As of and for the year ended December 31, ---------------------------------------------- INCOME SUMMARY 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues $ 15,260 $ 12,453 $15,268 $12,885 $10,797
Future policy benefit - - Investment Contracts 511,315 422,937 304,734 212,966 123,611
Summary of Selected Pro Forma Financial Data that would have been different if the change in accounting adopted in 1994 had been in effect in prior years
The Company expanded its senior oriented product line in 1993 with the addition of a Medicare supplement health insurance plan and an accelerated benefit life insurance product.
Net investment income increased $.7 million, or 7%, to $10.8 in 1994 from $10.1 million in 1993, due to growth in the portfolio asset base. The increase from asset growth was mitigated, however, by a decline in the average yield on the portfolio from 7.9% in 1993 to 7.4% in 1994. The average yield decline resulted from amortization/accretion adjustments required by revised CMO cash flow estimates utilized in projecting amortization/accretion of bond premium/discount.
Investors tests the ability of its investment portfolio to fund its liability to its policyholders under several possible future interest rate environments. The results of these tests are used by the state regulatory authorities to assess the adequacy of Investors' stated liabilities. Based on the results of these tests, no adjustments to the stated liability have been required.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by FASB in October 1995. The accounting requirements of this Statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. Disclosure requirements are also effective for fiscal year beginning after December 15, 1995 although pro-forma disclosure is required for all awards granted in fiscal years beginning after December 15, 1994. Disclosures for awards granted in the first fiscal year beginning after December 15, 1994 (i.e. 1995 awards) are not required in financial statements for that fiscal year but must be represented subsequently whenever financial statements for that fiscal year are presented for comparative purposes. SFAS No. 123 encourages all entities to adopt a fair value based method of accounting for all employee stock compensation plans. Under these fair value based method, compensation cost is measured at the grant date based upon the fair value (as defined by the Statement) of the award at that date and is recognized over the service period. Companies not electing to adopt this fair value based method may continue to account for these plans using the intrinsic value based method prescribed by APB Opinion No. 25, although they must make program disclosures of net income and earnings per share as if the fair value based method had been used. The Company intends to continue to account for employee stock compensation plans using APB No. 25 and will begin providing required pro forma disclosures in 1996.
Consolidated Balance Sheets 29-30 Consolidated Statements of Operations 31-32 Consolidated Statements of Shareholders' Equity and Capital Deficit 33 Consolidated Statements of Cash Flows 34-35 Notes to Consolidated Financial Statements 36-59 Unaudited Consolidated Quarterly Financial Data 60
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Investors Insurance Group, Inc. and Subsidiaries at December 31, 1995 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Cash paid during the year for: Interest $ 640 $ 640 $ 640 Income taxes 30 487 147
Equity securities (common stocks) are carried at current market value. If the current market value of equity securities is higher than the purchase cost, the excess is an unrealized gain, and if lower than cost and the decline is temporary, the difference is an unrealized loss. The net unrealized gains or losses on equity securities, net of the related impacts on the amortization of deferred acquisition costs and deferred income taxes, are reported in a separate component of shareholders' equity, along with the net unrealized gains or losses on fixed-maturity securities available for sale.
Amounts received from, or paid to, the coinsurer for Interest Credited on Investment Contracts and surrender fees are offset against the related expense and revenue accounts in the Statement of Earnings.
In a 1994 private placement, the Company purchased a $500,000 redeemable, subordinated debenture issued by Progress Financial Corporation ("PFC") with which the Company shares a common director. The bond, which pays 8.25% interest quarterly and matures on June 30, 2004, was accompanied by warrants to purchase 50,000 shares of PFC common stock for $6.00. No cost or value has been assigned to these warrants.
Unrealized Investment Gains (Losses) ------------------------------------ As of Change During the December 31, Year Ended -------------- ----------------------- 1995 1994 1995 1994 1993 ---- ---- ---- ---- ---- Securities available for sale $7,784 $(12,146) $19,930 $(17,966) $ 3 Investment in affiliates (189) (118) (71) 1,063 118 Deferred acquisition costs (4,433) 6,370 (10,803) 17,017 - Deferred tax asset 1,148 4,419 (3,271) 1,409 - Deferred tax valuation allowance 1,778 (2,776) 4,554 (3,105) - ----- ------- ----- ------- ----
Actual income tax expense (benefit) for 1995, 1994 and 1993 differed from the "expected" tax expense for those years as computed by applying the U.S. Federal corporate income tax rate of 34% to income before income taxes by the following:
At December 31, 1995, in addition to an alternative minimum tax carryforward in the life insurance company of $186,000 (which does not expire), IIG had the following tax carryforward items (in thousands):
In connection with its acquisition of IIC and Investors, the Company issued an $8,000,000 secured subordinated note payable due March 31, 1997, with interest at 8% payable quarterly. The note is secured by the stock of IIC. This security interest is subordinate to any senior indebtedness.
In 1989, the Company issued warrants, exercisable at issue, to purchase 1,000,000 shares of its common stock at $2.00 per share. The agreement issuing these warrants contained an adjustment clause whereby the number of shares and the purchase price might require adjustment based on the issuance of common stock and stock options. As of December 31, 1995, the adjusted number of shares and share price were 1,062,438 and $1.8825, respectively. These warrants expire on March 31, 1997 (see Note 11).
Total revenue 1,384 (58) 988 ----- ------- ------ Expenses: General and administrative expenses 803 1,023 743 Interest expense 640 640 640 ----- ------- -----