FORM 10-Q/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1993
________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 1-7697
___________________________________
I.C.H. Corporation
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 43-6069928
_________________________________________________________________
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(502) 894-2100
_________________________________________________________________
(Registrant's telephone number, including area code)
__________________________________________________________________
(Former name, former address and former 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of August 12, 1993
__________________ _____________________
Common Stock, $1.00 Par Value 47,817,839
Common Stock, Class B, $1.00 Par Value 100,000
This filing contains 26 pages.
Index to Exhibits appears on page 24.
<PAGE>
<PAGE>
This Amendment No. 1 amends Items 1 and 2 of Part I, the Index
to Exhibits and Exhibit 11.1 of the Form 10-Q of I.C.H. Corporation
for the quarter ended June 30, 1993. The following is the complete
text of the items amended.
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1993 1992
________ ____________
(In Thousands)
<S> <C> <C>
Investments:
Fixed maturities:
Actively managed at fair value $1,336,568 $1,341,468
Held for sale at fair value 358,280 422,681
Held to maturity at amortized cost 138,296 149,740
Equity securities, at fair value 149,748 129,304
Mortgage loans on real estate,
at amortized cost 157,340 184,023
Real estate, at lower of cost
or fair value 72,138 66,386
Policy loans 180,278 192,973
Collateral loans 30,628 37,773
Investments in equity investees 86,030 41,321
Investments in limited partnerships 39,317 39,808
Cash and short-term investments 314,297 421,765
Other invested assets 9,123 25,055
__________ __________
Total investments 2,872,043 3,052,297
Notes and accounts receivable
and uncollected premiums 14,468 11,743
Accrued investment income 31,297 35,108
Deferred policy acquisition costs 178,114 178,807
Present value of future profits
of acquired business 54,315 63,863
Deferred income tax asset 51,332 121,007
Excess cost of investments in
subsidiaries over net assets
acquired, net of accumulated
amortization 312,402 317,197
Other assets 83,607 82,733
Assets held in separate accounts 5,140 5,305
__________ __________
$3,602,718 $3,868,060
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and
other policy liabilities $ 821,397 $1,008,586
Universal life and investment
contract liabilities 1,463,231 1,598,548
Notes payable:
Due within one year 4,522 79,422
Due after one year 463,385 463,908
Collateralized mortgage note obligations 133,702 157,231
Federal income taxes currently payable 6,973 1,491
Other liabilities 150,589 134,320
Liabilities related to separate accounts 5,140 5,305
__________ __________
3,048,939 3,448,811
__________ __________
Stockholders' equity:
Preferred stock 329,240 329,242
Common stock 71,572 71,401
Common stock, Class B 100 100
Additional paid-in capital 155,507 155,391
Net unrealized investment gains,
net of deferred income taxes 74,959 18,823
Accumulated deficit (24,078) (102,654)
__________ __________
607,300 472,303
Notes receivable collateralized
by common stock (1,697) (2,163)
Treasury stock, at cost (51,824) (50,891)
__________ __________
553,779 419,249
__________ __________
$3,602,718 $3,868,060
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $ 118,213 $ 388,245 $ 236,599 $ 770,787
Net investment income 43,762 80,356 106,186 164,603
Realized investment gains
(losses) (5,766) 3,463 13,369 (33,223)
Equity ln earnings of equity
investees and limited
partnerships 12,656 1,406 24,522 3,675
Other income 6,699 5,929 33,346 16,265
___________ ___________ ___________ _____________
175,564 479,399 414,022 922,107
___________ ___________ ___________ _____________
Benefits, expenses and costs:
Policyholder benefits 102,061 328,668 214,034 650,550
Amortization of deferred
policy acquisition costs
and present value of
future profits 14,686 32,534 27,752 73,071
Other operating expenses 42,837 78,865 91,764 171,895
Amortization of excess cost 2,402 2,816 4,803 5,632
Interest expense 17,104 19,363 36,282 38,944
Earnings attributable to
participating policy-
holders 486 1,911 2,519 4,195
___________ ___________ ___________ _____________
179,576 464,157 377,154 944,287
___________ ___________ ___________ _____________
Operating earnings (loss)
before income taxes (4,012) 15,242 36,868 (22,180)
Income tax expense (credit) 4,464 4,313 19,180 (9,807)
___________ ___________ ___________ _____________
Operating earnings (loss) (8,476) 10,929 17,688 (12,373)
Non-operating gain on sale of
stock by Bankers Life Holding
Corporation, net of tax effect 79,459
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits, net
of tax effect (1,812)
Extraordinary losses,
net of tax effects (129) (1,360) (2,516)
_____________ ___________ ___________ _____________
Net earnings (loss) (8,605) 10,929 93,975 (14,889)
Less dividends on
preferred stock (7,700) (7,700) (15,400) (15,400)
_____________ ___________ ___________ _____________
Net earnings (loss)
applicable to
common stock $ (16,305) $ 3,229 $ 78,575 $ (30,289)
============= ========== =========== =============
Weighted average shares
outstanding 47,918,802 48,181,751 47,913,409 48,181,751
============= ========== =========== =============
Earnings (loss) per common share:
Operating earnings
(loss) $ (.34) $ .07 $ .05 $ (.58)
Non-operating gain on sale
of stock by Bankers Life
Holding Corporation 1.66
Cumulative effect to January 1,
1993 of change in method of
accounting for postretire-
ment benefits (.04)
Extraordinary losses (.03) (.05)
____________ ___________ ___________ ___________
Net earnings (loss) $ (.34)$ .07 $ 1.64 $ (.63)
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1993 and 1992
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1993 1992
____ ____
<S> <C> <C>
Cash flows from operating activities:
Operating earnings (loss) $ 17,688 $ (12,373)
Items not requiring (providing) cash:
Adjustments related to universal life and
investment products:
Interest credited to account balances 52,419 69,913
Charges for mortality and administration (36,497) (44,223)
Depreciation and amortization 8,623 12,322
Increase in future policy benefits 3,306 32,025
Decrease (increase) in deferred policy
acquisition costs 3,471 (2,104)
Increase in currently payable income taxes 5,482 (45,331)
Decrease (increase) in deferred income tax asset 22,804 (12,460)
Decrease in policy liabilities, other
policyholder funds, accounts payable
and accrued expenses (30,353) (17,439)
Decrease in notes and accounts receivable and
accrued investment income 253 3,285
Increase (decrease) in asset valuation allowances (935) 38,246
Equity in earnings of equity investees and
limited partnerships (24,522) (3,675)
Gain on termination of reinsurance (17,117)
Other, net 9,282 4,800
________ __________
Net cash provided by operating activities 13,904 22,986
Cash flows from investing activities:
Sales and maturities of long-term invested assets 772,663 934,140
Purchases of fixed maturities (531,284) (821,490)
Purchases of other long-term invested assets (52,765) (48,534)
Cash transferred on reinsurance transactions (43,152)
Other (8,001)
_________ ___________
Net cash provided by investing activities 145,462 56,115
_________ ___________
Cash flows from financing activities:
Proceeds of notes payable 6,200
Proceeds of collateralized mortgage note
obligations 171,000
Policyholder contract deposits 91,422 386,260
Policyholder contract withdrawals (242,283) (213,469)
Principal payments on notes payable (37,923) (76,207)
Early retirement of subordinated debt (38,190) (1,694)
Principal payments on collateralized mortgage
note obligations (194,528)
Purchase of common stock for treasury (932)
Dividends on preferred shares (15,400) (15,400)
_________ ___________
Net cash provided (used) by financing activities (266,834) 85,690
_________ ___________
Net increase (decrease) in cash and short-term
investments (107,468) 164,791
Cash and short-term investments at beginning
of period 421,765 386,476
_________ ___________
Cash and short-term investments at end of period $ 314,297 $ 551,267
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
________________
1. Significant Accounting Policies:
_______________________________
The financial information included herein was prepared in
conformity with generally accepted accounting principles, and
such principles were applied on a basis consistent with those
reflected in the 1992 Annual Report to Shareholders.
The information furnished includes all adjustments and
accruals which are, in the opinion of management, necessary
for a fair statement of results for the interim periods.
The disclosures in the notes presume that the users of the
interim financial information have read or have access to the
audited financial statements included in the 1992 Annual
Report to Shareholders.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
SFAS No. 106 requires that an enterprise accrue, during the
years that an employee renders the necessary service, the
expected cost of providing postretirement life and health care
benefits to an employee and the employee's beneficiaries and
covered dependents. The Company's transition obligation as of
January 1, 1993, approximated $22,873,000. The Company had
previously provided a liability totaling $20,127,000 at
December 31, 1992, for postretirement benefits for retired
employees of certain acquired companies through its purchase
accounting relative to such companies. The Company has
reflected a charge for the cumulative effect to January 1,
1993, of providing for postretirement benefits for its
remaining employees totaling $2,746,000. The cumulative
charge has been reflected net of $934,000 in related income
tax effects.
Previously reported amounts for 1992 have, in some instances,
been reclassified to conform to the 1993 presentation.
2. Investment in Bankers Life Holding Corporation:
______________________________________________
At December 31, 1992, the Company held direct and indirect
common equity interests in Bankers Life Holding Corporation
(BLHC) totaling approximately 39.9%. Effective March 31,
1993, BLHC completed an initial public offering of 19.55
million shares of its common stock, or an approximate 35.8%
interest in BLHC, at $22 per share. Proceeds of the offering,
after underwriting expenses, approximated $405 million.
Effective the same day, Conseco Capital Partners, L.P. (CCP)
announced a plan of dissolution and BLHC common shares held by
CCP were subsequently distributed to the respective partners
in accordance with that plan. The Company received 2,917,318
shares of BLHC common stock as a result of such distribution,
increasing its direct ownership in BLHC common stock to
13,316,168 shares, or approximately 24.4% of BLHC's outstand-
ing common shares following the offering. For the three
months ended March 31, 1993, the Company reflected a non-
operating gain on the BLHC offering totaling $79,459,000, net
of deferred income tax expense of $19,917,000, primarily
representing the Company's 24.4% equity in the net proceeds of
the BLHC offering. The tax expense incurred was at an
approximate 20% rate, or lower than the prevailing 34%
corporate income tax rate, as a result of a $13.9 million
reduction in a deferred tax asset valuation allowance. BLHC
utilized a portion of the offering proceeds to redeem certain
of its outstanding securities, including $50 million stated
value of BLHC preferred stock and $34.7 million principal
amount of BLHC junior subordinated notes held by the Company.
Because a portion of the purchase price paid for such invest-
ments had been allocated to the Company's common equity
investments in BLHC, such redemptions resulted in additional
gains totaling $8,252,000, which have been included as a
component of realized investment gains.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
_________________
2. Investment in Bankers Life Holding Corporation, continued:
______________________________________________
Financial information of BLHC and the Company's carrying value
of its investment in BLHC as of June 30, 1993 and December 31,
1992, the fair value of the Company's investment in BLHC as of
June 30, 1993 (based on the quoted market value of publicly-
traded shares of BLHC common stock at that date), and the
Company's equity in the earnings of BLHC for the six months
ended June 30, 1993, is as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1993 1992
________ ____________
<S> <C> <C>
Financial position:
Invested assets $2,449,400 $1,847,000
Other assets 1,308,400 1,523,500
Insurance liabilities 2,608,500 2,490,200
Notes payable and other liabilities 666,100 709,300
Preferred stockholders' equity -- 160,800
Common stockholders' equity 483,200 10,200
Results of operations (for period ended):
Revenues $ 718,500
Earnings from operations 64,300
Extraordinary loss from early
debt retirement (5,600)
Net earning attributable to common stock 54,200
Amounts recorded by the Company:
Investment in 11% Junior
Subordinated Debt $ -- $ 30,551
Investment in 11% Preferred Stock -- 46,509
Equity investments in BLHC and CCP 86,030 (35,739)
__________ __________
Net investment in BLHC and CCP $ 86,030 $ 41,321
========== ==========
Equity in operating earnings of BLHC $ 20,539
Equity in extraordinary losses of BLHC (1,370)
__________
Equity in earnings of BLHC $ 19,169
==========
Fair value of investment in BLHC $ 304,607
==========
</TABLE>
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
_____________________
3. Notes Payable and Collateralized Mortgage Note Obligations:
__________________________________________________________
Notes payable at June 30, 1993 and December 31, 1992, are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
____ ____
(In Thousands)
<S> <C> <C>
Borrowings under senior secured loan $ 30,000 $ 30,000
16 1/2% Senior Subordinated Debentures
due 1994 49,934 124,910
11 1/4% Senior Subordinated Notes due 1996 353,207 353,207
9 1/2% unsecured note payable due 1996 29,200 29,200
Note payable, interest at prime, due in
monthly installments through 1999,
collateralized by aircraft equipment 5,268 5,654
Mortgage notes payable, 6% to 9.5%, with
maturities through 2007, collateralized by
real estate 279 322
Other 19 37
________ ________
$467,907 $543,330
======== ========
</TABLE>
On March 31, 1993, the Company effected an early redemption of
$37.5 million of its 16-1/2% Senior Subordinated Debentures at
a price totaling 101.84% of the principal amount redeemed.
Such redemption satisfied the Company's January 1994 sinking
fund requirement.
At June 30, 1993, the Company has notes receivable totaling
$26,000,000 from an unaffiliated third party, which is
collateralized by the Company's note payable in the amount of
$20,060,000. The Company has the right to set off its
obligation against the notes receivable. In the accompanying
balance sheets, the Company's notes receivable have been
reflected net of amounts due under the note payable.
At December 31, 1992, the Company reflected a collateralized
mortgage note obligation totaling $157,231,000 payable to its
former subsidiary, Bankers Life and Casualty Company (Bank-
ers). The obligation was collateralized by certain mortgage-
backed securities which had previously been owned by Bankers
and which had been placed in a special purpose trust (the
Trust) prior to the sale of Bankers on November 9, 1992. The
Company retained a residual interest in the securities held in
the Trust with a carrying value of $79,715,000 at December 31,
1992. All of the receipts on the securities placed in the
Trust were to be applied first to repay the principal and
interest at 8-1/2% on the obligation due Bankers. On Febru-
ary 5, 1993, the Company completed the sale to unaffiliated
parties of collateralized note obligations of the Trust
totaling $171,000,000 and utilized $142,092,000 of the
proceeds to retire the remaining obligation due Bankers. At
June 30, 1993, the Trust's collateralized mortgage note
obligations, which are reflected in the Company's financial
statements, totaled $133,702,000, consisting of $86,789,000 in
obligations bearing interest at the floating LIBOR plus 2-1/2%
and $46,913,000 in obligations bearing interest at 8%.
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
__________________
4. Federal Income Taxes:
____________________
The provision (credit) for income taxes on operating earnings
(loss) consists of the following components:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
___________________________
1993 1992
____ ____
(In Thousands)
<S> <C> <C>
Current tax expense (credit) $ (3,624) $ 1,357
Deferred tax expense (credit) 22,804 (11,164)
________ _________
$ 19,180 $ (9,807)
======== =========
</TABLE>
Net unrealized investment gains included in stockholders'
equity are reflected net of deferred income taxes totaling
$38,615,000 and $9,696,000 at June 30, 1993 and December 31,
1992, respectively.
5. Commitments, Litigation and Contingent Liabilities:
__________________________________________________
The Internal Revenue Service (IRS) has completed its examina-
tion of the tax returns of the Company and certain of its
subsidiaries for the years 1983 through 1985 and has issued
Preliminary Notices of Deficiency to certain companies
totaling approximately $17.5 million before interest.
Management did not agree with the tax issues involved and, as
a result, filed formal protests of the proposed deficiencies
with the IRS Office of Appeals. Agreement has subsequently
been reached with the IRS in regard to a number of the issues
involved and, as a result, management believes the ultimate
liability resulting from the proposed deficiencies will not
exceed amounts recorded in the Company's financial statements.
Various lawsuits and claims are pending against the Company
and its subsidiaries. Based in part upon the opinion of
counsel as to the ultimate disposition of these matters,
management believes that the liability, if any, will not be
material. See Item 1 in Part II of this Report for a descrip-
tion of recent litigation.
6. Realized Investment Gains (Losses):
__________________________________
Following is an analysis of the major components of gains
(losses) on investments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ _________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Fixed maturities $ (327) $ 954 $14,023 $ 4,459
Mortgage-backed securities (651) (1,014) (44,425)
Equity securities (99) 885 6,113 2,261
Investment in limited
partnerships (5,013) (5,013)
Other (327) 2,275 (740) 4,482
_______ ______ _______ ________
$(5,766) $3,463 $13,369 $(33,223)
======= ====== ======= ========
</TABLE>
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
___________________
7. Extraordinary Losses:
____________________
For the six months ended June 30, 1993, the Company reflected
an extraordinary loss totaling $690,000, resulting from the
premium paid to effect the early redemption of $37.5 million
principal amount of the Company's 16-1/2% Senior Subordinated
Debentures due 1994. In addition, the Company reflected its
equity in the extraordinary loss of BLHC resulting from early
retirement of debt totaling $1,370,000. For the six months
ended June 30, 1992, the Company reflected extraordinary
losses totaling $3,812,000, resulting from the writeoff of
deferred loan costs applicable to the portion of the senior
secured loan which was prepaid on January 6, 1992 and the
costs associated with terminating a related interest rate
floor arrangement. The extraordinary losses have been
reflected net of the estimated tax effects totaling $700,000
and $1,296,000 in 1993 and 1992, respectively.
8. Reinsurance:
___________
Effective March 31, 1993, Bankers and a subsidiary of the
Company terminated a reinsurance agreement under which Bankers
had previously ceded substantially all of its directly
underwritten participating life insurance business to the
Company's subsidiary. Assets, primarily fixed maturities and
cash, with a fair value of approximately $163.6 million were
transferred to Bankers and Bankers assumed policy liabilities
on the reinsured business totaling $186.2 million. The
Company realized a gain on the termination of the reinsurance
agreement, net of a $5.5 million deferred gain based on its
continuing interest in BLHC, totaling approximately $17.1
million.
9. Transactions With Consolidated Fidelity Life Insurance Company:
______________________________________________________________
Effective June 15, 1993, the Company purchased shares of
preferred stock from an affiliate, Consolidated Fidelity Life
Insurance Company (CFLIC), in exchange for certain investments
with an estimated fair value of $63 million. CFLIC is a
subsidiary of Consolidated National Corporation (CNC) and CNC
is also the controlling shareholder of the Company. The
purchase of the CFLIC preferred stock was the first step in a
series of transactions which have been designed 1) to termi-
nate existing reinsurance arrangements under which business
written by a subsidiary and a former subsidiary of the Company
is reinsured (through an unaffiliated insurer) by CFLIC and
2) to redeem or retire certain of the Company's securities
which are currently held by CFLIC. See Management's Discus-
sion and Analysis of Financial Condition and Results of
Operations for a more detailed discussion of the anticipated
effects of the proposed transactions.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
_______________________________
During the first six months of 1993, ICH's common stockhold-
ers' equity increased to $224.5 million, or $4.69 per share, from
$90.0 million, or $1.88 per share at year-end 1992. Total
stockholders' equity increased from $419.2 million to $553.8
million. Such increases were primarily attributable to a non-oper-
ating gain resulting from the sale of common stock by an equity
investee and other unrealized investment gains. ICH also realized
a gain from the sale of a block of insurance business and had no
significant losses on its remaining investments in mortgage-backed
residual interests and interest-only certificates. In addition,
ICH reduced its outstanding notes payable by $75.4 million, from
$543.3 million at year-end 1992 to $467.9 million at June 30, 1993.
The Company repaid $75.0 million principal amount of its 16-1/2%
Senior Subordinated Debentures, including $37.5 million repaid
through a regular sinking fund installment on January 15, 1993, and
$37.5 million called for early redemption on March 31, 1993. As a
result of the reduction in notes payable and the increase in
stockholders' equity, ICH's debt-to-equity ratio was reduced from
1.3-to-1 at year-end 1992 to .8-to-1 at June 30, 1993. Following
is an analysis of the various items affecting ICH's liquidity and
capital resources.
At December 31, 1992, ICH's subsidiaries held direct and
indirect common equity interests in Bankers Life Holding Corpora-
tion (BLHC) totaling approximately 39.9%. Such interests had been
acquired in conjunction with the sale of ICH's subsidiary, Bankers
Life and Casualty Company (Bankers) in November 1992 as discussed
in ICH's 1992 Annual Report. During the first quarter of 1993, ICH
acquired such interests from its subsidiaries. Effective March 31,
1993, BLHC completed an initial public offering of 19.55 million
shares of its common stock, or an approximate 35.8% interest in
BLHC, at $22 per share. Proceeds of the offering, after underwrit-
ing expenses, approximated $405 million. Effective the same day,
Conseco Capital Partners, L.P. (CCP) announced a plan of dissolu-
tion and BLHC common shares held by CCP were subsequently distrib-
uted to the respective partners. ICH received 2,917,318 shares of
BLHC common stock as a result of such distribution, increasing its
direct ownership in BLHC common stock to 13,316,168 shares, or
approximately 24.4% of BLHC's outstanding common shares following
the offering. For the three months ended March 31, 1993, ICH
reflected an after-tax non-operating gain on the BLHC offering
totaling $79,459,000, or $1.66 per share, primarily representing
ICH's equity in the net proceeds of the BLHC offering. BLHC
utilized a portion of the offering proceeds to redeem certain of
its outstanding securities, including $50 million stated value of
BLHC preferred stock and $34.7 million principal amount of BLHC
junior subordinated notes held by ICH's subsidiaries. Because a
portion of the purchase price paid for such investments had been
allocated to ICH's common equity investments in BLHC, such
redemptions resulted in additional pre-tax investment gain totaling
$8,252,000. On an after-tax basis, such gains totaled approxi-
mately $5,446,000, and resulted in both operating and non-operating
gains from the BLHC offering totaling $84,905,000, or $1.77 per
share.
As a result of ICH's equity in the BLHC offering and its
equity in the earnings and unrealized investment gains of BLHC
during the first six months of 1993, the carrying value of ICH's
investment in BLHC's common equity increased from a negative
$(35.7) million at year-end 1992 to a positive $86.0 million at
June 30, 1993. In addition, because ICH's ownership in BLHC
continued to exceed 20% of BLHC's voting securities, ICH continued
to reflect its investment in BLHC on the equity method. As a
result, the excess of the fair value of ICH's investment in BLHC
over ICH's carrying value was not reflected in ICH's balance sheet
or stockholders' equity.
Following BLHC's offering but also effective March 31, 1993,
Bankers and an ICH subsidiary terminated a reinsurance agreement
under which Bankers had previously ceded substantially all of its
directly underwritten participating life insurance business to
ICH's subsidiary. Assets, primarily fixed maturities and cash,
with a fair value of approximately $163.6 million were transferred
to Bankers and Bankers assumed policy liabilities on the reinsured
business totaling approximately $186.2 million. ICH realized a
gain on the termination of the reinsurance agreement, net of a $5.5
million deferred gain based on its continuing interest in BLHC,
totaling approximately $17.1 million.
At June 30, 1993 and December 31, 1992, ICH reflected
unrealized investment gains of $74,959,000 and $18,823,000,
respectively. Following is an analysis of the major components of
such unrealized gains (in thousands):
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1993 1992
________ ____________
<S> <C> <C>
Actively managed fixed maturities $ 63,826 $ 4,268
Equity securities:
CCP Insurance, Inc. 28,948 24,123
Other 191 285
Equity in unrealized gains of limited partnerships:
Life Partners Group 15,619
Other 2,179
Equity in unrealized gains of BLHC 4,101 877
Other (1,290) (1,034)
________ _______
Gross unrealized investment gains 113,574 28,519
Deferred income taxes at 34% (38,615) (9,696)
________ _______
Net unrealized investment gains $ 74,959 $18,823
======== =======
</TABLE>
The fair value in excess of amortized cost of ICH's actively
managed fixed maturities increased from approximately $4.3 million
at year-end 1992 to approximately $63.8 million, or 5% over amortized
cost, at June 30, 1993. Substantially all of the increase in fair
value was related to declines in market interest rates between the
two dates. Except as may be required to meet its liquidity require-
ments, ICH has no current plans over the near-term to liquidate a
significant portion of its actively managed fixed maturity investments
to realize such gains. Following is an analysis of gross unrealized
investment gains and losses on actively managed fixed maturities
as of June 30, 1993 and December 31, 1992 (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1993 1992
________ ____________
<S> <C> <C>
Gross unrealized gains $68,620 $ 22,661
Gross unrealized losses (4,794) (18,393)
_______ _________
Net unrealized gains $63,826 $ 4,268
======= =========
</TABLE>
During the six months ended June 30, 1993, ICH sold 211,925
shares of CCP Insurance, Inc. common stock and realized gains
totaling approximately $2.7 million. At June 30, 1993, ICH's
subsidiaries continue to hold approximately 2.1 million shares of
CCP Insurance common stock with a fair value of approximately $53.2
million.
During the first quarter of 1993, Life Partners Group (LPG),
the holding company formed to acquire certain subsidiaries from ICH
in 1990, completed an initial public offering of 15.2 million
shares of its common stock, or a 58.5% interest in LPG, at $17 per
share. In conjunction with the sale of such subsidiaries, ICH
acquired an approximate 31% interest in a partnership, HMC/Life
Partners L.P., which, in turn, directly owns approximately 5.1
million shares of LPG common stock. The partnership has no other
significant assets or liabilities and ultimately intends to sell
its interests in LPG or distribute the LPG shares to its respective
partners. Based on an assumed liquidation of the partnership and
a distribution of the LPG common stock under provisions of a
partnership agreement, ICH would be entitled to receive shares of
LPG common stock with a fair value at June 30, 1993, of approxi-
mately $20.6 million, or $15.6 million more than the adjusted cost
of its investment in the partnership. Accordingly, at June 30,
1993, ICH has reflected an unrealized investment gain based on the
successful completion of LPG's offering and ICH's retained interest
therein. As discussed later under "Transactions With Consolidated
Fidelity Life Insurance Company," the investment in HMC/Life
Partners L.P. was transferred to an affiliated company in exchange
for preferred stock as the first step in a series of transactions
to terminate a reinsurance arrangement with the affiliate.
<PAGE>
LPG utilized a portion of the proceeds from its offering to
redeem its 15% preferred stock, including $22.1 million stated
value of such preferred stock held by certain of ICH's subsidiar-
ies. There were no gains or losses reflected on such redemptions.
The following table sets forth the carrying value and quality
for each of the three categories of fixed maturities as of June 30,
1993, classified in accordance with the grading assigned by
Standard & Poor's Corporation (S&P) or, if not rated by S&P, based
on ratings assigned by the National Association of Insurance
Commissioners, with Class 1 treated as A, Class 2 treated as BBB-,
Class 3 treated as BB- and Classes 4, 5 and 6 treated as B and
below (in millions):
<TABLE>
<CAPTION>
Held to
Actively Held for Maturity Percent of Percent
Managed Sale at at Total Total of Total
Investment at Fair Fair Amortized Fixed Fixed Invested
Quality Value Value Cost Maturities Maturities Assets
__________ ________ ________ _________ __________ __________ ________
<S> <C> <C> <C> <C> <C> <C>
AAA $ 469.6 $ 357.3 $ 24.1 $ 851.0 46.4% 29.6%
AA 156.9 1.0 41.2 199.1 10.9 6.9
A 393.8 17.0 410.8 22.4 14.3
BBB+ 86.6 86.6 4.7 3.0
BBB 69.8 15.6 85.4 4.7 3.0
BBB- 84.0 84.0 4.6 2.9
________ _______ ______ ________ _____ _____
Total invest-
ment grade 1,260.7 358.3 97.9 1,716.9 93.7 59.7
________ _______ ______ ________ _____ _____
BB+ 30.9 30.9 1.7 1.1
BB and BB- 26.6 10.0 36.6 2.0 1.3
B and Below 18.4 30.4 48.8 2.6 1.7
________ _______ ______ ________ _____ _____
Total non-
investment-
grade 75.9 40.4 116.3 6.3 4.1
________ _______ ______ ________ _____ _____
Total
fixed
maturi-
ties $1,336.6 $358.3 $138.3 $1,833.2 100.0% 63.8%
======== ====== ====== ======== ===== =====
</TABLE>
Fixed maturities classified as held to maturity are principal-
ly private placement mortgage-backed securities and other corporate
securities and had gross unrealized gains of $2.4 million and gross
unrealized losses of $14.3 million as of June 30, 1993.
The amortized cost and fair value of noninvestment-grade fixed
maturities totaled $115.3 million and $108.5 million, respectively,
at June 30, 1993.
As reflected in its year-end 1992 financial statements, ICH
held mortgage-backed residual interests and interest-only certifi-
cates (IOs) with a carrying value and fair value of $422.7 million.
Such year-end values were reflected net of reserves for anticipated
losses in 1993 totaling $34.9 million, which had been provided
based on the prepayment experience incurred and expected on the
mortgage loans underlying such residual interests and IOs through
the first three months of 1993. At June 30, 1993, the carrying
value and fair value of such investments had declined to $358.3
million as a result of principal repayments. Based on an analysis
of subsequent prepayment experience, management believes that the
reserves provided at year-end 1992 have been adequate and, as a
consequence, ICH did not incur any significant additional losses on
its residual interests and IOs during the first six months of 1993.
Effective July 30, 1993, ICH and its subsidiaries, along with
CFLIC, entered into a transaction designed to substantially reduce
their exposure to the prepayment risks associated with their
investments in residual interest and IO mortgage-backed securities,
including liquidating a substantial portion of such investments.
ICH's subsidiaries and CFLIC sold directly-owned residual interests
and IOs with a carrying value of approximately $137.8 million and
$26.5 million, respectively, to an unaffiliated third party, Fund
America Investors Corporation II (Fund America). In addition, ICH
and CFLIC sold to Fund America 75% of their rights with respect to
residual interests in certain mortgage-backed securities which were
acquired in conjunction with the sale of Bankers and are held in a
special-purpose trust (the Trust) to collateralize certain mortgage
note obligations (see ICH's 1992 Annual Report and Note 3 of the
Notes to Financial Statements included elsewhere in this Report).
CFLIC had acquired its interest in the Trust as later discussed
under "Transactions With Consolidated Fidelity Life Insurance
Company." Because
<PAGE>
ICH was deemed to be the Trust's sponsor and, with CFLIC, retained
a majority ownership in the residual interest, the accounts of the
Trust were included in ICH's consolidated balance sheet at year-end
1992 and at June 30, 1993. Following is a summary of the various
accounts of the Trust as reflected in ICH's balance sheet at June 30,
1993, and ICH's net residual interest in the Trust (in millions):
<TABLE>
<S> <C>
Fixed maturities, held for sale $ 195.8
Collateralized mortgage note obligations (133.7)
Other liabilities:
Deferred income and other (6.6)
Minority interest held by CFLIC (45.0)
______
ICH net residual interest in the Trust $ 10.5
======
</TABLE>
The net carrying value of the 75% interests sold by ICH and
CFLIC approximated $7.9 million and $33.7 million, respectively.
Fund America sponsored the formation of a new trust (the New
Trust) into which it deposited the purchased securities. Interests
in the New Trust aggregating $217 million, or 68.4% of its total
outstanding securities, were sold to other unaffiliated parties.
A portion of the sales proceeds were utilized to acquire additional
securities which were deposited into the New Trust, including
certain securities designed to assure the ultimate return of
principal on the interests retained by ICH, its subsidiaries and
CFLIC. The remaining proceeds, after underwriting expenses, were
utilized to pay a portion of the purchase price for the securities
purchased from ICH and its subsidiaries and CFLIC. The remainder
of the purchase price was paid by issuing participation certifi-
cates representing residual interests in the pool of $101.0 million
principal amount of securities placed in the New Trust. The
participation certificates received in the transaction were valued
for financial reporting purposes at their fair value, assuming an
11% annual return to maturity.
Before the recognition of gains totaling approximately $14.3
million resulting from the disposal of certain securities utilized
to hedge prepayment risks on the mortgage-backed securities, the
transactions resulted in losses for ICH and CFLIC totaling
approximately $24.1 million. ICH will reflect the effects of these
transactions in its third quarter 1993 results. Following is a
summary of the effects of the above-described transactions (in
millions):
<TABLE>
<CAPTION>
ICH CFLIC Total
___ _____ _____
<S> <C> <C> <C>
Investments transferred to Fund America:
75% interest in the Trust $ 7.9 $33.7 $ 41.6
Directly-held securities 137.8 26.5 164.3
______ _____ ______
Total 145.7 60.2 205.9
______ _____ ______
Consideration received:
Cash, net of underwriting expenses 61.5 28.9 90.4
Participation certificates, at fair value 68.1 23.3 91.4
______ _____ ______
Total 129.6 52.2 181.8
______ _____ ______
Loss before sale of hedge securities (16.1) (8.0) (24.1)
Gains on sale of hedge securities 11.8 2.5 14.3
______ _____ ______
Net loss on transactions $ (4.3) $(5.5) $ (9.8)
====== ===== ======
</TABLE>
Management believes that if ICH had continued to hold its
portfolio of residual interest and IO mortgage-backed securities,
it is highly likely that the recent and continuing decline in
market interest rates and the related increase in mortgage loan
refinancings would have resulted in significant additional losses.
Management further believes the above transactions have signifi-
cantly reduced ICH's exposure to principal writedowns resulting
from the prepayment risks associated with such investments. While
ICH and its subsidiaries will still retain an interest
<PAGE>
in the securities which were sold, such interest is substantially
smaller and has been enhanced in a manner which was designed to
assure the ultimate return of principal on the retained interest.
Further, because ICH and CFLIC no longer hold a direct or indirect
majority interest in the Trust and have not guaranteed any portion
of the collateralized mortgage note obligations, the accounts of
the Trust will not be consolidated with those of the Company in
periods after June 30, 1993.
The yield on investment assets averaged 7.3% for the six
months ended June 30, 1993, as compared to 8.3% for the year ended
December 31, 1992. The decline in yields is attributable, in part,
to reduced market rate yields between the respective periods and to
holding a substantial amount of cash and short-term investments.
Cash and short-term investments declined from $421.8 million at
year-end 1992 to $314.3 million at June 30, 1993. Because of the
BLHC and LPG redemptions which occurred effective March 31, 1993,
and liquidity needs, including the termination of the reinsurance
agreement with Bankers, the early redemption of $37.5 principal
amount of ICH's 16-1/2% Debentures and the pending settlement of
various intercompany obligations, ICH and its subsidiaries have
maintained larger than optimum levels of cash and short-term
investment during the first half of 1993. Management is presently
addressing how these short-term funds should be invested over the
near term.
As discussed in ICH's 1992 Annual Report, the claims-paying
ratings assigned to certain of ICH's subsidiaries by various
nationally recognized statistical rating organizations were
recently lowered. In June 1993, Moody's Investors Service Inc.
further lowered the rating it had assigned to one of ICH's
subsidiaries. Except as discussed below, management believes ICH's
subsidiaries have not experienced more than normal policy surren-
ders and withdrawals as a result of these ratings downgrades. For
the six months ended June 30, 1993, policyholder contract withdraw-
als, principally guaranteed investment contracts (GICs), exceeded
policyholder contract deposits by approximately $150.9 million. A
substantial portion of such withdrawals represented scheduled
maturities of GICs which were not reinvested with an ICH subsidiary
due to the lowered ratings. Because of its available liquidity and
readily marketable securities, the subsidiary encountered no
difficulty in meeting its obligations relative to such withdrawals.
At June 30, 1993, the parent company held cash and short-term
investments totaling $53.9 million. ICH, as the parent company,
believes that it has sufficient cash and short-term investments
with which to meet its debt service and preferred dividend
requirements for the remainder of 1993. As discussed in its 1992
Annual Report, ICH's ability to meet such commitments in 1994 is
dependent on being able to effect a restructuring or refinancing of
its presently outstanding debt obligations or the sale of certain
assets.
Transactions With Consolidated Fidelity Life Insurance Company
______________________________________________________________
Effective June 15, 1993, ICH entered into an agreement (the
Agreement) which initiated the process of terminating certain
reinsurance arrangements involving an affiliate, Consolidated
Fidelity Life Insurance Company (CFLIC). CFLIC is a subsidiary of
Consolidated National Corporation (CNC) and CNC is also the
controlling shareholder of ICH. The reinsurance arrangements
involve certain annuity business with reserves totaling $340.3
million as of June 30, 1993, which was transferred by a subsidiary
of ICH, Southwestern Life Insurance Company (Southwestern), to an
unaffiliated reinsurer in 1990. The unaffiliated reinsurer, in
turn, transferred the business to another CNC subsidiary, Marquette
National Life Insurance Company (Marquette). In 1991, Marquette
transferred the annuity business to CFLIC.
The reinsurance arrangements have been under review by the
Texas Department of Insurance and, in March 1993, ICH and South-
western agreed with the Texas Department that they would, among
other things, develop a plan to enhance and diversify the assets
supporting the liabilities reinsured by CFLIC, including possibly
terminating the reinsurance arrangements by having Southwestern
recapture the annuity business. The recapture is subject to
negotiations with the unaffiliated reinsurer and approval by the
Texas Department.
CNC and CFLIC agreed to structure the proposed recapture in a
manner that will permit ICH to redeem or retire certain of its
outstanding securities, provided CFLIC would be allowed to retain
certain assets following the recapture. CFLIC holds ICH's senior
secured debt, with a current balance of $30 million, which it
acquired in 1992 from ICH's bank lenders to help facilitate a
planned restructuring. In addition, CFLIC holds approximately
$22.2 million stated value of ICH's Series 1984-A Preferred Stock
and $7 million stated value of Series 1987-B Preferred Stock.
<PAGE>
CFLIC also intends to terminate another reinsurance arrange-
ment under which business written by Bankers is reinsured by CFLIC.
Under terms of the Agreement, ICH will be responsible for the
negotiation of and will bear any costs associated with both the
Southwestern and Bankers recaptures and will manage the affairs of
CFLIC and Marquette, including management of their investments,
until the recaptures are effected. Upon completion of the
recaptures, CFLIC will have no remaining insurance business.
To facilitate the recaptures of the reinsured business, ICH
acquired $63 million in CFLIC preferred stock in exchange for its
ownership interest in certain investments with an estimated fair
value as of June 15, 1993, of $63 million, including its ownership
in a limited partnership (the HMC/Life Partners L.P.) and 83
percent of ICH's ownership interest in I.C.H. Funding Corporation
(ICH Funding). ICH Funding is a special purpose entity that was
formed in 1992 to hold ICH's residual interest in a pool of
mortgage-backed securities acquired from Bankers. The CFLIC
preferred stock is non-redeemable and non-voting, with cumulative
6% annual dividends that will be payable in kind until the
recaptures are completed. ICH and CFLIC anticipate that the assets
received by CFLIC from ICH in consideration for the preferred
stock, along with other assets held by CFLIC, including its
ownership in Marquette, will be transferred to Southwestern upon
recapture of the annuity business. Following the recaptures, CFLIC
is obligated to redeem its preferred stock by transferring its
ownership in the ICH securities and additional assets to ICH. Upon
their receipt, ICH intends to retire the ICH debt and securities.
For financial reporting purposes, no gain or loss was recog-
nized on the transfer of the assets to CFLIC and the cost basis in
the CFLIC preferred stock was recorded at ICH's $50 million basis
in the assets transferred. The Agreement identifies the specific
assets and liabilities plus, subject to certain conditions, an
amount in cash that will be retained by CFLIC following the
recaptures. All remaining assets held by CFLIC, including the ICH
securities, will revert to ICH in redemption of CFLIC's preferred
stock. As a consequence, ICH will benefit or suffer the conse-
quences to the extent of any appreciation or depreciation in the
value of the assets transferred to CFLIC. Accordingly, at June 30,
1993, ICH has accounted for the unrealized appreciation in the
HMC/Life Partners L.P. totaling approximately $15.6 million as an
unrealized investment gain on the CFLIC preferred stock.
Because the purchase of the preferred stock and the proposed
recapture involves transactions between companies under common
control, ICH's Board of Directors retained independent legal
counsel, received a valuation of the business being recaptured by
an independent actuarial consulting firm and obtained financial
advice from an independent investment banking firm.
Management believes the completion of the transactions with
CFLIC will be beneficial for several reasons. In addition to
eliminating $30 million in scheduled debt principal requirements,
the redemption or retirement of the ICH securities will reduce
ICH's interest and preferred dividend requirements by approximately
$5.4 million annually. Further, the recapture of the Southwestern
annuity business will substantially eliminate the possibility for
conflicts of interest by reducing affiliated party transactions
between CNC and its subsidiaries and ICH. Management anticipates
the series of transactions with CFLIC can be completed on or before
December 31, 1993.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
Results of Operations:
On a line-by-line basis in the consolidated statements of
earnings (loss), the comparison of current period amounts with
historical prior period amounts is significantly affected by the
sale of Bankers effective October 31, 1992, as described in the
Notes to Financial Statements in ICH's 1992 Annual Report. The
following unaudited pro forma statement of earnings (loss) for the
three months and the six months ended June 30, 1992, presents
information regarding ICH's operating results as though Bankers'
pre-tax operating results had been reported under the equity method
of accounting beginning January 1, 1992 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1992 1992
1993 Pro 1993 Pro
Actual Forma Actual Forma
______ _____ ______ _____
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $118,213 $109,837 $236,599 $218,334
Net investment income 43,762 45,984 106,186 100,347
Realized investment gains
(losses) (5,766) 5,672 13,369 (10,732)
Equity in earnings of equity
investees and limited
partnerships 12,656 1,406 24,522 3,675
Other income 6,699 8,876 33,346 15,495
Equity in earnings of Bankers 24,553 34,238
________ ________ ________ ________
175,564 196,328 414,022 361,357
________ ________ ________ ________
Benefits, expenses and costs:
Policyholder benefits 102,061 104,839 214,034 210,170
Amortization of deferred policy
acquisition costs and present
value of future profits 14,686 14,612 27,752 29,998
Other operating expenses 42,837 38,050 91,764 95,883
Amortization of excess cost 2,402 2,391 4,803 4,782
Interest expense 17,104 19,363 36,282 38,944
Earnings attributable to
participating policyholders 486 1,831 2,519 3,760
________ ________ ________ ________
179,576 181,086 377,154 383,537
________ ________ ________ ________
Operating earnings (loss) before
income taxes (4,012) 15,242 36,868 (22,180)
Income tax expense (credit) 4,464 4,313 19,180 (9,807)
________ ________ ________ ________
Operating earnings (loss) (8,476) 10,929 17,688 (12,373)
Non-operating gain on sale of
stock by Bankers Life Holding
Corporation, net of tax effect 79,459
Cumulative effect of change in
accounting principle, net of tax
effect (1,812)
Extraordinary losses, net of tax
effects (129) (1,360) (2,516)
________ _________ ________ ________
Net income (loss) (8,605) 10,929 93,975 (14,889)
Less dividends on preferred
stock (7,700) (7,700) (15,400) (15,400)
________ _________ ________ ________
Net earnings (loss) applicable
to common stock $(16,305) $ 3,229 $ 78,575 $(30,289)
======== ========= ======== ========
</TABLE>
<PAGE>
To enhance comparability, the historical and pro forma amounts
reflected above will be the basis of comparison in Management's
Discussion and Analysis of Results of Operations.
For the six months ended June 30, 1993, premium income and
other considerations increased $18.3 million, or 8%, as compared to
the corresponding period in 1992. Following is a summary of
premiums by major line of business for each of the respective
periods (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
_____________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Individual life and annuity $ 59,286 $ 62,393
Individual health 109,859 108,393
Group and other 67,454 47,548
________ ________
$236,599 $218,334
======== ========
</TABLE>
ICH's subsidiaries presently derive substantial revenues from
their interest-sensitive and universal life products; however, for
financial reporting purposes, these types of products are treated
as deposit products and, therefore, premiums received are not
reflected as a component of premium income. The $19.9 million, or
42%, increase in group and other premium income is primarily
attributable to new sales of group health insurance products.
During the six months of 1993, net investment income increased
$5.8 million, or 5.8%, as compared to the corresponding period in
1992. Substantially all of the improvement is attributable to
investment earnings on the mortgage-backed securities placed in the
Trust in conjunction with the sale of Bankers as discussed in ICH's
1992 Annual Report. Except for approximately $1.3 million of
earnings attributable to ICH's residual interest in such trust, the
investment income on such securities has been offset in other line
items in the consolidated statement of earnings, including interest
expense attributable to related collateralized mortgage note
obligations, expenses associated with a first quarter 1993
refinancing by the Trust and additional provisions for losses on
the securities held in trust.
Realized investment gains in 1993 totaled $13.4 million, as
compared to pro forma losses totaling $10.7 million in 1992.
Included in 1993 are $8.2 million of gains resulting from BLHC's
redemption of certain of its securities as previously discussed.
Other gains in 1993 resulted primarily from the sales of actively
managed fixed maturities and equity securities. During the quarter
ended June 30, 1993, ICH reflected a $5.0 million total writedown
of an investment in a Hicks/Muse limited partnership, which owned
a controlling interest in Healthco International, Inc. The
investment losses in 1992 were primarily attributable to writedowns
of mortgage-backed residual interests and IOs, which resulted from
declines in mortgage interest rates and an acceleration of
prepayments on the mortgage loans underlying such investments. As
previously discussed, at year-end 1992, ICH reflected a provision
for losses which were expected to occur relative to such invest-
ments during 1993 and, as a consequence, there were no significant
losses on these investments in the first six months of 1993.
Since 1990, ICH has invested a total of $25 million in various
partnerships organized by the Hicks/Muse Equity Fund, including
$5.0 in the HMC/Life Partners L.P. Substantially all of these
investments were made to participate in the potential appreciation
resulting from leveraged buyouts and corporate reorganizations, and
through June 30, 1993, ICH has reflected unrealized appreciation on
certain of these investments totaling $17.8 million. During
June 1993, Healthco filed for bankruptcy protection and, as a
result, management determined that it was unlikely that any of the
investment in that particular partnership would be recovered.
Management is not aware of any other potential writedowns relative
to its limited partnership investments and believes, that in the
aggregate, these investments will ultimately return attractive
risk-adjusted yields.
Equity in the earnings of equity investees and limited
partnerships includes ICH's pro rata share of the operating
earnings of BLHC and other investments in limited partnerships
which are accounted for by the equity method. Following is an
analysis of the components of such earnings (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1992 1992
1993 Pro 1993 Pro
Actual Forma Actual Forma
______ _____ ______ _____
<S> <C> <C> <C> <C>
Equity in operating earnings of:
BLHC $ 9,433 $20,539
Limited partnership investments 3,223 $1,406 3,983 $ 3,675
_______ ______ _______ _______
$12,656 $1,406 $24,522 $ 3,675
======= ====== ======= =======
</TABLE>
See Note 2 of the Notes to Financial Statements for condensed
financial information of BLHC.
In 1993, other income includes $17.1 million of non-recurring
income associated with the termination of a reinsurance agreement
between Bankers and an ICH subsidiary as previously discussed. In
addition, during the second quarter of 1993, ICH received the first
distribution representing its share of the profits of CFSB
Corporation (CFSB) totaling $.4 million. As discussed in the 1992
Annual Report, ICH is entitled to receive 13.85% of profit
distributions made by CFSB. ICH's stated policy is to reflect
earnings only to the extent distributions from CFSB are actually
received. Excluding the income from the reinsurance transaction
and the CFSB distribution, other income increased from $15.5
million in 1992 to $15.8 million in 1993.
Policyholder benefits, including earnings attributable to
participating policyholders, increased $1.6 million, or less than
1%. Following is a summary of policyholder benefits by major
business segment (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
___________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Individual life and annuity $ 74,539 $ 82,018
Individual health 69,092 72,142
Group and other 45,978 31,234
Accumulation products 26,944 28,536
________ ________
$216,553 $213,930
======== ========
</TABLE>
Life and annuity benefits decreased approximately $7.5
million, or 9%, a substantial portion of which was attributable to
a reduction in credited rates on interest-sensitive life insurance
policies between the periods. Individual health benefits decreased
slightly, reflecting an improvement in the individual health
benefit ratio from 66.6% in 1992 to 62.9%. Group benefits
increased approximately $14.7 million, or 47%. Such increase was
greater than the 42% increase in group premiums, which resulted in
an increase in the group benefit ratio from 65.7% in 1992 to 68.2%
in 1993. Benefits related to accumulation products include
primarily interest credited to annuity and guaranteed investment
contract account balances.
Other operating expenses decreased approximately $4.1 million
from the 1992 period to the 1993 period. Following is a summary of
the major items included in other operating expenses (in thou-
sands):
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
___________________________
1992
1993 Pro
Actual Forma
______ _____
<S> <C> <C>
Non-deferrable commissions $20,157 $17,727
General and administrative expenses 58,783 49,458
Taxes, licenses and fees 8,411 10,898
Placement fee for collateralized
mortgage note obligations 4,413
Litigation settlement 17,800
_______ _______
$91,764 $95,883
======= =======
</TABLE>
Non-deferrable commissions increased primarily as a result of
the sale of new group health insurance products. General and
administrative expenses increased primarily as a result of the
growth in new group business, both in directly underwritten
business and administrative services only claims processing. The
placement fee in 1993 relates to the refinancing of the Trust's
collateralized mortgage note obligations (see Note 3 of the Notes
to Financial Statements). The litigation settlement in 1992
related to a class action suit filed by certain policyholders and
is addressed in detail in ICH's 1992 Annual Report. ICH has
initiated a program to consolidate the operations of its three
Texas-based insurance subsidiaries. Management believes the
expense savings expected as a result of such consolidation will
begin to be realized starting in the third quarter of 1993.
Interest expense declined $2.7 million, or approximately 7%.
Interest expense on long-term notes payable declined $8.0 million,
or 21%, primarily reflecting the effect of approximately $219.8
million in debt reductions between the two periods. Offsetting a
substantial portion of such interest savings in 1993 was $5.3
million of interest expense relative to collateralized mortgage
note obligations. As previously discussed, the collateralized
mortgage note obligations arose in conjunction with the sale of
Bankers and there was no similar expense item in 1992. As a result
of the transactions entered into in July 1993 to reduce the
Company's exposure to prepayment risks on certain mortgage-backed
securities, the accounts of a special-purpose trust, which includes
the collateralized mortgage note obligations and the related
interest expense, will no longer be included in ICH's consolidated
balance sheet or statement of earnings. As a result, interest
expense as reflected in the statement of earnings in subsequent
periods is expected to be substantially lower.
Income tax expense in 1993 represented 52% of pre-tax earnings
and an income tax credit in 1992 represented 44% of the pre-tax
loss. In both periods, the effective income tax rate differed from
the expected 34% rate primarily as a result of amortization of
excess cost for which there are no income tax consequences. In
1993, the effective income tax rate also reflects the effect of the
sale of an 83% interest in ICH Funding to CFLIC. As a result of
such sale, ICH Funding will no longer be included in ICH's
consolidated income tax return. In addition, in 1992, certain
investment gains were not tax effected because of available capital
loss carryforwards.
At June 30, 1993, ICH reflected an aggregate deferred tax
asset, net of valuation allowance, totaling $51.3 million, as
compared to $121.0 million at year-end 1992. ICH's deferred tax
assets, before valuation allowances, declined 58% from $145.1
million at year-end 1992 to $61.6 million, primarily as a result of
an $121.8 million increase in the carrying value of ICH's invest-
ment in BLHC, an $82.0 million increase in the carrying value of
other invested assets resulting from unrealized appreciation in
fair values, and net changes in other temporary differences
totaling $33.2 million. A valuation allowance against such
deferred tax assets totaling $24.1 million at year-end 1992 had
been provided, in part, based on an uncertainty as to ICH's ability
to utilize its available capital loss carryforwards. Based on the
significant reduction in ICH's deferred tax assets between the
periods and management's assessment that the likelihood of ICH's
ability to realize its remaining deferred tax assets, specifically
its capital loss carryforwards, had been significantly enhanced,
the valuation allowance for deferred tax assets of $24.1 million
was reduced to $10.2 million at June 30, 1993. This reduction,
totaling $13.9 million, has been reflected as a component of the
tax provision relative to the non-operating gain recognized on the
sale of stock by BLHC and reduced the effective income tax rate on
such gain from 34% to 20%.
In addition to the non-operating gain on the sale of stock by
BLHC as previously discussed, ICH recognized a $1.8 million charge,
net of $.9 million in deferred taxes, for the cumulative effective
to January 1, 1993, of the
<PAGE>
adoption of Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." ICH had previously provided a liability
totaling $20.1 million for postretirement benefits for retirees
of certain acquired companies through its purchase accounting
relative to such companies. The current period charge reflects
the cost of providing postretirement benefits for its remaining
employees. ICH also reported extraordinary losses in both
periods, all of which were related to early extinguishment of
debt. Extraordinary losses, net of tax effects, totaled $1.4
million and $2.5 million in 1993 and 1992, respectively. See Note
7 of the Notes to Financial Statements for additional information
regarding such losses.
As discussed above, the gain from operations for the six
months ended June 30, 1993, included a $17.1 million gain resulting
from a non-recurring reinsurance transaction. In addition, ICH
realized investment gains totaling $13.4 million, including $8.2
million resulting from BLHC's redemption of certain of its
securities. The after-tax effect of the above items on earnings
totaled approximately $20.1 million as compared to ICH's reported
$17.7 million gain from operations before preferred dividend
requirements. Including preferred dividend requirements, such
items exceeded ICH's gain from operations by $17.8 million. As
discussed in its 1992 Annual Report, ICH has been unable to
redeploy the proceeds from the sale of Bankers in a manner that
would replace the earnings of Bankers. As a consequence, ICH
continues to believe that, over the near-term, its operating
earnings will be insufficient to cover its interest and preferred
dividend requirements. ICH is currently consolidating the opera-
tions of its three Texas-based insurance subsidiaries in order to
achieve substantial cost savings and further reduced its outstand-
ing debt effective March 31, 1993. In addition, management and
ICH's investment bankers are presently in the process of exploring
opportunities to retire and refinance the most expensive components
of its capital structure. Based on actions taken-to-date and
barring unforeseen circumstances, management believes the operating
results of ICH will meet or exceed its interest and preferred
dividend requirements by the fourth quarter of 1993. Notwithstand-
ing the anticipated shortfall in operating earnings, management
believes that the parent company has sufficient cash and short-term
investments to meet its debt service and preferred dividend
requirements for the remainder of 1993. See "Liquidity and Capital
Resources."
Exclusive of a $5.0 million unanticipated writedown of a
limited partnership investment, results of operations for the
second quarter of 1993 were in line with management's expectations.
For the three months ended June 30, 1993, ICH incurred a loss from
operations before preferred dividend requirements totaling $8.5
million, as compared to an operating gain of $10.9 million in the
corresponding quarter in 1992. Realized investment losses in the
1993 second quarter totaled $5.8 million, including the writedown
discussed above, as compared to pro forma investment gains of $5.7
million in the 1992 comparable quarter. Exclusive of such invest-
ment gains and losses, the operating loss before preferred
dividends totaled $2.7 million in the 1993 quarter compared to
earnings of $5.2 million in 1992, and, after preferred dividend
requirements, the Company incurred an operating loss of $10.4
million in the 1993 quarter compared to an operating loss of $2.5
million in 1992. The decline in such operating earnings reflects
primarily the same factors as discussed above relative to year-to-
date earnings, including the Company's inability to redeploy the
proceeds from the sale of Bankers in a manner that would replace
the earnings of Bankers.
Reporting results of insurance operations on a quarterly basis
necessitates numerous estimates throughout the year, principally in
the calculation of reserves and in the determination of the
effective rate for federal income taxes. It is the Company's
practice to review its estimates at the end of each quarter and, if
necessary, make appropriate refinements, with the resulting effect
being reported in current operations. Only at year-end is the
Company able to assess retrospectively the precision of its
previous quarter estimates. The Company's fourth quarter results
contain the effect of the difference between previous estimates and
final year end results, and therefore, the results for an interim
period may not be indicative of the results for the entire year.
Change in Corporate Income Tax Rates:
____________________________________
In August 1993, Congress enacted legislation which raised the
federal corporate income tax rate from 34% to 35%, retroactive to
January 1, 1993. The change in the corporate income tax rate is
not expected to have a significant effect on the Company's
financial position, or results of operations, but does increase the
value of the Company's available operating loss and capital loss
carryforwards. At June 30, 1993, assuming the enactment of such
legislation as of that date, the Company's deferred income tax
asset, which takes into consideration these carryforwards, would
have increased from $53.5 million to approximately $55.1 million
based on the 1% change
<PAGE>
in the corporate income tax rate. The Company anticipates reflecting
the effect of such change in its results for the quarter ended
September 30, 1993.
Proposed Accounting Standards:
_____________________________
In December 1992, the Financial Accounting Standards Board
(FASB) issued SFAS No. 113, "Accounting and Reporting for Reinsur-
ance of Short-Duration and Long-Duration Contracts," which changes
the accounting and reporting for reinsurance contracts. SFAS No.
113 requires that when a reinsurance contract does not relieve the
insurer from the legal liability to its policyholders, ceding
insurers must report amounts recoverable from reinsurers as assets
rather than as a reduction of the related policyholder liabilities.
This statement is required to be adopted in 1993, but is not
required for interim financial statements during 1993 in order to
give insurance companies time to accumulate the necessary data. At
December 31, 1992, ICH had reflected reserve credits for insurance
ceded under reinsurance contracts totaling $251.9 million. Under
SFAS No. 113, a substantial portion of such amount would be
reflected as additional policyholder liabilities, with a corre-
sponding asset reflected as amounts recoverable from reinsurers.
Management estimates that the adoption of SFAS No. 113 will not
otherwise have a material impact on ICH's consolidated financial
statements.
In April 1993, the FASB approved the issuance of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 expands the use of fair value accounting for certain
investments in debt and equity securities and will require
financial institutions to classify their fixed maturity investments
into three categories. Fixed maturity investments that an entity
has the positive intent and ability to hold to maturity will be
classified as "held to maturity" and will continue to be reported
at amortized cost. Fixed maturity and equity investments available
for sale, which may or may not be traded before maturity, are to be
marked to their current value, with any unrealized gains and losses
reported as a separate component of stockholders' equity. Finally,
fixed maturities and equity investments held only for trading must
be marked to their current value, with any unrealized losses
charged to earnings. The proposed accounting standard must be
adopted for 1994 financial statements. As a result of the sale of
Bankers effective October 31, 1992, and based on management's
assessment of ICH's liquidity needs, at year-end 1992, ICH
classified its fixed maturity portfolio into three categories,
including "held to maturity," "actively managed," and "held for
sale." Investments classified in the actively managed category
were adjusted to their fair values with unrealized gains and losses
reflected as a component of stockholders' equity. Investments
classified as held for sale were adjusted to their fair value
through a charge to earnings. Management believes that the
accounting treatment utilized by ICH at December 31, 1992 and
June 30, 1993, closely parallels the new accounting standard and,
as a consequence, does not expect that its adoption will have a
significant effect on ICH's financial position or results of
operations.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
I.C.H. CORPORATION
By: /s/ John T. Hull
________________________________
John T. Hull, Executive Vice
President, Treasurer and
Principal Accounting Officer
Date: May 2, 1994
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
_______ ___________ ___________
<S> <C> <C>
2.6 Stock Purchase Agreement dated October 3, 1989,
between the Registrant and HMS Acquisition
Corporation (filed as Exhibit 1 to the Regis-
trant's Current Report on Form 8-R dated Octo-
ber 3, 1989, and incorporated herein by refer-
ence) and amendment thereto (filed as Exhibit
19.4 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989 and
incorporated herein by reference) . . . . . . . . .
2.9 Stock Acquisition Agreement dated February 20,
1992, between the Registrant and Conseco, inc.
(filed as Exhibit 2.10 to the Registrant's
Current Report on Form 8-K dated February 20,
1992 and incorporated herein by reference) and
amendments thereto (filed as Exhibit 2.15 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991, and as Exhibit 2.16
of the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1992, and incorporat-
ed herein by reference) . . . . . . . . . . . . . .
2.17 Agreement, dated June 15, 1993, among I.C.H.
Corporation, Consolidated National Corporation
and Consolidated Fidelity Life Insurance Company
(filed as Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated June 15, 1993 and
incorporated herein by reference) . . . . . . . . .
10.1 Agreement, dated May 26, 1993, among I.C.H.
Corporation, Facilities Management Installation,
Inc. and Phillip E. Allen, relating to the
Restricted Stock Purchase Agreement, as amended,
between System Services Group and Phillip E.
Allen (previously filed as an exhibit to the
Form 10-Q amended hereby) . . . . . . . . . . . . .
10.2 Retirement/Retainer Agreement, dated May 26,
1993, among I.C.H. Corporation, Facilities
Management Installation, Inc. and Phillip E.
Allen (previously filed as an exhibit to the
Form 10-Q amended hereby) . . . . . . . . . . . . .
11.1 Computation of Earnings (Loss) Per Share of
Common Stock on Average Shares Outstanding and
Fully Diluted Bases for the Three Months and Six
Months Ended June 30, 1993 and 1992 . . . . . . . .
</TABLE>
<PAGE>
<PAGE>
Exhibit 11.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
__________________ ________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Computation for statements
of earnings:
Operating earnings (loss) $ (8,476) $ 10,929 $ 17,688 $ (12,373)
Less dividends on
preferred stock (7,700) (7,700) (15,400) (15,400)
__________ ________ _________ __________
Operating earnings (loss)
applicable to common
stock (16,176) 3,229 2,288 (27,773)
Non-operating gain on sale
of stock by Bankers Life
Holding Corporation 79,459
Cumulative effect to January 1,
1993 of change in method of
accounting for postretirement
benefits (1,812)
Extraordinary losses (129) (1,360) (2,516)
___________ __________ _________ __________
Net earnings (loss)
applicable to common
stock $ (16,305) $ 3,229 $ 78,575 $ (30,289)
=========== ========== ========= =========
Weighted average common
shares outstanding 47,918,802 48,181,751 47,913,409 48,181,751
=========== ========== ========== ==========
Earnings (loss) per common share:
Operating earnings
(loss) $ (.34) $ .07 $ .05 $ (.58)
Non-operating gain on
sale of stock by
Bankers Life Holding
Corporation 1.66
Cumulative effect to
January 1, 1993 of
change in method of
accounting for post-
retirement benefits (.04)
Extraordinary losses (.03) (.05)
___________ __________ __________ __________
Net earnings (loss) $ (.34) $ .07 $ 1.64 $ (.63)
=========== ========== ========== ==========
Additional computations(A):
Weighted average common
shares outstanding 47,918,802 48,181,751 47,913,409 48,181,751
Incremental common shares
applicable to common
stock options based on
the common stock daily
average market price
during the period 873,128 249,090 933,785 349,580
__________ __________ ___________ ___________
Weighted average common
shares, as adjusted 48,791,930 48,430,841 48,847,194 48,531,331
========== ========== ========== ==========
Weighted average common
shares outstanding 47,918,802 48,181,751 47,913,409 48,181,751
Incremental common shares
applicable to common
stock options based on
the more dilutive of the
common stock ending or
daily average market
price during the period 873,128 249,211 960,635 349,580
Assumed conversion of
convertible preferred
shares 7,867,466 7,867,542 7,867,466 7,867,542
__________ ___________ __________ __________
Weighted average common
shares, assuming full
dilution 56,659,396 56,298,504 56,741,510 56,398,873
========== ========== ========== ==========
Net earnings (loss)
applicable to common
stock assuming con-
version of convertible
preferred stock $ (12,127) $ 7,407 $ 86,931 $ (21,933)
=========== ========== ========== ==========
<FN>
____________________
(A) These calculations are submitted in accordance with Securities
Exchange Act of 1934 Release No. 9083, although not required by
footnote 2 to paragraph 14 of Accounting Principles Board Opinion
No. 15 because they result in dilution of less than 3% or antidilu-
tion.
</TABLE>
(Continued)
<PAGE>
<PAGE>
Exhibit 11.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ _________________
1993 1992 1993 1992
____ ____ ____ ____
<S> <C> <C> <C> <C>
Additional computations, continued(A):
Earnings (loss) per common share:
Average shares outstanding:
Operating earnings (loss) $(.33) $.07 $ .05 $(.58)
Non-operating gain on sale
of stock by Bankers Life
Holding Corporation 1.63
Cumulative effect to January 1,
1993 of change in method of
accounting for postretire-
ment benefits (.04)
Extraordinary losses (.03) (.05)
_____ ____ _____ _____
Net earnings (loss) $(.33) $.07 $1.61 $(.63)
===== ==== ===== =====
Fully diluted, assuming
conversion of all
applicable securities:
Operating earnings (loss) $(.21) $.13 $ .19 $(.35)
Non-operating gain on sale
of stock by Bankers Life
Holding Corporation 1.39
Cumulative effect to
January 1, 1993 of
change in method of
accounting for post-
retirement benefits (.03)
Extraordinary losses (.02) (.04)
______ ____ _____ _____
Net earnings (loss) $ (.21) $.13 $1.53 $(.39)
====== ==== ===== =====
</TABLE>
