Standard Life leases approximately 13,500 square feet of floor space for its offices in New York, New York as its corporate headquarters.
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.
The Selected Financial Data should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
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.
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.
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
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.
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.
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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- See Index to Consolidated Financial Statements and Schedules on page 24.