UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1999
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: 1-13004
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, 1999, Registrant had 21,374,357 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
Consolidated Statements of Financial
Position, March 31, 1999 (Unaudited) 3
and December 31, 1998
Consolidated Statements of Operations,
Three-Months Ended March 31, 1999 5
and 1998 (Unaudited)
Consolidated Statements of Cash Flows,
Three-Months Ended March 31, 1999 6
and 1998 (Unaudited)
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations 11
Part Other Information 18
II.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, 1999 and December 31, 1998
(Unaudited) December 31,
March 31, 1998
1999
Assets
Investments:
Fixed maturities held for investment,
at amortized cost (market $5,737,500
in 1999 and $6,169,000 in 1998) $5,603,317 $
5,606,374
Fixed maturities available for sale,
at fair value (cost $140,670,445 in
1999 and $141,202,761 in 1998) 142,772,125 146,645,842
Equity securities, at fair value
(cost $716,294 in 1999 and $815,271 733,735 862,287
in 1998)
Mortgage loans on real estate (net of
reserve of $50,000 in 1999 and 1998) 1,521,314 1,560,757
Policy loans 21,306,136 20,996,919
Guaranteed student loans 9,346 4,673
Other long-term investments 551,096 595,271
Short-term investments 4,675,000 300,000
Total investments 177,172,069 176,572,123
Cash 9,152,963 9,868,728
Prepaid reinsurance 1,427,271 -
Reinsurance recoverable 1,674,420 1,755,561
Other receivables 600,708 433,320
Accrued investment income 1,293,515 1,806,065
Deferred policy acquisition costs 36,360,504 37,259,386
Cost of insurance acquired 8,184,077 8,290,853
Excess of cost over net assets 8,561,196 8,375,799
acquired
Other intangible assets 2,212,925 2,289,725
Property, plant and equipment 5,221,228 5,155,088
Deferred Federal income tax 1,613,261
699,848
Other assets 905,876
877,699
Total assets $254,380,103 $253,384,195
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
March 31, 1999 and December 31, 1998
(Unaudited) December 31,
March 31, 1998
1999
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefit reserves $161,204,839 $160,176,329
Dividend accumulations 4,812,704 4,818,915
Premium deposits 2,435,206 2,013,274
Policy claims payable 4,359,004 4,801,548
Other policyholders' funds 1,632,662
1,977,711
Total policy liabilities 174,789,464 173,442,728
Other liabilities 1,516,432 2,067,392
Commissions payable 821,730 833,881
Notes payable 333,333 333,333
Federal income tax payable 413,309 1,534,269
Amounts held on deposit 268,913
122,110
Total liabilities 177,996,37 178,480,516
8
Stockholders' Equity:
Common stock:
Class A, no par value, 50,000,000
shares authorized, 23,318,179 shares
issued in 1999 and 22,708,910 in
1998, including shares in treasury
of 1,944,735 in 1999 56,217,781 52,790,643
and 1998
Class B, no par value, 1,000,000
shares
authorized, 621,049 shares 283,262 283,262
issued and outstanding in
1999 and 1998
Accumulated other comprehensive
income:
Unrealized investment gains 1,398,621 3,623,464
Retained earnings 20,135,464
20,413,215
78,312,879 76,832,833
Treasury stock, at cost (1,929,154)
(1,929,154)
Total stockholders' equity 74,903,679
76,383,725
Commitments and contingencies
Total liabilities and stockholders' $254,380,103 $253,384,195
equity
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended March 31, 1999 and 1998
(Unaudited)
Three-months ended March
31,
1999 1998
Revenues:
Premiums $ $ 13,420,674
13,534,945
Annuity and Universal life 69,283 66,498
considerations
Net investment income 3,004,958 2,842,631
Other income 183,517 118,419
Realized gains on investments 31,200 30,651
Interest expense (5,833) (18,592)
16,818,070 16,460,281
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit 1,173,649 1,511,674
reserves
Policyholders' dividends 501,634 690,280
Claims and surrenders 8,207,261 6,771,493
Annuity expenses 134,129 98,572
10,016,673 9,072,019
Commissions 2,866,678 2,886,216
Underwriting, acquisition and 2,347,720 2,859,351
insurance expenses
Capitalization of deferred policy (1,685,220) (1,514,707)
acquisition costs
Amortization of deferred policy 2,584,102 2,114,014
acquisition costs
Amortization of cost of insurance
acquired and excess of cost over net 351,882
assets acquired 893,882
16,481,835 16,310,775
Income before Federal income tax $336,235 $ 149,506
Federal income tax:
Federal income tax expense 58,484 36,922
Net Income $277,751 $ 112,584
Per Share Amounts:
Basic and diluted earnings per share
of common stock $0.01 $0.01
Weighted average shares outstanding 21,824,263 21,386,137
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended March 31, 1999 and 1998
(Unaudited)
Three-months ended March
31,
1999 1998
Cash flows from operating
activities:
Net income $ $
277,751 112,584
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income 546,875 551,926
Realized gains (losses) on sale of
investment (31,200) (30,651)
Deferred policy acquisition costs 898,882 599,307
Amortization of cost of insurance
acquired and excess cost
over 351,882 847,206
net assets acquired
Reinsurance recoverable (1,345,773) (1,074,647)
Other receivables (166,946) 51,655
Deferred Federal income tax 496,598 (670,779)
Future policy benefit reserves 960,796 1,640,176
Other policy liabilities 317,199 (660,977)
Commissions payable and other (591,737) 858,256
liabilities
Amounts received (paid out) as trustee (146,805) (155,605)
Federal income tax payable (1,120,960) 5,753
Other, net 63,791 (1,594,284)
Net cash provided (used) by operating
activities 510,353 479,920
Cash flows from investing
activities:
Maturity of fixed maturities 1,687,161 1,126,716
Sale of fixed maturities available for 268,090 5,184,949
sale
Purchase of fixed maturities available 0 (8,764,433)
for sale
Sale of equity securities 92,500 151,463
Principal payments on mortgage loans 39,443 29,146
Net change in guaranteed student loans (4,673) 49,085
Sale of other long-term investments
and property plant and equipment 68,100 352,307
Cash from merger 1,512,255 0
Purchase of other long-term
investments and property plant and (204,777) (256,924)
equipment
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended March 31, 1999 and 1998
(Unaudited)
Three-months ended March
31,
1999 1998
Purchase of short-term investments (4,375,000) 0
Increase in policy loans (net) (309,217) (88,513)
Net cash provided (used)
by
investing activities (1,226,118) (2,216,204)
Cash flows from financing
activities:
Repayment of note payable 0 (4,222)
Net cash provided (used) by financing
activities 0 (4,222)
Net decrease in cash and cash (715,765) (1,740,506)
equivalents
Cash and cash equivalents at beginning
of period 9,868,728 6,754,956
Cash and cash equivalents at end of $9,152,963 $5,014,450
period
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
In 1999 the Company issued 609,269 Class A stock to purchase all of the
capital stock of First Investors Group, Inc. In conjunction with
the acquisition, liabilities were assumed as follows:
Fair value of tangible assets
acquired $3,170,802
Fair value of intangible assets
acquired, gross 353,703
Net assets acquired 3,524,505
Capital stock issued (3,427,138)
Liabilities assumed $ 97,367
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) Financial Statements
The Statement of Financial Position for March 31, 1999, the
statements of
operations for the three-month periods ended March 31,
1999 and 1998, 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, 1999 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 (GAAP) 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, 1998
annual 10-K report filed with the Securities and Exchange
Commission. The results of operations for the period
ended March 31, 1999 are not necessarily indicative of the
operating results for the full year.
(2) Acquisition
On September 15, 1998, Citizens announced that a
definitive agreement had been reached between Citizens and
First Investors Group, Inc. (Investors) of Springfield,
Illinois wherein Citizens would acquire 100% of the
outstanding shares of Investors for shares of Citizens
Class A Common stock. Investors is the parent of
Excalibur Insurance Corporation (Excalibur), also of
Springfield, Illinois. This transaction closed on January
26, 1999.
Pursuant to the terms of the Agreement, which was approved
by Investors' shareholders and regulatory authorities,
Citizens issued one share of Citizens Class A Common stock
for each 6.6836 shares of Investors common and preferred
stock issued and outstanding. Citizens issued
approximately 610,000 shares of its Class A Common stock
to consummate the transaction, which was accounted for as
a purchase.
(3) Segment Information
The Company has two reportable segments identified by
geographic area: International Business and Domestic
Business. International Business consists of ordinary
whole-life business. International sales are throughout
Latin America with policies sold to residents of Central
and South America. The Company has no assets, offices or
employees outside of the United States of America (U.S.)
and requires that all transactions be in U.S. dollars paid
in the U.S. Domestic Business consisting of traditional
life and burial insurance, pre-need policies, accident and
health specified disease, hospital indemnity and
accidental death policies are sold throughout the Southern
U.S.
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company evaluates performance based on GAAP
net income (loss) before federal income taxes for its two
reportable segments.
Geographic Areas - The following summary represents
financial data of the Company's continuing operations
based on their location for the quarter ended March 31,
1999 and 1998.
1999 1998
Revenues
Domestic. $ 5,212,404 $ 5,172,434
International 11,611,499 11,306,439
Total Revenues $16,823,903$16,478,873
The following summary represents revenues and pretax
income from continuing operations and identifiable assets
for the Company's reportable segments as of and for the
quarters ended March 31, 1999 and 1998, is as follows:
Quarter ended March 31 1999 1998
Revenue, excluding net
investment income and
realized gain (loss) on
investments:
Domestic $ $ 4,270,560
4,271,738
International 9,335,030
9,516,007
Total consolidated
revenue $ 13,787,74 $ 13,605,590
5
Net investment income:
Domestic 892,253
931,000
International 1,950,378
2,073,958
Total consolidated
net investment income $ $ 2,842,631
3,004,958
Amortization expense:
Domestic 909,630 944,127
International 2,026,354 2,063,769
Total consolidated
amortization expense $ 2,935,984 $ 3,007,896
Realized gain (loss) on
investments:
Domestic 9,666 9,621
International 21,534
21,030
Total consolidated
realized gain (loss) on
investments $ 31,200 $ 30,651
Net income (loss) before
federal income tax:
Domestic 104,173 46,934
International 232,062 102,572
Total consolidated
net income (loss) before
federal income taxes $ 336,235 $ 149,506
Quarter ended Year ended
March 31, 1999 December 31,
1998
Assets:
Domestic 80,384,11 80,069,406
3
International 173,995,990 173,314,789
Total $254,380,103 $253,384,195
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.
Three-months ended March 31, 1999 and 1998
Net income for the three-months ended March 31, 1999 was $277,751
compared to $112,584 for the same period in 1998. Revenues
increased to $16,818,0709,763,884, an increase of 2.2% over the
first three months of 1998 when revenues were $16,460,281. The
increase in revenues was driven by a 5.7% increase in investment
income. Increased revenues coupled with decreases in operating
expenses contributed to the improved earnings.
Premium income for the first three months of 1999 was $13,534,945
compared to $13,420,674 for the same period in 1998. Production
of new premiums by the agents of Citizens Insurance Company of
America ("CICA") was higher during the first quarter of 1999 than
in the previous year. Management introduced a new line of
ordinary whole life products during January 1998 which will, in
the opinion of management, have a favorable impact on new
production once they are assimilated by the marketing force.
Net investment income increased 5.7% in the first three months of
1999 compared to the same period in 1998. Net investment income
for the three months ended March 31, 1999 was $3,004,958 compared
to $2,842,631 in 1998. This increase reflects the earnings on
the growth in the Company's asset base. In the coming quarters,
management expects to further diversify the portfolio focusing on
high quality private placement instruments as well as possibly
mortgage loans. Through this diversification, management
believes that additional yield can be earned with a minimal
increase in risk.
Claims and surrenders expense increased from $6,771,493 at March
31, 1998 to $8,207,261 for the same period in 1999. Death claims
increased from $914,381 in 1998 to $1,350,376 in 1999. Surrender
expense decreased to $3,181,778 from $3,343,683. 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 $1,165,656 in 1999 from
$1,133,891 in 1998. 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 $2,306,778 in 1999, compared to $1,142,036
in 1998. This increase is directly related to the USLIC and
NSLIC blocks of business which consist of large amounts of
scheduled benefit daily indemnity policies. During the second
half of 1998, the Company experienced a significant increase in
the volume of claims which resulted in a backlog. During the
fourth quarter of 1998, management increased the number of
individuals processing claims from approximately 13 to 30.
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 $202,673 in
1999, compared to $237,502 in 1998.
Deferred policy acquisition costs capitalized in 1998 were
$1,514,707 compared to $1,685,220 in the current year.
Amortization of these costs was $2,584,102 for the first quarter
of 1999 compared to $2,114,014 for 1998.
Underwriting, acquisition and insurance expenses decreased from
$2,859,351 in the first quarter of 1998 to $2,347,720 in 1999, a
reduction of 17.9%. The decrease can be attributed to the
economies of scale being achieved after the consolidation of the
administration of the business of USLIC and NSLIC.
Amortization of cost of insurance acquired and excess of cost
over net assets acquired decreased to $351,882 in 1999 from
$893,882 in 1998. The decrease in amortization is related to the
write-off of approximately $9.5 million of goodwill
recorded on the purchase of American Liberty in 1995.
Liquidity and Capital Resources
Stockholders' equity increased to $76,383,725 at March 31, 1999
from $74,903,679 at December 31, 1998. The acquisition of First
Investors Group, Inc. for shares of the Company's stock, coupled
with the net income offset declines in the market value of the
Company's bond portfolio caused by higher interest rates and
fueled the growth.
Invested assets remained stable at $176,373,052 in 1999 from
$176,572,123 at December 31, 1998. At March 31, 1999 and
December 31, 1998, 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 fair value. The Company does not have a
plan to make material dispositions of fixed maturities during
1999; however, because of continued uncertainty regarding long-
term interest rates, management cannot rule out sales during
1999. Fixed maturities held to maturity, amounting to
$5,603,317, 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 0.8% of
invested assets at December 31, 1998 and March 31, 1999, has
historically been composed of small residential loans in Texas.
Management has established a reserve of $50,000 at March 31, 1999
and December 31, 1998 (approximately 3% of the mortgage
portfolio's balance) to cover potential unforeseen losses in the
Company's mortgage portfolio.
Policy loans comprise 11.6% of invested assets at March 31, 1999.
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 March
31, 1999 and December 31, 1998. Management monitors the solvency
of all financial institutions in which it has funds to minimize
the exposure for loss. At March 31, 1999, management does not
believe the Company is at risk for such a loss. During 1999, 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. The
Company relocated to the building in September 1993. The Company
occupies approximately 35,000 square feet of space in the
building, which is 100% leased.
CICA owned 1,821,332 shares of Citizens Class A common stock at
March 31, 1999 and December 31, 1998. 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 March 31, 1999 and December 31, 1998, the Company valued
the shares in accordance with prescribed statutory accounting
practices. In the Citizens' consolidated financial statements,
this stock is shown as treasury stock.
CICA had outstanding at March 31, 1999 and December 31, 1998, a
$333,333 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. In April 1999 Citizens paid off the note to Chase
Bank.
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 the Company
would begin. At December 31, 1998, CICA, and CILIC were well
above required minimum levels. NSLIC and USLIC fell below the
200% level as reported on their December 31, 1998 Annual
Statement to insurance regulatory authorities. Management
immediately made capital contributions to both companies to raise
them above the minimum levels. Further evaluation of the estimate of
claims reserves indicated discovered that the provisions for pending
claims in both companies were overstated. Management has amended
the 1998 statutory financial statements of NSLIC to increase
surplus by approximately $1,000,000, as a result of the
overstatement, bringing the Company well above the 200% level of
RBC.
Information Systems and the Year 2000
Company management has been actively involved in life and health
insurance software development since the 1960's. The Company
continues to develop and maintain its core information systems
with a professional staff of program designers, analysts and
programmers through its wholly-owned subsidiary Computing
Technology, Inc.
During the past fifteen years, the Company has undertaken
numerous major systems projects, including but not limited to,
development of interactive, simulated-real-time transaction
collection and user inquiry programs, conversion from
CSC/Continuum's Life/70 to in-house developed core processing
systems, transition from a Harris minicomputer to a Wang VS,
transition from an IBM plug-compatible mainframe to a Wang VS and
conversion of at least seven life and health insurance company
operations to its systems. During 1998, Company personnel have
successfully completed conversion of two insurance company
operations, namely United Security Life Insurance Company and
National Security Life and Accident Insurance Company, from non-
compliant UNIX and IBM systems to systems designed and operated
by Citizens. ESD management believes year 2000 issues will
continue to be addressed as a top priority until the Company can
certify its systems are Year 2000 compliant.
Company personnel have been actively planning, identifying and
resolving year 2000 issues for more than a year. These
activities are expected to continue throughout the year with
parallel testing and final remediation actions concluding within
the second half of 1999.
In the late 1980's, the Company began developing software to
routinely audit its data bases and its source code. These
internal audit tools run daily and provide perpetual balancing of
the Company's policy and agency master files to its general
ledger. The source code audit tool has been an instrumental key
to identifying system code that may need year 2000 remediation.
By using this automated "bloodhound" combined with visual review
of record and screen layouts/documentation, the Company's ESD
staff have identified the "worst case" scenario for a year 2000
impact.
The overall expenditure for addressing year 2000 issues is
minimal because all planning, remediation and testing have been,
and will continue to be, performed with existing staff during
normal business hours.
The Company utilizes a Wang VS 7160 for providing core processing
and on-line support in conjunction with a local-area-network
(LAN) based upon CISCO 5500 and 2900 intelligent switching
components. The Company's Mitel telephone system was replaced
during 1998 with a Mitel 2000 Light, nodal, fiber-optic system
which is year 2000 compliant.
Wang has certified the 7.53.00 operating system to be year 2000
compliant and the Company successfully completed installation and
testing of this system in July, 1998. The Company uses
Microsoft's WFW 3.11 and NT Server 3.51 (SP5), for its LAN, both
of which are certified by Microsoft to be year 2000 compliant.
The Company uses Word 6.0, EXCEL 5.0, and Notes 3.3 as
applications on the LAN which are certified to be compliant
except for the Notes product which is not compliant, but is
reported to have no loss of data or functionality. However, only
the Wang system is mission-critical with the in-house developed
code for Host Daily Cycle systems being considered a part
thereof.
As for electronic data exchanges, the Company interacts with
Chase Bank, Rudd and Wisdom, Dataplex, PCS Health Systems and
certain reinsurance companies. The Chase Bank relationship is
the only third-party interface that could be considered mission-
critical and it can be circumvented (in less than one man-hour)
by using paper drafts instead of electronic transactions should
the Company find such to be desirable. Other vendor interfaces
can be circumvented with hard-copy reporting should an electronic
interface become untenable for some reason.
The Company believes it has addressed its Year 2000 concerns.
The Company has begun to develop contingency and recovery plans
aimed at ensuring the continuity of critical business functions
before, on and after December 31, 1999. The contingency and
recovery planning is substantially complete. The Year 2000
contingency plans will be reviewed periodically throughout 1999
and revised as needed. The Company believes its Year 2000
contingency plan, coupled with existing "disaster recovery" and
"business resumption" plans, minimize the impact Year 2000 issues
may have on the organization
Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement 128 "Earnings per Share" ("Statement
128"). Statement 128 establishes the standards for computing and
presenting earnings per share ("EPS"). This statement replaces
the presentation of primary EPS with a presentation of basic EPS
and requires dual presentation of basic and diluted EPS.
Statement 128 is effective for fiscal years ending after December
15, 1997. Implementation did not have a material impact on the
Company's earnings per share.
In June 1997, the FASB issued Statement 130 "Reporting
Comprehensive Income" ("Statement 130"). Statement 130
establishes the standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. Statement 130 is effective for
fiscal periods beginning after December 15, 1997. Implementation
has not had a material impact on the Company.
Also in June, 1997, Statement 131, "Disclosures about Segments of
an Enterprise and Related Information," was issued by the
Financial Accounting Standards Board. This Statement requires
that companies disclose segment data on the basis that is used
internally by management for evaluating segment performance and
allocating resources to segments. This Statement requires that a
company report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. It also
requires various reconciliation's of total segment information to
amounts in the consolidated financial statements. The Company's
current definition of its business segments, significant lines of
business (life and health products), has been expanded to
significant lines of business by geographic location of
policyholder (international and domestic).
In December 1997, the AICPA issued Statement of Position (SOP) 97-
3. SOP 97-3 provides: 1) guidance for determining when an
entity should recognize a liability for guaranty fund and other
insurance-related assessments, 2) guidance on how to measure a
liability, 3) guidance on when an asset may be recognized for a
portion or all of the assessment liability or paid assessment
that can be recovered through premium tax offsets or policy
surcharges, and 4) requirements for disclosure of certain
information. This SOP is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does
not anticipate implementation of SOP 97-3 to have a material
impact on the Company's financial statements.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal
Use." This SOP provides guidance for determining whether costs
of software developed or obtained for internal use should be
capitalized or expensed when incurred. In the past, the Company
has expensed such costs as they were incurred. This SOP is also
effective for fiscal years beginning after December 15, 1998.
The Company is currently completing an evaluation of the
financial impact as well as the changes to its related
disclosures.
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 1, 1999, at 10:00 a.m. at the Company's
executive offices. The record date for the meeting was
April 19, 1999.
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
President
By:/s/ Jeffrey J. Wood_____
Jeffrey J. Wood, CPA
Executive Vice President,
Secretary/Treasurer and CFO
Date: May 15, 1995May 14, 1999
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