On January 31, 1995, ILCO, through Investors-NA, purchased, as an investment property, an office building project known as Bridgepoint Office Square in Austin, Texas for a cash purchase price of $9.75 million. The property consists of 20 acres of land with four office building sites and two parking structure sites. The first phase of development of the property was completed in 1986 and consists of a five-story office building with 83,474 square feet of rentable space and a 550-car parking garage. The office space is fully rented.
In the fourth quarter of 1995, construction began on the second office building, containing approximately 109,000 rentable square feet, and the other parking garage containing approximately 871 spaces. That phase of the project was completed in September 1996, and is 100% leased to a major tenant in the technology business.
On May 3, 1996, Family Life Insurance Company, an indirect, 100% owned subsidiary of FIC, purchased a tract of land adjoining the Bridgepoint Office Square tract for a cash purchase price of $1.3 million. The property consists of 7.1 acres of land with one office building site and one parking structure site. FLIC began construction of the fifth building (known as "Bridgepoint Five") on the new site in January 1997. The building, which will have approximately 71,500 square feet of rentable space, is currently projected to be completed in September, 1997. Following completion of the building, ILCO and its related companies will vacate their current headquarters in the Austin Centre and move them to Bridgepoint Five. ILCO and its related companies will occupy approximately 50,000 rentable square feet. FLIC is currently seeking tenants to occupy the remainder of the rentable square feet in the fifth building.
Investors-NA owns an office building, located at 206 West Pearl Street, Jackson, Mississippi. This building is 67 years old and contains approximately 85,000 square feet of office space. Investors-NA currently occupies a nominal portion of the space in this property and leases space to various commercial tenants.
Net Income before extra- ordinary item and cumulative effect of change in accounting principle 26,938 10,714 9,917 12,200 13,901
Cumulative effect of change in accounting principle -0- -0- -0- (2,600) -0-
Net Income per share before extraordinary item and cumulative effect of change in accounting principle $ 5.12 $ 2.11 $ 1.93 $ 2.20 $ 2.06
Net income per share before cumulative effect of change in accounting principle 5.12 2.11 1.93 1.13 2.06
Long Term Debt $ 24,944 $ 59,385 $ 66,585 $ 84,000 $ 90,325
1 Net income per share for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 included the dilutive effect resulting from the increase in the market price of the Company's common stock. Such increase requires that outstanding common share equivalents be taken into account in determining net income per share. See "Notes to Consolidated Financial Statements" for a description of the manner of calculation of common share equivalents.
The results for 1996, and for that portion of 1995 beginning on February 14th, include the operations of Investors Life Insurance Company of Indiana (formerly known as Meridian Life Insurance Company). Investors Life Insurance Company of Indiana ("Investors-IN") was purchased by ILCO and Investors Life Insurance Company of North America ("Investors-NA") for an adjusted purchase price of $17.1 million; the transaction was completed on February 14, 1995. The name change was completed in May, 1995.
Interest expense was $2.8 million for the year 1996, as compared to $5.7 million for the year 1995 and $5.2 million in 1994. The decrease is attributable to a reduction in the average principal balance of the senior loan from $64.4 million for the year ending December 31, 1995 to $33.7 million for the year ending December 31, 1996, as well as a decrease in the average rate of interest paid on the senior loan - 7.76% for the year 1996, as compared to 8.63% for the year 1995.
Investors-NA is the owner and developer of an office complex known as Bridgepoint Square Offices. Once completed, the project will consist of four office buildings, with a total rentable space of 364,000 square feet, and two parking garages. Investors- NA purchased the 20 acre tract of land for this complex in January, 1995, for a cash purchase price of $9.75 million. At that time, the tract included one completed and fully leased office building, an adjacent parking garage, and sites for three more office buildings and a second parking garage. Since the purchase, Investors-NA has completed construction on the second parking garage and two of the remaining building sites. Construction is in progress on the fourth building, with a projected completion date in July, 1997. Three of the four buildings are fully occupied by tenants and the fourth is partially leased. Negotiations are in progress with two potential tenants to lease the remaining space in the fourth building. Upon completion of the project, the investment of Investors-NA will be approximately $46 million.
For the year ended December 31, 1996, the Company's income from operations before Federal income taxes was $41,443,000 on revenues of $138,244,000, as compared to $16,483,000 on revenues of $122,390,000 for the year 1995 and $15,700,000 on revenues of $114,842,000 in 1994.
During 1996, the lapse rate with respect to universal life insurance policies increased slightly from the lapse rate experienced in 1995. The rate in 1996 was 9.0%, as compared to 8.8% in 1995. The lapse rate with respect to traditional (non- universal) life insurance policies decreased from the levels experienced in 1995. The rate in 1996 was 8.0%. as compared to 8.8% in 1995. The lapse rates experienced during the 1996 period were within the ranges anticipated by management.
As of December 31, 1995, the outstanding principal balance of the ILCO's senior loan obligations was $59.4 million. In January, 1996, the Company made a scheduled payment of $4.5 million under its Senior Loan. In March, 1996, the Company made the scheduled payments for April 1st and July 1st, totaling $9 million. At that same time, the Company made a payment of $941,000, an additional payment under the terms of the loan applied to the principal balance. On April 1, 1996, an optional principal payment in the amount of $15 million was made. In July, 1996, the Company made the principal payment for October 1st ($4.5 million), plus an optional principal payment of $0.5 million, thereby reducing the total amount of the outstanding Senior Loan to $24.94 million.
ILCO's principal source of liquidity consists of the periodic payment of principal and interest by Investors-NA, pursuant to the terms of the Surplus Debentures. The Surplus Debentures were originally issued by Standard Life Insurance Company and their terms were previously approved by the Mississippi Insurance Commissioner. Upon the merger of Standard Life into Investors- NA, the obligations of the Surplus Debentures were assumed by Investors-NA. As of December 31, 1996, the outstanding principal balance of the Surplus Debentures was $5.7 million and $32.8 million, respectively. Since Investors-NA is domiciled in the State of Washington, the provisions of Washington insurance law apply to the Surplus Debentures. Under the provisions of the Surplus Debentures and current law, no prior approval of the Washington Insurance Commissioner is required for Investors-NA to pay interest or principal on the Surplus Debentures; provided that, after giving effect to such payments, the statutory surplus of Investors-NA is in excess of $10 million (the "surplus floor"). However, Investors-NA has voluntarily agreed with the Washington Insurance Commissioner that it will provide at least five days advance notice of payments which it will make under the surplus debenture. As of December 31, 1996, the statutory surplus of Investors-NA was $53,773,628, an amount substantially in excess of the surplus floor. The funds required by Investors- NA to meet its obligations to the Company under the terms of the Surplus Debentures are generated from operating income generated from insurance and investment operations.
In addition to the payments under the terms of the Surplus Debentures, ILCO has received dividends from Standard Life (now, from Investors-NA). Washington's insurance code includes the "greater of" standard for payment of dividends to shareholders, but has a requirement that prior notification of a proposed dividend be given to the Washington Insurance Commissioner and that cash dividends may be paid only from earned surplus. As of December 31, 1996, Investors-NA had earned surplus of $5,205,148. Since the law applies only to dividend payments, the ability of Investors-NA to make principal and interest payments under the Surplus Debentures is not affected. ILCO does not anticipate that Investors-NA will have any difficulty in making principal and interest payments on the Surplus Debentures in the amounts necessary to enable ILCO to service the Senior Loan for the foreseeable future.
As of December 31, 1996, the book value of the Company's investment assets totaled $661.1 million, as compared to $669.5 million as of December 31, 1995. Total assets as of December 31, 1996 ($1.26 billion) decreased from the level as of December 31, 1995 ($1.32 billion).
The assets held by ILCO's life insurance subsidiaries must comply with applicable state insurance laws and regulations. In selecting investments for the portfolios of its life insurance subsidiaries, the Company's emphasis is to obtain targeted profit margins, while minimizing the exposure to changing interest rates. This objectiveis implemented by selectingprimarily short- to medium-term, investment grade fixed income securities. In making such portfolio selections, the Company generally does not select new investments which are commonly referred to as "high yield" or "non-investment grade."
The Company adopted FAS No. 123 during 1996, and will continue to account for stock-based compensation under the intrinsic value based method and disclose the impact of the fair value method in the notes to its financial statements.
3. Consolidated Statements of Income for the years ended December 31 1996, 1995 and 1994.
5. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.