benefits. These liabilities
represent long-term obligations which are calculated using certain
assumed interest rates. The nature and quality of insurance company
investments must comply with all applicable statutes and
regulations which have been promulgated primarily for the
protection of policyholders. Of the aggregate carrying value of the
Insurance Group's investment assets, approximately 81.6% was
invested in investment grade fixed income securities, resale
agreements and cash and cash equivalents at June 30, 1995. These
investments carry less risk of default and therefore lower interest
rates than other types of fixed maturity investments. At June 30,
1995, approximately 4.8% of the carrying value of investable assets
was invested in diversified non-investment grade fixed income
securities (investments in such securities have different risks
than investment grade securities, including greater risk of loss
upon default, and thinner trading markets). The Company monitors
its investment portfolio on a continuous basis and believes the
liquidity of the Insurance Group will not be adversely affected by
its current investments.
MANUFACTURING GROUP
-------------------
For the first six months of 1995, $1.9 million of cash was
used by Zimmerman's operations reflecting an increase in
receivables due to higher sales volume. This use of cash was
financed by income generated in the first six months and a $1.8
million increase in bank borrowings. Zimmerman has a $10 million
bank line of credit of which $8.7 million was outstanding at June
30, 1995. The Company believes that Zimmerman has sufficient funds
to meet its obligations.
CORPORATE
---------
Corporate derives its funds principally from (i) dividends and
interest income from its Insurance Group and its Manufacturing
Group, (ii) tax payments and management fees from its subsidiaries
and (iii) investment income from Corporate liquidity.
- 14 -
State insurance laws restrict the Insurance Group's ability to
make dividend payments to the parent company. Regulatory
constraints have historically not affected IHC's consolidated
liquidity, although they have limited the ability of the parent
company to use cash generated by the Insurance Group to fund
operating expenses, interest and dividend payments at Corporate.
The Company repurchased 212,000 shares of its common stock at
a cost of $.7 million during the six months ended June 30, 1995.
Total Corporate liquidity (cash, cash equivalents, resale
agreements and marketable securities) amounted to $14.5 million at
June 30, 1995. At the present time, the Company is not in need of
any additional long-term financing.
CAPITAL RESOURCES
-----------------
The Company continues to explore actively new opportunities
which it perceives exist in the health, life, and property and
casualty insurance and reinsurance businesses. With its already
superior capital ratios, together with its broad licensing and
excellent asset quality and credit-worthiness, the Insurance Group
remains well positioned to increase or diversify its current
activities.
At the same time, the Company recognizes that health care
reform initiatives are continuing to be discussed at various levels
of government. Depending upon the scope and timing of any such
legislation that becomes law, the manner in which health insurance
business is conducted in the future could be impacted. The
Insurance Group continuously monitors these initiatives in an
effort to best take advantage of a changing health care
environment.
In accordance with Statement of Financial Accounting Standards
No. 115, the Company may carry its portfolio of fixed income
securities either as held to maturity (carried at amortized cost),
as trading securities (carried at fair market value) or as
available-for-sale (carried at fair market value); the Company has
chosen to carry all of its debt securities as available-for-sale.
Primarily as a result of the decline in interest rates in the first
six months of 1995, the Company experienced a change in unrealized
gains of $7.1 million, net of deferred taxes of $.6 million, in
total stockholders' equity reflecting a decrease in unrealized
losses, net of deferred taxes from $9.2 million at December 31,
1994 to $2.1 million at June 30, 1995. The Company continues to
employ investment strategies to mitigate interest rate and other
market exposures.
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PART II. OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At its Annual Meeting of Stockholders, which was held on
June 6, 1995, the following eight nominees were re-elected for
one-year terms on the Board of Directors:
Harold E. Johnson, Allan C. Kirkman, Steven B. Lapin,
Donald T. Netter, Edward Netter, Edward J. Scheider,
Roy T.K. Thung and F. Peter Zoch, III
The vote on the election of the above nominees was:
For At least 13,379,594 shares
Withheld No more than 119,354 shares
There were no broker nonvotes.
Also at such meeting, the appointment of KPMG Peat
Marwick LLP as independent auditors for 1995 was ratified by
a vote of 13,473,692 shares for, 12,507 shares against, and
12,749 shares abstaining. There were no broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) 1) Exhibit 11. Statement re: computation of per
share earnings.
2) Exhibit 27. Financial Data Schedule.
b) No report on Form 8-K was filed during the quarter ended
June 30, 1995.
- 16 -
SIGNATURES
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.
INDEPENDENCE HOLDING COMPANY
----------------------------
(THE REGISTRANT)
Dated: August 11, 1995 By: /s/Roy T.K. Thung
--------------------------
Roy T. K. Thung
Executive Vice President,
Chief Financial Officer
and Treasurer
Dated: August 11, 1995 By: /s/Teresa A. Herbert
-------------------------
Teresa A. Herbert
Vice President and
Controller
- 17 -
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