SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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COMMISSION FILE NUMBER 0-10306
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INDEPENDENCE HOLDING COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 58-1407235
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(State of Incorporation) (I.R.S. Employer Identification No.)
96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 06902
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(Address of Principal Executive Offices) (Zip Code)
(203) 358-8000
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(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
SHARE PURCHASE WARRANTS
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(Title of Class)
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
15,421,730 shares of Common Stock outstanding as of March 24,
1995 not including 4,377,900 shares held by wholly-owned
subsidiaries of the Registrant.
The aggregate market value of the common stock held by non-
affiliates of the Registrant computed by reference to the average
bid and asked prices of such stock, as of March 24, 1995 was
$22,772,148.
The Exhibit Index is located on page 61 of this filing.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Annual Meeting of
Stockholders scheduled for June 6, 1995 are incorporated by
reference into Part III of this filing.
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PART I
ITEM 1. BUSINESS
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THE COMPANY
Independence Holding Company ("the Company" or "IHC"),
a Delaware corporation, is a diversified financial company
engaged primarily in insurance activities and in the
manufacturing of commercial signs. Through its wholly-owned
subsidiaries, Madison National Life Insurance Company, Inc.
("Madison Life"), Standard Security Life Insurance Company of
New York ("Standard Life"), and First Standard Security
Insurance Company ("First Standard"), IHC sells and reinsures
accident and health, life and annuity insurance products, and
is actively exploring opportunities in the managed care
market. Through its majority owned subsidiary, Zimmerman Sign
Company ("Zimmerman"), IHC operates a commercial sign
manufacturing business. The Company has 440 employees. Unless
the context requires otherwise, the term "the Company"
includes IHC and its subsidiaries, and the term "Insurance
Subsidiaries" includes Standard Life, Madison Life and First
Standard.
For information pertaining to IHC's business segments,
reference is made to Note 18 of Notes to Consolidated
Financial Statements.
INSURANCE GROUP
GENERAL
Standard Life is incorporated and domiciled in New York
and licensed to sell insurance in all 50 states, the District
of Columbia and Puerto Rico. Standard Life, which has an A
(Excellent) rating from A.M. Best & Company, Inc. ("Best"),
underwrites specific and aggregate excess medical insurance
coverage ("stop loss") sold to employers who self-fund their
employees' health benefits, as well as short-term statutory
disability benefits law business ("DBL") which it markets in
New York, and group life insurance. Standard Life has
existing business in-force in the following lines of business
which are in runoff status: individual accident and health,
individual life, single premium immediate annuities, and
miscellaneous business. In addition, Standard Life actively
seeks opportunities to enter into cooperative underwriting
and reinsurance arrangements with other life insurers,
reinsurers, and managed care companies.
Madison Life is incorporated and domiciled in Wisconsin
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and licensed to sell insurance products in 39 states, the
District of Columbia and the Virgin Islands. Madison Life,
which has a B+ (Very Good) rating from Best, markets group
long-term and short-term disability and group life products
along with credit life and credit accident and health
products. Its existing blocks of individual ordinary life,
individual accident and health, and annual and single premium
deferred annuity business are in runoff status.
Madison Life historically has purchased, on an
assumption reinsurance basis, blocks of group credit life and
credit disability insurance and individual ordinary life
insurance business to increase overall profitability. In
December 1993, Madison Life received $15,000,000 of
additional capital in consideration of issuing a Contribution
Note to its parent corporation. Madison Life believes that
this new capital has enhanced its ability to acquire blocks
of business and take advantage of other opportunities in the
marketplace.
First Standard is incorporated in Delaware and is
domiciled and licensed to write and reinsure property and
casualty insurance in Delaware and New York. In addition to
its reinsurance business, First Standard began, in the fourth
quarter of 1993, to perform auditing and marketing services
in connection with Standard Life's stop loss business.
SALES
Standard Life and Madison Life are both "direct writers"
that issue policies directly to insureds. Standard Life, and
to a lesser degree Madison Life, are also "reinsurers" that
share in the insurance risks of other underwriters through
reinsurance of such risks. First Standard acts as a reinsurer
and not a direct writer.
As direct writers, Standard Life and Madison Life sell
policies through general agents, soliciting agents, and
managing general underwriters who are non-salaried
independent contractors compensated on a commission or fee
basis. General agents and agents are paid commissions based
upon the amount of premiums they produce. Managing general
underwriters receive administrative fees.
Standard Life intends to continue selling stop loss and
DBL business. Currently, Standard Life is developing
occupational and provider excess products which it expects to
begin selling in 1995. Madison Life intends to continue
marketing group long-term and short-term disability
insurance, group term life insurance, credit life and credit
disability insurance, group dental health insurance and
family life/accidental death and dismemberment ("AD&D")
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insurance. Standard Life and Madison Life may sell other
insurance products in the future. It is intended that the
sale of such other products would not involve material
reductions in the capital and surplus of either company.
GROUP INSURANCE
Approximately 32% of the group insurance premiums in
1994 was obtained from stop loss policies as compared to 33%
in 1993. Approximately 60% of the group insurance premiums in
1994 was obtained from DBL policies while 63% was obtained
from DBL policies in 1993. In 1994, group insurance premiums
related to Standard Life's stop loss, DBL, and other
miscellaneous group insurance coverage represented
approximately 90% of Standard Life's total premiums compared
to approximately 86% in 1993.
Madison Life increased its group insurance premiums
$740,000 from 1993, and earned approximately $1,317,000 of
group long-term and short-term disability premiums during
1994. Group term life premiums amounted to approximately
$1,894,000, an increase of 37%. Other group life premiums,
primarily family life/AD&D premiums, amounted to
approximately $979,000 in 1994 as compared to $1,016,000 in
1993.
INDIVIDUAL INSURANCE AND ANNUITIES
At December 31, 1994, approximately 18% of Standard
Life's individual life insurance in-force consisted of
participating ordinary life insurance, and substandard risks
represented less than 3% of individual life insurance in-
force. Approximately 2% of Standard Life's premiums consisted
of individual accident and health insurance contracts,
primarily non-cancelable, guaranteed renewable disability
income, and business and professional overhead insurance.
Standard Life no longer markets individual insurance and
annuity products. Effective December 31, 1993 Standard Life
reinsured a 60% quota share of its lotto annuity business on
a modified coinsurance basis.
At December 31, 1994, individual life insurance of
various types comprised approximately 11% of Madison Life's
aggregate life insurance in-force. At that same date, the
group life in-force had increased to comprise approximately
78% of the aggregate life insurance in-force, up from
approximately 50% as of December 31, 1993. Approximately 3%
of the total individual life insurance in-force was
participating. At December 31, 1994, Madison Life had 3,361
individual annuity policies in-force. Reserves for future
annuity benefits amounted to approximately $9,925,000.
Madison Life is no longer marketing traditional individual
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insurance and annuity products, but commenced writing
substandard ordinary and substandard long-term disability in
late 1992.
CREDIT LIFE AND CREDIT HEALTH INSURANCE
Credit insurance was a less significant part of the new
business written by Madison Life during 1994 than in previous
years. Credit life and credit health premiums earned amounted
to approximately $4,069,000 and $6,622,000, respectively, in
1994 as compared to $4,949,000 and $7,274,000, respectively,
during 1993. Total credit premiums represented approximately
54% of the aggregate premiums earned by Madison Life in 1994
as compared to 62% during 1993.
REINSURANCE AND POLICY RETENTION LIMITS
Reinsurance is used to reduce the potentially adverse
financial impact of large individual risks and to reduce the
drain on statutory income and surplus related to new
business. By using reinsurance, the Insurance Subsidiaries
are able to write policies in amounts larger than they could
otherwise accept. The amount reinsured is the portion of each
policy in excess of the retention limit on a particular
policy. Retention limits for Standard Life at December 31,
1994 were: (1) $210,000 per life on individual life and
corresponding disability waiver of premium; (2) no retention
on accidental death benefits provided by rider to individual
life policies; (3) 10% to 20% of the risk on its stop loss
business; and (4) a maximum of $2,500 of monthly benefits on
disability income policies. In addition, Standard Life has
purchased additional reinsurance for its stop loss business
on the portion of risks which it retains, limiting its
exposure on a catastrophic (aggregate) loss or any unusual
individual (specific) loss. Further, Standard Life has stop
loss and catastrophe reinsurance to protect against
particularly adverse mortality which might occur with respect
to its overall life business.
Maximum retention limits for Madison Life at the present
time are: (1) 10% to 50% of the risk on group long-term and
short-term disability insurance, group term life, group AD&D
insurance and substandard ordinary life and substandard long-
term disability insurance - maximum net retention for life
coverage under these contracts is $25,000 and the maximum
retained disability benefit is $1,875 per month; (2) $25,000
per life on group credit life and on group family life; (3)
$1,000 on credit disability insurance per month; (4) $25,000
on any one life on individual ordinary life; and (5) $600
maximum monthly benefit per life on individual accident and
health insurance. In addition, Madison Life has purchased
additional reinsurance on the portion of risks which it
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retains, limiting its exposure on a catastrophic (aggregate)
loss.
At December 31, 1994, the total amount of ceded
reinsurance in-force for the Insurance Subsidiaries was
approximately $2,875,688,000. The Insurance Subsidiaries
remain contingently liable with respect to the insurance in-
force which has been reinsured against the unlikely event
that the assuming reinsurers are unable to satisfy their
obligations.
For further information pertaining to Reinsurance,
reference is made to Note 17 of Notes to Consolidated
Financial Statements.
RESERVES AND INVESTMENTS
As required by insurance laws and regulations, the
Insurance Subsidiaries establish reserves to meet obligations
on policies in-force. These reserves are amounts which, with
additions from premiums expected to be received and with
interest on such reserves at certain assumed rates, are
calculated to be sufficient to meet anticipated future policy
obligations. Premiums and reserves are based upon certain
assumptions with respect to mortality, lapses and interest
rates effective at the time the policies are issued. The
Insurance Subsidiaries also establish appropriate reserves
for substandard business, annuities and additional policy
benefits, such as waiver of premium and accidental death. The
Insurance Subsidiaries have invested and will continue to
invest their respective assets which support the reserves and
other funds in accordance with applicable insurance law. The
Insurance Subsidiaries' investments are supervised by their
respective Boards of Directors.
COMPETITION AND REGULATION
The Insurance Subsidiaries compete with many larger
insurance companies. Although most life insurance companies
are stock companies, mutual companies also write life
insurance in the United States. Mutual companies may have
certain competitive advantages since profits inure directly
to the benefit of the policyholders.
IHC is an insurance holding company. As such, IHC and
the Insurance Subsidiaries are subject to regulation and
supervision by the insurance supervisory agencies of New
York, in the case of Standard Life, Wisconsin, in the case
of Madison Life, and Delaware in the case of First Standard.
The Insurance Subsidiaries are also subject to regulation and
supervision in all states in which they are licensed to sell
insurance. These supervisory agencies have broad
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administrative powers with respect to the granting and
revocation of licenses to transact business, the licensing of
agents, the approval of policy forms, the fixing of
commission rates, the form and content of mandatory financial
statements, reserve requirements and the types of investments
which may be made. Such regulation is designed primarily for
the benefit of policyholders rather than the stockholders of
an insurance company.
Certain transactions within the holding company system
are also subject to regulation and supervision by such
regulatory agencies. All such transactions must be fair and
equitable. Notice to or prior approval by the insurance
commissioner is required with respect to transactions
affecting the ownership or control of an insurer and of
certain material transactions, including dividend
declarations, between an insurer and any person in its
holding company system. In addition, periodic disclosure is
required concerning the operations, management and financial
condition of the insurer within the holding company system.
The insurer is also required to file detailed annual
statements with each supervisory agency, and its affairs and
financial conditions are subject to periodic examination.
Beginning in 1993, risk based capital requirements were
imposed on life and property and casualty insurance
companies. The risk-based capital ratio is determined by
dividing a company's total adjusted capital, as defined, by
its authorized control level risk-based capital. Companies
that do not meet certain minimum standards require specified
corrective action. The risk-based capital ratios for the
Company's insurance subsidiaries significantly exceed such
minimum ratios.
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PRODUCT LINES
The following table shows the aggregate results of Standard
Life, First Standard and Madison Life by product line for the
periods indicated:
INVESTMENT CURRENT COMMISSIONS OPERATING
AND AND AND INCOME (LOSS)
PREMIUM OTHER OTHER OTHER BEFORE
INCOME INCOME BENEFITS EXPENSES INCOME TAXES
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(DOLLARS IN THOUSANDS)
1994
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Group, Individual
and Credit A&H......$39,205 $ 4,784 $23,975 $15,708 $ 4,306
Group, Individual
and Credit Life..... 11,379 3,718 8,322 6,202 573
Group and Individual
Annuity............. 39 651 520 513 (343)
------ ------ ------ ------ ------
TOTAL..............$50,623 $ 9,153 $32,817 $22,423 $ 4,536
====== ====== ====== ====== ======
1993
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Group, Individual
and Credit A&H......$35,071 $ 7,016 $21,929 $14,586 $ 5,572
Group, Individual
and Credit Life..... 12,411 7,499 8,509 6,434 4,967
Group and Individual
Annuity............. 56 2,189 3,562 450 (1,767)
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TOTAL..............$47,538 $16,704 $34,000 $21,470 $ 8,772
====== ====== ====== ====== ======
1992
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Group, Individual
and Credit A&H......$34,242 $ 5,102 $22,486 $15,066 $ 1,792
Group, Individual
and Credit Life..... 13,314 6,966 8,627 7,047 4,606
Group and Individual
Annuity............. 86 5,826 4,015 230 1,667
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TOTAL..............$47,642 $17,894 $35,128 $22,343 $ 8,065
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INSURANCE IN-FORCE AND GROWTH OF BUSINESS
The following table summarizes the aggregate insurance
activities of Standard Life, First Standard and Madison Life:
1994 1993 1992
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(DOLLARS IN THOUSANDS)
LIFE INSURANCE IN-FORCE:
Group...........................$3,935,091 $1,802,952 $1,542,372
Individual term................. 474,824 443,451 722,341
Individual permanent............ 502,940 445,597 235,337
Credit.......................... 539,990 614,658 270,814
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TOTAL LIFE INSURANCE
IN-FORCE (1), (2).............$5,452,845 $3,306,658 $2,770,864
========= ========= =========
NEW LIFE INSURANCE:
Group...........................$1,385,637 $ 367,012 $ 457,011
Individual term................. 133 459 -
Individual permanent............ 328 4,338 200
Credit.......................... 249,831 365,046 148,621
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TOTAL NEW LIFE INSURANCE.......$1,635,929 $ 736,855 $ 605,832
========= ========= =========
PREMIUM INCOME:
Health:
-------
Group..........................$ 31,210 $ 26,161 $ 23,868
Individual..................... 1,373 1,633 984
Credit......................... 6,622 7,277 9,390
Life:
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Individual..................... 4,411 5,038 4,436
Individual and group annuity... 39 57 86
Credit......................... 4,069 4,950 6,580
Group.......................... 2,899 2,422 2,298
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TOTAL PREMIUM INCOME (3).......$ 50,623 $ 47,538 $ 47,642
========= ========= =========
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NOTES:
(1) Includes participating
insurance...................$ 38,494 $ 42,726 $ 45,362
========= ========= =========
(2) Includes ceded reinsurance of:
Group.......................$2,325,929 $ 980,905 $ 689,222
Individual.................. 473,507 378,281 470,341
Credit...................... 76,252 129,028 81,435
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Total ceded reinsurance....$2,875,688 $1,488,214 $1,240,998
========= ========= =========
(3) After deducting ceded
reinsurance premiums of.....$ 71,827 $ 59,788 $ 49,283
========= ========= =========
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MANUFACTURING GROUP
GENERAL
Zimmerman is a major producer of exterior site and product
identification displays for national and regional marketing
organizations. Zimmerman offers a full range of product design,
engineering, manufacturing and site installation services.
Production facilities are located in Longview and Jacksonville,
Texas. Zimmerman is headquartered in Tyler, Texas.
PRODUCTS
Zimmerman's primary product is exterior site identification
signage consisting of double or single plastic faced signs housed
in aluminum or metal skinned and steel framed cabinets. In
general, the signs are internally illuminated. Zimmerman also
produces a variety of architectural signage utilizing routed
faces, individual letters and related products.
PRINCIPAL CUSTOMERS AND MARKETING
Zimmerman sells directly to large multiple location retailers
on a regional and national basis. Its products are also sold to
customers located in Mexico and Canada. Zimmerman's customers
include major participants in the petroleum marketing, convenience
store, restaurant, automotive and financial services industries.
Petroleum marketing constitutes Zimmerman's single largest market
segment.
PRODUCTION, RAW MATERIALS AND PRODUCT BACKLOG
Zimmerman designs and engineers products to customer
specifications. Manufacturing operations typically consist of
screening and molding acrylic or polycarbonate faces, constructing
sign cabinets from customer specific aluminum extrusion or
building steel framed and metal skinned cabinets and assembling
the product together with electrical components.
Zimmerman provides sign installation for many of its
customers. In those cases, preparation of site surveys, compliance
with local zoning ordinances, and on site installation of the sign
are managed by Zimmerman.
Zimmerman's principal raw materials are plastic, aluminum,
and electrical components. It has multiple sources for its raw
materials and has not experienced material supply problems.
Zimmerman had $17,700,000 in backlog orders at December 31,
1994 as compared to $13,200,000 at December 31, 1993. These orders
are expected to be shipped within the current year.
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COMPETITION
Zimmerman competes with several other sign companies for high
volume sign users which it considers its primary market.
Competition is conducted on the basis of price and a wide variety
of services, including design, production, installation, and
financial capabilities.
ITEM 2. PROPERTIES
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IHC
IHC has entered into a renewable short-term arrangement
with Geneve Corporation for the use of 7,500 square feet of
office space as its corporate headquarters in Stamford,
Connecticut.
Standard Life
Standard Life leases approximately 13,500 square feet of
floor space for its offices in New York, New York as its
corporate headquarters.
Madison Life
Madison Life owns its home office building in Middleton,
Wisconsin. The building consists of approximately 23,000
square feet of office space, of which approximately 10,600
square feet are occupied by Madison Life and the remaining
space is leased to other tenants pursuant to short-term
arrangements.
Zimmerman
Zimmerman owns a 76,000 square foot manufacturing
facility in Longview, Texas and owns a 10,000 square foot
manufacturing facility adjacent to its 102,000 square foot
leased plant in Jacksonville, Texas. In Dallas, Texas,
28,000 square feet of leased manufacturing space is sublet to
a third party. Zimmerman owns 20 acres of industrial zoned
land in Jacksonville, Texas. In 1994, Zimmerman leased
12,000 square feet of office space which serves as its Tyler,
Texas headquarters. It also leases 1,200 square feet of
office space in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
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No material litigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
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IHC common stock and share purchase warrants expiring
June 30, 2001 ("Warrants") are traded over-the-counter. The
common stock trades on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) under the symbol
INHO. Warrant prices are quoted on the National Association
of Securities Dealers, Inc. Over the Counter Bulletin Board.
The following tabulation shows the high and low sales prices
for IHC's common stock and the high and low bid prices for
the Warrants. The Warrant information was obtained from the
National Quotation Bureau.
COMMON STOCK WARRANTS
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HIGH LOW HIGH LOW
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QUARTER ENDED:
December 31, 1994.............. 3 1/4 3 3/16 1/100
September 30, 1994............. 3 3/8 2 7/8 1/50 1/100
June 30, 1994.................. 3 1/8 2 7/8 1/100 1/100
March 31, 1994................. 3 3/4 2 7/8 1/20 1/100
QUARTER ENDED:
December 31, 1993.............. 3 3/4 2 7/8 1/20 1/100
September 30, 1993............. 3 1/8 2 5/8 1/20 1/20
June 30, 1993.................. 3 2 3/8 1/20 1/20
March 31, 1993................. 3 2 1/4 1/20 1/20
The foregoing prices for the Warrants do not necessarily
represent actual transactions, but rather the quoted prices
between dealers, excluding retail markup, markdown or
commission.
At March 24, 1995, the number of record holders of IHC's
(i) common stock was 3,762 and (ii) Warrants was 1,285.
IHC declared a dividend of $.02 per share on its common
stock on November 10, 1994 and December 2, 1993.
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ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following is a summary of selected consolidated financial
data with respect to the Company for each of the last five years.
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA:
Total revenues..............$ 98,390 $ 98,773 $ 91,358 $ 94,349 $ 83,788
======= ======= ======= ======= =======
Income (loss) applicable to
common shares from
continuing operations......$ 4,235 $ 5,419 $ 3,139 $ 4,372 $ (6,309)
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets................$303,689 $309,054 $273,166 $288,810 $282,708
Insurance policy benefits,
claims and other policy
liabilities................ 150,988 159,090 149,083 159,483 140,929
Long-term debt.............. 21,258 20,026 4,302 11,457 11,527
Redeemable preferred stock.. - - - - 30,501
Common stockholders'
equity..................... 55,694 62,051 57,205 55,730 48,125
PER SHARE DATA:
Cash dividends declared per
common share...............$ .02 $ .02 $ .02 $ .02 $ .02
Income (loss) per common
share from continuing
operations before
cumulative effect of
accounting changes.........$ .27 $ .33 $ .18 $ .24 $ (.35)
Net income (loss) per
common share...............$ .27 $ .31 $ .25 $ .24 $ (2.11)
Book value per common share.$ 3.59 $ 3.92 $ 3.56 $ 3.10 $ 2.64
The above table has been restated to reflect the adoption of
Statement of Financial Accounting Standards No. 113 "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" in 1993 and for the sale of the Company's investment
banking group and certain other operations in 1990.
The Selected Financial Data should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Independence Holding Company and subsidiaries ("the Company"
or "IHC") has two operating segments: the Insurance Group and the
Manufacturing Group. The Insurance Group consists of the Company's
wholly-owned insurance subsidiaries, Madison National Life
Insurance Company, Inc. ("Madison Life") and its subsidiaries, and
Standard Security Life Insurance Company of New York and its
subsidiaries, including First Standard Security Insurance Company
("Standard Life"). The Manufacturing Group consists of the
Company's majority owned sign manufacturing subsidiary, Zimmerman
Sign Company ("Zimmerman"). All remaining income, principally
income from parent company liquidity (cash, cash equivalents,
resale agreements and marketable securities) and expense items
associated with parent company activities, the Company's remaining
real estate operations and certain other investments of the
Company are included in Corporate. Additional information
regarding the Company's segments is provided in Note 18 of Notes
to Consolidated Financial Statements.
1994 COMPARED TO 1993
---------------------
The Company's net income applicable to common shares was $4.2
million or $.27 per share for the year ended December 31, 1994 as
compared to $5.1 million or $.31 per share for the comparable
period of 1993. Operating income decreased to $4.6 million in the
year ended December 31, 1994 from $7.8 million in the year ended
December 31, 1993.
INSURANCE GROUP
---------------
Standard Life underwrites specific and aggregate excess
medical insurance coverage ("stop loss") sold to employers who
self-fund their employees' health benefits, short-term statutory
disability benefits law business ("DBL") and group life insurance.
Standard Life also performs auditing and marketing services in
connection with its stop loss business. Standard Life has existing
business in-force in the following lines of business which are in
runoff status: individual accident and health, individual life,
single premium immediate annuities, and miscellaneous business.
In addition, Standard Life actively seeks opportunities to enter
into cooperative underwriting and reinsurance arrangements with
other life insurers, reinsurers and managed care companies.
Madison Life markets group long-term and short-term
disability and group life products as well as credit life and
credit accident and health products. Its existing blocks of
individual ordinary life, individual accident and health, and
annual and single premium deferred annuity business are in runoff
status. Madison Life historically has purchased, on an assumption
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reinsurance basis, blocks of group credit life and credit
disability insurance and individual ordinary life insurance
business to increase overall profitability.
The Insurance Group had operating income of $4.6 million for
the year ended December 31, 1994 versus $8.8 million for the year
ended December 31, 1993. Operating income includes realized and
unrealized losses of $2.0 million in 1994 compared to realized and
unrealized gains of $.9 million in 1993. The Company makes
decisions to sell securities based on cash flow needs, investment
opportunities, and the condition of the market, thus creating
fluctuations in gains from one year to the next. Operating income
excluding net securities gains or losses was $6.6 million in 1994
versus $7.9 million in 1993. Premium revenues increased $3.1
million. Madison Life had a decrease of $1.1 million primarily
from the credit lines of business due to the run-off status of the
purchased credit blocks of business from 1991. Premium revenues
at Standard Life increased $4.2 million due to an increase in stop
loss premiums of $1.9 million and an increase in DBL premiums of
$2.1 million reflecting Standard Life's continued growth in these
lines of business. Standard Life also had a $.9 million increase
in premiums due to the assumption of a group accident and health
block of business, offset by a $.7 million decrease due to the
continued runoff of the Company's closed blocks of life, annuity
and individual and group accident and health lines of business.
Net investment income decreased $.4 million. Interest income
increased $.2 million, investment expenses increased $.1 million
and dividend income decreased $.5 million. Equity income
decreased $.8 million due to lower returns on certain partnership
investments in 1994. Madison Life reported other income of $2.3
million in 1993 related to the anticipated recovery from a
reinsurer on a stop loss treaty for credit business. During 1994,
the estimated recovery was reduced to $1.0 million. Other income
at Standard Life increased $.3 million as a result of an increase
in stop loss fees of $.5 million, offset by a reduction in
reinsurance recoveries of $.2 million due to the partial disposal
of lotto annuity business at the end of 1993 and a reduction in
reinsurance recoveries on its closed block of ordinary life
business.
Insurance benefits, claims and reserves decreased by $1.2
million for the year ended December 31, 1994 compared to 1993.
Madison Life's and Standard Life's expenses decreased by $.2
million and $1.0 million, respectively. Standard Life's decrease
was related to a $1.3 million reduction in claims and reserves
connected with the ordinary life, group life and individual
accident and health lines of business which is in runoff status
and a $3.0 million decrease in payments and reserves on the lotto
annuity contracts due to the partial disposal of this business in
1993. These decreases were offset by an increase in stop loss
claims and reserves of $2.1 million resulting from the increase in
premiums, an increase of $.5 million relating to the increase in
DBL business and a $.7 million increase in claims due to the
assumed group accident and health block of business.
15
<PAGE>
Amortization of deferred acquisition costs and general and
administrative expenses for the Insurance Group increased $1.0
million: Standard Life's expenses increased by $1.0 million
resulting from an increase in commissions of $.8 million from
higher premiums and an increase in general expenses of $.2
million, while Madison Life remained constant.
MANUFACTURING GROUP
-------------------
Operating income increased $.7 million to $3.0 million for
the year ended December 31, 1994 as compared to 1993. Sales
increased $3.4 million while cost of sales increased $2.1 million,
resulting in a gross profit margin of 23.2% in 1994 versus 21.6%
in 1993. Interest expense and selling, general and administrative
expenses increased by $.6 million primarily due to the higher
sales volume.
CORPORATE
---------
Operating losses decreased $.3 million from 1993 levels.
Investment income increased $.5 million primarily due to a
reduction in realized losses of $.4 million on a corporate
investment. Other income increased $.2 million from the sale of
a real estate investment. Interest expense increased $.9 million
due to a $15.0 million credit agreement entered into in late 1993
by a corporate subsidiary. At the end of 1994, $14.0 million
remained outstanding under this credit agreement. Selling, general
and administrative expenses decreased $.5 million due to a
reduction in consulting expenses in 1994 compared to 1993, and the
write down of certain real estate investments in 1993.
1993 COMPARED TO 1992
---------------------
The Company's net income applicable to common shares was $5.1
million or $.31 per share for the year ended December 31, 1993 as
compared to $4.3 million or $.25 per share for the year ended
December 31, 1992. The year ended December 31, 1993 includes a
loss of $.3 million or $.02 per share net of applicable income
taxes for the cumulative effect of an accounting change for
investment securities [see Note 4 of Notes to Consolidated
Financial Statements]. The year ended December 31, 1992 includes
a benefit of $1.2 million or $.07 per share for the cumulative
effect of an accounting change for income taxes [see Note 15 of
Notes to Consolidated Financial Statements]. Operating income
increased $2.2 million to $7.8 million for the year ended December
31, 1993.
INSURANCE GROUP
---------------
The Insurance Group had operating income of $8.8 million for
the year ended December 31, 1993 versus $8.1 million for the year
ended 1992. Premium revenues decreased $.1 million. Madison Life
16
<PAGE>
had a decrease in premiums of $1.7 million resulting from the
runoff of credit blocks of business purchased in the fourth
quarter of 1991 partially offset by an increase in ordinary life
and individual accident and health premiums. Premium revenues at
Standard Life increased $1.6 million due to an increase in group
health stop loss premiums of $1.7 million and an increase of $.4
million in DBL premiums, reflecting the continued growth of these
lines of business, and a $.4 million increase for assumed group
accident and health premiums, reduced by a $.8 million decrease in
the runoff blocks of life, annuity and individual and group
accident and health lines of business. Net investment income
decreased $1.5 million. Interest and dividend income added $1.1
million due to increased investable assets, a higher interest
yielding portfolio and a special dividend earned on a corporate
investment, while investment expenses decreased $.1 million, and
realized and unrealized gains decreased $2.7 million. Equity
income increased $.2 million. Other income at Madison Life
increased $2.3 million in the fourth quarter of 1993 due to the
recovery from a stop loss treaty for credit life, accident and
health business, while other income at Standard Life decreased
$2.2 million. Standard Life incurred a $2.5 million loss, as a
result of the partial disposal of its closed block of lotto
annuity business in the fourth quarter of 1993. A $.8 million
increase in fees earned in the 1993 period from Standard Life's
stop loss business due to increased sales was partially offset by
a $.5 million decrease in non-recurring other income earned in
1992 as a result of the termination of Standard Life's pension
plan. Madison Life's benefits and claims decreased $1.7 million,
while the amortization of deferred acquisition costs decreased by
$2.6 million due primarily to the runoff of the purchased blocks
of credit business. Standard Life's insurance expenses increased
$.6 million and its deferred insurance acquisition costs decreased
$.2 million. General and administrative expenses increased $1.9
million for the Insurance Group. Included in these expenses are
premium taxes which rose $.4 million due to an increase in certain
lines of business, an increase in commission expense of $1.1
million due to an increase in commissions for Standard Life's stop
loss line of business, an increase due to the purchase of an
ordinary life block of business at Madison Life, the runoff of
favorable commission rates on reinsurance treaties assumed in
1991, and an increase of $.4 million in general expenses due to
additional costs on the acquired blocks of business.
MANUFACTURING GROUP
-------------------
The year ended December 31, 1993 reflected a significant
improvement in the results of Zimmerman. Operating income was
$2.2 million for the year ended December 31, 1993 as compared to
income of $.1 million for the year ended December 31, 1992. Sales
increased $9.1 million while cost of sales increased $6.2 million,
resulting in an improvement in gross profit margins to 21.6% in
1993 from 18.0% in 1992. Borrowings at Zimmerman increased from
17
<PAGE>
the prior year, while interest expense decreased $.1 million due
to lower interest rates. Selling, general and administrative
expenses increased $.9 million reflecting an increase in minority
interest of $.3 million due to higher net income and an increase
of $.6 million in general expenses due to the higher sales volume.
CORPORATE
---------
Operating losses increased $.6 million from 1992 levels.
Investment income decreased $.3 million due to lower returns on
certain hedged equity positions. Interest expense decreased $.4
million due to the redemption of a subsidiary's indebtedness.
Interest expense will increase in 1994 as a result of the $15.0
million credit facility of a corporate subsidiary incurred at the
end of 1993, although such interest expense should be offset by
additional income generated by the Insurance Group. General and
administrative costs increased $.7 million due primarily to an
increase in losses on certain real estate investments and an
increase in minority interests in a partnership investment.
LIQUIDITY
---------
CASH FLOWS - GENERAL
--------------------
The net cash provided amounted to $10.2 million from
operating activities, while investing activities used $1.7 million
of cash. Cash used by financing activities of $4.9 million
primarily resulted from the repurchase of $1.0 million of the
Company's common stock, the repayment of long-term debt of $1.2
million, the payment of investment type insurance contracts of
$4.8 million and the payment of a dividend on common stock of $.3
million declared in 1993 and paid in February 1994, offset by an
increase in long-term debt of $2.4 million.
INSURANCE GROUP
---------------
The Insurance Group normally provides cash flow from
operations, from the receipt of scheduled principal payments on
its portfolio of fixed income securities and from earnings on
short-term investments. Such cash flow is used partially to
finance liabilities for insurance policy benefits. These
liabilities represent long-term obligations which are calculated
using certain assumed interest rates. The nature and quality of
insurance company investments must comply with all applicable
statutes and regulations which have been promulgated primarily for
the protection of policyholders. Of the aggregate carrying value
of the Insurance Group's investment assets, approximately 81% was
invested in investment grade fixed income securities, resale
agreements and cash and cash equivalents at December 31, 1994.
These investments carry less risk and therefore lower interest
rates than other types of fixed maturity investments. At December
31, 1994, approximately 4.7% of the carrying value of investable
18
<PAGE>
assets was invested in diversified non-investment grade fixed
income securities (investments in such securities have different
risks than investment grade securities, including greater risk of
loss upon default, and thinner trading markets).
Commensurate with the dramatic and rapid rise in interest
rates during 1994, the Company employed a strategy of hedging
portions of its intermediate term and long term fixed income
securities against principal changes. This strategy utilized
readily marketable short term put and call options on interest
rate futures contracts. The value of these put and call options
varies depending upon the change in the underlying futures
contract, which principally varies with interest rate movements on
applicable U.S. Treasury securities. This strategy was successful
in 1994 in reducing loss of principal on the Company's fixed
income portfolio on a mark-to-market basis. The Company will
employ this strategy and other appropriate hedging strategies in
considering the duration of its fixed income portfolio and
insurance liabilities as well as its interest rate outlook.
The Company monitors its investment portfolio on a continuous
basis and believes the liquidity of the Insurance Group will not
be adversely affected by its current investments.
MANUFACTURING GROUP
-------------------
For the year ended December 31, 1994, $1.4 million of cash
was provided by Zimmerman's operations, and $3.1 million was
provided by an increase in bank debt. This cash was partially
used to purchase property, plant and equipment of $1.0 million to
update manufacturing and corporate facilities and to finance a
dividend of $2.9 million to its parent and minority shareholders.
Zimmerman has an $8.0 million bank line of credit as to which $6.5
million was outstanding at December 31, 1994. The Company believes
that Zimmerman has sufficient funds to meet its obligations.
CORPORATE
---------
Corporate derives its funds principally from (i) dividends
and interest income from its Insurance Group and its Manufacturing
Group, (ii) tax payments and management fees from its subsidiaries
and (iii) investment income from Corporate liquidity.
State insurance laws restrict the Insurance Group's ability
to make dividend payments to the parent company [see Note 19 of
Notes to Consolidated Financial Statements]. Regulatory
constraints have historically not affected IHC's consolidated
liquidity, although they have limited the ability of the parent
company to use cash generated by the Insurance Group to fund
operating expenses, interest and dividend payments at Corporate.
19
<PAGE>
During 1994, the Company repurchased 291,787 shares of common
stock at a cost of $.9 million under its stock and warrant
repurchase program. Through December 31, 1994, 3,596,251 shares of
common stock have been repurchased under this program at a cost of
approximately $8.7 million. At the end of 1994, the Company
purchased 384,741 of its outstanding share purchase warrants at an
aggregate cost of approximately $.1 million. The Company may
purchase additional shares of common stock and warrants in the
open market or otherwise from time to time.
Total corporate liquidity (cash, cash equivalents, resale
agreements and marketable securities) amounted to $14.3 million at
December 31, 1994. At the present time, the Company is not in
need of any additional long-term financing.
CAPITAL RESOURCES
-----------------
The Company continues to explore actively new opportunities
which it perceives exist in the health, life, and property and
casualty insurance and reinsurance businesses. With the infusion
in 1993 of $15.0 million of additional capital, which enhanced the
Insurance Group's already superior capital ratios, together with
its broad licensing and excellent asset quality and credit-
worthiness, the Insurance Group remains well positioned to
increase or diversify its current activities.
At the same time, the Company recognizes that health care
reform initiatives are continuing to be discussed at various
levels of government. Depending upon the scope and timing of any
such legislation that becomes law, the manner in which health
insurance business is conducted in the future could be impacted.
The Insurance Group continuously monitors these initiatives in an
effort to best take advantage of a changing health care
environment.
In accordance with SFAS No. 115, the Company may carry its
portfolio of fixed income securities either as held to maturity
(carried as amortized cost), as trading securities (carried at
fair market value) or as available-for-sale (carried at fair
market value); the Company has chosen to carry all of its debt
securities as available-for-sale. Primarily as a result of the
rise in interest rates, the cost of the Company's investment
portfolio exceeded the market value at December 31, 1994;
consequently, an unrealized loss of $9.2 million, net of a $.9
million tax benefit, was charged to total stockholders' equity.
The Company employs investment strategies to mitigate interest
rate and other market exposures.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Index to Consolidated Financial Statements and
Schedules on page 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information required by this Item is incorporated by
reference to "Election of Directors" and "Executive Officers"
in the Company's Proxy Statement for its 1995 Annual Meeting
of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information required by this Item is incorporated by
reference to "Executive Compensation" in the Company's Proxy
Statement for its 1995 Annual Meeting of Stockholders, except
that the information required by paragraphs (i), (k) and (l)
of Item 402 Regulation S-K (section 229.402) and set forth in
such Proxy Statement is specifically not incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
Information required by this Item is incorporated by
reference to "Principal Stockholders" in the Company's Proxy
Statement for its 1995 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information required by this Item is incorporated by
reference to "Principal Stockholders" in the Company's Proxy
Statement for its 1995 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
-------------------------------------------------------
(a) (1) and (2) See Index to Consolidated Financial Statements
and Schedules on page 24.
(3) EXHIBITS See Index to Exhibits on page 60.
(b) No report on Form 8-K was filed during the quarter ended
December 31, 1994.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 28, 1995.
INDEPENDENCE HOLDING COMPANY
(REGISTRANT)
By/s/Edward Netter
-----------------------
Edward Netter
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated as of the 28th day of March, 1995.
/s/ Harold E. Johnson
-------------------------
Harold E. Johnson
Director
/s/ Allan C. Kirkman
------------------------
Allan C. Kirkman
Director
/s/ Steven B. Lapin
-------------------------
Steven B. Lapin
Director, President and Chief
Operating Officer
/s/ Donald T. Netter
------------------------
Donald T. Netter
Director, Senior Vice
President - Investments
22
<PAGE>
/s/ Edward Netter
-------------------------
Edward Netter
Director, Chairman of
the Board, and Chief
Executive Officer
(Principal Executive Officer)
/s/ Edward J. Scheider
--------------------------
Edward J. Scheider
Director
/s/ F. Peter Zoch, III
--------------------------
F. Peter Zoch, III
Director
/s/ Roy T. K. Thung
--------------------------
Roy T. K. Thung
Director, Executive Vice
President, Chief
Financial Officer and
Treasurer (Principal
Financial Officer)
/s/ Teresa A. Herbert
-------------------------
Teresa A. Herbert
Vice President and
Controller (Principal
Accounting Officer)
23
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGES
-----
INDEPENDENT AUDITORS' REPORT.............................. 25
CONSOLIDATED FINANCIAL STATEMENTS:
----------------------------------
Consolidated Balance Sheets at December 31, 1994
and 1993................................................. 26
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992......................... 27
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1993 and 1992..... 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992......................... 29-30
Notes to Consolidated Financial Statements................ 31-54
SCHEDULES:*
----------
Summary of investments - other than investments in
affiliates at December 31, 1994 (Schedule I)............. 55-56
Condensed financial information of parent company
(Schedule III)........................................... 57-59
Supplementary insurance information (Schedule V).......... 60
EXHIBIT INDEX............................................. 61
*All other schedules have been omitted as they are not applicable
or not required, or the information is given in the financial
statements, notes thereto or in other schedules.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDERS
INDEPENDENCE HOLDING COMPANY:
We have audited the consolidated financial statements of
Independence Holding Company and subsidiaries as listed in the
accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index.
These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Independence Holding Company and subsidiaries as of
December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in notes 1 and 4, respectively, to the consolidated
financial statements, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" and
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1993. As discussed in note 15 to the consolidated
financial statements, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" in 1992.
KPMG PEAT MARWICK LLP
New York, New York
March 21, 1995
25
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 1993
----------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents......................$ 37,862,000 $ 34,267,000
Short-term investments......................... 708,000 5,239,000
Securities purchased under agreements to resell
(Note 2)...................................... 18,660,000 21,687,000
Fixed maturities (Note 4)...................... 129,817,000 123,470,000
Equity securities (Note 4)..................... 23,171,000 26,520,000
Other investments (Note 7)..................... 12,142,000 13,195,000
Trade accounts, notes and other receivables.... 10,688,000 7,175,000
Inventories (Note 8)........................... 10,497,000 8,337,000
Deferred insurance acquisition costs........... 10,979,000 13,934,000
Property, plant and equipment, net (Note 9).... 4,447,000 3,876,000
Due from reinsurers............................ 39,336,000 43,209,000
Due from brokers............................... 596,000 3,285,000
Other assets................................... 4,786,000 4,860,000
----------- -----------
TOTAL ASSETS...............................$303,689,000 $309,054,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Future insurance policy benefits...............$ 95,277,000 $ 99,433,000
Unearned Premiums.............................. 14,680,000 16,945,000
Future annuity policy benefits................. 34,436,000 36,357,000
Insurance policy claims........................ 4,434,000 4,404,000
Other policyholders' funds..................... 2,161,000 1,951,000
Financial instruments sold, but not yet
purchased (Note 4)............................ 17,525,000 16,568,000
Due to brokers................................. 22,006,000 18,528,000
Due to reinsurers.............................. 4,225,000 3,748,000
Accounts payable, accruals and other
liabilities................................... 26,213,000 22,277,000
Income taxes, principally deferred (Note 15)... 5,780,000 6,766,000
Long-term debt (Note 11)....................... 21,258,000 20,026,000
----------- -----------
TOTAL LIABILITIES.......................... 247,995,000 247,003,000
----------- -----------
STOCKHOLDERS' EQUITY: (Note 13)
Common stock, par value $1 per share (50,000,000
shares authorized; 15,528,730 and 15,820,517
shares issued and outstanding, respectively
net of 4,377,900 shares in treasury)........... 15,529,000 15,821,000
Paid-in capital................................. 69,800,000 70,154,000
Unrealized gains (losses) on investments, net of
deferred taxes (tax benefits) of ($906,000) and
$285,000 respectively.......................... (9,168,000) 467,000
Accumulated deficit............................. (20,467,000) (24,391,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................. 55,694,000 62,051,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.$303,689,000 $309,054,000
=========== ===========
See accompanying notes to consolidated financial statements.
26
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------------------------------------------------------------------
REVENUES:
Insurance premiums...............$ 50,623,000 $ 47,538,000 $ 47,642,000
Net investment income (Note 6)... 11,230,000 14,171,000 15,930,000
Sales............................ 36,427,000 33,001,000 23,941,000
Equity income.................... 453,000 1,288,000 1,085,000
Other (loss) income.............. (343,000) 2,775,000 2,760,000
---------- ---------- ----------
98,390,000 98,773,000 91,358,000
---------- ---------- ----------
EXPENSES:
Insurance benefits, claims and
reserves........................ 32,817,000 34,000,000 35,127,000
Amortization of deferred
insurance acquisition costs..... 5,573,000 6,444,000 9,216,000
Cost of sales.................... 27,985,000 25,866,000 19,638,000
Interest expense................. 1,345,000 383,000 906,000
Selling, general and administra-
tive expenses................... 26,039,000 24,233,000 20,842,000
---------- ---------- ----------
93,759,000 90,926,000 85,729,000
---------- ---------- ----------
Operating income before income
taxes............................ 4,631,000 7,847,000 5,629,000
Income tax expense
(Note 15)........................ 396,000 2,428,000 2,490,000
---------- ---------- ----------
Income before cumulative effect
of accounting changes............ 4,235,000 5,419,000 3,139,000
Cumulative effect of accounting
changes.......................... - (340,000) 1,199,000
----------- ----------- -----------
Net income........................$ 4,235,000 $ 5,079,000 $ 4,338,000
=========== =========== ===========
INCOME PER COMMON SHARE:
Income before cumulative effect
of accounting changes...........$ .27 $ .33 $ .18
Cumulative effect of accounting
changes......................... - (.02) .07
----------- ----------- -----------
Net income.......................$ .27 $ .31 $ .25
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING...................... 15,717,000 16,148,000 17,574,000
=========== =========== ===========
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES UNREALIZED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY GAINS
(LOSSES) ON TOTAL
COMMON STOCK PAID-IN INVESTMENTS, (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL NET DEFICIT) EQUITY
------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991......... 17,977,014 $17,977,000 $72,860,000 $(1,936,000) $(33,171,000) $55,730,000
Purchase of common stock........ (1,902,611) (1,903,000) (2,163,000) (4,066,000)
Net change in unrealized gains.. 1,687,000 1,687,000
Net income...................... 4,338,000 4,338,000
Realization of tax benefit of
operating loss carryforwards
subsequent to reorganization... (163,000) (163,000)
Common stock dividend........... (321,000) (321,000)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1992......... 16,074,403 16,074,000 70,534,000 (249,000) (29,154,000) 57,205,000
Purchase of common stock........ (1,152,553) (1,152,000) (2,207,000) (3,359,000)
Issuance of shares.............. 898,667 899,000 1,762,000 2,661,000
Net change in unrealized gains.. 376,000 376,000
Cumulative effect of accounting
change......................... 340,000 340,000
Net income...................... 5,079,000 5,079,000
Realization of tax benefit of
operating loss carryforwards
subsequent to reorganization... 65,000 65,000
Common stock dividend........... (316,000) (316,000)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1993......... 15,820,517 15,821,000 70,154,000 467,000 (24,391,000) 62,051,000
Purchase of common stock
and warrants................... (291,787) (292,000) (717,000) (1,009,000)
Net change in unrealized gains.. (9,635,000) (9,635,000)
Net income...................... 4,235,000 4,235,000
Realization of tax benefit of
operating loss carryforwards
subsequent to reorganization... 363,000 363,000
Common stock dividend........... (311,000) (311,000)
---------- ---------- ---------- ---------- ----------- ----------
BALANCE AT DECEMBER 31, 1994......... 15,528,730 $15,529,000 $69,800,000 $(9,168,000) $(20,467,000) $55,694,000
========== ========== ========== ========== =========== ==========
See accompanying notes to consolidated financial statements.
28
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..........................$ 4,235,000 $ 5,079,000 $ 4,338,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of deferred insurance
acquisition costs................ 5,573,000 6,444,000 9,216,000
Realized gains on sales of
investment securities............ (824,000) (2,803,000) (4,212,000)
Unrealized losses (gains) on
trading securities............... 422,000 72,000 (404,000)
Equity income..................... (453,000) (1,288,000) (1,085,000)
Depreciation...................... 626,000 634,000 697,000
Deferred taxes (benefits)......... (838,000) 826,000 758,000
Income tax benefit credited
(charged) to paid-in capital..... 363,000 65,000 (163,000)
Cumulative effect of change in
accounting principle............. - 340,000 (1,199,000)
Other............................. 1,192,000 786,000 155,000
Change in assets and liabilities:
Net sales (purchases) of trading
securities....................... 3,251,000 3,072,000 (40,000)
Increase (decrease) in future
insurance policy benefits, claims
and other policy liabilities..... (3,301,000) 14,300,000 (6,107,000)
Additions to deferred insurance
acquisition costs................ (2,618,000) (6,402,000) (2,165,000)
Change in net amounts due from and
to reinsurers.................... 4,350,000 (4,170,000) 2,061,000
Change in trade accounts, notes and
other receivables................ (3,518,000) (1,007,000) 225,000
Change in income tax liability.... 1,043,000 (749,000) 650,000
Other............................. 647,000 (3,824,000) 5,784,000
---------- ---------- ----------
Net cash provided by operating
activities....................$10,150,000 $11,375,000 $ 8,509,000
---------- ---------- ----------
29
(CONTINUED)
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in net amount due from and
to brokers......................$ 6,167,000 $ 15,625,000 $ (3,031,000)
Sales and maturities of short-term
investments..................... 3,859,000 3,345,000 1,602,000
Purchases of short-term
investments..................... (1,779,000) (5,463,000) (1,324,000)
Net (purchases) sales of resale
and repurchase agreements....... 3,027,000 (15,377,000) (1,663,000)
Sales of equity securities....... 57,721,000 23,403,000 10,250,000
Purchases of equity securities... (50,902,000) (18,715,000) (7,174,000)
Sales and maturities of fixed
maturities...................... 141,213,000 140,527,000 560,000
Purchases of fixed maturities....(161,859,000) (145,471,000) -
Proceeds on sale of other
investments..................... 2,930,000 1,682,000 1,505,000
Distributions from other
investments, net of additional
investments..................... (1,199,000) (1,795,000) 309,000
Additions to property, plant and
equipment, net.................. (1,197,000) (319,000) (784,000)
Other............................ 359,000 2,000,000 -
----------- ----------- ----------
Net cash (used) provided by
investing activities........ (1,660,000) (558,000) 250,000
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock......... - 25,000 -
Repurchase of common stock and
warrants........................ (1,009,000) (3,359,000) (4,066,000)
Payments of investment-type
insurance contracts............. (4,802,000) (4,294,000) (4,293,000)
Increase in long-term debt....... 2,433,000 15,874,000 488,000
Repayment of long-term debt...... (1,201,000) (150,000) (2,892,000)
Dividends paid................... (316,000) (321,000) (353,000)
----------- ----------- -----------
Net cash provided (used) by
financing activities........ (4,895,000) 7,775,000 (11,116,000)
----------- ----------- -----------
Increase (decrease) in cash and
cash equivalents................ 3,595,000 18,592,000 (2,357,000)
Cash and cash equivalents,
beginning of year............... 34,267,000 15,675,000 18,032,000
----------- ----------- -----------
Cash and cash equivalents,
end of year.....................$ 37,862,000 $ 34,267,000 $ 15,675,000
=========== =========== ===========
See accompanying notes to consolidated financial statements.
30
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) BUSINESS AND ORGANIZATION
Independence Holding Company and subsidiaries (the "Company"
or "IHC") is a diversified financial company primarily engaged in
insurance activities through Madison National Life Insurance
Company, Inc. and its subsidiaries ("Madison Life") and Standard
Security Life Insurance Company of New York and its subsidiaries
including First Standard Security Insurance Company ("Standard
Life") (collectively, the "Insurance Group"), and in manufacturing
commercial signs through Zimmerman Sign Company ("Zimmerman" or
the "Manufacturing Group").
Geneve Corporation, a diversified financial holding company,
and its affiliated entities ("Geneve") hold approximately 53% of
IHC's outstanding common stock.
(B) PRINCIPLES OF CONSOLIDATION AND PREPARATION OF FINANCIAL
STATEMENTS
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and
include the accounts of IHC and its subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Investments in partnerships which are not consolidated are carried
on the equity method, which approximates the Company's equity in
their underlying net book value.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(C) RECLASSIFICATION
Certain amounts in prior years' consolidated financial
statements and notes thereto have been restated to conform to the
1994 presentation.
(D) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are carried at cost which approximates
market value and include principally interest-bearing deposits at
brokers, money market instruments and U.S. Treasury securities of
less than 91-day maturity. Investments with maturities of 91-days
to 1 year are considered short-term investments and are carried at
cost which approximates market.
31
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(E) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell ("resale
agreements") and securities sold under agreements to repurchase
("repurchase agreements") are treated as financing transactions
and are carried at the amounts at which the securities will be
subsequently resold or repurchased as specified in the agreements.
(F) INVESTMENTS IN SECURITIES
(i) Investments in equity, derivative (options and options on
future contracts) and fixed income securities (bonds, notes and
redeemable preferred stock) are valued as prescribed by Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The
Company elected to adopt SFAS No. 115 by reporting the cumulative
effect of the change in accounting methods at December 31, 1993
for those securities which were previously classified as trading.
Prior years' financial statements have not been restated to apply
the provisions of SFAS No. 115.
Investments in equity and fixed income securities are carried
as follows:
(a) Fixed income securities which are being held to
maturity ("held to maturity") are carried at amortized cost.
(b) Securities which are held for trading purposes are
carried at estimated market value ("market value" or "market").
Unrealized gains or losses are credited or charged, as
appropriate, to net investment income on the Consolidated
Statements of Operations.
(c) Securities which may or may not be held to maturity
("available-for-sale") are carried at market value. Unrealized
gains or losses, net of deferred income taxes, are credited or
charged, as appropriate, directly to stockholders' equity. In
previous years these securities were carried at the lower of
aggregate amortized cost or market value.
(ii) Financial instruments sold, but not yet purchased,
represent obligations to replace borrowed securities that have
been sold. Such transactions occur in anticipation of declines in
the market value of the securities. The Company's risk is an
increase in the market value of the securities sold in excess of
the consideration received, but that risk is mitigated as a result
of relationships to certain securities owned. Unrealized gains or
losses on open transactions are credited or charged, as
appropriate, to stockholders' equity or net investment income.
While the transaction is open, the Company will also incur an
expense for any accrued dividends or interest payable to the
lender of the securities. When the transaction is closed, the
32
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Company realizes a gain or loss in an amount equal to the
difference between the price at which the securities were sold and
the cost of replacing the borrowed securities.
(iii) Gains or losses on sales of securities are determined
on the basis of specific identification.
(iv) The Company enters into derivative financial
instruments, primarily put and call option contracts on interest
rate futures contracts, to hedge portions of the Company's fixed
income portfolio intended to minimize loss of principal in a
rapidly changing interest rate environment. The contracts are all
readily marketable and are carried on the balance sheet at their
current market value with changes in unrealized gains or losses,
net of deferred income taxes, credited or charged as appropriate
directly to stockholder's equity, with all realized gains and
losses are reflected currently in the income statement.
(G) INVESTMENTS CARRIED AT FAIR VALUE
Investments in securities held through investments in
partnerships engaged in venture capital activities, including
leveraged buyout transactions, are carried at fair value. When
available, fair value is determined by reference to market price
quotations. When market price quotations are not available (as is
the case for principally all of the securities currently held by
the partnership), fair value of the securities is determined by
the General Partner. Unrealized appreciation is recorded in equity
income in the Consolidated Statements of Operations.
(H) MORTGAGE LOANS AND POLICY LOANS
Mortgage loans are primarily stated at amortized cost and
policy loans are stated at their aggregate unpaid balances.
(I) INVENTORIES
Inventories are recorded at the lower of cost (first-in,
first-out) or market (net realizable value).
(J) DEFERRED INSURANCE ACQUISITION COSTS
The costs of acquiring new insurance business, principally
commissions and certain variable underwriting, agency and policy
issuance expenses, have been deferred and are being amortized,
with interest, over the premium paying period of the related
insurance policies in proportion to the ratio of the annual
premium revenue to the total anticipated premium revenue.
Anticipated premium revenue was estimated using assumptions as to
mortality (morbidity on health insurance) and withdrawals
consistent with those used in calculating future insurance policy
benefits.
33
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(K) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
Improvements are capitalized while repair and maintenance costs
are charged to operations as incurred. Depreciation of property,
plant and equipment has been provided on the straight-line method
over the estimated useful lives of the respective assets.
Amortization of leasehold improvements has been provided on the
straight-line method over the shorter of the lease term or the
estimated useful life of the asset.
(L) FUTURE INSURANCE POLICY BENEFITS
Liabilities for future insurance policy benefits, including
dividends on future participating policies, have been computed
primarily using the net level premium method based on anticipated
investment yield, mortality (morbidity on health insurance) and
withdrawals. Life reserve interest rates are generally graded and
range from 2% to 9% per annum. Withdrawals are based on
experience. Annuity reserves are established with interest rate
assumptions ranging from 5% to 13.9% per annum.
(M) INSURANCE PREMIUM REVENUE RECOGNITION
Insurance premiums, including reinsurance premiums assumed,
are recognized as revenue over the premium paying period of the
policies. Credit life and health premiums are recognized over the
terms of the policy.
Funds received for certain long duration contracts
(principally annuities) are credited directly to a policyholder
liability account. Withdrawals are a direct reduction of
respective policyholders' funds on deposit. Amounts on deposit are
currently credited interest at an annual rate of 5%.
(N) PARTICIPATING POLICIES
Participating policies represent 7.6%, 8.4%, and 9.3% of the
individual life insurance in-force and 2.6%, 3.1%, and 3.0% of the
gross premium income, as of and for the years ended December 31,
1994, 1993 and 1992, respectively, and provide for the payment of
dividends. Dividends to policyholders are determined annually and
are payable only upon declaration by the Board of Directors of the
insurance companies. New York State Insurance Department
requirements limit the amount of profit on participating policies
which can inure to stockholders to 10% of such profits or $.50 per
year per $1,000 of such insurance in-force, whichever is greater.
At December 31, 1994, the stockholder's equity of the insurance
companies was not restricted because of participating
policyholders' surplus.
34
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
(O) DEFERRED INCOME TAXES
The provision for deferred income taxes is based on the
liability method prescribed by SFAS No. 109, "Accounting for
Income Taxes" and represents the change in the Company's deferred
income tax liability during the year, less amounts accounted for
in equity, including the effect of enacted tax rate changes.
Deferred income taxes arise from temporary differences between the
tax bases of assets and liabilities and their reported amounts in
the financial statements. The Company elected to adopt SFAS No.
109 in December 1992 by retroactively restating 1992 and reporting
the cumulative effect of the change in accounting methods as of
January 1, 1992.
(P) INCOME PER COMMON SHARE
The computation of income per common share for each of the
three years ended December 31, 1994, 1993 and 1992 is based upon
the weighted average number of common shares outstanding of
approximately 15,717,000, 16,148,000, and 17,574,000,
respectively. Common stock equivalents represented by warrants and
stock options have not been utilized in computing income per share
because the effect of their assumed exercise would have been anti-
dilutive.
(Q) REINSURANCE
The Company's consolidated financial statements for 1993
reflect the adoption of SFAS No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts."
Pursuant to the SFAS No. 113, amounts paid for or recoverable
under reinsurance contracts, including amounts previously reported
as a reduction of various liability accounts as permitted under
previous accounting standards, are included in total assets as
reinsurance balances, or reinsurance prepaid. The cost of
reinsurance related to long-duration contracts is accounted for
over the life of the underlying reinsured policies using
assumptions consistent with those used to account for the
underlying policies. The financial statements were restated in
connection with the adoption of SFAS No. 113 which resulted in an
increase in assets and corresponding liabilities of $40.0 million
in 1993. The adoption of SFAS No. 113 had no effect on the
Consolidated Statements of Operations or on Total Stockholders'
Equity.
NOTE 2. RESALE AGREEMENTS
Resale agreements are utilized to invest excess funds on a
short-term basis. At December 31, 1994, the Company had
35
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 2. RESALE AGREEMENTS (CONTINUED)
approximately $18,660,000 in resale agreements outstanding, all of
which settled by January 3, 1995 and were subsequently reinvested.
The Company, in most cases, takes possession of securities
purchased under resale agreements and values the collateral on a
daily basis to protect the Company in the event of default by the
counterparty. For all other resale agreements, the securities are
held by the counterparties, all of which are primary U.S.
Government dealers. The principal counterparties for the resale
agreements at December 31, 1994 were UBS Securities, Inc. and
Morgan Stanley & Co., Incorporated.
NOTE 3. ACQUISITION OF FIRST STANDARD SECURITY INSURANCE COMPANY
("FIRST STANDARD") (FORMERLY COVE REINSURANCE COMPANY)
During 1993, the Company acquired a property and casualty
reinsurance company shell, First Standard, from Geneve Holdings,
Inc. at its adjusted statutory value of approximately $2.6
million. The Company issued 878,667 shares of its common stock in
exchange for all of the shares of capital stock of the reinsurer.
As a result of the subsequent transfer of the stock of its parent
corporation to Standard Life, First Standard became a subsidiary
of Standard Life.
NOTE 4. INVESTMENT SECURITIES
The Company adopted SFAS No. 115 at December 31, 1993. The
cumulative effect of this change in accounting for equity and
fixed income securities is a loss of $340,000, net of income taxes
of $175,000, and is reported separately in the consolidated
statement of operations for the year ended December 31, 1993.
DECEMBER 31, 1994
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
AVAILABLE-FOR-SALE SECURITIES:
FIXED MATURITIES
Corporate securities.....$ 34,590 $ 6 $ (4,035) $ 30,561
U.S. Government and
agencies obligations.... 46,885 - (2,781) 44,104
Government National
Mortgage Association.... 54,658 - (1,790) 52,868
Obligations of states
and political
subdivisions............ 2,422 11 (149) 2,284
------- --- ------- -------
$138,555 $ 17 $ (8,755) $129,817
======= === ======= =======
36
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1994
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
EQUITY SECURITIES
Common stock..............$ 2,711 $ 41 $ (309) $ 2,443
Preferred stock........... 2,241 - (327) 1,914
Options................... 1,471 - (844) 627
------- --- ------- -------
$ 6,423 $ 41 $ (1,480) $ 4,984
======= === ======= =======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock.............$ (563) $ - $ (31) $ (594)
Options.................. (525) 134 - (391)
------- --- ------- -------
$ (1,088) $134 $ (31) $ (985)
======= === ======= =======
TRADING SECURITIES:
EQUITY SECURITIES
Common stock..............$ 18,113 $553 $ (497) $ 18,169
Options................... 80 - (62) 18
------- --- ------- -------
$ 18,193 $553 $ (559) $ 18,187
======= === ======= =======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common stock.............$(16,311) $236 $ (396) $(16,471)
Options.................. (72) 3 - (69)
------- --- ------- -------
$(16,383) $239 $ (396) $(16,540)
======= === ======= =======
The average market value of trading long options was $38,000
and the average market value of trading options sold but not yet
purchased was $30,000 for 1994.
The amortized cost and market value of fixed income
securities at December 31, 1994, by contractual maturity, is shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
37
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1994
-----------------------
AMORTIZED MARKET
COST VALUE
-----------------------
(DOLLARS IN THOUSANDS)
Due in one year or less..............$ 4,922 $ 4,816
Due after one year through
five years.......................... 16,559 16,016
Due after five years through
ten years........................... 36,228 32,849
Due after ten years.................. 26,188 23,268
------- -------
83,897 76,949
Government National Mortgage
Association......................... 54,658 52,868
------- -------
$138,555 $129,817
======= =======
Approximately $9,433,000 of gross gains and $11,362,000 of gross
losses were realized on sales of available-for-sale securities for
the year ended December 31, 1994.
Approximately $2,256,000 of gains were realized on sales of
options held for sale, $23,000 of gains were realized on options
held for trading and $223,000 of gains were realized on sales of
future contracts held for sale for the year ended December 31,
1994.
DECEMBER 31, 1993
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
-----------------------------------------------
(DOLLARS IN THOUSANDS)
AVAILABLE-FOR-SALE SECURITIES:
FIXED MATURITIES
Corporate securities.....$ 55,087 $ 501 $ (890) $ 54,698
U.S. Government and
agencies obligations.... 8,623 127 - 8,750
Government National
Mortgage Association.... 59,547 137 (94) 59,590
Obligations of states
and political sub-
divisions............... 405 27 - 432
------- ---- --- -------
$123,662 $ 792 $ (984) $123,470
======= ==== === =======
38
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1993
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
-----------------------------------------------
(DOLLARS IN THOUSANDS)
EQUITY SECURITIES
Common Stock.............$ 3,686 $1,133 $ (258) $ 4,561
Preferred Stock.......... 5,592 96 (23) 5,665
------ ----- ----- ------
$ 9,278 $1,229 $ (281) $ 10,226
====== ===== ===== ======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
Common Stock.............$ (384) $ - $ (3) $ (387)
Options (5) - - (5)
------ ----- ----- ------
$ (389) $ - $ (3) $ (392)
====== ===== ===== ======
TRADING SECURITIES:
EQUITY SECURITIES.........$ 16,033 $ 647 $ (386) $ 16,294
====== ===== ===== ======
FINANCIAL INSTRUMENTS
SOLD, BUT NOT YET
PURCHASED................$(16,175) $ 551 $ (552) $(16,176)
====== ===== ===== ======
Approximately $5,845,000 of gross gains and $5,352,000 of
gross losses were realized on sales of available-for-sale
securities for the year ended December 31, 1993.
Proceeds from sales of fixed income securities during 1992
were approximately $270,105,000. Approximately $4,129,000 of gross
gains and $2,429,000 of gross losses were realized on those sales.
NOTE 5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair value of financial instruments not disclosed elsewhere in
the footnotes (see footnote 1 for investment securities):
A. MORTGAGE LOANS
The fair value of mortgage loans is calculated by discounting
the scheduled cash flows at a current market interest rate
adjusted for credit risk.
39
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------
NOTE 5. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
(CONTINUED)
B. POLICY LOANS
The fair value of policy loans is calculated by projecting
the current policy loans in the aggregate to the end of the
expected lifetime period of the life insurance business at the
average policy loan rates and discounting them at a current market
policy loan interest rate.
C. FUTURE ANNUITY POLICY BENEFITS
The Company has two types of annuity policies. The first type
is a deferred annuity which is credited with a current market
interest rate, resulting in a carrying value which equals fair
value. The second type of annuity carries fixed interest rates
which are currently higher than current market interest rates. The
fair value of these annuities was determined by discounting the
annuity payments using current market interest rates.
D. LONG-TERM DEBT OF SUBSIDIARIES
The fair value of long-term debt is determined to equal
carrying value as all debt outstanding carries interest rates
which are based on prime rates or rate which approximate current
market interest rates.
The estimated fair values of financial instruments are as
follows:
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------- ----------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
FINANCIAL ASSETS:
Fixed maturities.....$129,817 $129,817 $123,470 $123,470
Equity securities....$ 23,171 $ 23,171 $ 26,520 $ 26,520
Mortgage Loans.......$ 641 $ 731 $ 829 $ 1,205
Policy Loans.........$ 4,454 $ 3,212 $ 4,712 $ 4,173
FINANCIAL LIABILITIES:
Future Annuity Policy
Benefits............$ 34,436 $ 37,525 $ 36,357 $ 38,060
Financial instruments
sold but not yet
purchased...........$ 17,525 $ 17,525 $ 16,568 $ 16,568
Long-Term Borrowings.$ 21,258 $ 21,258 $ 20,026 $ 20,026
40
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 6. NET INVESTMENT INCOME
Major categories of net investment income for the years ended
December 31, 1994, 1993 and 1992 are summarized as follows:
1994 1993 1992
----------------------------
(DOLLARS IN THOUSANDS)
INTEREST AND DIVIDENDS:
Fixed income securities.....$ 9,646 $ 9,839 $ 9,736
Equity securities........... 1,860 2,205 1,974
Short-term investments...... 1,197 893 952
Other....................... 684 616 502
------ ------ ------
13,387 13,553 13,164
Net realized gains........... 824 2,684 4,212
Net unrealized gains
(losses).................... (422) (73) 404
Investment expenses.......... (2,559) (1,993) (1,850)
------ ------ ------
Net investment income........$11,230 $14,171 $15,930
====== ====== ======
NOTE 7. OTHER INVESTMENTS
Other investments consist of the following at December 31,
1994 and 1993:
DECEMBER 31,
1994 1993
--------------------
(DOLLARS IN THOUSANDS)
Partnership interests.................$ 6,076 $6,725
Mortgage loans........................ 641 829
Policy loans.......................... 4,454 4,712
Real estate........................... 971 929
------ ------
$12,142 $13,195
====== ======
NOTE 8. INVENTORIES
Inventories at December 31, 1994 and 1993 are as follows:
DECEMBER 31,
1994 1993
--------------------
(DOLLARS IN THOUSANDS)
Raw materials.........................$ 4,558 $ 3,334
Work in process....................... 4,078 3,796
Finished goods........................ 1,861 1,207
------ ------
$10,497 $ 8,337
====== ======
41
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1994 and 1993 are as
follows:
DECEMBER 31,
1994 1993
--------------------
(DOLLARS IN THOUSANDS)
Land..................................$ 344 $ 474
Buildings............................. 2,189 2,073
Manufacturing equipment............... 1,822 1,608
Office equipment...................... 1,383 975
Leasehold improvements................ 1,798 1,617
Office furniture and fixtures......... 1,453 1,471
------ ------
8,989 8,218
Less accumulated depreciation
and amortization.................... (4,542) (4,342)
------ ------
Property, plant and equipment,
net.................................$ 4,447 $ 3,876
====== ======
NOTE 10. LIABILITY FOR UNPAID CLAIMS
The liability for unpaid claims and claim adjustment expenses
represents amounts needed to provide for the estimated cost of
settling claims relating to insured events that have been incurred
prior to the balance sheet date which have not yet been settled.
The change in the liability for unpaid claims and claim
adjustment expenses for the Company's health and disability
coverages is as follows:
DECEMBER 31,
1994 1993 1992
--------------------------
(DOLLARS IN THOUSANDS)
Balance at beginning of year.......$ 2,558 $ 1,839 $ 1,852
Less: reinsurance
recoverables...................... 719 427 353
------ ------ ------
Net balance at beginning
of year........................... 1,839 1,412 1,499
------ ------ ------
Amount incurred:
Current year....................... 19,612 16,787 18,025
Prior year......................... 3,124 5,073 4,346
------ ------ ------
Total............................ 22,736 21,860 22,371
------ ------ ------
Amount paid, related to:
Current years...................... 14,662 13,050 13,245
Prior year......................... 8,425 8,383 9,213
------ ------ ------
Total............................ 23,087 21,433 22,458
------ ------ ------
42
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 10. LIABILITY FOR UNPAID CLAIMS (CONTINUED)
DECEMBER 31,
1994 1993 1992
--------------------------
(DOLLARS IN THOUSANDS)
Net balance end of year........ 1,488 1,839 1,412
Plus: reinsurance recoverables. 327 719 427
------ ------ ------
Balance at end of year.........$ 1,815 $ 2,558 $ 1,839
====== ====== ======
NOTE 11. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 is as follows:
DECEMBER 31,
1994 1993
--------------------
(DOLLARS IN THOUSANDS)
Credit agreement with maturities
starting September 30, 1994
through December 31, 1998............$14,000 $15,000
Revolving credit line with an interest
rate at prime plus .5%, due 1996..... 6,450 4,175
Other borrowings with interest rates
ranging from 7% to prime plus
.5% and .75%......................... 808 851
------ ------
$21,258 $20,026
====== ======
The aggregate maturities of long-term debt at December 11,
1994 are as follows:
DOLLARS IN THOUSANDS
--------------------
1995..............$ 2,173
1996.............. 10,589
1997.............. 4,071
1998.............. 4,071
1999.............. 71
Thereafter........ 283
------
Total $21,258
======
Cash payments for interest were approximately $1,075,000,
$452,000, and $942,000 for the years ended December 31, 1994, 1993
and 1992, respectively.
The revolving credit line is secured by the inventory and
accounts receivable of Zimmerman.
43
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 11. LONG TERM DEBT (CONTINUED)
On December 30, 1993, a subsidiary of the Company entered
into a $15,000,000 credit agreement ("Credit Agreement") to
provide additional capital for the Insurance Group of which
$1,000,000 was repaid during 1994. Under terms of the Credit
Agreement, interest on the outstanding portion of the $15,000,000
loan is, at the option of the Company, based on either (i) 1/4%
plus the higher of the prime rate or the Federal Funds Rate plus
1.0% or (ii) the Eurodollar Rate plus 1-3/4%. The Credit Agreement
(1) contains restrictions with respect to, among other things, the
creation of additional indebtedness, the consolidation or merger
with or into certain corporations, the payment of dividends and
the retirement of capital stock, (2) requires the maintenance of
minimum amounts of net worth, as defined, certain financial
ratios, and certain investment restrictions and (3) is secured by
the stock of two of the Company's subsidiaries and a $15.0 million
contribution note of Madison Life. The weighted average interest
rate on the Credit Agreement was 7.68% and 6.25% at December 31,
1994 and 1993 respectively.
NOTE 12. PREFERRED STOCK
IHC is authorized to issue up to 20,000,000 shares of
preferred stock, par value $1.00 per share.
NOTE 13. COMMON STOCK
(A) IHC has reserved 5,248,862 shares of common stock for shares
issuable under its stock option plan and outstanding warrants at
December 31, 1994.
(B) During 1991, IHC announced a plan to repurchase shares of its
common stock and warrants. Any shares repurchased through this
program may, at the discretion of management, be retired. For the
year ended December 31, 1994, 291,787 common shares were
repurchased at a cost of $883,000. Since the inception of the
repurchase plan through December 31, 1994, 3,596,251 common shares
have been repurchased at a cost of $8,684,000. All of such
repurchased shares have either been retired or reissued.
NOTE 14. STOCK OPTIONS AND SHARE PURCHASE WARRANTS
(A) STOCK OPTIONS
On May 25, 1988, the stockholders approved the amended and
restated Stock Option and Incentive Stock Option Plan under which
1,600,000 shares of common stock were reserved for options and
other common stock awards to be granted under the plan. Under the
44
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 14. STOCK OPTIONS AND SHARE PURCHASE WARRANTS (CONTINUED)
terms of the plan, exercise prices are equal to the quoted market
value of the shares at the date of grant. Further, the options
will expire ten years from the date of the grant and will vest
ratably over a three-year period beginning on the first
anniversary of the date of the grant.
The following summarizes stock option information for the
years ended December 31, 1994, 1993 and 1992:
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------------------------
OPTIONS OUTSTANDING AT:
December 31, 1994.............. 37,000 $1.25 - $6.25
December 31, 1993.............. 32,000 $1.25 - $6.25
December 31, 1992.............. 49,000 $1.25 - $6.25
OPTIONS WHICH WERE EXERCISABLE AT:
December 31, 1994.............. 32,000 $1.25 - $6.25
December 31, 1993.............. 29,000 $1.25 - $6.25
December 31, 1992.............. 39,334 $1.25 - $6.25
At December 31, 1994, options to purchase 1,523,384 shares
were available for future grant under the plan. Options to
purchase 20,000 shares were exercised at $1.25 per share during
the year ended December 31, 1993.
(B) SHARE PURCHASE WARRANTS
At December 31, 1994, 1,307,044 share purchase warrants were
outstanding, which are exercisable through June 30, 2001, at
$25.00 for 2.822 shares of common stock. Such warrants are
exercisable for a maximum of 3,688,478 shares of common stock.
At the end of 1994, the Company purchased 384,741 warrants at
a cost of approximately $126,000.
NOTE 15. INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1992. The
cumulative effect of this change in accounting for income taxes is
a benefit of $1,199,000, which is reported separately in the
consolidated statement of operations for the year ended December
31, 1992.
The provision for income tax expense (benefit) for the years
ended December 31, 1994, 1993 and 1992 is as follows:
45
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 15. INCOME TAXES (CONTINUED)
1994 1993 1992
------------------------------
(DOLLARS IN THOUSANDS)
CURRENT:
U.S. Federal..........$1,114 $ 999 $1,112
State and Local....... 119 603 620
----- ----- -----
1,233 1,602 1,732
----- ----- -----
DEFERRED:
U.S. Federal.......... (795) 1,029 879
State and Local....... (42) (203) (121)
----- ----- -----
(837) 826 758
----- ----- -----
Income tax expense....$ 396 $2,428 $2,490
===== ===== =====
The Federal statutory rate of 34% in 1994, 1993 and 1992 is
reconciled to the Company's effective income tax rate as follows:
1994 1993 1992
------------------------------
(DOLLARS IN THOUSANDS)
Tax computed
at the statutory
rate.................$1,574 $2,668 $1,914
Dividends received
deduction and tax
exempt interest...... (292) (226) (348)
Special life insurance
statutory deductions. (716) (245) 315
State income taxes, net
of Federal effect.... 29 192 455
Tax loss carryforwards
recognized for
financial reporting
purposes.............(1,256) (901) -
Expenses not taxed.... - 538 278
Valuation allowance... 1,279 - -
Other, net............ (222) 402 (124)
----- ----- -----
Income tax expense....$ 396 $2,428 $2,490
===== ===== =====
The tax benefit for the year ended December 31, 1994
allocated to stockholders' equity for unrealized losses on
investment securities was $1,191,000.
Temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give
rise to the deferred tax assets and liabilities at December 31,
1994 and 1993 relate to the following:
46
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 15. INCOME TAXES (CONTINUED)
DECEMBER 31,
1994 1993
----------------------
(DOLLARS IN THOUSANDS)
DEFERRED TAX ASSETS:
Loss carryforwards...........$ 9,923 $ 12,750
Other investments............ 306 1,097
Unrealized losses on
investment securities....... 3,450 85
Deferred insurance policy
acquisition costs........... 800 635
Future insurance policy
benefits.................... 1,174 1,264
Other........................ 3,211 2,191
------- -------
Total gross deferred
tax assets.............. 18,864 18,022
Less valuation
allowance............... (16,143) (15,394)
------- -------
Net deferred tax assets.. 2,721 2,628
------- -------
DEFERRED TAX LIABILITIES:
Other investments............ 759 743
Unrealized gains on
investment securities....... - 370
Deferred insurance policy
acquisition costs........... 3,435 4,653
Future insurance policy
benefits.................... 1,093 1,302
Other........................ 929 957
------- -------
Total gross deferred
tax liabilities......... 6,216 8,025
------- -------
Net deferred tax
liability...............$ (3,495) $ (5,397)
======= =======
The $749,000 increase in the valuation allowance for the year
ended December 31, 1994 is primarily attributable to net changes
in loss carryforwards and unrealized losses on investment
securities.
In 1988, the Company adopted SFAS No. 96 retroactive to
January 1, 1987. Accordingly, tax benefits of net operating loss
carryforwards that existed as of the date of the quasi-
reorganization were recognized in 1988 and 1987 as a reduction of
income tax expense. In September 1989, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 86
47
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 15. INCOME TAXES (CONTINUED)
in which the SEC stated that registrants may no longer treat the
tax benefits of such net operating loss carryforwards as
prescribed by SFAS No. 96. Under SAB No. 86, which was adopted
prospectively in 1989, registrants are required to record a charge
in lieu of Federal income taxes in the consolidated statement of
operations with a corresponding credit to paid-in capital. For the
years ended December 31, 1994, 1993 and 1992, the Company recorded
$363,000, $65,000 and $(163,000), respectively, in accordance with
SAB No. 86. There is no impact on consolidated stockholders'
equity related to the adoption of SAB No. 86.
At December 31, 1994, IHC had net operating loss
carryforwards of approximately $19,600,000 on a tax return basis.
In addition, a subsidiary of IHC had available, on a separate
return basis, acquired net operating loss carryforwards of
approximately $8,400,000 on a tax return basis.
The future utilization of these net operating losses will
result in subsequent tax benefits of $7,684,000 that would be
reported in the consolidated statement of operations and tax
benefits of $1,836,000 that would be reported as additional paid-
in capital. The net operating losses with their expiration dates
are as follows:
CONSOLIDATED SEPARATE
RETURN RETURN
EXPIRATION DATE (DOLLARS IN THOUSANDS)
--------------- ------------ --------
1995..........................$ 5,400 $ 2,400
1996.......................... - 700
1997.......................... - 1,000
1998.......................... - 2,500
1999.......................... - 1,800
2003.......................... 1,100 -
2005.......................... 12,800 -
2008.......................... 300 -
The utilization of acquired net operating loss carryforwards
is limited in any one year to the lesser of (i) IHC's
consolidated taxable income or (ii) the subsidiary's taxable
income computed on a separate return basis.
The Company files a consolidated Federal income tax return
on a June 30 fiscal year. On July 1, 1993, the Insurance Group
became included in the Company's consolidated Federal income tax
return. For all prior tax periods, the Insurance Group has filed
separate Federal income tax returns, except for the period from
July 1, 1989 through March 22, 1991 when Standard Life and its
subsidiaries were included in the Company's consolidated Federal
income tax return as the result of an election made by the
Company.
48
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 15. INCOME TAXES (CONTINUED)
Under provisions of the Life Insurance Company Tax Act of
1959, certain special deductions were allowed life insurance
companies for Federal income tax purposes and were accumulated in
a memorandum tax account designated as "policyholders'
surplus." Distributions of the untaxed amounts in this account
will result in the Company incurring an additional tax. The
Company has provided through its income tax provision on
operations a tax expense of $1,122,000 in 1992 and prior years
for this additional tax related to the policyholders' surplus
account. A deferred tax liability of approximately $936,000
related to the $2,753,000 remaining balance of the policyholders'
surplus account has not been recognized. This liability will be
recognized when the Company expects that a transaction will occur
which will give rise to a tax on the remaining balance of the
policyholders' surplus account.
Net cash (refunds) payments for income taxes were
approximately $(200,000), $2,508,000, and $1,321,000 in 1994,
1993 and 1992, respectively.
NOTE 16. COMMITMENTS AND CONCENTRATION OF CREDIT RISK
Certain subsidiaries of IHC are obligated under non-
cancelable lease agreements for office space and manufacturing
facilities. Total rental expense for the years 1994, 1993 and
1992 for operating leases was approximately $835,000, $761,000
and $992,000 respectively.
The approximate minimum annual rental expense for operating
leases that have remaining non-cancelable lease terms in excess
of one year at December 31, 1994 are as follows:
DOLLARS IN THOUSANDS
--------------------
1995..............$ 694
1996.............. 677
1997.............. 679
1998.............. 646
1999.............. 533
Thereafter........ 1,095
-----
Total $4,324
=====
A certain subsidiary of IHC makes contributions to multi-
employer pension plans. Obligations to such plans are not
significant to operations. Total pension expense amounted to
$69,000, $62,000 and $49,000 for the years ended December 31,
1994, 1993 and 1992, respectively. The Company does not provide
any other post-retirement benefits to its employees.
49
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------------
NOTE 16. COMMITMENTS AND CONCENTRATION OF CREDIT RISK
(CONTINUED)
At December 31, 1994, the Company had no investment
securities of any one issuer or in any one industry which
exceeded 10% of investable assets, except for investments in
obligations of the U.S. Government and its agencies.
A subsidiary of IHC is committed to invest up to $544,000 in
partnership investments.
NOTE 17. REINSURANCE
Standard Life and Madison Life reinsure portions of certain
risks that they underwrite in order to limit the assumption of
disproportionate risks. Standard Life and Madison Life retain
varying amounts of individual life or group life insurance up to
a maximum on any one life of $210,000 and $25,000, respectively.
Amounts not retained are ceded to other companies on an automatic
or facultative basis. Standard Life and Madison Life are
contingently liable with respect to reinsurance in the unlikely
event the assuming reinsurers are unable to meet their
obligations. In addition, Standard Life and Madison Life
participate in various coinsurance treaties. Due to the actuarial
probability of the risks assumed, the net risks assumed by
Standard Life and Madison Life through the above-mentioned
reinsurance are not considered material contingent liabilities.
The effect of reinsurance on benefits to policyholders,
premiums, and life insurance in-force is as follows:
DECEMBER 31,
1994 1993
-----------------------
(DOLLARS IN THOUSANDS)
Benefits to policyholders before
reinsurance recoveries.........$ 85,005 $ 67,391
Reinsurance recoveries.......... 49,974 31,369
------- -------
Benefits to policyholders, net..$ 35,031 $ 36,022
======= =======
CEDED ASSUMED
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------------------------------------------
(DOLLARS IN THOUSANDS)
PREMIUMS EARNED
DECEMBER 31, 1994:
Life.................$ 13,768 $ 5,620 $ 3,270 $ 11,418 28.6%
Health............... 103,008 66,207 2,404 39,205 6.1%
------- ------- ------- -------
116,776 71,827 5,674 50,623 11.2%
======= ======= ======= =======
50
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 17. REINSURANCE (CONTINUED)
CEDED ASSUMED
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------------------------------------------------
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1993:
Life................. 11,425 3,923 4,965 12,467 39.8%
Health............... 88,875 55,865 2,061 35,071 5.9%
------- ------- ------- -------
100,300 59,788 7,026 47,538 14.8%
======= ======= ======= =======
DECEMBER 31, 1992:
Life................. 10,199 4,242 7,443 13,400 55.5%
Health............... 75,264 45,041 4,019 34,242 11.7%
------- ------- ------- -------
$ 85,463 $ 49,283 $ 11,462 $ 47,642 24.1%
======= ======= ======= =======
LIFE INSURANCE IN-FORCE
DECEMBER 31, 1994..$4,818,244 $2,875,688 $ 634,601 $2,577,157 24.6%
DECEMBER 31, 1993..$2,580,425 $1,488,214 $ 726,233 $1,818,444 39.9%
DECEMBER 31, 1992..$1,949,407 $1,240,998 $ 821,457 $1,529,866 53.7%
NOTE 18. SEGMENT REPORTING
IHC's continuing operations consist of two operating
segments: the Insurance Group and the Manufacturing Group. The
Insurance Group consists of IHC's three insurance subsidiaries,
Madison Life, Standard Life and First Standard. The
Manufacturing Group consists of the Company's sign manufacturing
subsidiary, Zimmerman.
Interest expense, taxes, and general expenses associated
with parent company activities are included in Corporate.
Identifiable assets by segment are those assets that are utilized
in each segment. Corporate assets are composed principally of
cash equivalents, resale agreements, marketable securities, the
Company's remaining real estate operations and certain other
investments.
1994 1993 1992
-----------------------------------
(DOLLARS IN THOUSANDS)
REVENUES:
Insurance..................$ 59,776 $ 64,241 $ 65,536
Manufacturing.............. 36,415 33,001 23,941
Corporate.................. 2,199 1,531 1,881
------- ------- -------
$ 98,390 $ 98,773 $ 91,358
======= ======= =======
51
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 18. SEGMENT REPORTING (CONTINUED)
1994 1993 1992
-----------------------------------
(DOLLARS IN THOUSANDS)
OPERATING INCOME FROM
CONTINUING OPERATIONS:
Insurance.................$ 4,536 $ 8,772 $ 8,065
Manufacturing............. 2,958 2,215 147
Corporate................. 2,200 1,531 1,380
Less:
General corporate
expenses................ 4,094 4,579 3,923
Corporate interest
expense................. 969 92 40
------- ------- -------
$ 4,631 $ 7,847 $ 5,629
======= ======= =======
IDENTIFIABLE ASSETS AT YEAR-END:
Insurance..................$245,289 $257,245 $216,615
Manufacturing.............. 22,286 16,547 13,476
Corporate.................. 36,114 35,262 43,075
------- ------- -------
$303,689 $309,054 $273,166
======= ======= =======
NOTE 19. DIVIDEND RESTRICTIONS ON INSURANCE SUBSIDIARIES
Dividends from Madison Life are subject to the prior
notification of the Commissioner of Insurance of the State of
Wisconsin ("Commissioner") if such dividend distribution exceeds
115% of the distribution for the corresponding period of the
previous year. In addition, if such dividends, together with the
fair value of other dividends paid or credited and distributions
made within the preceding twelve months, exceed the lesser of
total net gain from operations for the preceding calendar year
minus realized capital gains for that calendar year or 10% of
surplus with regard to policyholders as of December 31 of the
preceding year, such dividends may be paid so long as such
dividends have not been disapproved by the Commissioner within 30
days of its receipt of notice thereof. No dividends were paid by
Madison Life in 1993 or 1994.The payment of dividends by Standard
Life to its parent, Madison Life, requires prior approval of the
New York Superintendent of Insurance and is limited by net income
and capital and surplus. Standard Life received approval for, and
declared and paid, a $2.5 million dividend in 1993 to Madison
Life. First Standard may pay dividends to its parent, a
subsidiary of Standard Life, without the prior approval of the
Delaware Insurance Commissioner in an amount, the fair market
value of which, together with that of other dividends or
distributions made within the preceding 12 months does not exceed
the greater of (i) 10% of surplus as regards policyholders as of
52
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 19. DIVIDEND RESTRICTIONS ON INSURANCE SUBSIDIARIES
(CONTINUED)
the preceding December 31 and (ii) net income, not including
realized capital gains, for the twelve month period ending the
31st day of December next preceding. First Standard declared and
paid a dividend of $350,000 in 1994 to Standard Life.
Combined net income of the Insurance Group, as determined in
accordance with statutory accounting practices, was approximately
$7,452,000, $3,347,000, and $5,802,000 for 1994, 1993 and 1992,
respectively. Statutory capital and surplus for the Insurance
Group was approximately $43,327,000 and $40,468,000 at December
31, 1994 and 1993, respectively. Stockholder's equity of the
Insurance Group was approximately $34,471,000 and $43,006,000 as
of December 31, 1994 and 1993, respectively.
NOTE 20. QUARTERLY DATA (UNAUDITED)
In the fourth quarter of 1993, the Company elected to adopt
SFAS No. 115 [see Note 1(F)] by reporting the cumulative effect
of the change in accounting methods at December 31, 1993.
The quarterly results of operations for the years ended
December 31, 1994 and 1993 are summarized below:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1994
----
Total revenues...............$ 26,810 $ 24,999 $ 23,521 $ 23,060
======= ======= ======= =======
Net income...................$ 1,772 $ 1,207 $ 548 $ 708
======= ======= ======= =======
Per Common Share
----------------
Net income...................$ .11 $ .08 $ .04 $ .05
======= ======= ======= =======
1993
----
Total revenues...............$ 23,450 $ 26,203 $ 24,901 $ 24,219
======= ======= ======= =======
Income before
cumulative effect of
accounting change...........$ 1,143 $ 1,592 $ 1,068 $ 1,616
Cumulative effect of
accounting change........... - - - (340)
------- ------- ------- -------
Net income...................$ 1,143 $ 1,592 $ 1,068 $ 1,276
======= ======= ======= =======
53
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 20. QUARTERLY DATA (UNAUDITED) (CONTINUED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Per Common Share
----------------
Income before
cumulative effect of
accounting change...........$ .07 $ .10 $ .07 $ .10
Cumulative effect of
accounting change........... - - - (.02)
------- ------- ------- -------
Net income ..................$ .07 $ .10 $ .07 $ .08
======= ======= ======= =======
54
<PAGE>
SCHEDULE I
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
DECEMBER 31, 1994
COLUMN A COLUMN B COLUMN C COLUMN D
------------------ ---------- ---------- -----------------
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST VALUE (1) BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
FIXED INCOME SECURITIES:
BONDS:
United States Government
and authorities..........$101,543,000 $ 96,972,000 $ 96,972,000
States, municipalities
and political sub-
divisions................ 2,422,000 2,284,000 2,284,000
Public utilities.......... 19,881,000 17,207,000 17,207,000
All other corporate
securities............... 11,362,000 10,272,000 10,272,000
Redeemable preferred
stock.................... 3,347,000 3,082,000 3,082,000
----------- ----------- -----------
TOTAL FIXED
INCOME SECURITIES.......$138,555,000 $129,817,000 $129,817,000
=========== =========== ===========
EQUITY SECURITIES:
COMMON STOCKS:
Public utilities..........$ 16,482,000 $ 16,621,000 $ 16,621,000
Industrial, miscellaneous
and other............... 4,342,000 3,990,000 3,990,000
NON-REDEEMABLE PREFERRED
STOCK..................... 2,241,000 1,915,000 1,915,000
OPTIONS.................... 1,551,000 645,000 645,000
----------- ----------- -----------
TOTAL EQUITY SECURITIES..$ 24,616,000 $ 23,171,000 $ 23,171,000
=========== =========== ===========
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED:
EQUITY SECURITIES
COMMON STOCKS:
Public utilities.........$(15,479,000) $(15,623,000) $(15,623,000)
Industrial, miscellaneous
and other.............. (1,395,000) (1,442,000) (1,442,000)
OPTIONS................... (597,000) (460,000) (460,000)
----------- ----------- -----------
TOTAL FINANCIAL
INSTRUMENTS SOLD, BUT
NOT YET PURCHASED......$(17,471,000) $(17,525,000) $(17,525,000)
=========== =========== ===========
(CONTINUED)
55
<PAGE>
SCHEDULE I
(CONTINUED)
Securities purchased under
agreements to resell....... 18,660,000 - 18,660,000
Partnership interests....... 6,076,000 - 6,076,000
Mortgage loans.............. 641,000 - 641,000
Policy loans................ 4,454,000 - 4,454,000
Real estate................. 971,000 - 971,000
Short-term investments (3).. 708,000 - 708,000
----------- -----------
TOTAL INVESTMENTS........$177,210,000 - $166,973,000
=========== ===========
NOTES:
------
(1) Reflects market value of fixed income securities and equity
securities at the balance sheet date.
(2) The total amounts of fixed income securities, equity
securities and short-term investments shown in Column D
differs from the total amounts shown in Column B as a result
of accrual of discount or amortization of premium on fixed
income securities and unrealized gains (losses) on equity and
fixed income securities.
(3) Short-term investments consist of U. S. Treasury Bills with
maturities of 91 days to 1 year.
56
<PAGE>
SCHEDULE III
INDEPENDENCE HOLDING COMPANY
BALANCE SHEETS
(PARENT COMPANY)
DECEMBER 31,
1994 1993
---------- ----------
ASSETS:
Cash and cash equivalents......................$ 646,000 $ 559,000
Investments in consolidated subsidiaries....... 68,124,000 76,465,000
Amounts due from consolidated subsidiaries..... 3,018,000 986,000
Notes receivable............................... 27,000 40,000
Other assets................................... 58,000 62,000
----------- -----------
TOTAL ASSETS..............................$ 71,873,000 $ 78,112,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and other liabilities........$ 4,084,000 $ 3,200,000
Amounts due to consolidated subsidiaries...... 11,784,000 12,545,000
Dividends payable............................. 311,000 316,000
----------- -----------
TOTAL LIABILITIES.......................... 16,179,000 16,061,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share (50,000,000
shares authorized; 15,528,730 and 15,820,517
shares issued and outstanding, respectively,
net of 4,377,900 shares in treasury).......... 15,529,000 15,821,000
Paid-in capital................................ 69,800,000 70,154,000
Unrealized (losses) gains on investments, net
of deferred (tax benefits) taxes of ($906,000)
and $285,000, respectively.................... (9,168,000) 467,000
Accumulated deficit............................ (20,467,000) (24,391,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................. 55,694,000 62,051,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.$ 71,873,000 $ 78,112,000
=========== ===========
The financial information of Independence Holding Company (Parent Company)
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto.
57
<PAGE>
SCHEDULE III
(CONTINUED)
INDEPENDENCE HOLDING COMPANY
STATEMENTS OF OPERATIONS
(PARENT COMPANY)
YEAR ENDED DECEMBER 31,
1994 1993 1992
--------------------------------------------
REVENUES:
Net investment loss....$ (130,000) $ (487,000) $ (566,000)
Other income........... 573,000 470,000 385,000
---------- ---------- ----------
443,000 (17,000) (181,000)
---------- ---------- ----------
EXPENSES:
General and adminis-
trative expenses...... 3,201,000 3,907,000 3,621,000
Interest expense....... - - 157,000
---------- ---------- ----------
3,201,000 3,907,000 3,778,000
---------- ---------- ----------
Loss before income tax
expense................ (2,758,000) (3,924,000) (3,959,000)
Income tax benefit (1).. (2,211,000) (1,404,000) (179,000)
---------- ---------- ----------
Loss before equity in net
income of subsidiaries. (547,000) (2,520,000) (3,780,000)
Equity in undistributed
net income of
subsidiaries........... 4,782,000 7,939,000 6,919,000
Cumulative effect of
accounting changes..... - (340,000) 1,199,000
---------- ---------- ----------
Net income..............$ 4,235,000 $ 5,079,000 $ 4,338,000
========== ========== ==========
The financial information of Independence Holding Company (Parent
Company) should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
NOTE:
(1) Includes a charge (benefit) in lieu of Federal income taxes
of $363,000 in 1994, $65,000 in 1993, and $(163,000) in 1992
with a corresponding credit (charge) to paid-in capital.
58
<PAGE>
SCHEDULE III
(CONTINUED)
INDEPENDENCE HOLDING COMPANY
STATEMENTS OF CASH FLOWS
(PARENT COMPANY)
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................$ 4,235,000 $ 5,079,000 $ 4,338,000
Adjustments to reconcile net income
to net cash used by operating
activities:
Equity in net income of
subsidiaries................... (4,782,000) (7,939,000) (6,919,000)
Cumulative effect of change in
accounting principle........... - 340,000 (1,199,000)
Income tax benefit credited
(charged) to paid-in capital... 363,000 65,000 (163,000)
Realized losses on sales of
investment securities.......... 198,000 557,000 626,000
Change in other assets and
liabilities.................... (2,957,000) (1,574,000) 602,000
---------- ---------- ----------
Net cash used by operating
activities.................. (2,943,000) (3,472,000) (2,715,000)
---------- ---------- ----------
CASH FLOWS FROM INVESTING SECURITIES:
Decrease in investment in and
advances to consolidated
subsidiaries..................... 4,355,000 6,982,000 1,599,000
Dividends received from consolidated
subsidiaries..................... - - 2,300,000
Sales of equity securities........ - - 2,615,000
---------- ---------- ----------
Net cash provided by investing
activities....................... 4,355,000 6,982,000 6,514,000
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.......... - 25,000 -
Repurchase of common stock
and warrants..................... (1,009,000) (3,359,000) (4,066,000)
Dividends paid.................... (316,000) (321,000) (353,000)
---------- ---------- ----------
Net cash used by financing
activities..................... (1,325,000) (3,655,000) (4,419,000)
---------- ---------- ----------
Increase (Decrease) in cash and
cash equivalents................. 87,000 (145,000) (620,000)
Cash and cash equivalents,
beginning of year................ 559,000 704,000 1,324,000
---------- ---------- ----------
Cash and cash equivalents, end of
year.............................$ 646,000 $ 559,000 $ 704,000
========== ========== ==========
The financial information of Independence Holding Company (Parent
Company) should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
59
<PAGE>
</TABLE>
<TABLE>
SCHEDULE V
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
FUTURE AMORTIZATION
DEFERRED POLICY BENEFITS, NET OF DEFERRED
INSURANCE CLAIMS & OTHER INVESTMENT BENEFITS INSURANCE OTHER
ACQUISITION POLICYHOLDERS' PREMIUM AND OTHER AND ACQUISITION OPERATING PREMIUMS
COSTS FUNDS REVENUE INCOME (1) CLAIMS COSTS EXPENSES (2) WRITTEN
----------- -------------- ------- ---------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994:
Life and annuity.....$ 6,219 $ 94,401 $11,418 $ 4,369 $ 8,842 $ 3,097 $ 3,618 $10,828
Health............... 4,760 56,587 39,205 4,784 23,975 2,476 13,232 37,481
------ ------- ------ ------ ------ ------ ------ ------
$10,979 $150,988 $50,623 $ 9,153 $32,817 $ 5,573 $16,850 $48,309
====== ======= ====== ====== ====== ====== ====== ======
DECEMBER 31, 1993:
Life and annuity.....$ 7,993 $ 98,052 $12,467 $ 9,688 $12,071 $ 3,604 $ 3,280 $14,505
Health............... 5,941 61,038 35,071 7,016 21,929 2,840 11,746 36,300
------ ------- ------ ------ ------ ------ ------ ------
$13,934 $159,090 $47,538 $16,704 $34,000 $ 6,444 $15,026 $50,805
====== ======= ====== ====== ====== ====== ====== ======
DECEMBER 31, 1992:
Life and annuity.....$ 9,093 $ 94,760 $13,401 $12,792 $12,642 $ 4,912 $ 2,365 $14,132
Health............... 4,884 54,323 34,241 5,102 22,486 4,304 10,762 33,710
------ ------- ------ ------ ------ ------ ------ ------
$13,977 $149,083 $47,642 $17,894 $35,128 $ 9,216 $13,127 $47,842
====== ======= ====== ====== ====== ====== ====== ======
(1) Net investment income is allocated between product lines based on the mean reserve method.
(2) Direct operating expenses are specifically identified and charged to product lines. Indirect
expenses are allocated based on time studies, however, other acceptable methods of allocation
might produce different results.
60
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number
--------
3 (i)(1) Restated Certificate of Incorporation of
Independence Holding Company.*
3 (i)(2) Certificate of Amendment of Restated Certificate
of Incorporation of Independence Holding Company.**
3 (ii) By-laws of Independence Holding Company.*
4 (i) Form of Warrant Certificate to purchase shares of
Common Stock of Independence Holding Company,
expiring June 30, 2001.*
10(iii)(A) Executive Compensation Plans and Agreements
(1) Independence Holding Company 1988 Stock
Incentive Plan***
(2) Form of Independence Holding Company
Stock Option Agreement****
(3) Deferred Compensation Agreement*****
(4) Retirement Benefit Agreements*****
11 Statement re: computation of per share earnings for
the years ended December 31, 1994, 1993 and 1992.
21 Principal subsidiaries of Independence Holding Company,
as of March 24, 1995.
23 Consent of KPMG Peat Marwick LLP.
*Such exhibits are incorporated by reference to the Report on Form
10-K for the fiscal year ended December 31, 1987, as amended, of
Independence Holding Company.
**Such exhibit is incorporated by reference to the Report on Form
10-K for the fiscal year ended December 31, 1990, as amended, of
Independence Holding Company.
***Such exhibit is incorporated by reference to the Proxy
Statement for the Annual Meeting of Stockholders held on May 25,
1988 of Independence Holding Company.
**** Such exhibit is incorporated by reference to the Report on
Form 10-K for the fiscal year ended December 31, 1988 of
Independence Holding Company.
***** Such exhibit is incorporated by reference to the Report on
Form 10-K for the fiscal year ended December 31, 1993 of
Independence Holding Company.
Exhibits will be furnished upon request for a reasonable fee.
61
INDEPENDENCE HOLDING COMPANY EXHIBIT 11
Computation of Per Share Earnings
(In Thousands, Except Per Share Amounts)
1994 1993 1992
------------------------------
Proceeds from assumed exercise
of stock warrants.........................$ 32,676 $ 42,294 $ 42,294
Proceeds from assumed exercise of stock
options................................... 133 125 150
Repurchase of treasury stock under
paragraph 38(a) of APB No. 15:
3,143,390, 3,229,642 and 3,514,702
shares at average market price of $3.07,
$2.81, and $1.83 respectively............. (9,650) (9,075) (6,432)
Assumed payment of debt outstanding........ (20,620) (7,927) (10,022)
------- ------- -------
Balance to be invested per paragraph 38(b)
of APB No. 15.............................$ 2,539 $ 25,417 $ 25,990
======= ======= =======
Income applicable to common and common
equivalent shares before cumulative
effect of accounting changes..............$ 4,235 $ 5,419 $ 3,139
Cumulative effect of accounting changes.... - (340) 1,199
------- ------- -------
Net income applicable to common and common
equivalent shares......................... 4,235 5,079 4,338
Add:
Pro-forma interest income................. 203 2,287 2,339
Pro-forma reduction of interest expense... 1,443 793 1,002
------- ------- -------
Adjusted net income.......................$ 5,881 $ 8,159 $ 7,679
======= ======= =======
Weighted average shares outstanding........ 15,717 16,148 17,574
------- ------- -------
Add:
Shares assumed issued for warrants........ 3,688 4,774 4,774
Shares assumed issued for options......... 37 32 49
Less:
Treasury stock purchased.................. (3,143) (3,230) (3,515)
------- ------- -------
Incremental shares issued.................. 582 1,576 1,308
------- ------- -------
Total common and common equivalent shares.. 16,299 17,724 18,882
======= ======= =======
Primary net income per common share before
cumulative effect of accounting changes...$ .27 $ .33 $ .18
Primary income per common share from
accounting changes........................ - (.02) .07
------- ------- -------
Primary net income per common share........$ .27 $ .31 $ .25
======= ======= =======
Primary net income per common and common
equivalent shares before cumulative
effect of accounting changes..............$ .36 $ .48 $ .35
Primary loss per common and common
equivalent shares from accounting changes. - (.02) .06
------- ------- -------
Primary net income per common and common
equivalent shares.........................$ .36 $ .46 $ .41
======= ======= =======
EXHIBIT 21
INDEPENDENCE HOLDING COMPANY
Subsidiaries as of March 24, 1995
---------------------------------
Subsidiary Jurisdiction
---------- ------------
The Madison Company Delaware
Independence Capital Group, Inc. Delaware
Independence Financial Services
Corp. Delaware
Madison National Life Insurance
Company, Inc. Wisconsin
Madison Investors Corporation Delaware
Standard Security Life Insurance
Company of New York New York
Standard Security Investors
Corp. New York
Standard Life Asset Management
Corp. New York
SSH Corp. Delaware
First Standard Security
Insurance Company Delaware
On-Line Brokerage, Inc. Delaware
Madison Standard Corp. Wisconsin
Zimmerman Holdings, Inc. Delaware
Zimmerman Sign Company Texas
Independence Land and Capital, Inc. Delaware
The Logan Group, Inc. Florida
R. H. Financial Corp. Delaware
Incopoint Limited Partnership Connecticut
IFS Corp. Delaware
G.P. Associates Holding Corp. Delaware
Standard Life Capital Corp. New York
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
INDEPENDENCE HOLDING COMPANY:
We consent to incorporation by reference in the registration
statement (No. 33-23302) on Form S-8 of Independence Holding
Company and subsidiaries of our report dated March 21, 1995,
relating to the consolidated balance sheets of Independence
Holding Company and subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1994, which report appears in
the 1994 annual report on Form 10-K of Independence Holding
Company and subsidiaries.
KPMG PEAT MARWICK LLP
New York, New York
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Independence Holding Company Form 10-K405 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000701869
<NAME> INDEPENDENCE HOLDING COMPANY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 129,817,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23,171,000
<MORTGAGE> 641,000
<REAL-ESTATE> 971,000
<TOTAL-INVEST> 166,973,000
<CASH> 37,862,000
<RECOVER-REINSURE> 39,336,000
<DEFERRED-ACQUISITION> 10,979,000
<TOTAL-ASSETS> 303,689,000
<POLICY-LOSSES> 99,711,000
<UNEARNED-PREMIUMS> 14,680,000
<POLICY-OTHER> 34,436,000
<POLICY-HOLDER-FUNDS> 2,161,000
<NOTES-PAYABLE> 0
<COMMON> 15,529,000
0
0
<OTHER-SE> 40,165,000
<TOTAL-LIABILITY-AND-EQUITY> 303,689,000
50,623,000
<INVESTMENT-INCOME> 10,828,000
<INVESTMENT-GAINS> 824,000
<OTHER-INCOME> (343,000)
<BENEFITS> 32,817,000
<UNDERWRITING-AMORTIZATION> 5,573,000
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4,631,000
<INCOME-TAX> 396,000
<INCOME-CONTINUING> 4,235,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,235,000
<EPS-PRIMARY> .27
<EPS-DILUTED> .36
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
