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, 1997
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: 4,266,829.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996............... 3
Consolidated Statements of Income
For the three month periods ended
March 31, 1997 and 1996............................ 5
Consolidated Statements of Cash Flows
For the three month periods ended
March 31, 1997 and 1996 ........................... 6
Notes to Consolidated Financial Statements.............. 8
Management's Discussion and Analysis of
Financial Conditions and Results of Operations..... 9
Part II
Computations of Earnings Per Share..................... 16
Part III
Other Information.......................................17
Signature Page..........................................18
<PAGE>
Item 1. Financial Statements
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
Investments:
Fixed maturities, at amortized cost
(market value approximates $6,501
and $8,374) $ 6,607 $ 8,165
Fixed maturities available for sale
at market value (amortized cost of
$450,542 and $451,550) 442,159 453,896
Equity securities at market (cost
approximates $369 and $373) 2,670 2,304
Policy loans 52,721 53,030
Mortgage loans 12,168 13,494
Invested real estate and other
invested assets 45,041 38,696
Short-term investments 88,752 91,556
Total investments 650,118 661,141
Cash and cash equivalents 4,313 3,313
Notes receivable from affiliates 58,403 59,940
Accrued investment income 8,299 7,807
Agent advances and other
receivables 17,239 21,725
Reinsurance receivables 12,917 12,123
Property and equipment, net 1,782 1,785
Deferred policy acquisition costs 27,584 26,938
Present value of future profits of
acquired businesses 43,849 45,240
Deferred financing costs 488 636
Other assets 9,555 8,965
Separate account assets 408,610 414,329
Total Assets $1,243,156 $1,263,942
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, December 31,
1997 1996
(Unaudited)
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and contractholder
deposit funds
Future policy benefits $ 128,862 $ 119,744
Contractholder deposit funds 525,083 538,505
Unearned premiums 9,304 9,069
Other policy claims & benefits payable 6,988 5,988
Other policyholders' funds 2,518 2,720
Senior loans 20,364 24,944
Deferred federal income taxes 20,921 23,692
Other liabilities 13,192 13,835
Separate account liabilities 406,364 412,084
Total liabilities 1,133,595 1,150,581
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)
Shareholders' equity: -0- -0-
Class C Preferred stock, $1 par value,
10,000,000 authorized, none issued
Common stock, $.22 par value,
10,000,000 shares authorized;
5,257,739 shares issued,
4,266,829 shares outstanding 1,157 1,150
Additional paid-in capital 3,977 3,752
Net unrealized appreciation of equity
securities 1,496 1,255
Net unrealized gain (loss) on
investments in fixed maturities
available for sale (5,449) 1,525
Retained earnings 111,397 108,697
Common Treasury stock, at cost, 990,910
shares (3,018) (3,018)
Total Shareholders' equity 109,561 113,361
Total Liabilities and Shareholders'
Equity $1,243,156 $1,263,942
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS
ENDED March 31, 1997 AND 1996
(Unaudited)
(in thousands of dollars, except per share data)
3 Months Ended
March 31,
1997 1996
Revenues:
Premiums $ 1,954 $ 2,934
Earned insurance charges 10,217 10,703
Net investment income 14,621 15,793
Gain on sale of real estate -0- 23,520
Other 609 631
Total 27,401 53,581
Benefits and expenses:
Policyholder benefits and expenses 9,394 10,072
Interest on insurance policies 8,016 7,922
Amortization of present value of
future profits of acquired business 1,391 1,468
Amortization of dac 522 711
Other expenses 3,489 4,505
Interest expense 435 1,101
Total 23,247 25,779
Income from operations 4,154 27,802
Provision for federal income taxes
Current 623 8,808
Deferred 831 952
Net income $ 2,700 $ 18,042
Per Share Data:
Common stock and common stock
equivalents 5,302 5,425
Net income per share available to
common share holders $ .54 $ 3.35
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED March 31, 1997 AND 1996
(Unaudited)
(in thousands of dollars)
3 Months Ended
March 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
Net income $ 2,700 $ 18,042
Adjustments to reconcile net income to net
cash provided (used in) by operating
activities:
Amortization of present value of future
profits of acquired businesses 1,391 1,468
Amortization of deferred policy
acquisition costs 522 711
Depreciation 515 281
Net gain on sales of investments -0- (23,607)
Financing costs amortized 148 217
Changes in assets and liabilities:
Increase in accrued investment
income (492) (664)
Increase in agent advances
and other receivables 3,695 (3,311)
Policy acquisition costs deferred (1,168) (1,103)
Decrease in policy liabilities
and contract holder deposit funds (3,070) (7,031)
Decrease in other policyholders' funds (202) 47
Decrease in other liabilities (643) (1,543)
Decrease in deferred federal
income taxes (2,771) (5,160)
Increase in other assets (590) (528)
Other, net 4,332 7,808
Net cash provided by (used in) operating
activities $ 3,337 $ (14,373)
(See Notes to Consolidated Financial Statements)
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED March 31, 1997 AND 1996
(Unaudited)
(In thousands of dollars)
3 Months Ended
March 31,
CASH FLOWS FROM INVESTING ACTIVITIES 1997 1996
Investments purchased $ (9,852) $ (13,703)
Proceeds from sale and maturities of
investments 9,571 74,676
Net change in short-term investments 2,804 (36,552)
Purchase & retirement of equipment, net (512) (272)
Net cash provided by investing
activities 2,011 24,149
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 232 81
Repayment of debt (4,580) (14,441)
Net cash used in financing activities (4,348) (14,360)
Net increase (decrease) in cash and
cash equivalents 1,000 (4,584)
Cash and cash equivalents, beginning of
period 3,313 6,537
Cash and cash equivalents, end of period $ 4,313 $ 1,953
(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, 1996 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.
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 continues to rent
space on three floors under the terms of an operating lease which
expires in September, 1997.
New Accounting Pronouncements
In February 1997, the FASB issued FAS No. 128, "Earnings Per
Share," which revises the standards for computing earnings per
share previously prescribed by APB Opinion No. 15, "Earnings Per
Share." The Statement establishes two measures of earnings per
share: basic earnings per share and diluted earnings per share.
Basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were converted or
exercised. The Statement requires dual presentation of basic and
diluted earnings per share on the face of the income statement
for all entities with potential dilutive securities outstanding.
The Statement also requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share
computation.
The Statement is effective for interim and annual periods ending
after December 15, 1997. Earlier application is not permitted.
However, an entity may disclose pro forma earnings per share
amounts that would have resulted if the entity had applied the
Statement in an earlier period. The Company intends to adopt FAS
128 in its annual financial statements for the year ended
December 31, 1997.
The pro forma unaudited earnings per share amounts that would
have resulted assuming the Company had computed its earnings per
share in accordance with the provisions established by FAS 128
for the quarters ended March 31, 1997 and 1996 are as follows:
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
Basic earnings per share $ 0.64 $ 4.31
Diluted earnings per share $ 0.61 $ 3.89
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation:
For the three-month period ended March 31, 1997, ILCO's net
income was $2,700,000 ($.54 per common share) as compared to
$18,042,000 ($3.35 per common share) in the first three months of
1996.
Net income from continuing operations (excluding the gain
resulting from the Austin Centre, as described below) was
$2,700,000 ($.54 per common share) for the three-month period
ended March 31, 1997, as compared to $2,755,000 ($.53 per common
share) for the first three months of 1996.
For the three-month period ended March 31, 1996, net income
included $15.3 million ($2.82 per common share) 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 and its affiliates will continue to occupy
space on three floors of the office tower as its headquarters,
under a lease which runs through September 30, 1997. In
September, 1997, the Company and its affiliates will move its
headquarters to a building in an office complex known as
Bridgepoint Square Offices, a 20-acre office building site which
is being developed by Investors-NA.
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 $4,147,680 for the three-month period ended
March 31, 1997 as compared to $5,277,991 for the comparable
period in 1996. 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 three months of
1997 was $1.95 million, as compared to $2.9 million for the first
three months of 1996. Reinsurance premiums ceded were $1.4
million for the first quarter of 1997, as compared to $1.1
million in the first quarter of 1996.
Earned insurance charges for the three-month period ended March
31, 1997 were $10.2 million, as compared to $10.7 million for the
same period in 1996. This source of revenues is related to the
universal life insurance and annuity book of business of
Investors-NA.
Interest expense was $0.44 million for the first three months of
1997, as compared to $1.10 million for the first three months of
1996. The decrease is attributable to a reduction in the average
principal balance of the senior loan from $54.8 million for the
first quarter of 1996 to $20.5 million for the first quarter of
1997, as well as a decrease in the average rate of interest paid
on the senior loan - 7.67% for the first quarter of 1997, as
compared to 7.91% for the first quarter year 1996.
The increase in long-term interest rates during the first quarter
of 1997, 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,
1997, the market value of the fixed maturities available for sale
segment was $442.2 million as compared to an amortized cost of
$450.5 million, or an unrealized loss $8.3 million. Such decrease
reflects unrealized losses on such investments. The net of tax
effect of this decrease has been recorded as a reduction in
shareholders' equity.
A subsidiary of the Company, Investors Life Insurance Company of
North America ("Investors-NA") is the owner and developer of the
office complex known as Bridgepoint Square Offices. Once
completed, the project will consist of four office buildings,
with a total rentable space of 364,000 square feet, and two
parking garages. Investors-NA purchased the 20 acre tract of land
for this complex in January, 1995, for a cash purchase price of
$9.75 million. At that time, the tract included one completed
and fully leased office building, an adjacent parking garage, and
sites for three more office buildings and a second parking
garage. Since the purchase, Investors-NA has completed
construction on the second parking garage and two of the
remaining building sites. Construction is in progress on the
fourth building, with a projected completion date in July, 1997.
Three of the four buildings are fully leased to tenants and the
fourth is partially leased. Beginning in September, 1997, the
Company and its affiliates will occupy space in the existing
buildings which will be vacated by a current tenant.
Negotiations are in progress with a potential tenant to lease the
remaining space in the fourth building. Upon completion of the
project, the investment of Investors-NA will be approximately $46
million.
On March 25, 1997, ILCO and Investors Life Insurance Company of
Indiana ("Investors-IN"), an indirect, wholly-owned subsidiary of
ILCO, entered into an agreement to acquire State Auto Life
Insurance Company, an Ohio domiciled life insurer, from State
Automobile Mutual Insurance Company, for a cash purchase price of
$11.8 million, subject to certain post-closing adjustments. In
connection with this transaction, the bank group participating in
the Senior Loan have agreed to defer payment of $4.5 million
otherwise payable on April 1, 1997 under the terms of the Senior
Loan, and to reduce the amount of the payment otherwise due on
July 1, 1997 by $2.5 million. This deferral would result in
extending the maturity date of the Senior Loan to October 1,
1998. Under the terms of the transaction, State Auto Life would
be merged into Investors-IN. The closing of the transaction,
which is expected to occur during the second quarter of 1997, is
subject to regulatory approvals.
Results of Operations
For the three-month period ended March 31, 1997, the Company's
income before Federal income taxes was $4,154,000 on revenues of
$27,401,000, as compared to income of $27,802,000, on revenues of
$53,581,000 for the first quarter of 1996. Revenues for the
first quarter of 1996 include $23,520,000 related to the gain
resulting from the sale of the Austin Centre.
For the three-month period ended March 31, 1997, the lapse rate
with respect to universal life insurance policies decreased from
the lapse rate experienced in the similar period in 1996. The
rate for the 1997 period was 7.53%, as compared to 8.79% in the
1996 period. The lapse rate with respect to traditional (non-
universal) life insurance policies increased slightly from the
levels experienced in the first quarter of 1996. The rate for
the three-month period ended March 31, 1997 was 8.15%, as
compared to 8.02% in the similar period in 1996. 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 addition to
making the scheduled principal payments under its senior loan,
the Company made optional payments of $941,000 in March, 1996,
$15.0 million in April, 1996 and $0.5 million in July, 1996. As
of March 31, 1997, the principal balance of the senior loan was
$20.4 million.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest by Investors-NA, pursuant to
the terms of the Surplus Debentures. The Surplus Debentures were
originally issued by Standard Life Insurance Company and their
terms were previously approved by the Mississippi Insurance
Commissioner. Upon the merger of Standard Life into Investors-
NA, the obligations of the Surplus Debentures were assumed by
Investors-NA. As of March 31, 1997, the outstanding principal
balance of the Surplus Debentures was $5.2 million and $28.8
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, 1997, the statutory surplus
of Investors-NA was $52.96 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 a requirement 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. As of
March 31, 1997, Investors-NA had earned surplus of $9.0 million.
Since the 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.
InterContinental Life Insurance Company ("ILIC"), a subsidiary of
Investors-NA is domiciled in the State of New Jersey. Under the
New Jersey insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to adequate
levels of policyholder surplus and quality of earnings. Any
dividend must be paid from earned surplus. A proposed payment of
a dividend or distribution which, together with dividends or
distributions paid during the preceding twelve months, exceeds
the greater of (i) 10% of statutory surplus as of the preceding
December 31 or (ii) statutory net gain from operations for the
preceding calendar year is treated as an "extraordinary dividend"
and may not be paid until either it has been approved, or a
waiting period shall have passed during which it has not been
disapproved, by the insurance commissioner. ILIC had earned
surplus of $4.7 million at March 31, 1997.
Investors-IN is domiciled in the State of Indiana. Under the
Indiana insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to adequate
levels of policyholder surplus and quality of earnings. Under
Indiana law the dividend must be paid from earned surplus.
Extraordinary dividend approval would be required where a
dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN had
earned surplus of $12.0 million at March 31, 1997.
ILCO's net cash flow provided by (used in) operating activities
was $3.3 million for the three month period ended March 31,
1997, as compared to $(14.4) million for the first quarter of
1996. This change is primarily due to fluctuations in the amount
of deferred federal income tax related to the market value of
investment assets that are fixed maturities available for sale
and the net gain realized in connection with the sale of the
Austin Centre.
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, 1997, the book value of the Company's investment
assets totaled $650.1 million, as compared to $661.1 million as
of December 31, 1996. Total assets as of March 31, 1997 ($1.24
billion) decreased from the level as of December 31, 1996 ($1.26
billion).
The level of short-term investments at March 31, 1997 was $88.8
million, as compared to $91.6 million at the end of 1996.
The fixed maturities available for sale portion of invested
assets at March 31, 1997 was $442.2 million. The amortized cost
of the fixed maturities available for sale segment as of March
31, 1997 was $450.5 million, representing a net unrealized loss
of $8.3 million. This unrealized loss principally reflects
changes in interest rates from the date the respective
investments were purchased. To reduce the exposure to interest
rate changes, portfolio investments are selected so that
diversity, maturity and liquidity factors approximate the
duration of associated policyholder liabilities.
The assets held by ILCO's life insurance subsidiaries must comply
with applicable state insurance laws and regulations. In
selecting investments for the portfolios of its life insurance
subsidiaries, the Company's emphasis is to obtain targeted profit
margins, while minimizing the exposure to changing interest
rates. This objective is implemented by selecting primarily
short- to medium-term, investment grade fixed income securities.
In making such portfolio selections, the Company generally 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, 1997, included a non-material
amount (1.01% 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, 1996, the comparable
percentage was 1.1%. Of these non-investment grade investments,
0.312% are concentrated in the medium quality (or "3") category,
with 0.695% receiving an NAIC rating of "4" (low quality). None
of the Company's fixed maturities portfolio included investments
with NAIC ratings below "4".
The consolidated balance sheets of the Company as of March 31,
1997 include $58.4 million of "Notes receivable from affiliates",
represented by (i) a loan of $22.5 million from Investors-NA to
Family Life Corporation and a $2.5 million loan from Investors-CA
to Financial Industries Corporation (which is now owned by
Investors-NA as a result of the merger of Investors-CA into
Investors-NA) and $1.9 million of additions to the $2.5 million
note made in accordance with the terms of such note; these loans
were granted in connection with the 1991 acquisition of Family
Life Insurance Company by a wholly-owned subsidiary of FIC (ii) a
loan of $30 million by Investors-NA to Family Life Corporation
made in July, 1993, in connection with the prepayment by the FIC
subsidiaries of indebtedness which had been previously issued to
Merrill Lynch as part of the 1991 acquisition and (iii) a loan of
$4.5 million by Investors-NA to Family Life Insurance Investment
Company made in July, 1993, in connection with the same
transaction described above. As of June 12, 1996, the provisions
of the notes from Investors-NA to FIC, FLC and FLIIC were
modified as follows: (a) the $22.5 million note was amended to
provide for twenty quarterly principal payments, in the amount of
$1,125,000 each, to commence on December 12, 1996; the final
quarterly principal payment is due on September 12, 2001; the
interest rate on the note remains at 11%, (b) the $30 million
note was amended to provide for forty quarterly principal
payments, in the amount of $163,540 each for the period December
12, 1996 to September 12, 2001; beginning with the principal
payment due on December 12, 2001, the amount of the principal
payment increases to $1,336,458; the final quarterly principal
payment is due on September 12, 2006; the interest rate on the
note remains at 9%, (c) the $4.5 million note was amended to
provide for forty quarterly principal payments, in the amount of
$24,531 each for the period December 12, 1996 to September 12,
2001; beginning with the principal payment due on December 12,
2001, the amount of the principal payment increases to $200,469;
the final quarterly principal payment is due on September 12,
2006; the interest rate on the note remains at 9%, (d) the $2.5
million note was amended to provide that the principal balance of
the note is to be repaid in twenty quarterly installments of
$125,000 each, commencing December 12, 1996 with the final
payment due on September 12, 2001; the rate of interest remains
at 12%, (e) the Master PIK note, which was issued to provide for
the payment in kind of interest due under the terms of the $2.5
million note prior to June 12, 1996, was amended to provide that
the principal balance of the note ($1,977,119) is to be paid in
twenty quarterly principal payments, in the amount of $98,855.95
each, to commence December 12, 1996 with the final payment due on
September 12, 2001; the interest rate on the note remains at 12%.
The NAIC continued its rating of "3" to the "Notes receivable
from affiliates", as amended. These loans have not been included
in the preceding description of NAIC rating percentages.
Management believes that the absence of any material amounts of
"high-yield" or "non-investment grade" investments (as defined
above) in the portfolios of its life insurance subsidiaries
enhances the ability of the Company to service its debt, provide
security to its policyholders and to credit relatively consistent
rates of return to its policyholders.
Accounting Developments
In February 1997, the Financial Accounting Standards Board (FASB)
issued Financial Accounting Standard (FAS) No. 128, "Earnings Per
Share," which revises the standards for computing earnings per
share previously prescribed by APB Opinion No. 15, "Earnings Per
Share." The Statement establishes two measures of earnings per
share: basic earnings per share and diluted earnings per share.
Basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were converted or
exercised. The Statement requires dual presentation of basic and
diluted earnings per share on the face of the income statement
for all entities with potential dilutive securities outstanding.
The Statement also requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share
computation.
The Statement is effective for interim and annual periods ending
after December 15, 1997. Earlier application is not permitted.
However, a company may disclose pro forma earnings per share
amounts that would have resulted if it had applied the Statement
in an earlier period. The Company intends to adopt FAS 128 in its
annual financial statements for the year ended December 31, 1997.
The pro forma unaudited earnings per share amounts that would
have resulted assuming the Company had computed its earnings per
share in accordance with the provisions established by FAS 128
for the quarters ended March 31, 1997 and 1996 are as follows:
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
Basic earnings per share $ 0.64 $ 4.31
Diluted earnings per share $ 0.61 $ 3.89
Subsequent Event
On May 13, 1997, the Company mailed to stockholders its proxy
statement for the Annual Meeting of Stockholders, which is
scheduled for June 17, 1997. In addition to voting on
nominations for the board of directors, stockholders are being
asked to approve a proposal to redomesticate the Company from New
Jersey to Texas. Under the proposal, the Company would merge
into InterContinental Life Corporation of Texas ("ILCO-Texas"), a
wholly-owned subsidiary of the Company. The surviving entity in
the merger would be ILCO-Texas, which would then change its name
to InterContinental Life Corporation. The board of directors of
the Company would continue to serve as directors of the Texas
company.
<PAGE>
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,
1997 1996
(in thousands)
Net income $ 2,700 $ 18,042
Interest expense reduc-
tion net of income tax
effect 152 129
Net income available to
common shareholders 2,852 18,171
Divide by:
Common shares out-
standing, less
treasury stock 3,414 3,345
Dilutive common share
equivalents 1,888 2,080
Common stock and common
stock equivalents 5,302 5,425
Net income per share
available to common
shareholders $ .54 $ 3.35
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
Part III. Other Information
Item 1. Legal Proceedings
The Company and Investors-NA are defendants in a lawsuit which
was filed in October, 1996, in Travis County, Texas. CIGNA
Corporation, an unrelated company, is also a named defendant in
the lawsuit. The named plaintiffs in the suit (a husband and
wife), allege that the universal life insurance policies sold to
them by INA Life Insurance Company (a company which was merged
into Investors-NA in 1992) utilized unfair sales practices. The
named plaintiffs seek reformation of the life insurance contracts
and an unspecified amount of damages. The named plaintiffs also
seek a class action as to similarly situated individuals. No
certification of a class has been granted as of the date hereof.
The Company believes that the suit is without merit and intends
to vigorously defend this matter.
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, 1996 heretofore filed by Registrant
with the Securities and Exchange Commission, which is
hereby incorporated by reference.
(b) Reports on Form 8-K:
None
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SIGNATURE
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 15, 1997
