Selected Financial Data (in thousands, except per share data; certain restatements and adjustments are explained following this table.)
Revenues $ 122,390 $ 114,842 $ 117,843 $ 139,009 $ 152,936
Net Income before cumulative effect of change in accounting principle 10,714 9,917 5,947 13,901 12,763
Cumulative effect of change in accounting principle -0- -0- (2,600) -0- -0-
Net Income $ 10,714 $ 9,917 $ 3,347 $ 13,901 $ 12,763
Common Stock and Common Stock Equivalents 5,389 5,378 5,858 7,052 7,149
Net Income per share before extraordinary item and cumulative effect of change in accounting principle $ 2.11 $ 1.93 $ 2.20 $ 2.06 $ 1.89
Cumulative effect of change in accounting principle -0- -0- (.44) -0- -0-
Net income per share $ 2.11 $ 1.93 $ .69 $ 2.06 $ 1.89
Long Term Debt$ 59,385 $ 66,585 $ 84,000 $ 90,325 $ 111,300
1 Net income per share for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 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 1995 include the operations of Investors Life Insurance Company of Indiana (formerly known as Meridian Life Insurance Company) for the period from February 14, 1995 to December 31, 1995. 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.
The statutory earnings of the Company's insurance subsidiaries, as required to be reported to insurance regulatory authorities, before interest expense, capital gains and losses, and federal income taxes were $24,511,342 at December 31, 1995, as compared to $21,119,689 at December 31, 1994 and $20,325,814 at December 31, 1993. These statutory earnings are the source to provide for the repayment of ILCO's indebtedness.
During the first half of 1994, management completed its review of the credit life and credit disability business of the Company. As a result of this review, management determined that these product lines were not producing desired profitability objectives. Accordingly, management announced that the Company's subsidiaries which underwrote credit insurance would discontinue the writing of new credit life and credit disability insurance. For the full year of 1995, this action had a negative effect on premium income in the amount of $5.6 million.
The investment income earned on the Company's portfolio affects the level of interest rates which the Company credits to its universal life insurance, whole life insurance and annuity products. The objective of the Company is to maintain an appropriate margin between the rate of interest which it earns on its investments and the rate which it credits to policyholders.
For the year ended December 31, 1995, the Company's income from operations before Federal income taxes was $16,483,000 on revenues of $122,390,000, as compared to $15,700,000 on revenues of $114,842,000 in 1994. For the year 1993, income from operations before Federal income taxes, extraordinary item and cumulative effect of change in accounting principle was $17,318,000 (on revenues of $117,843,000).
During 1995, the lapse rate with respect to universal life insurance policies increased slightly from the lapse rate experienced in 1994. The rate in 1995 was 8.8%, as compared to 8.2% in 1994. The lapse rate with respect to traditional (non- universal) life insurance policies decreased from the levels experienced in 1994. The rate in 1995 was 8.8%, as compared to 9.8% in 1994. The lapse rates experienced during the 1995 period were within the ranges anticipated by management.
As of December 31, 1995, the number of employees within the Company was approximately 338. This level of staffing includes employees who provide administrative services to Family Life Insurance Company, in connection with which Investors-NA receives an expense reimbursement.
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, 1995, the outstanding principal balance of the Surplus Debentures was $7.0 million and $62.3 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, 1995, the statutory capital and surplus of Investors-NA was $61.9 million, 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). Effective July 25, 1993, Washington amended its insurance code to retain the "greater of" standard for payment of dividends to shareholders, but enacted requirements 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. Investors-NA does not presently have earned surplus as defined by the regulations adopted by the Washington Insurance Commissioner and, therefore, is not permitted to pay a cash dividend. However, since the new 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.
Investors-IN is domiciled in the State of Indiana. Under the Indiana insurance code, a domestic insurer may make dividend distributions upon proper notice to the Department of Insurance, as long as the distribution is reasonable in relation to adequate levels of policyholder surplus and quality of earnings. Under Indiana law the dividend must be paid from earned surplus. Extraordinary dividend approval would be required where a dividend exceeds the greater of 10% of surplus or the net gain from operations for the prior fiscal year. Investors-IN currently has earned surplus.
Management intends to continue to account for stock-based compensation under the intrinsic value based method as prescribed by APB No. 25, and allowed under SFAS No. 123. The company will make the appropriate pro-forma disclosures required by SFAS in 1996.
3. Consolidated Statements of Income for the years ended December 31 1995, 1994 and 1993.
4. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993.