-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T3FYqIXeLiDJm7H/ChcCgU2rfxP5dIpuBKpEoXhtRmoxBEmNBTR9C077xKqpb1Eb 9W3IBqN7BAPPZ6I/YViCYw== 0000024090-96-000003.txt : 19960525 0000024090-96-000003.hdr.sgml : 19960525 ACCESSION NUMBER: 0000024090-96-000003 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960524 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS INC CENTRAL INDEX KEY: 0000024090 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 840755371 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13004 FILM NUMBER: 96572015 BUSINESS ADDRESS: STREET 1: P O BOX 149151 CITY: AUSTIN STATE: TX ZIP: 78714 BUSINESS PHONE: 5128377100 MAIL ADDRESS: STREET 1: P O BOX 149151 CITY: AUSTIN STATE: TX ZIP: 78714 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL INVESTORS LIFE INC DATE OF NAME CHANGE: 19881222 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 1996 or [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 0-16509 CITIZENS, INC. (Exact name of registrant as specified in its charter) Colorado 84-0755371 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 East Anderson Lane, Austin, Texas 78752 (Address of principal executive offices) (Zip Code) (512) 837-7100 (Registrant's telephone number, including area code) 7801 North Interstate 35, Austin, Texas 78753 (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of March 31, 1996, Registrant had 19,530,864 shares of Class A common stock, No Par Value, outstanding and 621,049 shares of Class B common stock, No Par Value, outstanding. CITIZENS, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item 1. Financial Statements Balance sheets, March 31, 1996 (Unaudited) and December 31, 1995 3 Statements of Operations, Three-Months Ended March 31, 1996 and 1995 (Unaudited) 5 Statements of Cash Flows, Three-Months Ended March 31, 1996 and 1995 (Unaudited) 6 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 90 Part Other Information 1517 II. CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1996 and December 31, 1995 (Unaudited) March 31, December 31, 1996 1995 Assets Investments: Fixed maturities held for investment, at amortized cost (market $5,593,000 in 1996 and $5,700,000 in 1995) $5,634,403 $ 5,636,785 Fixed maturities available for sale, at lower of cost or market (cost $101,596,068 in 1996 and $97,515,359 99,840,536 99,464,551 in 1995 Equity securities, at market (cost $89,580 in 1996 and $23,329 in 1995) 66,252 0 Mortgage loans on real estate (net of reserve of $145,080 in 1996 and 1,841,643 1,910,608 1995) Policy loans 19,658,449 18,911,275 Guaranteed student loans (net of reserve of $10,000 in 1996 and 1995) 306,749 333,387 Other long-term investments 671,890 679,436 Short-term investments 200,000 3,088,697 Total investments 128,219,922 130,024,739 Cash 2,992,452 4,160,156 Prepaid reinsurance 1,747,763 0 Reinsurance recoverable 1,690,246 1,857,900 Other receivables 802,341 1,219,107 Accrued investment income 1,731,577 2,022,809 Deferred policy acquisition costs 36,733,110 36,624,448 Cost of insurance acquired 7,368,810 7,522,827 Excess of cost over net assets 15,287,113 14,045,848 acquired Other intangible assets 1,773,650 1,820,325 Property, plant and equipment 5,721,981 5,546,075 Other assets 616,860 642,013 Total assets 204,685,825 $205,486,247 (Continued) CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1996 and December 31, 1995 (Unaudited) March 31, December 1996 31, 1995 Liabilities and Stockholders' Equity Liabilities: Future policy benefit reserves 126,407,054 123,327,377 Dividend accumulations 3,878,904 3,602,706 Premium deposits 1,621,352 1,553,414 Policy claims payable 2,823,355 3,197,291 Other policyholders' funds 1,918,535 1,945,332 Total policy liabilities 136,649,200 133,626,120 Other liabilities 1,260,756 2,001,320 Commissions payable 773,200 692,578 Notes payable 735,814 772,834 Deferred Federal income tax 787,902 2,372,742 Federal income tax payable 0 1,025,106 Minority interest 14,954 14,954 Amounts held on deposit 204,232 267,603 Total liabilities 140,426,058 140,773,257 Stockholders' Equity: Common stock: Class A, no par value, 50,000,000 shares authorized, 21,609,411 shares issued in 1996 and 19,178,515 in 1995, including shares in treasury of 2,078,547 in 1996 and 2,198,175 45,695,198 44,007,339 in 1995 Class B, no par value, 1,000,000 shares authorized, 621,049 shares 283,262 283,262 issued and outstanding in 1996 and 1995 Unrealized loss on investments (1,358,334) 1,267,747 Retained earnings 21,701,907 21,216,908 66,322,033 66,775,256 Treasury stock, at cost (2,062,266) (2,062,266) Total stockholders' equity 64,259,767 64,712,990 Commitments and contingencies Total liabilities and stockholders' 204,685,825 205,486,247 equity CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three-Months Ended March 31, 1996 and 1995 (Unaudited) Three-months ended March 31, 1996 1995 Revenues: Premiums $11,521,304 $9,273,129 Annuity and Universal life 95,148 85,072 considerations Net investment income 2,078,688 1,503,937 13,695,140 10,862,138 Other income and expenses: Other income 12,635 19,762 Realized gains (losses) on (8,928) (31,017) investments Interest expense (28,150) (17,152) (24,443) (28,407) Benefits and expenses: Insurance benefits paid or provided: Increase in future policy benefit 2,230,975 2,398,644 reserves Policyholders' dividends 450,241 455,565 Claims and surrenders 5,529,339 4,314,556 Annuity expenses 230,448 82,950 8,441,003 7,251,715 Commissions 2,643,086 2,464,168 Underwriting, acquisition and 1,458,497 1,342,986 insurance expenses Capitalization of deferred policy (2,489,597) (2,543,469) acquisition costs Amortization of deferred policy 2,380,935 1,889,997 acquisition costs Amortization of cost of insurance acquired and excess of cost over net 501,928 92,479 assets acquired 12,935,852 10,497,876 Income before federal income tax $734,845 $335,855 Federal income tax: Federal income tax expense 249,848 62,972 Net Income $484,997 $272,883 Per Share Amounts: Net income per share of common stock $0.03 $0.02 Weighted average shares outstanding 19,602,887 16,980,340 CITIZENS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three-Months Ended March 31, 1996 and 1995 (Unaudited) Three-months ended March 31, 1996 1995 Cash flows from operating activities: Net gain $ 484,997 $272,883 Adjustments to reconcile net gain to net cash provided by operating activities: Accrued investment income 291,232 294,733 Deferred policy acquisition costs (108,662) (653,472) Amortization of cost of insurance acquired and excess cost over net assets acquired 501,928 92,479 Prepaid reinsurance (1,747,763) (1,737,919) Reinsurance recoverable 167,654 (31,635) Other receivables 416,766 162,153 Property, plant and equipment (175,906) 102,024 Future policy benefit reserves 3,079,677 2,398,644 Other policy liabilities (56,597) 279,858 Commissions payable and other (2,304,783) (595,590) liabilities Amounts paid out as trustee (63,371) (73,305) Federal income tax payable (1,025,106) (1,066,004) Other, net (739,506) (1,275,915) Net cash provided (used) by operating activities (1,279,440) (1,831,066) Cash flows from investing activities: Maturity of fixed maturities 2,088,037 3,899,533 Sale of fixed maturities available for 9,921,092 7,444,040 sale Purchase of fixed maturities available (14,321,294) (9,305,209) for sale Principal payments on mortgage loans 68,965 56,987 Net change in guaranteed student loans 26,638 (39,052) Purchase of other long-term 0 (50,771) investments Cash from merger 78,436 0 Increase in policy loans (net) (747,174) (463,905) Net cash provided (used) by investing activities (2,885,300) 1,541,623 (Continued) CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three-Months Ended March 31, 1996 and 1995 (Unaudited) Three-months ended March 31, 1996 1995 Cash flows from financing activities: Sale of stock 145,359 0 Repayment of note payable (37,020) (17,701) Net cash provided (used) by financing activities 108,339 (17,701) Net decrease in cash and short- term investments (4,056,401) (307,144) Cash and short term investments at beginning 7,248,853 4,259,887 of period Cash and short term investments at end $3,192,452 $3,952,743 of period CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (Unaudited) (1) Financial Statements The balance sheet for March 31, 1996, the statements of operations for the three-month periods ended March 31, 1996 and 1995, and the statements of cash flows for the three-month periods then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows at March 31,1996 and for comparative periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1995 annual 10-K report filed with the Securities and Exchange Commission. The results of operations for the period ended March 31, 1996 are not necessarily indicative of the operating results for the full year. (2) Merger and Exchange On December 9, 1995, Citizens announced that it had signed definitive written agreements for the acquisition of Insurance Investors & Holding Co., a Peoria, Illinois based life insurance holding company. The agreement provided that following the acquisition by Citizens, Investors' shareholders will receive one share of Citizens' Class A Common Stock for each eight shares of Investors Common Stock owned. Additionally, Citizens will acquire all shares of Central Investors Life Insurance Company, a subsidiary of Insurance Investors & Holding, not wholly-owned by Insurance Investors, based upon an exchange ratio of one share of Citizens' Class A common stock for each four shares of Central Investors owned. Following approval by the Illinois Department of Insurance and the stockholders of Investors and Central, closing occurred on March 12, 1996. The transaction involved issuance of approximately 171,000 of Citizens' Class A shares and was accounted for as a purchase. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Three-months ended March 31, 1996 and 1995 Net income for the three-months ended March 31, 1996 was up 77.8% to $484,997 from $272,833 for the same period in 1995. Revenues increased to $13,695,1409,763,884, an increase of 26.1% over the first three months of 1995 when revenues were $10,862,138. The increase in revenues, which offset higher operating expenses and surrender activity, accounts for the higher earnings in 1996. Operating income (income before capital gains and federal income taxes) was $743,773 for the first quarter of 1996 compared to $366,872 for the same period in 1995, an increase of 102.7%. Premium income for the first three months of 1996 was $11,521,303 compared to $9,273,129 for the same period in 1995. This 24.2 % increase is the result of the acquisition of American Liberty Financial Corporation ("ALFC") in 1995. ALFC contributed $1.9 million towards the first quarter premium income in 1996. Production of new premiums by the agents of Citizens Insurance Company of America ("CICA") was slightly lower during the first quarter of 1996 than in the previous year. Management introduced a new line of products and an enhanced marketing self-promotion plan during April of 1996 as part of a re-emphasis of new production. During the past two years, management had not promoted new sales and recruiting so as to emphasize the growth of capital through a Reg. S offering of stock and the profitability of CICA on a statutory accounting basis. These new programs will, in the opinion of management, have considerable impact on new production once they are assimilated by the marketing force. New submitted annualized premiums in April 1996 were a record $1.02 million. Net investment income increased 38.2% in the first three months of 1996 compared to the same period in 1995. Net investment income for the three months ended March 31, 1996 was $2,078,688 compared to $1,503,937 in 1994. This increase reflects the earnings on the growth in the Company's asset base that is occurring, as well as the higher yields that have been available in the bond market during the past year. Overall investment return has been hampered because the growth in the Company's asset base has occurred during a period of relatively low investment returns. Claims and surrenders expense increased from $4,314,556 at March 31, 1995 to $5,529,339 for the same period in 1996. Death claims decreased slightly from $852,512 in 1995 to $804,901 in 1996. Management is pleased with the lack of increase in this area since the Company's block of business has grown dramatically in recent years without corresponding increases in claims. Additionally, the 1996 results include approximately $400,000 of claims related to the ALFC block of business. Surrender expense increased from $2,294,804 to $2,997,205. Management constantly monitors this activity to insure that the Company's persistency is holding at levels equal to or above assumptions. Coupons and endowments increased to $1,074,425 in 1996 from $992,785 in 1995. The endowment benefits are factored into the premium much like dividends and therefor, the increase does not pose a threat to future profitability. Management expects to see further increases in this category in the future. Accident and Health benefits were $457,917 in 1996, compared to $11,749 in 1995. This increase is directly related to the ALFC block of business which consists of a large block of scheduled benefit daily indemnity policies. The remaining components of claims and expenses, consisting of supplemental contracts and payments of dividends and endowments previously earned and held at interest, amounted to $194,891 in 1996, compared to $162,706 in 1995. Commission expense increased to $2,643,086 from $2,464,168. This increase relates to the addition of ALFC which increased such expenses by $397,279. Deferred policy acquisition costs capitalized in 1995 were $2,489,597 compared to $2,543,469 in the prior year. The decline is related to the relatively flat level of new sales during the quarter. Amortization of these costs was $1,889,997 for the first quarter of 1995 compared to $2,380,935 for 1996. The increase in amortization relates to the larger block of capitalized costs being written off. Underwriting, acquisition and insurance expenses increased from $1,342,986 in the first quarter of 1995 to $1,458,497. The increase is primarily attributable to the absorption of the operating expenses of ALFC until its operations and business can be converted and commingled with that of the Company's other subsidiaries, which management expects to achieve during the third quarter of 1996. Approximately $644,000 of the expenses for the first quarter of 1996 are related to ALFC's operations. Management expects to achieve considerable reduction of these expenses beginning in the third quarter. Liquidity and Capital Resources Stockholders' equity declined to $64,259,767 from $64,712,990 at December 31, 1995. The earnings achieved in 1996, as well as a $1.6 million increase from the acquisition of Insurance Investors & Holding Co. for shares of the Company's stock were offset by a decline in the market value of the Company's available for sale fixed maturity portfolio as a result of a dramatic decline in bond prices during the quarter. On October 27, 1994, Citizens completed the offering of 916,375 shares of its Class A Common Stock under an exemption from registration under the Securities Act of 1933. The offering was made under Regulation S, which permits shares offered outside of the United States to non-United Stated persons pursuant to its guidelines may be resold in the United States by persons who are not an issuer, underwriter or dealer following a certain period after the close of the offering period. The offering price was $7.00 per share. The closing market price of the Class A common shares on the date of the offering commencement was $7.75 per share (as reported by the American Stock Exchange). The Company sold 916,375 shares, generating gross proceeds of more than $6.4 million, and net proceeds of approximately $5.4 million. Management was pleased with the amount of capital generated through the offering; however, it believes that the offering period was too short in light of the manner in which business is typically transacted overseas. Because of the success of the offering in the limited time period, a second offering was initiated in May 1995. As of December 31, 1995, approximately 95,500 shares had been purchased through the second Reg. S offering, resulting in a net increase to capital of $638,980. At March 31, 1996, a total of 117,650 shares had been sold, for a net of $784,339. Invested assets declined to $128,219,922 in 1996 from $130,024,739 at December 31, 1995 primarily as the result of a decline in the value of the Company's available for sale bond portfolio. At March 31, 1996 and December 31, 1995, fixed maturities have been categorized into two classifications: Fixed maturities held to maturity, which are valued at amortized cost, and fixed maturities available for sale which are valued at market. The Company does not have a plan to make material dispositions of fixed maturities during 1996; however, because of continued uncertainty regarding long-term interest rates, management cannot rule out sales during 1996. Fixed maturities held to maturity, amounting to $5,634,403 at March 31, 1996 and $5,636,785 at December 31, 1995 consist primarily of U.S. Treasury securities. Management has the intent and believes the Company has the ability to hold the securities to maturity. The Company's mortgage loan portfolio, which constitutes 1.4% of invested assets at March 31, 1996 and 1.5% at December 31, 1995, has historically been composed of small residential loans in Texas. At March 31, 1996 and December 31, 1995, one mortgage loan was in default with a principal balance of approximately $92,000. During 1995, the loan to an affiliate described below was foreclosed. Management believes that in the event of foreclosure there is more than adequate collateralization on both loans to avoid exposure to loss. Management has established a reserve of $145,080 (approximately 7.5% of the mortgage portfolio's balance) to cover potential unforeseen losses in the Company's mortgage portfolio. Policy loans comprise 15.3% of invested assets at March 31, 1996 and 14.5% at December 31, 1995. These loans, which are secured by the underlying policy values, have yields ranging from 5% to 10% percent and maturities that are related to the maturity or termination of the applicable policies. Management believes that the Company maintains more than adequate liquidity despite the uncertain maturities of these loans. Cash balances of the Company in its primary depository, Texas Commerce Bank Austin, Texas, were significantly in excess of Federal Deposit Insurance Corporation (FDIC) coverage at December 31, 1995. Management monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. At March 31, 1996, management does not believe the Company is at risk for such a loss. During 1996, the Company intends to utilize short-term Treasury Bills and highly-rated commercial paper as cash management tools to minimize excess cash balances and enhance return. In February 1992, the Company paid cash for an 80,000 square foot office building in Austin, Texas to serve as its primary office. This building will, in the opinion of management, provide adequate space for the Company's operations for many years. Renovation and remodeling of the property began in the third quarter of 1992 and the Company relocated to the building in September 1993. The Company occupies approximately 30,000 square feet of space in the building. The Company's former office property, consisting of approximately 13,000 square feet in Austin, with a carrying value of $158,000 was leased to a third party on a triple-net basis for three years during 1995. CICA owned 1,955,457 shares of Citizens Class A common stock at march 31, 1996 and December 31, 1995. For statutory accounting purposes, CICA received written approval from the Colorado Insurance Department to carry its investment in Citizens at 50% of the fair market value limited to 8% of admitted assets ($8,678,000), which differs from prescribed statutory accounting practices. Statutory accounting practices prescribed by Colorado require that the Company carry its investment at market value reduced by the percentage ownership of Citizens by CICA, limited to 2% of admitted assets. As of December 31, 1995, that permitted transaction increased statutory surplus by $4,077,000 over what it would have been had prescribed accounting practice been followed. In the Citizens' consolidated financial statements, this stock is shown as treasury stock. During 1995, Citizens re-acquired 115,943 of these shares and retired them. CICA had outstanding at March 31, 1996 and December 31, 1995, a $533,000 surplus debenture payable to Citizens. For statutory accounting purposes, this debenture is a component of surplus, while for GAAP it is eliminated in consolidation. Citizens has recognized a liability for its related obligation to a bank in a like amount. The NAICNational Association of Insurance Commissioners ("NAIC") has established minimum capital requirements in the form of Risk- Based Capital ("RBC"). Risk-based capital factors the type of business written by a company, the quality of its assets, and various other factors into account to develop a minimum level of capital called "authorized control level risk-based capital" and compares this level to an adjusted statutory capital that includes capital and surplus as reported under Statutory Accounting Principles, plus certain investment reserves. Should the ratio of adjusted statutory capital to control level risk- based capital fall below 200%, a series of actions by insurance regulators begins. At December 31, 1995 and 1994, CICA's ratios were 700.6% and 560.6%, respectively, well above minimum levels. ALLIC's ratios were 939.6% and 1,000.8%, respectively, also well above minimum levels. The Deficit Reduction Act of 1984 added Section 807 to the Internal Revenue Code ("IRC") which mandated the use of a new method for computing tax reserves. In general, Section 807 provides that tax reserves can never exceed the amount taken into account in computing statutory reserves. The applicable reserve is the higher of the net surrender value of the contract or the reserve determined by means of a formula. The term "net surrender value" means the cash value of the policy reduced by any penalty or charge imposed upon surrender. The formula approach used in computing the reserve consists of the following: (1) The tax reserve method applicable to the contract - generally the Commissioners' Reserve Valuation Method (CRVM) for life insurance contracts, the Commissioners' Annuities Reserve Valuation Method (CARVM) for annuity contracts, and the two-year full preliminary term method for non-cancelable accident and health contracts; (2) The greater of the applicable Federal interest rate or the prevailing state assumed interest rate which is the highest assumed interest rate permitted by 26 states for computing reserves of a life insurance or an annuity contract at the time the contract is issued; and (3) The most recent commissioner's standard table permitted under the insurance laws of 26 states at the time the contract is issued. Generally, under prior law, a life insurance company's deduction for increases in its reserves was based upon reserves required for state law purposes which were computed using lower conservative interest rate assumptions. The 1984 Act's required use of higher interest rates results in substantially lower tax reserves and lower increases in reserves, and thereby higher levels of taxable income and tax. The Budget Reconciliation Act of 1990 added IRC Section 848 which requires insurance companies, beginning in 1990, to capitalize and amortize policy acquisition expenses. For statutory accounting purposes, these acquisition expenses are deducted in the year incurred. The enactment of the two provisions above has had a severe impact upon the effective tax rate paid by CICA, resulting in effective tax rates exceeding 100% in each of the last three years. The impact of such high effective tax rates is that CICA is forced to pay Federal income taxes out of surplus, rather than income, thereby limiting the statutory surplus available for use in writing new business. Although these provisions have little effect on the Company's overall results on a GAAP basis as a result of the recognition of deferred taxes, they do have a considerable impact on the results under Statutory Accounting Principles which do not recognize such items. For 1995, CICA incurred tax expense on a Statutory basis at an effective tax rate of 74% (eliminating intercompany capital gains). For the year ended December 31, 1994, taxes were incurred at an effective rate of approximately 289% of income before tax. For 1993, the incurred rate was 131%. In the event that CICA was unable to attract additional capital, as it did in 1994, its ability to write new business would be severely limited due to the ongoing drain on Statutory surplus. Management believes the Company has adequate levels of capital on hand with the additional capital infused during 1994 and 1995 to continue to expand the Company's writing of new business. Financial Accounting Standards In December 1992, the FASB issued Statement 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement 113"). Statement 113 eliminated the net reporting of reinsurance amounts in the balance sheet previously required by Statement 60 "Accounting by Insurance Enterprises." Statement 113 also provides accounting guidance for ceding enterprises as well as disclosure requirements and guidance on assessing transfer of risk in reinsurance contracts. Furthermore, it precludes immediate recognition of gains related to reinsurance contracts unless the ceding enterprise's liability to its policyholders is extinguished. The Company adopted Statement 113 in the first quarter of 1993. There was no impact on the consolidated financial statements due to implementation of the risk transfer provisions. In May 1993, the FASB issued Statement 114 "Accounting by Creditors for Impairment of a Loan" ("Statement 114"). Statement 114 requires impaired loans to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Statement 114 is effective for years beginning after December 15, 1994 Implementation did not have a material impact on the Company's financial statements. Also in 1993, the FASB issued Statement 115 "Accounting for Certain Investments in Debt and Equity Securities" ("Statement 115"). Statement 115 requires the classification of debt and equity securities as held to maturity, trading or available for sale based on established criteria. Trading securities are bought and held principally for the purpose of resale in the near term. The Company had no investment securities classified as trading at January 1, 1994, December 31, 1994 or December 31, 1995. Held-to-maturity securities are those in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for- sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in earnings for transfers into trading securities. Unrealized holding gains or losses associated with transfers of securities from held-to-maturity to available-for- sale are recorded as a separate component of stockholders' equity. The unrealized holding gains or losses included in the separate component of equity for securities transferred from available-for-sale to held-to-maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company adopted Statement 115 at January 1, 1994. The impact on the consolidated stockholders' equity due to the implementation was $690,388 relating to the unrealized gains on the available-for-sale portfolio, net of deferred tax. PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2 Changes in Securities None, other than disclosed in the Notes to the Financial Statements or Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information The Annual meeting of stockholders will be held on Tuesday, June 4, 1996, at 10:00 a.m. at the Company's executive offices. The record date for the meeting was April 17, 1996. Item 6. Exhibits and Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITIZENS, INC. By:/s/ Mark A. Oliver_____ Mark A. Oliver, FLMI Executive Vice President Secretary / Treasurer Chief Financial Officer Date: May 15, 1995May 24,1996 EX-27 2
7 3-MOS DEC-31-1996 MAR-31-1996 99840536 5634403 0 66252 1841643 671890 128219922 2992452 1690246 36733110 204685825 126407054 0 8323611 1918535 735814 0 0 45978460 18281307 204685825 11521303 2078688 (8928) 79633 8441003 2380935 4101583 734845 249848 484997 0 0 0 484997 .03 .03 0 0 0 0 0 0 0
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