FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Period Ended: JUNE 30, 1996
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Commission File Number: 0-10306
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INDEPENDENCE HOLDING COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 58-1407235
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(State of Incorporation) (I.R.S. Employer Identification No.)
96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 358-8000
NOT APPLICABLE
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Former name, former address and fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days Yes x . No .
--- ---
7,431,748 SHARES OF COMMON STOCK, $1.00 PAR VALUE*
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Common Stock outstanding as of August 7, 1996
(Adjusted for the one-for-two reverse stock split of the Company's
shares of Common Stock effective June 28, 1996)
* Does not include 2,188,950 shares held by wholly owned
subsidiaries of the Registrant.
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Consolidated Balance Sheets -
June 30, 1996 (unaudited) and December 31, 1995. 2
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1996
and 1995 (unaudited)............................. 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996
and 1995 (unaudited)............................. 4
Notes to Consolidated Financial Statements
(unaudited)...................................... 5 - 11
Management's Discussion and Analysis of Results of
Operations and Financial Condition............... 12 - 19
PART II - OTHER INFORMATION
- ---------------------------
Item 4 - Submission of Matters to a Vote of
Security Holders................................. 20
Item 6 - Exhibits and Reports on Form 8-K......... 20
Signatures........................................ 21
<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET JUNE 30, DECEMBER 31,
1996 1995
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(UNAUDITED)
ASSETS:
Cash and cash equivalents........................$ 4,952,000 $ 26,860,000
Short-term investments........................... 9,347,000 7,376,000
Securities purchased under agreements to resell.. 19,835,000 5,195,000
Fixed maturities (Note 3)........................ 160,687,000 141,393,000
Equity securities (Note 3)....................... 8,449,000 6,490,000
Other investments................................ 25,367,000 25,413,000
Trade accounts, notes and other receivables...... 9,437,000 4,164,000
Deferred insurance acquisition costs............. 10,874,000 9,156,000
Property, plant and equipment, net............... 1,156,000 1,204,000
Due from reinsurers.............................. 38,721,000 44,588,000
Due from brokers................................. 5,543,000 1,706,000
Other assets..................................... 7,379,000 5,369,000
Net assets of discontinued operations (Note 2)... 8,253,000 7,293,000
----------- -----------
TOTAL ASSETS................................$310,000,000 $286,207,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Future policy benefits...........................$125,649,000 $103,872,000
Unearned premiums................................ 13,865,000 12,665,000
Funds on deposit................................. 42,592,000 34,463,000
Insurance policy claims.......................... 4,267,000 5,162,000
Other policyholders' funds....................... 2,255,000 2,071,000
Financial instruments sold, but not yet
purchased (Note 3).............................. 545,000 836,000
Due to brokers................................... 18,984,000 22,136,000
Due to reinsurers................................ 3,933,000 3,946,000
Accounts payable, accruals and other liabilities. 12,534,000 12,423,000
Income taxes, principally deferred (Note 6)...... 3,936,000 4,915,000
Long-term debt................................... 10,111,000 12,111,000
----------- -----------
TOTAL LIABILITIES............................ 238,671,000 214,600,000
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STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share
(15,000,000 shares authorized; 7,431,748
shares and 7,432,274 shares, respectively,
issued and outstanding, net of 2,188,950
shares in treasury).............................. 7,432,000 7,432,000
Paid-in capital.................................. 76,240,000 76,245,000
Unrealized gains (losses) on investments,
net of deferred taxes (tax benefits) of
$(461,000) and $321,000, respectively........... (3,637,000) 495,000
Accumulated deficit.............................. (8,706,000) (12,565,000)
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TOTAL STOCKHOLDERS' EQUITY................... 71,329,000 71,607,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...$310,000,000 $286,207,000
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
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REVENUES:
Insurance premiums....$ 17,095,000 $ 13,725,000 $ 33,548,000 $ 26,930,000
Net investment income. 5,012,000 3,397,000 8,705,000 6,671,000
Net realized and
unrealized gains
(losses)............. (828,000) 362,000 (661,000) (406,000)
Equity income (loss).. (21,000) (189,000) 76,000 (422,000)
Other income.......... 629,000 637,000 2,064,000 1,377,000
----------- ----------- ----------- -----------
21,887,000 17,932,000 43,732,000 34,150,000
----------- ----------- ----------- -----------
EXPENSES:
Insurance benefits,
claims and reserves.. 12,550,000 9,337,000 24,626,000 18,849,000
Amortization of
deferred insurance
acquisition costs.... 1,150,000 989,000 2,222,000 2,060,000
Interest expense...... 230,000 285,000 465,000 559,000
Selling, general and
administrative
expenses............. 6,835,000 6,443,000 13,919,000 12,188,000
----------- ----------- ----------- -----------
20,765,000 17,054,000 41,232,000 33,656,000
----------- ----------- ----------- -----------
Operating income
before income taxes... 1,122,000 878,000 2,500,000 494,000
Income tax benefit..... (347,000) (383,000) (332,000) (916,000)
----------- ----------- ----------- -----------
Income from continuing
operations, net....... 1,469,000 1,261,000 2,832,000 1,410,000
Income from discontinued
operations, net....... 596,000 528,000 1,027,000 1,116,000
----------- ----------- ----------- -----------
Net income.............$ 2,065,000 $ 1,789,000 $ 3,859,000 $ 2,526,000
=========== =========== =========== ===========
INCOME PER COMMON SHARE:
Income from continuing
operations............$ .20 $ .16 $ .38 $ .18
Income from discontinued
operations, net....... .08 .07 .14 .15
----------- ----------- ----------- -----------
Net income.............$ .28 $ .23 $ .52 $ .33
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.... 7,499,000 7,674,000 7,483,000 7,710,000
=========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements.
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INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................$ 3,859,000 $ 2,526,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Amortization of deferred insurance acquisition
costs.......................................... 2,222,000 2,060,000
Realized losses (gains) on sales of
investment securities.......................... 133,000 791,000
Unrealized gains on trading securities.......... 528,000 (385,000)
Equity loss (income)............................ (76,000) 422,000
Depreciation.................................... 144,000 139,000
Deferred taxes (tax benefits)................... (135,000) (1,280,000)
Income tax benefit credited to paid-in capital.. - 599,000
Income from discontinued operations, net........ (1,027,000) (1,116,000)
Other........................................... 12,000 118,000
Change in assets and liabilities:
Net purchases of trading securities............. (390,000) (120,000)
Increase (decrease) in future insurance policy
benefits, claims and other policy liabilities... 31,261,000 5,974,000
Additions to deferred insurance acquisition
costs.......................................... (3,940,000) (809,000)
Change in net amounts due from and to reinsurers 5,853,000 (4,847,000)
Change in income tax liability.................. (62,000) (411,000)
Other........................................... (1,139,000) (518,000)
----------- -----------
Net cash provided by operating activities.. 37,243,000 3,143,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Change in net amount due from and to brokers.... (6,989,000) (2,608,000)
Sales and maturities of short-term investments.. 13,309,000 370,000
Purchases of short-term investments............. (15,276,000) (7,152,000)
Net purchases of resale and repurchase
agreements..................................... (14,641,000) 1,818,000
Sales of equity securities...................... 11,962,000 48,329,000
Purchases of equity securities.................. (13,327,000) (50,503,000)
Sales and maturities of fixed maturities........ 93,844,000 157,393,000
Purchases of fixed maturities...................(119,278,000) (154,470,000)
Proceeds on sale of other investments........... 3,200,000 2,400,000
Other investments, net.......................... (8,341,000) (3,255,000)
Discontinued operations, net.................... 68,000 807,000
Other........................................... (514,000) (665,000)
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Net cash used by investing activities...... (55,983,000) (7,536,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock and warrants......... (5,000) (694,000)
Payments of investment-type insurance contracts. (866,000) (866,000)
Repayment of long-term debt..................... (2,000,000) (750,000)
Dividends paid.................................. (297,000) (311,000)
----------- -----------
Net cash used by financing activities...... (3,168,000) (2,621,000)
----------- -----------
Decrease in cash and cash equivalents............ (21,908,000) (7,014,000)
Cash and cash equivalents, beginning of year..... 26,860,000 20,670,000
----------- -----------
Cash and cash equivalents, end of period.........$ 4,952,000 $ 13,656,000
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
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NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) BUSINESS AND ORGANIZATION
Independence Holding Company and subsidiaries (the "Company"
or "IHC") is a financial services company engaged primarily in
insurance activities through its wholly-owned subsidiaries,
Standard Security Life Insurance Company of New York ("Standard
Life"), Madison National Life Insurance Company, Inc. ("Madison
Life") and First Standard Security Insurance Company ("First
Standard") and their affiliates (the "Insurance Group").
IHC is also engaged in sign manufacturing through its
majority-owned subsidiary, Zimmerman Sign Company ("Zimmerman").
The Company intends, however, to reposition itself exclusively as
a financial services company. In that regard, the Company is
continuing to consider various alternative transactions which would
result in the divestiture or significant reduction of the Company's
investment in Zimmerman, although there can be no assurance that
any such transactions would be consummated. The Consolidated
Financial Statements of IHC and notes thereto have been restated to
present Zimmerman as discontinued operations.
Geneve Corporation, a diversified financial holding company,
and its affiliated entities ("Geneve") hold approximately 55% of
IHC's outstanding common stock.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in
accordance with the requirements for quarterly reports on Form 10-
Q. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) that are necessary for a fair
presentation of the consolidated results of operations for the
interim periods have been included. The consolidated results of
operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be anticipated for the
entire year. The consolidated financial statements should be read
in conjunction with the consolidated financial statements and the
notes included in IHC's Annual Report on Form 10-K for the year
ended December 31, 1995.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect: (i) the reported
amounts of assets and liabilities, (ii) the disclosure of
contingent assets and liabilities at the date of the financial
statements and (iii) the reported amounts of revenues and expenses
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(CONTINUED)
during the reporting period. Actual results could differ from
those estimates. Certain amounts in prior year's consolidated
financial statements and notes thereto have been restated to
conform to the 1996 presentation.
(C) ONE-FOR-TWO REVERSE STOCK SPLIT
A one-for-two reverse stock split of the Company's shares of
Common Stock became effective on June 28, 1996; accordingly, common
shares outstanding and per share calculations have been restated
for prior periods.
NOTE 2. DISCONTINUED OPERATIONS
Although IHC is engaged in sign manufacturing through
Zimmerman, the Company intends to reposition itself exclusively as
a financial services company engaged principally in insurance
activities. In that regard, the Company is continuing to consider
various alternative transactions which would result in the
divestiture or significant reduction of the Company's investment in
Zimmerman, although there can be no assurance that any such
transactions would be consummated.
Since Zimmerman has historically comprised all of IHC's
manufacturing segment, the Consolidated Financial Statements and
notes thereto of IHC have been restated to present Zimmerman as
discontinued operations.
The net assets of Zimmerman have been reclassified in the
Consolidated Balance Sheets as follows:
JUNE 30, DECEMBER 31,
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
Accounts receivable.............. $ 9,453 $ 9,284
Inventories...................... 13,782 12,659
Other assets..................... 4,094 3,938
Accounts payable and
liabilities including
minority interest............... (9,212) (8,899)
Long-term debt................... (9,864) (9,689)
------ ------
Net assets of discontinued
operations...................... $ 8,253 $ 7,293
====== ======
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
NOTE 2. DISCONTINUED OPERATIONS (CONTINUED)
Income from discontinued operations for the three months and
six months ended June 30, 1996 and 1995 is summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------------ ----------------
(DOLLARS IN THOUSANDS)
Revenues............$ 10,456 $ 9,917 $ 20,619 $ 20,068
======= ======= ======= =======
Operating income
from discontinued
operations, net of
minority interest..$ 971 $ 852 $ 1,669 $ 1,799
Income taxes........ 375 324 642 683
------- ------- ------- -------
Net income from
discontinued
operations, net of
minority interest..$ 596 $ 528 $ 1,027 $ 1,116
======= ======= ======= =======
Zimmerman is included in the consolidated federal income tax
return filed by IHC. On a separate company basis, Zimmerman has a
tax sharing agreement with IHC; accordingly, discontinued
operations are shown net of applicable taxes in accordance with
such agreement.
NOTE 3. INVESTMENT SECURITIES
The cost (amortized cost with respect to certain fixed income
securities) and market value of IHC's investment securities as of
June 30, 1996 and December 31, 1995 are as follows:
JUNE 30, 1996
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities......$ 27,117 $ 129 $ (1,569) $ 25,677
U.S. Government and
agencies obligations..... 29,580 57 (1,170) 28,467
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
JUNE 30, 1996
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
Government National
Mortgage Association..... 106,330 1 (1,856) 104,475
Obligations of states and
political subdivisions.. 1,619 36 (87) 1,568
------- ------- -------- -------
164,646 223 (4,682) 160,187
------- ------- -------- -------
TRADING:
U.S. Government and
agencies obligations.... 499 1 - 500
------- ------- -------- -------
Total fixed maturities $165,145 $ 224 $ (4,682) $160,687
======= ======= ======== =======
EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stock..............$ 3,951 $ 234 $ (133) $ 4,052
Options................... 346 183 (62) 467
Preferred stock........... 3,045 199 (61) 3,183
------- ------- -------- -------
7,342 616 (256) 7,702
------- ------- -------- -------
TRADING:
Common stock.............. 573 - (164) 409
Preferred stock........... 352 - (14) 338
925 - (178) 747
------- ------- ------- -------
Total equity securities $ 8,267 $ 616 $ (434) $ 8,449
======= ======= ======= =======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
TRADING:
Common stock...............$ (410) $ 11 $ - $ (399)
Options.................... (312) 166 - (146)
------- ------- ------- -------
Total financial instruments
sold, but not yet
purchased..................$ (722) $ 177 $ - $ (545)
======= ======= ======= =======
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
DECEMBER 31, 1995
--------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------
(DOLLARS IN THOUSANDS)
FIXED MATURITIES
- ----------------
AVAILABLE-FOR-SALE:
Corporate securities.......$ 28,805 $ 448 $ (767) $ 28,486
U.S. Government and
agencies obligations...... 43,496 941 (6) 44,431
Government National
Mortgage Association...... 66,361 496 (5) 66,852
Obligations of states and
political subdivisions.... 1,620 44 (40) 1,624
------- ------ ------- -------
Total fixed maturities $140,282 $ 1,929 $ (818) $141,393
======= ====== ======= =======
EQUITY SECURITIES
AVAILABLE-FOR-SALE:
Common stock................$ 988 $ 6 $ (235) $ 759
Preferred stock............. 4,516 150 (97) 4,569
------- ------ ------- -------
5,504 156 (332) 5,328
------- ------ ------- -------
TRADING:
Common stock................ 1,137 4 (130) 1,011
Preferred stock............. 151 - - 151
------- ------ ------- -------
1,288 4 (130) 1,162
------- ------ ------- -------
Total equity securities $ 6,792 $ 160 $ (462) $ 6,490
======= ====== ======= =======
FINANCIAL INSTRUMENTS SOLD,
BUT NOT YET PURCHASED
TRADING:
Common stock...............$ (752) $ 36 $ (119) $ (835)
Options.................... (2) 1 - (1)
------- ------ ------- -------
Total financial instruments
sold, but not yet
purchased...................$ (754) $ 37 $ (119) $ (836)
======= ====== ======= =======
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and market value of fixed maturities at
June 30, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
JUNE 30, 1996
----------------------
AMORTIZED MARKET
COST VALUE
--------- -------
(DOLLARS IN THOUSANDS)
Due in one year or less................$ - $ -
Due after one year through
five years............................ 4,579 4,534
Due after five years through
ten years............................. 29,224 27,927
Due after ten years.................... 25,012 23,751
------- -------
58,815 56,212
Government National
Mortgage Association.................. 106,330 104,475
------- -------
Totals.................................$165,145 $160,687
======= =======
NOTE 4. OTHER INVESTMENTS
At June 30, 1996, the Company had an investment of $7,221,000
in a limited partnership which invests in relatively "market
neutral" strategies, such as risk arbitrage, convertible arbitrage
and distressed situations. The condensed statement of operations
for the limited partnership is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
----------------------------------------
(DOLLARS IN THOUSANDS)
Revenues............$ 2,253 $ (59) $ 3,631 $ 134
Net income (loss)...$ 1,733 $ (65) $ 3,104 $ 122
IHC's share of net
income (loss)......$ 703 $ (30) $ 1,210 $ 53
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<PAGE>
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 5. INCOME PER SHARE
The computations of income per share were based upon the
weighted average number of common and dilutive common equivalent
shares outstanding of approximately 7,499,000 and 7,674,000 for the
three months ended June 30, 1996 and 1995, respectively, and
7,483,000 and 7,710,000 for the six months ended June 30, 1996 and
1995 respectively (see Note 1c). Dilutive common equivalent shares
include 67,000 and 3,000 for the three months ended June 30, 1996
and 1995, respectively, and 51,000 and 3,000 for the six months
ended June 30, 1996 and 1995, respectively, from the assumed
exercise of options using the treasury stock method. Fully diluted
earnings per share is not shown as the assumed exercise of all
other stock options and warrants is anti-dilutive.
NOTE 6. INCOME TAXES
The provision for income taxes shown in the consolidated
statements of operations was computed based on the Company's
estimate of the effective tax rates expected to be applicable for
the current year, including the expected tax impact of the
life/nonlife consolidation and discontinued operations.
Federal income tax benefits amounting to $599,000 for the six
months ended June 30, 1995, resulting from the utilization of net
operating loss carryforwards existing at December 31, 1980 (the
date of quasi-reorganization of IHC), were credited to paid-in
capital. There are no remaining Federal income tax benefits to be
credited to paid-in capital for net operating loss carryforwards in
1996.
NOTE 7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
JUNE 30,
1996 1995
----------------------
(DOLLARS IN THOUSANDS)
Cash payments for:
Interest.....................$ 413 $ 555
Income taxes.................$ 539 $ 866
- 11 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
------------------------------------------------
Independence Holding Company and subsidiaries (the "Company"
or "IHC") consists of one continuing operating segment: the
Insurance Group. This segment is composed of IHC's wholly-owned
subsidiaries, Standard Security Life Insurance Company of New York
("Standard Life"), Madison National Life Insurance Company, Inc.
("Madison Life") and First Standard Security Insurance Company
("First Standard") and their affiliates. 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.
IHC is also engaged in sign manufacturing through its
majority-owned subsidiary, Zimmerman Sign Company ("Zimmerman").
The Company intends, however, to reposition itself exclusively as
a financial services company engaged principally in insurance
activities. In that regard, the Company is continuing to consider
various alternative transactions which would result in the
divestiture or significant reduction of the Company's investment in
Zimmerman, although there can be no assurance that any such
transactions would be consummated. The Consolidated Financial
Statements of IHC have been restated to present Zimmerman as
discontinued operations (see Note 2 of Notes to Consolidated
Financial Statements).
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
- -------------------------------------------------------------------
The Company's net income applicable to common shares was $2.1
million or $.28 per share for the period ended June 30, 1996 versus
$1.8 million or $.23 per share for the comparable period of 1995.
Operating income before income taxes from continuing operations
increased to $1.1 million in the second quarter of 1996 from $.9
million in the second quarter of 1995. The Company had net
realized and unrealized losses of $.8 million in the second quarter
of 1996, as compared to gains of $.4 million for the second quarter
of 1995. Excluding net realized and unrealized gains, the Company
had operating income from continuing operations of $1.9 million in
the second quarter of 1996 as compared to $.5 million for the same
period of 1995. Income from discontinued operations, net was $.6
million for the three months ended June 30, 1996 versus $.5 million
for the comparable period of 1995. Operating income before income
taxes from discontinued operations was $1.0 million for the three
months ended June 30, 1996 as compared to $.9 million for the same
period in 1995.
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<PAGE>
INSURANCE GROUP
- ---------------
Standard Life's core businesses are: (i) underwriting specific
and aggregate excess medical insurance coverage ("stop loss") sold
to employers that self-insure their employees' health benefits and
(ii) short-term statutory disability benefits law business in New
York ("DBL"). Standard Life also markets group life insurance to
employers who self insure or enroll in health maintenance
organizations ("HMO's"). Standard Life has developed ancillary
products, including reinsurance on, and risk-sharing and other
alliances with, HMO's and provider health care organizations that
desire to reduce their risk assumption and/or are required to
purchase this coverage by regulation; point-of-service ("POS")
insurance coverage sold to employers who are participating in an
HMO health benefit plan and want to purchase a health insurance
product that will provide their employees with a choice of
providers; a behavioral health carve-out POS policy that is sold to
employers that wish to provide a supplemental mental health
insurance product to their employees; and reinsurance coverage for
life and health insurance sold in South and Central America. In
addition, Standard Life has existing business in-force in the
following lines of business which are in runoff: individual
accident and health, individual life, single premium immediate
annuities, and miscellaneous insurance business. Standard Life
also actively seeks opportunities to enter into cooperative
underwriting and reinsurance arrangements with other life and
health insurers, reinsurers, HMO's and managed care companies, that
it believes would augment its existing businesses. Standard Life
also performs auditing and marketing services in connection with
its stop loss business.
During the second quarter of 1996, Madison Life's rating from
A.M. Best & Company, Inc. was upgraded to B++ (Very Good). Madison
Life markets group long-term and short-term disability and group
life products as well as credit life and credit disability
products. The group long-term and short-term disability and group
life products are marketed to school districts, municipalities and
hospitals, primarily in the Midwest. This business is sold through
two marketing agencies that specialize in these target markets and
assist in the billing and administration of the business.
Approximately 85% of the credit insurance premiums are written
through credit unions. Other sources of credit insurance premiums
include automobile dealers, banks and finance companies. Its
existing blocks of individual ordinary life, individual accident
and health, and annual and single premium deferred annuity business
are in runoff. 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 May 1996, Madison
Life acquired, effective January 1, 1996, a block of pre-need
individual ordinary life insurance and annuity policies with
reserves of approximately $33 million. Madison Life, through an
investment subsidiary, has also entered into several joint venture
- 13 -
<PAGE>
investments involved in managed health care activities, including
provider excess reinsurance, development and management of provider
sponsored health plans and reinsurance of life and health
insurance.
The Insurance Group had operating income of $1.9 million for
the three months ended June 30, 1996 versus $1.6 million for the
three months ended June 30, 1995. Operating income includes net
realized and unrealized losses of $.8 million for the quarter ended
June 30, 1996 compared to $.4 million of gains for the comparable
quarter of 1995. Decisions to sell securities are based on cash
flow needs, investment opportunities, and economic and market
conditions thus creating fluctuations in gains from one year to the
next. Operating income excluding net realized and unrealized gains
was $2.7 million for the second quarter of 1996 as compared to $1.2
million for the second quarter of 1995. Premium revenues increased
$3.4 million or 24.6% from the second quarter of 1995 to the second
quarter of 1996; premium revenues at Madison Life increased $1.2
million from 1995 to 1996 while Standard Life had a $2.2 million
increase in premiums. The increase at Madison Life is comprised of:
a $.6 million increase in the credit lines of business primarily
due to new accounts added during the 1996 quarter, a $.2 million
increase in long-term disability premiums, and a $.4 million
increase in ordinary life and individual accident and health lines
of business primarily from the acquisition of the pre-need block of
business purchased in May 1996. The increase at Standard Life is
comprised of: a $2.0 million increase in stop loss premiums
reflecting increased retention along with the continued growth in
this line of business, $.5 million from a new POS product, and $.3
million from a new HMO reinsurance product, offset by a $.3 million
decrease in the group accident and health pool assumed and a $.3
million decrease due to the continuing runoff of the closed blocks
of life, annuity and individual and group accident and health lines
of business. Total investment income increased $1.5 million due to
a realignment of the securities portfolio, higher returns on
certain equity investments, and $.7 million of investment income
received from the transfer of assets for the pre-need block of
business at Madison Life. After adjusting for the transfer of such
assets effective January 1, 1996, the annualized return on
investments in the second quarter of 1996 was 8.0% compared to 7.3%
in the second quarter of 1995. Equity income increased $.2 million
due to a reduction in expenses sustained from certain start-up
insurance related partnerships in 1995. Other income remained
steady.
Insurance benefits, claims and reserves increased $3.2 million
reflecting an increase of $1.8 million at Madison Life and $1.4
million at Standard Life. Madison Life's increase is a result of
the following: a $1.0 million increase in ordinary life and
individual accident and health claims and reserves primarily due to
the acquisition of the pre-need block of business, a $.2 million
increase in long-term disability claims, a $.1 million increase in
surrenders on life insurance policies, and a $.5 million increase
in the credit line of business due to new accounts. The increase at
- 14 -
<PAGE>
Standard Life is comprised of: $1.3 million in stop loss claims
incurred as a result of the increased retention in this line of
business, additional claims and reserves of $.4 million relating to
a new POS product, and $.2 million relating to a new HMO
reinsurance product offset by a $.5 million decrease due to the
continuing runoff of the closed blocks of life, annuity and
individual and group accident and health lines of business.
Amortization of deferred acquisition costs and general and
administrative expenses for the Insurance Group increased $.4
million; Madison Life's expenses remained steady and Standard
Life's expenses increased $.4 million. Standard Life's expenses
increased due to a $.2 million increase in commissions due to the
growth of business, and a $.2 million increase in general expenses
due to administrative fees associated with the higher retention of
the stop loss business.
CORPORATE
- ---------
Operating losses for the three months ended June 30, 1996
amounted to $.8 million, compared to operating losses of $.7
million for the same period of 1995. Investment income increased
$.1 million from 1995. Other income and interest expense remained
steady. Selling, general and administrative expenses increased $.2
million.
DISCONTINUED OPERATIONS
- -----------------------
Operating income of Zimmerman was $1.0 million for the three
months ended June 30, 1996 versus $.9 million for the comparable
period of 1995. Sales and cost of sales increased $.5 million.
Gross profit margins were 23.3% for the three months ended June 30,
1996 as compared to 24.3% for the comparable period of 1995.
Interest expense remained constant. Selling, general and
administrative expenses decreased $.1 million.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE
30, 1995
- ----------------------------------------------------------------
The Company's net income applicable to common shares was $3.9
million or $.52 per share for the six months ended June 30, 1996
versus $2.5 million or $.33 per share for the comparable period of
1995. Operating income from continuing operations increased to
$2.5 million in the period ended June 30, 1996 from $.5 million in
the period ended June 30, 1995. The Company had net realized and
unrealized losses of $.7 million for the six months ended June 30,
1996, as compared to losses of $.4 million for the six months ended
June 30, 1995. Excluding net realized and unrealized gains, the
Company had operating income from continuing operations of $3.2
million in the first six months of 1996 as compared to $.9 million
for the same period of 1995. Income from discontinued operations,
net was $1.0 million for the six months ended June 30, 1996 versus
$1.1 million for the same period of 1995. Operating income before
- 15 -
<PAGE>
income taxes from discontinued operations was $1.7 million for the
six months ended June 30, 1996 as compared to $1.8 million for the
same period of 1995.
INSURANCE GROUP
- ---------------
The Insurance Group had operating income of $4.1 million for
the six months ended June 30, 1996 versus $2.2 million for the six
months ended June 30, 1995. Operating income includes net realized
and unrealized losses of $.7 million for the six months ended June
30, 1996 compared to $.4 million of losses for the same period of
1995. Operating income excluding net realized and unrealized gains
was $4.8 million for the six months of 1996 as compared to $2.6
million for the six months of 1995. Premium revenues increased
$6.6 million or 24.6% from 1995 to 1996; premium revenues at
Madison Life increased $1.2 million while Standard Life had a $5.4
million increase in premiums. The increase at Madison Life is
comprised of: a $.3 million increase in the credit lines of
business primarily due to new accounts added during the 1996
quarter, a $.3 million increase in long-term disability premiums,
a $.3 million increase in ordinary life and individual accident and
health line of business primarily from the acquisition of the pre-
need block of business purchased in May 1996 and a $.3 million
increase in other life and health lines of business. The increase
at Standard Life is comprised of: a $4.0 million increase in stop
loss premiums reflecting increased retention along with the
continued growth in this line of business, $1.0 million from a new
POS product, $.9 million from a new HMO reinsurance product, and a
$.1 million increase in a group accident and health pool assumed,
offset by a $.6 million decrease due to the continuing runoff of
the closed blocks of life, annuity and individual and group
accident and health lines of business. Total investment income
increased $1.8 million due to a realignment of the securities
portfolio, higher returns on certain equity investments, and $.7
million of investment income received from the transfer of assets
for the pre-need block of business at Madison Life. After
adjusting for the transfer of such assets effective January 1,
1996, the annualized return on investments in the first six months
of 1996 was 7.8% compared to 7.2% for the six months of 1995.
Equity income increased $.5 million due to a reduction in expenses
sustained from certain start-up insurance related partnerships in
1995. Other income increased $.6 million from 1995 to 1996
resulting from an increase in reinsurance recoveries at Madison
Life and an increase in stop loss fees earned at Standard Life.
Insurance benefits, claims and reserves increased $5.7 million
reflecting an increase of $1.9 million at Madison Life and $3.8
million at Standard Life. Madison Life's increase is a result of
the following: a $.9 million increase in ordinary life and
individual accident and health claims and reserves primarily due to
the acquisition of the pre-need block of business, a $.2 million
increase in long-term disability claims, a $.2 million increase in
group term life claims, a $.3 million increase in claims and
- 16 -
<PAGE>
reserves in other life and health lines of business, a $.2 increase
in interest credited to annuities, and a $.1 million increase in
the credit line of business due to new accounts. The increase at
Standard Life is comprised of: $2.7 million increase in stop loss
claims incurred as a result of the increased retention in this line
of business, additional reserves of $.8 million relating to a new
POS product, a $.6 million increase in claims and reserves from a
new HMO reinsurance product and $.4 million relating to the assumed
block of group accident and health line of business. These
increases at Standard Life were offset by a $.7 million decrease in
claims and reserves due to the continuing runoff of the closed
blocks of life, annuity and individual and group accident and
health lines of business. Amortization of deferred acquisition
costs and general and administrative expenses for the Insurance
Group increased $1.6 million; Madison Life's expenses decreased $.2
million and Standard Life's expenses increased $1.8 million.
Standard Life's expenses increased due to a $.6 million increase in
commissions due to the growth of business, a $.3 million increase
in amortization of deferred acquisition costs and a $.9 million
increase in general expenses due to administrative fees associated
with the higher retention of the stop loss business and an increase
in salary and consulting expenses.
CORPORATE
- ---------
Operating losses for the six months ended June 30, 1996
amounted to $1.6 million, compared to operating losses of $1.7
million for the same period of 1995. Investment income increased
$.2 million from 1995. Interest expense decreased $.1 million and
selling, general and administrative expenses increased $.2 million.
DISCONTINUED OPERATIONS
- -----------------------
Operating income of Zimmerman was $1.7 million for the six
months ended June 30, 1996 versus $1.8 million for the comparable
period of 1995. Sales and cost of sales increased $.6 million.
Gross profit margins were 23.0% for the six months ended June 30,
1996 as compared to 23.8% for the comparable period of 1995.
Interest expense remained constant. Selling, general and
administrative expenses increased $.1 million.
LIQUIDITY
---------
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
- 17 -
<PAGE>
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 83.6% was
invested in investment grade fixed income securities, resale
agreements and cash and cash equivalents at June 30, 1996. These
investments carry less risk of default and therefore lower interest
rates than other types of fixed maturity investments. At June 30,
1996, approximately 3.3% of the carrying value of investable assets
was invested in diversified non-investment grade fixed income
securities (investments in such securities have different risks
than investment grade securities, including greater risk of loss
upon default, and thinner trading markets). The Company monitors
its investment portfolio on a continuous basis and believes the
liquidity of the Insurance Group will not be adversely affected by
its current investments.
CORPORATE
- ---------
Corporate derives its funds principally from (i) dividends and
interest income from its Insurance Group and Zimmerman, (ii) tax
payments and management fees from its subsidiaries and (iii)
investment income from Corporate liquidity.
Regulatory constraints have historically not affected IHC's
consolidated liquidity, although state insurance laws have
provisions relating to the ability of the parent company to use
cash generated by the Insurance Group to fund operating expenses,
interest and dividend payments at Corporate.
Total corporate liquidity (cash, cash equivalents, resale
agreements and marketable securities) amounted to $11.2 million at
June 30, 1996. At the present time, the Company is not in need of
any additional long-term financing.
DISCONTINUED OPERATIONS
- -----------------------
For the first six months of 1996, $.2 million of cash was
provided by Zimmerman's operations. Cash of $.4 million was used
to purchase property and equipment. Zimmerman has a $10.0 million
bank line of credit of which $9.0 million was outstanding at June
30, 1996. The Company believes that Zimmerman has sufficient funds
to meet its obligations.
CAPITAL RESOURCES
-----------------
Due to its superior capital ratios, broad licensing and
excellent asset quality and credit-worthiness, the Insurance Group
remains well positioned to increase or diversify its current
activities, and to raise additional capital in the public or
- 18 -
<PAGE>
private markets to the extent determined to be necessary or
desirable, in order to pursue acquisition opportunities or
otherwise expand its operations.
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, the Company may carry its portfolio of fixed
income securities either as held to maturity (carried at amortized
cost), as trading securities (carried at fair market value) or as
available-for-sale (carried at fair market value); the Company has
chosen to carry substantially all of its debt securities as
available-for-sale. Primarily as a result of the increase in
interest rates in the first six months of 1996, the Company
recorded an unrealized loss of $4.1 million, net of deferred tax
benefits of $.8 million, in total stockholders' equity; the
foregoing reflects unrealized gains, net of taxes, of $.5 million
at December 31, 1995 and $3.6 million of losses at June 30, 1996.
The Company continues to employ investment strategies to mitigate
interest rate and other market exposures.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation"
which is effective for fiscal years beginning after December 15,
1995. SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans, and allows
either expensing the value of stock-based compensation over the
period earned, or disclosing in the Notes to the Consolidated
Financial Statements the pro forma impact to net income and
earnings per share as if the fair value of the awards had been
charged to compensation expense. The Company has decided to adopt
the disclosure provisions of the Statement.
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." The requirements of
SFAS No. 125 would be effective for transfers of financial assets
and extinguishments of liabilities occurring after December 31,
1996, and are to be applied prospectively. Earlier or retroactive
application is not permitted. The Company is currently evaluating
the impact of this Statement.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At its Annual Meeting of Stockholders held on June 27,
1996, the following eight nominees were re-elected for one-
year terms on the Board of Directors:
Harold E. Johnson, Allan C. Kirkman, Steven B. Lapin,
Donald T. Netter, Edward Netter, Edward J. Scheider,
Roy T.K. Thung and F. Peter Zoch, III
The vote on the election of the above nominees was:
For At least 11,263,781 shares
Withheld No more than 127,549 shares
There were 1,300 broker nonvotes.
In addition, at such meeting, a one-for-two reverse split
of the Company's shares of Common Stock was approved by a vote
of 9,744,545 shares for, 44,154 shares against, and 12,224
shares abstaining. There were 1,591,707 broker nonvotes.
Also at such meeting, the appointment of KPMG Peat
Marwick LLP as independent auditors for 1996 was ratified by
a vote of 11,366,320 shares for, 15,899 shares against, and
9,111 shares abstaining. There were 1,300 broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) 1) Exhibit 3(i). Restated Certificate of
Incorporation.
2) Exhibit 11. Statement re: computation of per
share earnings.
3) Exhibit 27. Financial Data Schedule.
b) No report on Form 8-K was filed during the quarter ended
June 30, 1996.
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INDEPENDENCE HOLDING COMPANY
----------------------------
(THE REGISTRANT)
Dated: August 12, 1996 By: /s/Roy T.K. Thung
-------------------------
Roy T. K. Thung
Executive Vice President,
Chief Financial Officer
and Treasurer
Dated: August 12, 1996 By: /s/Teresa A. Herbert
--------------------------
Teresa A. Herbert
Vice President and
Controller
- 21 -
EXHIBIT 11
INDEPENDENCE HOLDING COMPANY
Computation of Per Share Earnings
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------------------- --------------------
PRIMARY EARNINGS PER SHARE
INCOME:
Income from continuing
operations..................$ 1,469 $ 1,261 $ 2,832 $ 1,410
Income from discontinued
operations, net............. 596 528 1,027 1,116
-------- -------- -------- --------
Net income...................$ 2,065 $ 1,789 $ 3,859 $ 2,526
======== ======== ======== ========
SHARES:
Weighted average common
shares outstanding.......... 7,432 7,671 7,432 7,707
Shares assumed issued
for options................. 67 3 51 3
-------- -------- -------- --------
Average common and common
equivalents shares
outstanding.................. 7,499 7,674 7,483 7,710
======== ======== ======== ========
INCOME PER SHARE:
Primary income per share from
continuing operations.......$ .20 $ .16 $ .38 $ .18
Primary income per share from
discontinued operations..... .08 .07 .14 .15
-------- -------- -------- --------
Primary net income per share.$ .28 $ .23 $ .52 $ .33
======== ======== ======== ========
(CONTINUED)
<PAGE>
EXHIBIT 11
(CONTINUED)
INDEPENDENCE HOLDING COMPANY
Computation of Per Share Earnings
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------------------- --------------------
FULLY DILUTED EARNINGS
PER SHARE (A)
USE OF PROCEEDS:
Assumed exercise of warrants.$ 32,182 $ 32,182 $ 32,182 $ 32,182
Assumed exercise of options.. 2,387 1,521 2,387 1,521
Repurchase of treasury stock at
average market price of $8.75,
$6.40, $8.21, and $6.30,
respectively................ (13,006) (9,819) (12,203) (9,711)
Assumed payment of debt
outstanding................. (12,736) (13,486) (12,527) (13,694)
-------- -------- -------- --------
Assumed balance to be
invested....................$ 8,827 $ 10,398 $ 9,839 $ 10,298
======== ======== ======== ========
INCOME:
Net income from continuing
operations..................$ 1,469 $ 1,261 $ 2,832 $ 1,410
Pro-forma interest income... 166 208 369 412
Pro-forma reduction of
interest expense........... 239 270 470 548
-------- -------- -------- --------
Adjusted net income from
continuing operations....... 1,874 1,739 3,671 2,370
Income from discontinued
operations, net............. 596 528 1,027 1,116
-------- -------- -------- --------
Adjusted net income..........$ 2,470 $ 2,267 $ 4,698 $ 3,486
======== ======== ======== ========
SHARES:
Weighted average shares
outstanding................. 7,432 7,671 7,432 7,707
Shares assumed issued
for warrants................ 1,816 1,817 1,816 1,817
Shares assumed issued
for options................. 336 227 336 228
Treasury stock assumed
purchased................... (1,486) (1,534) (1,486) (1,542)
-------- ------- ------- -------
Adjusted average shares
outstanding................. 8,098 8,181 8,098 8,210
======== ======= ======= =======
INCOME PER SHARE:
Fully diluted income per
share from continuing
operations..................$ .24 $ .21 $ .45 $ .28
Fully diluted income per
share from discontinued
operations.................. .07 .07 .13 .14
-------- -------- -------- --------
Fully diluted net income
per share...................$ .31 $ .28 $ .58 $ .42
======== ======== ======== ========
(A) The fully diluted earnings per share calculation, utilizing
the treasury stock method as prescribed by paragraphs 38(a)
and 38(b) of APB No. 15, is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Independence Holding Company Form 10-Q for the quarter period ended June 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000701869
<NAME> INDEPENDENCE HOLDING COMPANY
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 6-MOS 3-MOS 6-MOS YEAR
YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1995 DEC-31-1995
DEC-31-1994
<PERIOD-END> JUN-30-1996 MAR-31-1996 JUN-30-1995 DEC-31-1995
DEC-31-1994
<DEBT-HELD-FOR-SALE> 160,187,000 155,064,000 133,729,000 141,393,000
129,817,000
<DEBT-CARRYING-VALUE> 0 0 0 0
0
<DEBT-MARKET-VALUE> 500,000 0 0 0
0
<EQUITIES> 8,449,000 8,799,000 11,704,000 6,490,000
6,383,000
<MORTGAGE> 402,000 416,000 492,000 441,000
641,000
<REAL-ESTATE> 929,000 929,000 929,000 929,000
971,000
<TOTAL-INVEST> 223,140,000 208,352,000 190,173,000 185,031,000
178,285,000
<CASH> 4,952,000 6,637,000 13,656,000 26,860,000
20,670,000
<RECOVER-REINSURE> 38,721,000 40,164,000 44,169,000 44,588,000
39,336,000
<DEFERRED-ACQUISITION> 10,874,000 8,532,000 9,728,000 9,156,000
10,979,000
<TOTAL-ASSETS> 310,000,000 284,686,000 285,237,000 286,207,000
266,368,000
<POLICY-LOSSES> 129,916,000 107,227,000 104,788,000 109,034,000
99,711,000
<UNEARNED-PREMIUMS> 13,865,000 14,100,000 14,725,000 12,665,000
14,680,000
<POLICY-OTHER> 42,592,000 34,939,000 34,465,000 34,463,000
34,436,000
<POLICY-HOLDER-FUNDS> 2,255,000 2,216,000 2,118,000 2,071,000
2,161,000
<NOTES-PAYABLE> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 7,432,000 7,432,000 7,658,000 7,432,000
7,764,000
<OTHER-SE> 63,897,000 62,601,000 57,548,000 64,175,000
47,930,000
<TOTAL-LIABILITY-AND-EQUITY> 310,000,000 284,686,000 285,237,000 286,207,000
266,368,000
33,548,000 16,453,000 26,930,000 56,401,000
50,623,000
<INVESTMENT-INCOME> 8,705,000 3,693,000 6,671,000 13,885,000
12,708,000
<INVESTMENT-GAINS> (132,000) 143,000 (791,000) (44,000)
(1,787,000)
<OTHER-INCOME> 2,064,000 1,435,000 1,377,000 1,668,000
(343,000)
<BENEFITS> 24,626,000 12,076,000 18,849,000 37,345,000
32,817,000
<UNDERWRITING-AMORTIZATION> 2,222,000 1,072,000 2,060,000 3,898,000
5,573,000
<UNDERWRITING-OTHER> 0 0 0 0
0
<INCOME-PRETAX> 2,500,000 1,378,000 494,000 4,772,000
1,673,000
<INCOME-TAX> (332,000) 15,000 (916,000) (1,400,000)
(723,000)
<INCOME-CONTINUING> 2,832,000 1,363,000 1,410,000 6,172,000
2,396,000
<DISCONTINUED> 1,027,000 431,000 1,116,000 2,028,000
1,839,000
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 3,859,000 1,794,000 2,526,000 8,200,000
4,235,000
<EPS-PRIMARY> .52 .24 .33 1.08
.54
<EPS-DILUTED> .58 .28 .42 1.24
.73
<RESERVE-OPEN> 0 0 0 0
0
<PROVISION-CURRENT> 0 0 0 0
0
<PROVISION-PRIOR> 0 0 0 0
0
<PAYMENTS-CURRENT> 0 0 0 0
0
<PAYMENTS-PRIOR> 0 0 0 0
0
<RESERVE-CLOSE> 0 0 0 0
0
<CUMULATIVE-DEFICIENCY> 0 0 0 0
0
</TABLE>
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
INDEPENDENCE HOLDING COMPANY
______________
The undersigned, being the President and Secretary,
respectively, of INDEPENDENCE HOLDING COMPANY, a corporation
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DO HEREBY CERTIFY AS
FOLLOWS:
The present name of the corporation (hereinafter called the
"Corporation") is Independence Holding Company.
The name under which the Corporation was originally
incorporated is Independence Holding Company and the date of
filing of the original certificate of incorporation of the
Corporation with the Secretary of State of the State of Delaware
is April 23, 1980.
The provisions of the certificate of incorporation of the
Corporation as theretofore amended and/or supplemented, are hereby
restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate
of Incorporation of Independence Holding Company, without further
amendment and without any discrepancy between the provisions of
the certificate of incorporation as heretofore amended and
supplemented and the provisions of the said single instrument
hereinafter set forth, except as permitted under Section 245 of
the General Corporation Law of the State of Delaware.
The Board of Directors of the Corporation has duly adopted
this Restated Certificate of Incorporation pursuant to the
provisions of Section 245 of the General Corporation Law of the
State of Delaware in the form set forth as follows:
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INDEPENDENCE HOLDING COMPANY
______________
I.
The name of the Corporation is Independence Holding Company (the
"Corporation").
II.
The Corporation is organized pursuant to the General Corporation
Law of the State of Delaware (the "GCL").
III.
The Corporation shall have perpetual duration.
IV.
The purposes for which the Corporation is organized are to acquire
and to act as a holding company of other firms, companies and
corporations and to engage in any lawful act or activity for which
corporations may be organized under the GCL, and the Corporation
shall have all powers necessary to conduct such businesses and
engage in such activities, including, but not limited to, the
powers enumerated in the GCL or any amendment thereto.
V.
The total number of shares of stock which the Corporation shall
have the authority to issue is Fifteen Million One Hundred
Thousand (15,100,000) shares, consisting of Fifteen Million
(15,000,000) shares of Common Stock, par value $1.00 per share
("Common Stock"), and One Hundred Thousand (100,000) shares of
Preferred Stock, par value $1.00 per share.
A. COMMON SHARES. Subject to the provisions of any series
of preferred shares which may at the time be
outstanding, the holders of common shares shall be
entitled to receive, when and as declared by the Board
of Directors out of any funds legally available for the
purpose, such dividends as may be declared from time to
time by the Board of Directors. In the event of the
liquidation of the Corporation, or upon distribution of
its assets, after the payment in full or the setting
apart for payment of such preferential amounts, if any,
as the holders of preferred shares at the time
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outstanding shall be entitled, the remaining assets of
the Corporation available for payment and distribution
to shareholders shall, subject to any participating or
similar rights of preferred shares at the time
outstanding, be distributed ratably among the holders of
common shares at the time outstanding. All common
shares shall have equal non-cumulative voting rights,
and shall have no preference, conversion, exchange,
preemptive or redemption rights.
B. PREFERRED SHARES. The Board of Directors of the
Corporation is hereby expressly authorized at any time,
and from time to time, to provide for the issuance of
preferred shares in one or more series, with such voting
powers, full or limited, or without voting powers, and
with such designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by
the Board of Directors, including (without limiting the
generality thereof) the following as to each such
series:
(i) the designation of such series;
(ii) the dividends, if any, payable with respect
to such series, the rates or basis for
determining such dividends, any conditions
and dates upon which such dividends shall be
payable, the preferences, if any, of such
dividends over, or the relation of such
dividends to, the dividends payable on common
stock or other series of preferred shares,
whether such dividends shall be non-
cumulative or cumulative, and, if cumulative,
the date or dates from which such dividend
shall be cumulative;
(iii) whether preferred shares shall be redeemable
at the option of the Board of Directors or
the holder, or both, upon the happening of a
specified event and, if redeemable whether
for cash, property or rights, including
securities of the Corporation, the time,
prices or rates and any adjustment and other
terms and conditions of such redemption;
(iv) the terms and amount of any sinking,
retirement or purchase fund provided for the
purchase or redemption of preferred shares of
such series;
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(v) whether or not preferred shares of such
series shall be convertible into or
exchangeable for shares of common stock or
other series of preferred shares, at the
option of the Corporation or of the holder,
or both, or upon the happening of a specified
event and, if provision be made for such
conversion or exchange, the terms, prices,
rates, adjustments and any other terms and
conditions thereof;
(vi) the extent, if any, to which the holders of
the preferred shares of such series shall be
entitled to vote with respect to the election
of Directors or otherwise, including, without
limitation, the extent, if any, to which such
holders shall be entitled, voting as a series
or as a part of a class, to elect one or more
Directors upon the happening of a specified
event or otherwise;
(vii) the restrictions, if any, on the issue or
reissue of preferred shares of such series or
any other series;
(viii) the extent, if any, to which the holders of
the preferred shares of such series shall be
entitled to preemptive rights; and
(ix) the rights of the holders of the preferred
shares of such series upon the liquidation of
the Corporation or any distribution of its
assets.
C. CERTIFICATES. Before the Corporation shall issue any
preferred shares of any series, a certificate setting
forth the resolution or resolutions of the Board of
Directors, fixing the voting powers, designations,
preferences and rights of such series, the
qualifications, limitations or restrictions thereof, and
the number of preferred shares of such series authorized
by the Board of Directors, shall be signed, attested to,
filed, and recorded pursuant to Section 103 of the GCL.
Unless otherwise provided in any such resolution or
resolutions, the holders of the series so authorized
shall have non-cumulative voting rights (to the extent
such series has any voting rights) and shall have no
conversion, exchange, preemptive or redemption rights.
Unless otherwise provided in any such resolution or
resolutions, the number of preferred shares of the
series authorized by such resolutions may be increased
or decreased (but not below the number of preferred
shares of such series then outstanding) by a certificate
setting forth a resolution or resolutions adopted by the
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Board of Directors, authorizing such increase or
decrease, signed, attested to, filed, and recorded
pursuant to Section 103 of the GCL. Unless otherwise
provided in the resolution or resolutions creating such
series, the number of preferred shares specified in any
such decrease shall be restored to the status of
authorized but unissued preferred shares (without
designation as to series).
Any other amendment to such resolution or resolutions
may be effected by a certificate setting forth a
resolution adopted by the Board of Directors then
authorizing such amendment and signed, attested to,
filed and recorded pursuant to Section 103 of the GCL.
Any such amendment may, without limitation, cancel or
otherwise affect the right of the holders of preferred
shares of such series to receive dividends which have
accrued but have not been declared. Holders of common
shares shall not be entitled to vote on such amendments
to any such resolutions.
VI.
The Corporation shall indemnify to the full extent permitted by
law and by the by-laws of the Corporation any person made or
threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the
fact that such person, or such person's testator or intestate is
or was an officer, employee or agent of the Corporation or serves
or served any other corporation, partnership, joint venture, trust
or other enterprise as a director, officer, employee, agent or
trustee at the express or implied request of the Corporation. To
the fullest extent permitted by Delaware law, such indemnity shall
extend to the officers and Trustees of Independence Mortgage
Trust, a Georgia business trust, as predecessor to the
Corporation.
VII.
In furtherance of and not in limitation of the powers conferred by
the GCL or any other statute, the Board of Directors is expressly
authorized to make, alter or repeal the by-laws of the
Corporation.
VIII.
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington 19805,
County of New Castle. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
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IX.
To the fullest extent permitted by the GCL as the same exists or
hereafter may be amended, a Director of this Corporation shall not
be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the GCL,
or (iv) for any transaction from which the Director derived any
improper personal benefit.
IN WITNESS WHEREOF, Independence Holding Company has caused
this Restated Certificate of Incorporation to be signed by its
President and attested by its Secretary on this 9th day of August,
1996.
INDEPENDENCE HOLDING COMPANY
By:/s/Steven B. Lapin
----------------------------
Steven B. Lapin, President
Attest:
/s/David T. Kettig
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David T. Kettig, Secretary
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