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 June 30, 1997
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, 1997, Registrant had 20,469,084 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, June 30, 1997
(Unaudited)and December 31, 1996 3
Statements of Operations, Three-Months
Ended June 30, 1997 and 1996
(Unaudited) 5
Statements of Operations, Six-Months
Ended June 30, 1997 and 1996
(Unaudited) 6
Statements of Cash Flows, Three-Months
Ended June 30, 1997 and 1996
(Unaudited) 7
Statements of Cash Flows, Six-Months
Ended June 30, 1997 and 1996
(Unaudited) 9
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations 13
Part Other Information 1917
II.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
(Unaudited)
June 30, December
1997 31, 1996
Assets
Investments:
Fixed maturities held for investment,
at amortized cost (market $5,146,000
in 1997 and $5,050,000 in 1996)
$5,622,250 $5,627,256
Fixed maturities available for sale,
at lower of cost or market (cost
$112,735,509 in 1997 and
$100,148,327 in 1996) 111,100,028 109,723,050
Equity securities, at market (cost $
1,084,751 in 1997 and $89,580 in
1996) 1,045,326 50,155
Mortgage loans on real estate (net of
reserve of $50,000 in 1997 and
$145,080 in 1996) 1,502,707 1,672,522
Policy loans 19,748,195 19,819,125
Guaranteed student loans (net of
reserve of $10,000 in 1997 and 1996)
118,344 298,683
Other long-term investments 898,246 920,345
Short-term investments 2,440,000
200,000
Total investments 142,475,096 138,311,136
Cash 8,892,896 6,085,383
Prepaid reinsurance 1,144,824 -
Reinsurance recoverable 2,121,051 1,773,541
Other receivables 1,113,512 594,088
Accrued investment income 1,860,650 1,682,084
Deferred policy acquisition costs 36,599,594 36,933,753
Cost of insurance acquired 8,817,500 7,219,594
Other intangible assets 1,540,275 1,633,625
Excess of cost over net assets
acquired 17,633,214
13,677,800
Property, plant and equipment 6,052,440 5,442,578
Other assets 1,540,489
743,636
Total assets $229,791,541 214,097,218
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and December 31, 1996
(Unaudited)
June 30, December
1997 31, 1996
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefit reserves 140,195,822 132,401,079
Dividend accumulations 4,838,669 3,961,603
Premium deposits 1,869,120 1,803,358
Policy claims payable 2,612,457 2,966,818
Other policyholders' funds 1,985,124 1,958,992
Total policy liabilities 151,501,192 143,091,850
Other liabilities 1,702,584 2,052,001
Commissions payable 735,205 928,288
Notes payable 910,798 489,166
Deferred Federal income tax 779,839 842,250
Amounts held on deposit 224,427 168,255
Total liabilities 155,854,045 147,571,810
Stockholders' Equity:
Common stock:
Class A, no par value, 50,000,000
shares authorized, 22,413,819 shares
issued in 1997 and 21,761,894 in
1996, including shares in treasury
of 1,944,735 in 1997 and 2,077,947
in 1996
52,586,070 45,941,552
Class B, no par value, 1,000,000
shares authorized, 621,049 shares
issued and outstanding in 1997 and
1996 283,262 283,262
Unrealized gain (loss) on investments (832,665) (710,166)
Retained earnings 23,829,438 23,430,634
75,866,105 68,945,282
Treasury stock, at cost (1,928,609) (2,062,266)
Total stockholders' equity 73,937,496 66,883,016
Commitments and contingencies
Total liabilities and stockholders'
equity 229,791,541 214,454,826
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended June 30, 1997 and 1996
(Unaudited)
Three-months ended June
30,
1997 1996
Revenues:
Premiums $13,079,433 $13,160,847
Annuity and Universal life 94,494 (1,913)
considerations
Net investment income 2,540,886 2,325,855
Other income 129,835 23,443
Realized gains (losses) on
investments 77,965 21,637
Interest expense (3,915) (754)
15,918,698 15,529,115
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit
reserves 2,238,688 1,777,647
Policyholders' dividends 578,440 653,920
Claims and surrenders 6,774,584 6,434,222
Annuity expenses 32,907 198,227
9,624,619 9,064,016
Commissions 3,160,795 2,805,821
Underwriting, acquisition and
insurance expenses 1,791,488 2,942,778
Capitalization of deferred policy
acquisition costs (2,695,843) (2,477,772)
Amortization of deferred policy
acquisition costs 2,746,983 2,360,023
Amortization of cost of insurance
acquired and excess of cost over net 461,734 264,347
assets acquired
15,089,776 14,959,213
Income (loss) before federal income $828,922 $569,902
tax
Federal income tax:
Federal income tax expense (benefit) 307,863 388,436
Net Income (Loss) $521,059 $181,466
Per Share Amounts:
Net income (loss) per share of
common stock $0.03 $0.01
Weighted average shares outstanding
20,591,574 19,530,864
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Months Ended June 30, 1997 and 1996
(Unaudited)
Six-months ended June 30,
1997 1996
Revenues:
Premiums 24,589,880 24,682,151
Annuity and Universal life
considerations 198,762 93,235
Net investment income 4,894,712 4,404,543
Other income 193,812 36,078
Realized gains (losses) on
investments 195,805 12,709
Interest expense (14,280) (28,904)
30,058,691 29,199,812
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit
reserves 3,665,985 4,008,622
Policyholders' dividends 1,058,127 1,104,161
Claims and surrenders 13,794,268 11,963,561
Annuity expenses 218,839 428,675
18,737,219 17,505,019
Commissions 5,449,162 5,448,907
Underwriting, acquisition and
insurance expenses 4,017,980 4,401,275
Capitalization of deferred policy
acquisition costs (4,757,932) (4,967,369)
Amortization of deferred policy
acquisition costs 5,092,091 4,740,958
Amortization of cost of insurance
acquired and excess of cost over net
assets acquired 881,905 766,275
29,420,425 27,895,065
Income (loss) before federal income
tax $638,266 $1,304,747
Federal income tax:
Federal income tax expense (benefit) 238,891 638,284
Net Income (Loss) $399,375 $666,463
Per Share Amounts:
Net income (loss) per share of $0.02 $0.04
common stock
Weighted average shares outstanding
20,245,799 19,459,167
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended June 30, 1997 and 1996
(Unaudited)
Three-months ended June
30,
1997 1996
Cash flows from operating
activities:
Net gain (loss) $521,061 $181,466
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income (493,480) (187,611)
Deferred policy acquisition costs
51,140 (117,749)
Amortization of cost of insurance
acquired and excess cost over net
assets acquired
461,734 264,347
Prepaid reinsurance 572,412 582,637
Reinsurance recoverable 559,894 (249,334)
Other receivables (452,376) 67,311
Property, plant and equipment
(712,140) 25,812
Future policy benefit reserves
5,578,918 928,945
Other policy liabilities 491,283 1,632,218
Commissions payable and other
liabilities 759,682 1,562,797
Amounts received (paid out) as trustee
48,324 39,688
Federal income tax payable (103,351) 0
Deferred Federal income tax payable
(62,411) (1,926,268)
Other, net (5,247,717) 434,840
Net cash provided (used) by operating
activities 1,972,973 3,239,099
Cash flows from investing
activities:
Maturity of fixed maturities 5,383,375 1,225,587
Sale of fixed maturities available for
sale 2,885,838 2,250,819
Purchase of fixed maturities available
for sale (5,241,604) (2,067,410)
Net change in mortgage loans 66,688 95,504
Net change in guaranteed student loans
186,501 58,870
Cash from merger 138,138 0
Change in other long-term investments
41,273 37,491
Increase in policy loans (net) (61,337) (200,176)
Net cash provided (used)
by investing activities 3,398,872 1,400,685
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended June 30, 1997 and 1996
(Unaudited)
Three-months ended June
30,
1997 1996
Cash flows from financing
activities:
Borrowed Funds 0 0
Repayment of note payable (68,546) (186,714)
Sale of stock 0
Net cash provided (used) by financing
activities (68,546) (186,714)
Net increase (decrease) in cash and
short-term investments 5,303,299 4,453,070
Cash and short term investments at
beginning of period 6,029,597 3,192,452
Cash and short term investments at end
of period $11,332,896 $7,645,522
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended June 30, 1997 and 1996
(Unaudited)
Six-months ended June 30,
1997 1996
Cash flows from operating
activities:
Net gain (loss) $399,377 $666,463
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income (178,566) 103,621
Deferred policy acquisition costs
334,159 (226,411)
Amortization of cost of insurance
acquired, excess cost over net
assets acquired, and other
intangibles
881,905 766,275
Prepaid reinsurance (1,144,824) (1,165,126)
Reinsurance recoverable (347,510) (81,680)
Other receivables (519,424) 484,077
Property, plant and equipment
(609,862) (150,094)
Future policy benefit reserves
7,794,743 4,008,622
Other policy liabilities 444,599 1,575,621
Commissions payable and other
liabilities (542,500) (741,986)
Amounts received (paid out) as trustee
56,172 (23,683)
Federal income tax payable 0 (1,025,106)
Deferred Federal income tax (62,411) (1,926,268)
Other, net (4,265,932) (304,666)
Net cash provided (used) by operating
activities 2,239,926 1,959,659
Cash flows from investing
activities:
Maturity of fixed maturities 6,349,893 3,313,624
Sale of fixed maturities available for
sale 10,727,026 12,171,911
Purchase of fixed maturities available
for sale (14,965,675) (16,388,704)
Net change in mortgage loans 172,815 164,469
Net change in guaranteed student loans
180,339 85,508
Cash from merger 138,138 78,436
Change in other long-term investments
22,099 37,491
Increase in policy loans (net) (70,930) (947,350)
Net cash provided (used)
by investing activities 2,553,705 (1,484,615)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended June 30, 1997 and 1996
(Unaudited)
Six-months ended June 30,
1997 1996
Cash flows from financing
activities:
Exercise of stock options 140,500 0
Repayment of note payable (79,044) (223,734)
Sale of stock 192,426 145,359
Net cash provided (used) by financing
activities 253,882 (78,375)
Net increase (decrease) in cash and
short-term investments 5,047,513 396,669
Cash and short term investments at
beginning of period 6,285,383 7,248,853
Cash and short term investments at end
of period $11,332,896 $7,645,522
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
(1) Financial Statements
The balance sheet for June 30, 1997, the statements of
operations for the three and six-month periods ended June
30, 1997 and 1996, 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, 1997 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, 1996
annual 10-K report filed with the Securities and Exchange
Commission. The results of operations for the period
ended June 30, 1997 are not necessarily indicative of the
operating results for the full year.
(2) Merger and Pending Acquisition
On October 28, 1996, Citizens announced that it had signed
definitive written agreements for the acquisition of
American Investment Network, Inc. (American Investment), a
Jackson, Mississippi, based life insurance holding company
with $7.5 million in assets, $3.4 million of stockholders'
equity, revenues of $3.2 million and $67 million of life
insurance in force.
The American Investment agreement provided that following
the acquisition, American Investment shareholders would
receive 1 share of Citizens Class A Common Stock for each
7.2 shares of American Investment Common Stock owned.
Approximately 700,000 Class A shares were issued in
connection with the transaction, which was accounted for
as a purchase. The companies will continue to operate in
their respective locations under a combined management
team with consolidation of computer data processing on the
Citizens' system. The agreement closed on June 19, 1997.
On August 13, 1997, Citizens signed a definitive agreement
to acquire 100% of the outstanding shares of National
Security Life and Accident Insurance Company of Arlington,
Texas for $1.7 million in cash and restricted stock. The
Agreement, which is subject to approval by regulatory
authorities in Texas, provides that Citizens will pay $1
million in cash and $700,000 in restricted stock for all
of the outstanding shares of National, a privately-owned,
Texas domiciled life and accident and health insurer. The
transaction is expected to increase assets by
approximately $6 million, revenues by $5 million and
capital by $1 million. The transaction is expected to
close before year end 1997.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Certain statements contained in this Form 10Q are not statements
of historical fact and constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act (the "Act"), including, without limitation, the italicized
statements and the statements specifically identified as forward-
looking statements within this document. In addition, certain
statements in future filings by the Company with the Securities
and Exchange Commission, in press releases, and in oral and
written statements made by or with the approval of the Company
which are not statements of historical fact constitute forward-
looking statements within the meaning of the Act. Examples of
forward-looking statements, include, but are not limited to: (i)
projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital
structure, and other financial items, (ii) statements of plans
and objectives of the Company or its management or Board of
Directors including those relating to products or services, (iii)
statements of future economic performance and (iv) statements of
assumptions underlying such statements. Words such as
"believes", "anticipates", "expects", "intends", "targeted",
"may", "will" and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of
identifying such statements.
Forward-looking statements involve risks and uncertainties which
may cause actual results to differ materially from those in such
statements. Factors that could cause actual results to differ
from those discussed in the forward-looking statements include,
but are not limited to: (i) the strength of foreign and U.S.
economies in general and the strength of the local economies in
which operations are conducted; (ii) the effects of and changes
in trade, monetary and fiscal policies and laws; (iii)
inflation, interest rates, market and monetary fluctuations and
volatility; (iv) the timely development and acceptance of new
products and services and perceived overall value of these
products and services by existing and potential customers; (v)
changes in consumer spending, borrowing and saving habits; (vi)
concentrations of business from persons residing in third world
countries; (vii) acquisitions; (viii) the persistency of
existing and future insurance policies sold by the Company and
its subsidiaries; (ix) the dependence of the Company on its
Chairman of the Board; (x) the ability to control expenses; (xi)
the effect of changes in laws and regulations (including laws and
regulations concerning insurance) with which the Company and its
subsidiaries must comply, (xii) the effect of changes in
accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting Standards
Board, (xiii) changes in the Company's organization and
compensation plans; (xiv) the costs and effects of litigation
and of unexpected or adverse outcomes in such litigation; and
(xv) the success of the Company at managing the risks involved
in the foregoing.
Such forward-looking statements speak only as of the date on
which such statements are made, and the Company undertakes no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is
made to reflect the occurrence of unanticipated events.
Six-months ended June 30, 1997 and 1996
Net gain for the six-months ended June 30, 1997 was $399,375,
compared to a gain of $666,463 for the same period in 1996.
Revenues increased to $30,058,691 compared to the first six-
months of 1996 when revenues were $29,199,812. The increase in
revenues was driven by an 11.1% increase in investment income.
The primary reason for the lower earnings in 1997 was a non-
recurring charge of approximately $400,000 related to the
acquisition of the minority interest not already owned of First
American Investment Corporation for shares of the Company's stock
previously held in treasury.
Premium income for the first six-months of 1997 was $24,589,880
compared to $24,682,151 for the same period in 1996. Production
of new premiums by the agents of Citizens Insurance Company of
America ("CICA") was flat during the first half of 1997 compared
to the previous year. Management introduced a new line of
products and an enhanced marketing self-promotion plan during mid-
1996 as part of a re-emphasis of new production. During the past
several years, management had not promoted new sales and
recruiting so as to emphasize the growth of capital through 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. Premium income was negatively impacted during
1997 due to the pending merger of American Liberty Life Insurance
Company, acquired in 1995, into CICA and the conversion of the
administrative functions previously performed by American Liberty
in Baton Rouge, Louisiana being transferred to Austin, Texas in
late 1996. Additionally, management re-evaluated the commission
contracts offered by American Liberty and in late 1996 notified
the majority of agents writing new business that there would be a
substantial reduction in the first year commission they had been
receiving. Management believes that such actions will limit the
production of new business by the American Liberty agents;
however, the business produced will offer significantly greater
opportunity for profit for the company than that previously sold.
Net investment income increased 11.1% in the first six-months of
1997 compared to the same period in 1996. Net investment income
for the six-months ended June 30, 1997 was $4,894,712 compared to
$4,404,543 in 1996. 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. A shift in investment strategy implemented
in 1996 to shift away from U.S. Treasury instruments to
government guaranteed mortgage backed securities and agency
issues will, in the opinion of management continue to offer
greater return with a minimum amount of additional risk.
Claims and surrenders expense increased from $11,963,561 at June
30, 1996 to $13,794,268 for the same period in 1997. Death
claims increased to $2,392,182 in 1997 from $2,034,144 in 1996
with the increases occuring primarily in the international
business in force. Management believes the increase in claims is
a temporary situation, and not indicative of an adverse trend on
the Company's international life insurance. Claims on the
Company's domestic business remained relatively stable compared
to 1996. Surrender expense increased to $7,453,385 from
$6,347,831. Management constantly monitors this activity to
insure that the Company's persistency is holding at levels equal
to or above assumptions. The increase in 1997 is, in
management's opinion, a carryover from the impact of the
termination of several well established agents during 1996.
Coupons and endowments increased to $2,453,164 in 1997 from
$2,338,416 in 1996. 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 $984,886 in 1997, compared to $852,295 in
1996. 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 $510,651 in 1997, compared to $390,875 in 1996.
Commission expense remained flat at $5,449,162 compared to
$5,448,907. The level reflects a slight decline in the amount of
business issued during the year compared to the prior year.
Additionally, the agreement with WPA described below contributed
to the decline. Deferred policy acquisition costs capitalized in
1997 were $4,757,932 compared to $4,967,369 in the prior year.
The decline is related to the relatively flat level of new sales
during the year. Amortization of these costs was $5,092,091 for
the second quarter of 1997 compared to $4,740,958 for 1996.
Underwriting, acquisition and insurance expenses decreased to
$4,017,980 in 1997 from $4,401,275. The decrease is primarily
attributable to the elimination of the operating expenses of
ALFC. Additionally, a one-time charge of approximately $400,000
was incurred during the first quarter of 1997 as the result of
the acquisition of a 5.52% interest in First American Investment
Corporation, a 94.48% subsidiary of American Liberty. Management
believes such acquisition, which entailed the issuance of 133,212
shares of the Company's Class A shares previously held in
treasury, will prove to be of significant benefit to the Company
in the long term. The removal of First American allows the
merger of American Liberty and CICA to proceed as well as
remedying an unhappy block of minority holders of First American
who were left without a market for their First American shares as
the result of an intrastate offering that was only marginally
successful. Management expects to achieve significant reductions
in expenses beginning late in the second quarter of 1997 due to
the execution of an agreement with Worldwide Professional
Associates, Inc.,"WPA", an international marketing company, to
manage the Company's international sales activities in exchange
for an overriding commission on new sales. As a result of this
agreement, the Company will eliminate approximately $900,000 of
fixed overhead on an annual basis, in exchange for the variable
cost of the commission override.
Three-months ended June 30, 1997 and 1996
Net income for the three-months ended June 30, 1997 was $521,060,
or $.03 per share, an increase of 187.1% over the same period in
1996 when income was $181,466, or $.01 per share. Total revenues
for the quarter were $15,918,698, compared to $15,529,115 for the
same period in 1996.
Premium income for the quarter was $13,079,433, down slightly
from 1996 when premiums totalled $13,160,847. A slowdown of
production by the agents representing American Liberty as the
result of commission reductions described above and flat
international sales contributed to the lack of increase.
Investment income increased to $2,540,886 from $2,325,855. The
increase relates to the growing asset base of the Company as well
as the higher yields available in the past year in the bond
market.
Policy benefits increased from $9,064,016 in 1996 to $9,624,619
in the current year. Increases in death claims and policy
surrenders were the primary causes. Management does not believe
such increases to be indicative of a strong negative trend, but
rather the result of recent growth.
Commissions increased from $2,805,821 to $3,160,795 due to the
agreement with WPA described above. Management expects to see
further increases in this area due to the WPA agreement.
Liquidity and Capital Resources
Stockholders' equity increased to $73,947,496 at June 30, 1997
from $66,883,016 at December 31, 1996. The First American and
American Investment Network acquisitions and the exercise of
certain stock options that had been outstanding for some time
were the primary reasons for the growth.
In May 1995 an offering under Regulation S was initiated to the
Company's international policyholders. It was terminated in
June, 1997. As of June 30, 1997, an additional $1.1 million had
been raised through the offering.
Invested assets grew to $142,475,096 in 1997 from $138,311,136 at
December 31, 1996. At December 31, 1996, and June 30, 1997,
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 1997; however, because of
continued uncertainty regarding long-term interest rates,
management cannot rule out sales during 1997. Fixed maturities
held to maturity, amounting to $5,622,250, 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 1.2% of
invested assets at December 31, 1996, (1.1% at June 30, 1997) has
historically been composed of small residential loans in Texas.
At December 31, 1996, no mortgage loans were in default.
Management has established a reserve of $50,000 at June 30, 1997
and December 31, 1996 (approximately 3% of the mortgage
portfolio's balance) to cover potential unforeseen losses in the
Company's mortgage portfolio.
Policy loans comprise 13.9% of invested assets at June 30, 1997
and December 31, 1996. 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 June 30,
1997 and December 31, 1996. Management monitors the solvency of
all financial institutions in which it has funds to minimize the
exposure for loss. At March 31, 1997, management does not
believe the Company is at risk for such a loss. During 1997, 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 27,000 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 $146,000 was leased to a third
party on a triple-net basis for three years during 1995. The
lease provided that the party can purchase the building during
the first 18 months of the lease for $850,000 cash, with no lease
payments applying to the purchase price. The option period
expired in 1996. The property is being re-marketed with a $1.5
million asking price. The tenant retains a right of first
refusal for the remainder of the lease.
CICA owned 1,955,457 shares of Citizens Class A common stock at
December 31, 1996 (1,822,245 at June 30, 1997). 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 7% of admitted assets
($8,310,000), 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, 1996, that
permitted transaction increased statutory surplus by $4,000,000
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. During 1995,
Citizens re-acquired 115,943 of these shares and retired them.
During 1997, approximately 133,212 shares were issued in
conjunction with the First American transaction.
CICA had outstanding at June 30, 1997 and December 31, 1996, a
$400,000 ($466,000 at December 31, 1996) 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 the Company
would begin. At December 31, 1996 and 1995, CICA, ALLIC and
CILIC were well above required minimum levels.
Financial Accounting Standards
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.
In March 1995, the FASB issued Statement 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." Statement 121 established accounting standards for
the recognition and measurement of impairment on long-lived
assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and
certain intangibles to be disposed of. This statement does not
apply to long-lived assets such as deferred policy acquisition
costs and deferred tax assets. Statement 121 is effective for
fiscal years beginning after December 15, 1995. The Statement
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, 1996 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.
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 was held on Tuesday,
June 3, 1997, at 10:00 a.m. at the Company's executive
offices. The record date for the meeting was April 15,
1997. Elected as Directors for the coming year were:
Flay F. Baugh Steven F. Shelton Ralph M. Smith,
Th.D.
Timothy T. Timmerman T. Roby Dollar Mark A. Oliver
Joe R. Reneau, M.D. Harold E. Riley Rick D. Riley
Item 6. Exhibits and Reports on Form 8-K
Current Report dated April 30, 1997 regarding sales of
Common Stock via Reg. S.
Current Report dated June 20, 1997 regarding sales of
Common Stock via Reg. S.
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
President
Date: August 14, 1997
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