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.
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 ----------------------------------------------- (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 $282,708 Insurance policy benefits, claims and other policy liabilities................ 150,988 159,090 149,083 159,483 140,929 Long-term debt.............. 21,258 20,026 4,302 11,457 11,527
Income (loss) per common share from continuing operations before cumulative effect of accounting changes.........$ .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
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
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.
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.
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.
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
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
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.
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.
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.
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.