SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 2-39310
INTERCONTINENTAL LIFE CORPORATION
New Jersey 22-1890938
(State of Incorporation) (I.R.S. Employer Identification Number)
The Austin Centre,701 Brazos, 12th Floor
Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512)404-5000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Number of common shares outstanding ($.22 Par Value) at end of
period: 4,181,329.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995...............
Consolidated Statements of Income
For the three month periods ended
March 31, 1996 and 1995............................
Consolidated Statements of Cash Flows
For the three month periods ended
March 31, 1996 and 1995 ...........................
Notes to Consolidated Financial Statements..............
Management's Discussion and Analysis of
Financial Conditions and Results of Operations.....
Part II Part II
Computations of Earnings Per Share.....................
Part III Part III
Other Information.......................................
Signature Page..........................................
Item 1. Financial Statements
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Investments:
Fixed maturities, at amortized cost
(market value approximates $13,637
and $14,277) $ 13,729 $ 14,420
Fixed maturities available for sale
at market value (amortized cost of
$459,362 and $463,268) 461,627 483,606
Equity securities at market (cost
approximates $408 and $368) 1,720 1,559
Policy loans 53,116 53,656
Mortgage loans 14,597 14,836
Invested real estate and other
invested assets 18,246 15,467
Short-term investments 122,546 85,994
Total investments 685,581 669,538
Cash and cash equivalents 1,953 6,537
Notes receivable from affiliates 61,224 61,224
Accrued investment income 8,854 8,190
Agent advances and other
receivables 18,883 16,591
Reinsurance receivables 15,493 14,474
Property and equipment, net 4,451 4,460
Real estate occupied by the
Company, net -0- 36,169
Deferred policy acquisition costs 25,318 24,926
Present value of future profits of
acquired businesses 47,138 48,606
Deferred financing costs 1,380 1,597
Other assets 7,387 6,859
Separate account assets 412,441 416,122
Total Assets $1,290,103 $1,315,293
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, December 31,
1996 1995
(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
deposit funds
Future policy benefits $ 125,326 $ 128,265
Contractholder deposit funds 541,407 544,621
Unearned premiums 10,207 10,669
Other policy claims & benefits
payable 5,709 6,125
682,649 689,680
Other policyholders' funds 2,747 2,700
Senior loans 44,944 59,385
Deferred federal income taxes 20,302 25,462
Other liabilities 25,562 27,105
Separate account liabilities 410,025 413,876
Total liabilities 1,186,229 1,218,208
Commitments and contingencies
Redeemable preferred stock:
Class A Preferred, $1 par value,
5,000,000 shares authorized and
issued 5,000 5,000
Class B Preferred, $1 par value,
15,000,000 shares authorized and
issued 15,000 15,000
20,000 20,000
Redeemable Preferred Treasury Stock at
cost, 20,000,000 shares (20,000) (20,000)
-0- -0-
Shareholders' equity:
Common stock, $.22 par value,
10,000,000 shares authorized;
5,172,239 and 5,166,239 shares
issued, 4,181,329 and 4,175,329
shares outstanding in 1996 and 1995 1,138 1,137
Additional paid-in capital 3,602 3,521
Net unrealized appreciation of equity
securities 879 748
Net unrealized gain (loss) on
investments in fixed maturities
available for sale 1,472 12,938
Retained earnings 99,801 81,759
106,892 100,103
Common Treasury stock, at cost, 990,910
shares in 1996 and 1995 (3,018) (3,018)
Total Shareholders' equity 103,874 97,085
Total Liabilities and Shareholders'
Equity $1,290,103 $1,315,293
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS
ENDED March 31, 1996 AND 1995
(Unaudited)
(in thousands of dollars, except per share data)
3 Months Ended
March 31,
1996 1995
Revenues:
Premiums $ 2,934 $ 3,096
Earned insurance charges 10,703 9,842
Net investment income 15,793 15,243
Gain on sale of real estate 23,520 -0-
Other 631 924
Total 53,581 29,105
Benefits and expenses:
Interest expense 1,101 1,524
Interest on insurance policies 7,922 7,398
Benefits and other expenses 16,756 16,199
Total 25,779 25,121
Income from operations 27,802 3,984
Provision for federal income taxes 9,760 1,395
Net income $ 18,042 $ 2,589
Per Share Data:
Common stock and common stock
equivalents 5,425 5,373
Net income per share available to
common shareholders $ 3.35 $ .51
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED March 31, 1996 AND 1995
(Unaudited)
(in thousands of dollars)
3 Months Ended
March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net Income $18,042 $ 2,589
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Amortization of present value of future
profits of acquired businesses 1,468 1,637
Amortization of deferred policy
acquisition costs 711 869
Depreciation 281 394
Net gain on sales of investments (23,607) (44)
Financing costs amortized 217 318
Changes in assets and liabilities:
(Increase) decrease in accrued investment
income (664) 784
(Increase) decrease in agent advances
and other receivables (3,311) 793
Policy acquisition costs deferred (1,103) (602)
Decrease in policy liabilities
and contract holder deposit funds (7,031) (8,588)
Increase (decrease) in other
policyholders' funds 47 (286)
(Decrease) increase in other
liabilities (1,543) 81
(Decrease) increase in deferred
federal income taxes (5,160) 6,043
Increase in other assets (528) (2,742)
Other, net 7,808 (254)
Net cash (used in) provided by operating
activities $(14,373) $ 992
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED March 31, 1996 AND 1995
(Unaudited)
(In thousands of dollars)
3 Months Ended
March 31,
CASH FLOWS FROM INVESTING ACTIVITIES 1996 1995
Investments purchased $(13,703) $(13,298)
Proceeds from sale and maturities of
investments 74,676 7,371
Net change in short-term investments (36,552) 7,133
Payment for purchase of insurance sub-
sidiary, net of cash acquired -0- (17,492)
Purchase & retirement of equipment, net (272) (400)
Net cash provided by (used in)
investing activities 24,149 (16,686)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 81 264
Issuance of senior loan -0- 15,000
Repayment of debt (14,441) (4,500)
Net cash provided by financing activities (14,360) 10,764
Net decrease in cash and cash
equivalents (4,584) (4,930)
Cash and cash equivalents, beginning of
period 6,537 5,563
Cash and cash equivalents, end of period $ 1,953 $ 633
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
The financial statements included herein reflect all adjustments
which are, in the opinion of management, necessary to present a
fair statement of the interim results. The statements have been
prepared to conform to the requirements of Form 10-Q and do not
necessarily include all disclosures required by generally
accepted accounting principles (GAAP). The reader should refer
to Form 10-K for the year ended December 31, 1995 previously
filed with the Securities and Exchange Commission for financial
statements prepared in accordance with GAAP. Certain prior year
amounts have been reclassified to conform with current year
presentation.
Acquisition of Insurance Subsidiary
On February 14, 1995, the Company, through Investors-NA,
purchased from Meridian Mutual Insurance Company the stock of
Meridian Life Insurance Company, an Indianapolis-based life
insurer, for a cash purchase price of $17.1 million, net of past-
closing adjustments. After the aquisition, Meridian Life changed
its name to Investors Life Insurance Company of Indiana
("Investors-IN"). Investors-IN is licensed in ten states and
markets a variety of individual life and annuity products through
independent agents. This is not considered a significant
subsidiary for Securities and Exchange Commission reporting
purposes.
Under the terms of the purchase agreement, the Company acquired
approximately 82% of the outstanding stock of Investors-IN for
$14 million and Investors-NA acquired approximately 18% of the
outstanding stock of Investors-IN for the remainder of the
purchase price. Immediately following the closing of the
transaction, the Company contributed the shares acquired by it to
the unassigned surplus of Investors-NA. As a result, Investors-
IN will be a wholly-owned subsidiary of Investors-NA. This
transaction was financed, in part, through a $15 million increase
in the Company's Senior Loan.
Sale of Home Office Building
Net income for the first quarter of 1996 includes $15.3 million
resulting from the sale of the Austin Centre, a hotel/office
complex, located in Austin, Texas. The selling price was $62.675
million, less $1 million paid to a capital reserve account for
the purchaser. The property was purchased in 1991 for $31.275
million. The book value of the property, $36.8 million, net of
improvements and amortization, were retained and reinvested by
Investors Life Insurance Company of North America. The balance
of the proceeds of the sale, net of Federal Income Tax, were used
to reduce the Company's senior loan obligations by $15 million.
The sale closed on March 29, 1996. The Company will continue to
rent space on three floors through September 30, 1997, with
renewal options thereafter.
New Accounting Pronouncements
In March 1995, the FASB issued FAS No. 121, "Accounting For the
Impairment of Long-Lived Assets and For Long-Lived Assets to be
Disposed of." This Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. In addition, the Statement requires that
long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair
value less cash to sell.
FAS No. 121 is effective for fiscal years beginning after 1995.
The Company adopted FAS No 121 effective January 1, 1996. The
adoption of this Statement did not have a material impact on the
Company's financial statements.
During 1995, the FASB issued FAS No. 123 "Accounting for Stock-
Based Compensation," which encourages companies to adopt the fair
value based method of accounting for stock-based compensation.
This method requires the recognition of compensation expense
equal to the fair value of such equity securities at the date of
the grant. This Statement also allows companies to continue to
account for stock-based compensation under the intrinsic value
based method, as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," with
footnote disclosure of the pro forma effects of the fair value
based method. FAS No. 123 is effective for transactions entered
into in years that begin after December 15, 1995.
The Company plans to adopt FAS No. 123 during 1996 by continuing
to account for stock-based compensation under the intrinsic value
method and disclosing the pro forma effects of the fair value
method in the footnotes to the financial statements.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation:
For the three-month period ended March 31, 1996, ILCO's net
income was $18,042,000 ($3.35 per common share), as compared to
$2,589,000 ($0.51 per common share) for the similar period in
1995.
Net income for the first quarter of 1996 includes $15.3 million
resulting from the sale of the Austin Centre, a hotel/office
complex, located in Austin, Texas. The selling price was $62.675
million, less $1 million paid to a capital reserve account for
the purchaser. The property was purchased in 1991 for $31.275
million. A portion of the sale proceeds, equal to the book value
of the property, net of improvements and amortization ($36.8
million), was retained and reinvested by Investors Life Insurance
Company of North America ("Investors-NA"). The balance of the
proceeds, net of federal income tax, of the sale was used to
reduce the Company's senior loan obligations by $15 million. The
sale closed on March 29, 1996. The Company will continue to rent
space on three floors of the office tower as its headquarters,
under a lease which runs through September 30, 1997, with renewal
options thereafter. The Company has not determined if it will
exercise its renewal options.
The reported results for 1995 include the operations of Investors
Life Insurance Company of Indiana (formerly known as Meridian
Life Insurance Company) for the period from February 14, 1995 to
December 31, 1995. Investors Life Insurance Company of Indiana
(Investors-IN) was purchased by ILCO and Investors-NA for an
adjusted purchase price of $17.1 million; the transaction was
completed on February 14, 1995. The name change was completed in
May, 1995.
The statutory earnings of the Company's insurance subsidiaries,
as required to be reported to insurance regulatory authorities,
before interest expense, capital gains and losses, and federal
income taxes were $5,278,000 at March 31, 1996, as compared to
$6,286,000 at March 31, 1995. These statutory earnings are the
source to provide for the repayment of ILCO's indebtedness.
The operating strategy of the Company's management emphasizes
several key objectives: expense management; marketing of
competitively priced insurance products which are designed to
generate an acceptable level of profitability; maintenance of a
high quality portfolio of investment grade securities; and the
provision of quality customer service.
Premium income, net of reinsurance, for the first quarter of 1996
was $2.9 million, as compared to $3.1 million in the same period
of 1995. Reinsurance premiums ceded were $1.1 million in the
first quarter of 1996, as compared to $1.0 million for the
similar period in 1995.
Earned insurance charges for the first quarter of 1996 were $10.7
million, as compared to $9.8 million for the similar period in
1995. This source of revenues is related to the universal life
insurance and annuity books of business of Investors-NA.
In December, 1995, Investors-NA entered into a reinsurance
agreement with Family Life Insurance Company ("Family Life")(an
insurance company subsidiary of Financial Industries Corporation
and an affiliated company of Investors-NA), pertaining to
universal life insurance written by Family Life. The reinsurance
agreement is on a co-insurance basis and applies to all covered
business with effective dates on and after January 1, 1995. The
agreement applies to only that portion of the face amount of the
policy which is less than $200,000; face amounts of $200,000 or
more are reinsured by Family Life with a third party reinsurer.
In January, 1996, Investors-NA entered into a reinsurance
agreement with Family Life, pertaining to annuity contracts
written by Family Life. This reinsurance agreement is also on a
co-insurance basis and applies to all covered business with
effective dates on and after January 1, 1996. These arrangements
reflect management's plan to develop universal life and annuity
business at Investors-NA, with Family Life concentrating on the
writing of term life insurance products.
Interest expense was $1,101,000 at March 31, 1996, as compared to
$1,524,000 at March 31, 1995. The decrease is attributable to a
reduction in the average principal balance of the senior loan
from $69.7 million for the three month period ending March 31,
1995 to $54.8 million for the three month period ending March 31,
1996, as well as a decrease in the average rate of interest paid
on the senior loan - 7.91% for the first quarter of 1996 as
compared to 8.80% for the same 1995 period.
The increase in interest rates during the first three months of
1996, which was related to general economic conditions, had a
negative effect upon the market value of the fixed maturities
available for sale segment of the portfolio. As of March 31,
1996, the market value of the fixed maturities available for sale
segment was $461.6 million, representing a net unrealized gain of
$2.2 million over amortized cost. However, the market value of
this segment at March 31, 1996 was approximately $22 million less
than the corresponding level at December 31, 1995. There is no
assurance that this unrealized gain may be realized in the
future.
On January 31, 1995, ILCO, through Investors-NA, purchased, as an
investment property, an office building project known as One
Bridgepoint Office Square in Austin, Texas for a cash purchase
price of $9.75 million. The property consists of 20 acres of
land, with four office building sites and two sites for parking
garages. At the time of the purchase, the first stage of the
development had already been completed, consisting of a five-
story office building with 83,474 square feet of rentable space
and a 550-car parking garage. That stage of the development was
completed in 1986. In the fourth quarter of 1995, construction
commenced on a second building on the site, with 110,000 square
feet of rentable space, and the second parking garage. The
second phase of the project is expected to be completed in the
summer of 1996. In the first quarter of 1996, construction
commenced on the third building on the site, with approximately
81,000 square feet of rentable space. This third phase is
projected to be finished in late 1996.
In March 1996, Investors-NA agreed to lease approximately 152,000
square feet at Bridgepoint Office Square to Motorola, Inc. for
use by the Power PC Alliance, composed of engineers from
Motorola, IBM Corp. and Apple Computer Inc. The Alliance will
occupy 100% of the second office building and approximately
43,000 square feet of the third office building.
Results of Operations
For the three-month period ended March 31, 1996, the Company's
income from operations before Federal income taxes was
$27,802,000 on revenues of $53,581,000, as compared to
$3,984,000, on revenues of $29,105,000 for the first three months
of 1995. $23.5 million of the of the stated income for the first
three months of 1996 is attributable to the sale of the Austin
Centre, previously discussed.
For the three-month period ended March 31, 1996, the lapse rate
with respect to universal life insurance policies increased from
the lapse rate experienced in the similar period in 1995. The
rate for the 1996 period was 8.8%, as compared to 8.3% in the
1995 period. The lapse rate with respect to traditional (non-
universal) life insurance policies decreased from the levels
experienced in the first quarter of 1995. The rate for the
three-month period ended March 31, 1996 was 8.0%, as compared to
8.7% in the similar period in 1995. The lapse rates experienced
during these periods were within the ranges anticipated by
management.
Liquidity and Capital Resources
ILCO is a holding company whose principal assets consist of the
common stock of Investors Life Insurance Company of North America
and its subsidiaries - Investors Life Insurance Company of
Indiana (formerly known as Meridian Life Insurance Company) and
InterContinental Life Insurance Company ("ILIC"). ILCO's primary
source of funds consists of payments under two Surplus Debentures
from Investors-NA.
As of December 31, 1995, the outstanding principal balance of the
ILCO's senior loan obligations was $59.4 million. In January,
1996, the Company made a scheduled payment of $4.5 million under
its Senior Loan. In March, 1996, the Company made the schedule
payments for April 1st and July 1st, totaling $9 million. At
that same time, the Company made a payment of $941,000, an
additional payment under the terms of the loan applied to the
principal balance. On April 1, 1996, an optional principal
payment in the amount of $15 million was made, which further
reduced the total amount of the outstanding Senior Loan to $29.94
million, as of that date.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest by Investors-NA, pursuant to
the terms of the Surplus Debentures. The Surplus Debentures were
originally issued by Standard Life Insurance Company ("Standard
Life") and their terms were previously approved by the
Mississippi Insurance Commissioner. Upon the merger of Standard
Life into Investors-NA, the obligations of the Surplus Debentures
were assumed by Investors-NA. The terms of the merger were
approved by the Insurance Commissioner of the State of
Washington, the State of domicile of Investors-NA. As of March
31, 1996, the outstanding principal balance of the Surplus
Debentures was $6.7 million and $53.6 million, respectively.
Since Investors-NA is domiciled in the State of Washington, the
provisions of Washington insurance law apply to the Surplus
Debentures. Under the provisions of the Surplus Debentures and
current law, no prior approval of the Washington Insurance
Commissioner is required for Investors-NA to pay interest or
principal on the Surplus Debentures; provided that, after giving
effect to such payments, the statutory surplus of Investors-NA is
in excess of $10 million (the "surplus floor"). However,
Investors-NA has voluntarily agreed with the Washington Insurance
Commissioner that it will provide at least five days advance
notice of payments which it will make under the surplus
debenture. As of March 31, 1996, the statutory capital and
surplus of Investors-NA was $71.8 million, an amount
substantially in excess of the surplus floor. The funds required
by Investors-NA to meet its obligations to the Company under the
terms of the Surplus Debentures are generated from operating
income generated from insurance and investment operations.
In addition to the payments under the terms of the Surplus
Debentures, ILCO has received dividends from Standard Life (now,
from Investors-NA). Washington's insurance code includes the
"greater of" standard for payment of dividends to shareholders,
but has requirements that prior notification of a proposed
dividend be given to the Washington Insurance Commissioner and
that cash dividends may be paid only from earned surplus.
Investors-NA does not presently have earned surplus as defined by
the regulations adopted by the Washington Insurance Commissioner
and, therefore, is not permitted to pay a cash dividend.
However, since the new law applies only to dividend payments, the
ability of Investors-NA to make principal and interest payments
under the Surplus Debentures is not affected. ILCO does not
anticipate that Investors-NA will have any difficulty in making
principal and interest payments on the Surplus Debentures in the
amounts necessary to enable ILCO to service the Senior Loan for
the foreseeable future.
Investors-IN is domiciled in the State of Indiana. Under the
Indiana insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to adequate
levels of policy holder surplus and quality of earnings. Under
Indiana law the dividend must be paid from earned surplus.
Extraordinary dividend approval would be required where a
dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN
currently has earned surplus.
ILCO's net cash flow (used in) provided by operating activities
was $(14,373,000) for the three month period ended March 31,
1996, as compared to $992,000 for the same period in 1995. This
change is primarily due to a decrease of $11.2 million in
deferred federal income tax related to the market value of the
portion of invested assets that are fixed maturities available
for sale and the $4.1 million increase in agent advances and
other receivables.
Management believes that its cash, cash equivalents and short
term investments are sufficient to meet the needs of its business
and to satisfy debt service.
Investments
As of March 31, 1996, the book value of the Company's invested
assets totaled $685.6 million, as compared to $669.5 million as
of December 31, 1995. The increase in invested assets is
primarily attributable to the sale of the Austin Centre, the
proceeds of which were primarily reinvested in short term
investments. The level of short-term investments as of March 31,
1996 was $122.5 million, as compared to $86.0 million as of
December 31, 1995.
The fixed maturities available for sale portion of invested
assets at March 31, 1996 was $461.6 million. The amortized cost
of the fixed maturities available for sale segment as of March
31, 1996 was $459.4 million, representing a net unrealized gain
of $2.2 million. This unrealized gain principally reflects
changes in interest rates from the date the respective
investments were purchased. To reduce the exposure to interest
rate changes, portfolio investments are selected so that
diversity, maturity and liquidity factors approximate the
duration of associated policy holder liabilities.
The assets held by ILCO's life insurance subsidiaries must comply
with applicable state insurance laws and regulations. In
selecting investments for the portfolios of its life insurance
subsidiaries, the Company's emphasis is to obtain targeted profit
margins, while minimizing the exposure to changing interest
rates. This objective is implemented by selecting primarily
short- to medium-term, investment grade fixed income securities.
In making such portfolio selections, the Company does not select
new investments which are commonly referred to as "high yield" or
"non-investment grade."
The Company's fixed maturities portfolio (including short-term
investments), as of March 31, 1996, included a non-material
amount (1.2% of total fixed maturities and short-term
investments) of debt securities which, in the annual statements
of the companies as filed with state insurance departments, were
designated under the National Association of Insurance
Commissioners ("NAIC") rating system as "3" (medium quality) or
below. For the year ended December 31, 1995, the percentage was
1.1%.
The consolidated balance sheets of the Company as of December 31,
1995 include $61.2 million of "Notes receivable from affiliates",
represented by (i) a loan of $22.5 million from Investors-NA to
Family Life Corporation and a $2.5 million loan from Investors
Life Insurance Company of California to Financial Industries
Corporation (which is now owned by Investors-NA as a result of
the merger of Investors-CA into Investors-NA) and $1.7 million of
additions to the $2.5 million note made in accordance with the
terms of such note; these loans were granted in connection with
the 1991 acquisition of Family Life Insurance Company by a
wholly-owned subsidiary of FIC (ii) a loan of $30 million by
Investors-NA to Family Life Corporation made in July, 1993, in
connection with the prepayment by the FIC subsidiaries of
indebtedness which had been previously issued to Merrill Lynch as
part of the 1991 acquisition and (iv) a loan of $4.5 million by
Investors-NA to Family Life Insurance Investment Company made in
July, 1993, in connection with the same transaction described
above. The NAIC has assigned a rating of "3" to the notes
described above. These loans have not been included in the
preceding description of NAIC rating percentages.
Management believes that the absence of any material amounts of
"high-yield" or "non-investment grade" investments (as defined
above) in the portfolios of its life insurance subsidiaries
enhances the ability of the Company to service its debt, provide
security to its policy holders and to credit relatively
consistent rates of return to its policy holders.
Accounting Developments
Long-Lived Assets
In March, 1995, the FASB issued FAS No. 121," Accounting For the
Impairment of Long-Lived Assets and For Long-Lived Assets to be
Disposed of." This Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. In addition, the Statement requires that
long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount of fair
value less cash to sell.
FAS No. 121 is effective for the fiscal years beginning after
1995. The Company adopted FAS. No. 121 effective January 1,
1996. Management determined that adoption of this Statement did
not have a material impact on the Company's financial statements.
Stock-Based Compensation
In October, 1995, the Financial Accounting standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation." This Statement encourages
companies to adopt a fair value based method of accounting for
employee stock options and other equity instruments awarded as
compensation. Under this method, compensation expense equal to
the fair value of the security at the award grant date is
recognized as compensation expense over the vesting period of the
awarded security. However, the Statement also allows companies
to continue to account for stock-based compensation under the
intrinsic value based method, as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value based method, the
compensation cost is computed as the excess, if any, of the
quoted market price of the equity security at the measurement
date over the amount an employee must pay to acquire the
security. If a company continues to account for stock-based
compensation under the intrinsic value based method, it must make
certain pro-forma disclosures in the footnotes to the financial
statements for the difference in the fair value based method and
the intrinsic value based method. This Statement is effective
for stock-based compensation transactions entered into in fiscal
years that begin after December 15, 1995.
Management intends to continue to account for stock-based
compensation under the intrinsic value based method as prescribed
by APB No. 25, and allowed under SFAS No. 123. The company will
make the appropriate pro-forma disclosures required by SFAS in
1996.
INTERCONTINENTAL LIFE CORPORATION
PART II
ITEM 6(A)
Net income per share is based on the weighted average common and
common equivalent shares outstanding during each year.
3 Months Ended
March 31,
1996 1995
(in thousands)
Net income $18,042 $ 2,589
Interest expense reduc-
tion net of income tax
effect 129 148
Net income available to
common shareholders $18,171 $ 2,737
Divide by:
Common shares out-
standing, less
treasury stock 3,345 3,310
Dilutive common share
equivalents 2,080 2,063
Common stock and common
stock equivalents 5,425 5,373
Net income per share
available to common
shareholders $ 3.35 $ .51
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
Part III. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in certain legal
actions related to the normal business operations of the Company.
Management believes that the resolution of such legal actions
will not have a material impact upon the financial statements.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Form 10-K Annual Report of Registrant for the year
ended December 31, 1995 heretofore filed by Registrant
with the Securities and Exchange Commission, which is
hereby incorporated by reference.
(b) Reports on Form 8-K:
The Registrant filed a Form 8-K on March 29, 1996, reporting
the sale by a wholly-owned subsidiary of an office-hotel
complex in Austin, Texas. Financial statements were not a
part of said 8-K.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
INTERCONTINENTAL LIFE CORPORATION
/s/ James M. Grace
James M. Grace
Treasurer
Date: May 14, 1996
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
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