UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
1
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 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 June 30, 1996, Registrant had 19,530,864 shares of
Class A common stock, No Par Value, outstanding.
CITIZENS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Balance sheets, June 30, 1996
(unaudited) and December 30, 1995 3
Statements of Operations, Three-Months
Ended June 30, 1996 and 1995
(Unaudited) 5
Statements of Operations, Six-Months
Ended June 30, 1996 and 1995
(Unaudited) 6
Statements of Cash Flows, Three-Months
Ended June 30, 1996 and 1995
(Unaudited) 7
Statements of Cash Flows, Six-Months
Ended June 30, 1996 and 1995
(Unaudited) 9
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations 120
Part Other Information 1817
II.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited) December
June 30, 31,
1996 1995
Assets
Investments:
Fixed maturities held for investment,
at
amortized cost (market $5,632,020 $ 5,636,785
$5,050,000
in 1996 and $5,700,000 in 1995)
Fixed maturities available for sale,
at lower
of cost or market (cost 100,077,327 99,464,551
$100,148,327 in
1996 and $97,515,359 in 1995)
Equity securities, at market (cost
$89,580 in 1996 and $23,329 in 1995) 66,252 -
Mortgage loans on real estate (net of
reserve 1,746,139 1,910,608
of $145,080 in 1996 and 1995)
Policy loans 19,858,625 18,911,275
Guaranteed student loans (net of
reserve of $10,000 in 1996 and 1995) 247,879 333,387
Other long-term investments 641,945 679,436
Short-term investments 2,700,000 3,088,697
Total investments 130,970,187 130,024,739
Cash 4,945,522 4,160,156
Prepaid reinsurance 1,165,126 -
Reinsurance recoverable 1,939,580 1,857,900
Other receivables 735,030 1,219,107
Accrued investment income 1,919,188 2,022,809
Deferred policy acquisition costs 36,850,859 36,624,448
Cost of insurance acquired 7,332,374 7,522,827
Other intangible assets 1,726,975 1,820,325
Excess of cost over net assets 15,105,877 14,045,848
acquired
Property, plant and equipment 5,696,169 5,546,075
Other assets 566,317 642,013
Total assets 208,953,204 205,486,247
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited) December
June 30, 31,
1996 1995
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefit reserves 128,184,641 123,327,377
Dividend accumulations 3,929,960 3,602,706
Premium deposits 2,415,139 1,553,414
Policy claims payable 3,500,148 3,197,291
Other policyholders' funds 2,029,117 1,945,332
Total policy liabilities 140,059,005 133,626,120
Other liabilities 1,290,976 2,001,320
Commissions payable 660,936 692,578
Notes payable 549,100 772,834
Federal income tax payable 0 1,025,106
Deferred Federal income taxes 446,474 2,372,742
Minority interest 14,954 14,954
Amounts held on deposit 243,920 267,603
Total liabilities 143,265,365 140,773,257
Stockholders' Equity:
Common stock:
Class A, no par value, 50,000,000
shares authorized, 21,069,411 shares
issued in 1996 and 19,178,515 in
1995, including shares in treasury 45,630,333 44,007,339
of 2,078,547 in 1996 and 2,198,175
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 gain (loss) on investments (46,860) 1,267,747
Retained earnings 21,883,370 21,216,908
67,750,105 66,775,256
Treasury stock, at cost (2,062,266) (2,062,266)
Total stockholders' equity 65,687,839 64,712,990
Commitments and contingencies
Total liabilities and stockholders' 208,953,204 205,486,247
equity
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended June 30, 1996 and 1995
(Unaudited)
Three-months ended June
30,
1996 1995
Revenues:
Premiums $13,160,847 $11,232,524
Annuity and Universal Life (1,913) 19,838
considerations
Net investment income 2,325,855 1,620,317
15,484,789 12,872,679
Other income and expenses:
Other income 23,443 (9,621)
Realized gains (losses) on 21,637 675
investments
Interest expense (754) (10,316)
44,326 (19,262)
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit 1,777,647 2,561,199
reserves
Policyholders' dividends 653,920 657,842
Claims and surrenders 6,434,222 4,679,258
Annuity expenses 198,227 136,127
9,064,016 8,034,426
Commissions 2,805,821 2,786,833
Underwriting, acquisition and 2,942,778 1,556,499
insurance expenses
Capitalization of deferred policy (2,477,772) (2,954,508)
acquisition costs
Amortization of deferred policy 2,360,023 1,980,806
acquisition costs
Amortization of cost of insurance
acquired and excess of cost over net 264,347 84,072
assets acquired
14,959,213 11,488,128
Income before federal income tax $569,902 $1,365,289
Federal income tax:
Federal income tax expense 388,436 347,916
Net Income $181,466 $1,017,373
Per Share Amounts:
Net income per share of common stock $0.01 $0.06
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Months Ended June 30, 1996 and 1995
(Unaudited)
Six-months ended June 30,
1996 1995
Revenues:
Premiums $24,682,151 $20,505,653
Annuity and Universal Life 93,235 104,910
considerations
Net investment income 4,404,543 3,124,254
29,179,929 23,734,817
Other income and expenses:
Other income 36,078 10,141
Realized gains (losses) on 12,709 (30,342)
investments
Interest expense (28,904) (27,468)
19,883 (47,669)
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit 4,008,622 4,959,843
reserves
Policyholders' dividends 1,104,161 1,113,407
Claims and surrenders 11,963,561 8,993,814
Annuity expenses 428,675 219,077
17,505,019 15,286,141
Commissions 5,448,907 5,251,001
Underwriting, acquisition and 4,401,275 2,899,485
insurance expenses
Capitalization of deferred policy (4,967,369) (5,497,977)
acquisition costs
Amortization of deferred policy 4,740,958 3,870,803
acquisition costs
Amortization of cost of insurance
acquired and excess of cost over net 766,275 176,551
assets acquired
27,895,065 21,986,004
Income before federal income tax $1,304,7 $1,701,1
47 44
Federal income tax:
Federal income tax expense 638,284 410,888
Net Income $666,463 $1,290,256
Per Share Amounts:
Net income per share of common stock $0.04 $0.07
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended June 30, 1996 and 1995
(Unaudited)
Three-months ended June
30,
1996 1995
Cash flows from operating
activities:
Net gain $181,466 $1,017,373
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income (187,611) (596,926)
Deferred policy acquisition costs (117,749) (973,702)
Amortization of cost of insurance
acquired and excess cost
over 264,347 84,072
net assets acquired
Prepaid reinsurance 582,637 529,066
Reinsurance recoverable (249,334) 20,062
Other receivables 67,311 15,048
Property, plant and equipment 25,812 (748,394)
Future policy benefit reserves 928,945 2,561,199
Other policy liabilities 1,632,218 (107,751)
Commissions payable and other 1,562,797 (308,170)
liabilities
Amounts paid out as trustee 39,688 33,143
Federal income tax payable 0 213,673
Deferred Federal income tax payable (1,926,268) 496,068
Other, net 434,840 2,282,320
Net cash provided (used) by operating
activities 3,239,099 $4,517,081
Cash flows from investing
activities:
Maturity of fixed maturities 1,225,587 2,062,013
Sale of fixed maturities available for 2,250,819 15,274,596
sale
Purchase of fixed maturities available (2,067,410) (13,260,177)
for sale
Net change in mortgage loans 95,504 327,349
Net change in guaranteed student loans 58,870 78,066
Change in other long-term investments 37,491 365,259
Increase in policy loans (net) (200,176) (647,122)
Net cash provided (used) by operating
activities $1,400,685 $4,199,984
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended June 30, 1996 and 1995
(Unaudited)
Three-months ended June
30,
1996 1995
Cash flows from financing
activities:
Borrowed funds 0 175,000
Repayment of note payable (186,714) (75,839)
Net cash provided (used) by financing (186,714) 99,161
activities
Net increase (decrease) in cash and
short- 4,453,070 8,816,226
term investments
Cash and short term investments at
beginning 3,192,452 3,952,743
of period
Cash and short term investments at end $7,645,522 $12,768,969
of period
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended June 30, 1996 and 1995
(Unaudited)
Six-months ended June 30,
1996 1995
Cash flows from operating
activities:
Net gain $666,463 $1,290,256
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income 103,621 (302,193)
Deferred policy acquisition costs (226,411) (1,627,174)
Amortization of cost of insurance
acquired ,excess cost over
net assets acquired and
other intangibles 766,275 176,551
Prepaid reinsurance (1,165,126) (1,208,853)
Reinsurance recoverable (81,680) (11,573)
Other receivables 484,077 177,201
Property, plant and equipment (150,094) (646,370)
Future policy benefit reserves 4,008,622 4,959,843
Other policy liabilities 1,575,621 172,707
Commissions payable and other (741,986) (287,420)
liabilities
Amounts paid out as trustee (23,683) (40,162)
Deferred Federal income tax (1,926,268) 1,128,059
Federal income tax payable (1,025,106) (852,331)
Other, net (304,666) (242,526)
Net cash provided (used) by operating
activities 1,959,659 2,686,015
Cash flows from investing
activities:
Maturity of fixed maturities 3,313,624 5,961,546
Sale of fixed maturities available for 12,171,911 22,718,636
sale
Purchase of fixed maturities available (16,388,704) (22,565,386)
for sale
Net change in mortgage loans 164,469 384,336
Net change in guaranteed student loans 85,508 39,014
Cash from merger 78,436 0
Change in other long-term investments 37,491 314,488
Increase in policy loans (net) (947,350) (1,111,027)
Net cash provided (used)
by
investing activities (1,484,615) 5,741,607
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended June 30, 1996 and 1995
(Unaudited)
Six-months ended June 30,
1996 1995
Cash flows from financing
activities:
Borrowed funds 0 175,000
Repayment of note payable (223,734) (93,540)
Sale of stock 145,359 0
Net cash provided (used) by financing (78,375) 81,460
activities
Net increase in cash and short-
term investments 396,669 8,509,082
Cash and short term investments at
beginning 7,248,853 4,259,887
of period
Cash and short term investments at end $7,645,522 $12,768,969
of period
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
(1) Financial Statements
The balance sheet for June 30, 1996, the statements of
operations for the three- and six-month periods ended June
30, 1996 and 1995, and the statements of cash flows for the
three- and six-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
June 30, 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 June 30, 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
Six-months ended June 30, 1996 and 1995
Net income for the six-months ended June 30, 1996 was $666,463 or
$.04 per share, compared to $1,290,256 or $.07 per share for the
same period in 1995. Revenues increased to $29,179,9299,763,884,
an increase of 22.9 % over the first six months of 1995 when
revenues were $23,734,817. The primary reasons for the lower
earnings in 1996 were increases in operating expenses as a result
of recent acquisition of American Liberty Financial Corporation
as well as increases in claims and surrenders. Operating income
(income before capital gains and federal income taxes) was
$1,292,038 for the first half of 1996, compared to $1,731,486 for
the same period in 1995.
Premium income for the first six months of 1996 was $24,682,151
compared to $20,505,653 for the same period in 1995. This 20.4
percent increase is the result of the acquisition of American
Liberty as well as the volume of new business written by the
Company over the past eight years. Recent downturns in the
economies of several Latin American countries where the Company
had generated a large amount of new production, principally in
Argentina, have slowed the rate of growth in those countries.
However, production has begun to appear from the Pacific Rim
countries and management believes that production for the year
will be at or near levels produced in 1995, but below that seen
in 1994. Several new products were introduced into the
international market during the second quarter of 1996 which
management believes will continue to give the Company an
advantage over its competition; however, when such products have
been introduced in the past, there has typically been a three to
six month period before significant volumes of business are
written. Management does not believe the slowing down of new
business from some of the Latin markets is long term in nature,
but rather a cyclical occurrence that will run its course in the
near term. Additionally, management has taken steps to increase
the volume of new business produced by American Liberty's
marketing representatives. Management is of the opinion that it
will be late in the third quarter of 1996 before these steps,
which include increased recruiting of new representatives, will
have an effect on the Company's production.
Net investment income increased 40.9% in the first six months of
1996 compared to the same period in 1995. Net investment income
for the six months ended June 30, 1996 was $4,404,543 compared to
$3,124,254 in 1995. 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. Management is working with a new
investment management firm to further improve yields on the
Company's bond portfolio while maintaining the overall credit
quality.
Future policy benefit reserves increased by $4,008,622 in 1996,
compared to $4,959,843 in 1995. Increased lapsation of business
in the international market influenced by the economic conditions
described above affected the increase in 1996.
Claims and surrenders expense increased to $11,963,561 at June
30, 1996 from $8,993,814 for the same period in 1995. Death
claims increased to $2,034,144 in 1996 from $1,500,715 in 1995.
The mortality business on the Citizens Insurance Company block of
business actually improved over 1995, however, the addition of
American Liberty, which contributed $717,993 to death claim
expense and was not included in the 1995 results, caused the
increase over the prior years. Claims on accident and health
insurance increased substantially during 1996 to $852,295 from
$27,176. This increase is the result of the American Liberty
acquisition. American Liberty markets an individual accident and
health indemnity policy which comprises approximately 50% of its
premium income. Surrender expense increased to $6,347,831 from
$4,970,851. Management constantly monitors this activity to
insure that the Company's persistency is holding at levels equal
to or above assumptions. Thus far, the Company's persistency has
exceeded the assumed levels. The surrender activity in 1996 has
been influenced by two factors--the downturn in the economy of
several latin countries and the acquisition of American Liberty.
Coupons and endowments increasedto $2,338,416 in 1996 from
$2,144,205 in 1995. The endowment benefits are factored into the
premium much like dividends and therefore, the increase does not
pose a threat to future profitability. Management expects to see
further increases in this category in the future. 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 $390,875 in 1996,
compared to $350,867 in 1995.
Commission expense increased to $5,448,907 from $5,251,001 in
1995. This increase relates to the larger block of premium
income. Deferred policy acquisition costs capitalized in 1996
were $4,967,369 compared to $5,497,977 in 1995. The decrease is
related to the decreases in new business production.
Amortization of these costs was $4,740,958 for the first half of
1996 compared to $3,870,803 for 1995. The increase in
amortization relates to the larger block of capitalized costs
being written off as well as the increased surrender activity.
Underwriting, acquisition and insurance expenses increased 51.8%
for the first half of 1996 compared to the same period in 1995,
reaching $4,401,275 from $2,899,485. The increase is primarily
attributable to the absorption of American Liberty and the
conversion of its books and records to the systems utilized by
the Company as well as costs associated with expanding the
Company's management group. Management believes that reductions
will begin to be achieved in the fourth quarter of 1996 as
American Liberty's overhead is pared.
Three-months ended June 30, 1996 and 1995
Net income for the three-months ended June 30, 1996 was $181,466
compared to $1,017,373 for the same period in 1995. Revenues
increased to $15,484,789, an increase of 20.3% over the same
three months of 1995 when revenues were $12,872,679. The primary
reasons for the lower quarterly earnings were increases in
operating expenses and claim and surrender activity.
Premium income for the second quarter of 1996 was $13,160,847
compared to $11,232,524 over the same period in 1995. This 17.2%
increase is the result of the acquisition of American Liberty.
The rate of increase on the Citizens block of business slowed in
1996 as the amount of new business produced by the Company
slowed. Uncertainties about the economies in certain Latin
American countries, principally Argentina, contributed to the
lower rate of increase.
Net investment income increased 43.5% in the second quarter of
1996 compared to the same period in 1995. Net investment income
for the three months ended June 30, 1996 was $2,325,855 compared
to $1,620,317 in 1995. 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.
Future policy benefit reserves increased by $1,777,647 in 1996,
compared to $2,530,800 in 1995. The amount of increase in the
second quarter of 1996 reflects the increased surrender activity
as well as the lower levels of production during the year.
Claims and surrenders expense increased to $6,434,222 at June 30,
1996 from $4,709,657 for the same period in 1995. The additional
accident and health claims of American Liberty as well as
increased surrender activity were the reasons for the increase.
Underwriting, acquisition and insurance expenses increased 89.1%
for the second quarter 1996 compared to the same period in 1995,
reaching $2,942,778 from $1,566,499. The increase is primarily
attributable to the absorption of American Liberty's overhead and
the conversion of its records, which was achieved late in the
second quarter of 1996. Management expects to see expense
reductions beginning late in 1996 as a result of the economies of
scale that will be achieved through the conversion.
Liquidity and Capital Resources
Stockholders' equity increased during 1996 to $65,687,839 from
$64,712,990 at December 31, 1995. The acquisition of Insurance
Investors & Holding Co., the earnings achieved in 1996, as well
as an improvement in the market value of the Company's available
for sale fixed maturity portfolio contributed to the increase.
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 provides that shares which are
offered outside of the United States to non-United States persons
pursuant to certain specific 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 had succeeded in placing
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, management initiated a
second such offering which commenced on May 1, 1995.
The new offering comprises up to 3,500,000 Class A shares and
will run over a period of 30 months, ending October 31, 1997, or
when 3,500,000 shares have been purchased. The initial offering
price is $7.50 per share, with the shares being offered in units
of 50 shares each. Each overseas policyowner of Citizens
Insurance Company of America is being offered the opportunity to
purchase up to 100 units. The price of the shares escalates
every six month during the offering period, reaching $8.50 per
share during the final period. As of June 30, 1996,
approximately 118,000 shares had been sold.
Invested assets grew to $130,970,187 at June 30, 1996 from
$130,024,739 at December 31, 1995. At June 30, 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. Virtually all of the Company's bonds
are classified as "available for sale." 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 additional
sales during 1996.
The Company's mortgage loan portfolio, which constitutes 1.3% of
invested assets at June 30, 1996, has historically been composed
of small residential loans in Texas. Management does not expect
to incur a significant loss on any loans and has established a
reserve of $145,080 (approximately 8% of the mortgage portfolio's
balance) to cover potential unforeseen losses in the Company's
mortgage portfolio.
Policy loans comprise 15.2 percent of invested assets at June 30,
1996 compared to 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 and June 30, 1996. Management monitors the solvency of
all financial institutions in which it has funds to minimize the
exposure for loss. Management does not believe the Company is at
risk for such a loss. During 1996, the Company has utilized
short-term Treasury Bills and high grade 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
June 30, 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
($6,300,000), 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 June 30, 1996, that permitted
transaction increased statutory surplus by $6,000,000 over what
it would have been had prescribed accounting practices been
followed. In the Citizens' consolidated financial statements,
this stock is shown as treasury stock.
CICA had outstanding at June 30, 1996 and December 30, 1995, a
$466,000 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 National 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, 1996 and 1996 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.
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, 1995, or June 30, 1996.
Held-to-maturity security 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, not 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 associated with transfers of securities from held-to-
maturity to available-for-sale are recorded as a separate
component of equity for securities transferred from available-for-
sale to held-to-maturity 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. Realize 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 on 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
See Item 5, below.
Item 5. Other Information
The Annual meeting of stockholders was held on Tuesday,
June 7, 1996, at 10:00 a.m. at the Company's executive
offices. At the meeting, the following individuals were
elected to serve as directors for the following year:
Harold E. Riley Randall H. Riley
Rick D. Riley Flay F. Baugh
Timothy T. Timmerman Ralph M. Smith
T. Roby Dollar Joe R. Reneau
Steve Shelton
At a subsequent meeting of the Board of Directors, Harold
E. Riley was re-elected Chairman.
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, 1995August 14, 1996
d:\bridget\letters\tenq.ltr
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