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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16509
CITIZENS, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0755371
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(State of incorporation) (IRS Employer Identification No.)
400 East Anderson Lane, Austin, Texas 78752
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 837-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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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 requirement for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 10, 1997, aggregate market value of the Class A voting stock held
by non-affiliates of the Registrant was approximately $116,696,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report incorporates certain portions of the definitive proxy
material of the Registrant in respect of its 1997 Annual Meeting of
Shareholders.
Number of shares of common stock outstanding as of March 10, 1997
Class A:19,892,159
Class B:621,049
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Citizens, Inc. ("Citizens") operates primarily as an insurance holding
company. It was incorporated in 1977. Citizens is the parent holding
company that directly or indirectly owns 100% of Citizens Insurance
Company of America ("CICA"), Computing Technology, Inc. ("CTI"),
Insurance Investors, Inc. ("III"), American Liberty Financial
Corporation ("ALFC'), American Liberty Life Insurance Company
("ALLIC'), Funeral Homes of Louisiana ("FHL"), Insurance Investors &
Holding Co. ("IIH"), Central Investors Life Insurance Company of
Illinois ("CILIC") and Funeral Homes of America ("FHA"). Additionall,
Citizens owns indirectly, 94.48% of First American Investment
Corporation ("FAIC"). Collectively, Citizens and its subsidiaries
are referred to herein as the "Company." Pertinent information
relating to Citizens' subsidiary companies is set forth below:
YEAR STATE OF BUSINESS
SUBSIDIARY INCORPORATED INCORPORATION ACTIVITY
---------- ------------ ------------- --------
CICA 1968 Colorado Life insurance
CTI 1986 Colorado Data processing
III 1965 Texas Aircraft transportation
ALFC 1977 Louisiana Holding company
ALLIC 1978 Louisiana Life insurance
FAIC 1984 Louisiana Holding company
FHL 1989 Louisiana Funeral home
FHA 1993 Louisiana Dormant
IIH 1963 Illinois Dormant
CILIC 1965 Illinois Life insurance
Citizens acquired ALFC on September 14, 1995. The agreement provided
that ALFC shareholders would receive 1.10 shares of Citizens' Class A
Common Stock for each share of ALFC Common Stock owned and 2.926
shares of Citizens' Class A Common Stock for each one share of ALFC
Preferred Stock owned. Citizens issued approximately 2,340,000 Class
A shares in connection with the transaction, which was accounted for
as a purchase.
ALFC conducts certain non-insurance businesses through subsidiaries.
In the early 1980's, ALFC incorporated several corporations which
became general partners in oil and gas partnerships. These
partnerships own working interest in oil properties in Louisiana and
Oklahoma. In 1981, ALFC formed a subsidiary to market certain
securities, but this corporation has been relatively inactive since
1983. It was liquidated in December, 1996. Additionally, in 1984,
ALFC incorporated First American Investment Corporation (FAIC) which,
in turn, has formed two funeral home subsidiaries. Citizens is
currently assessing, from a business perspective, if it will continue
or dispose of the non-insurance businesses. Citizens has no current
plans
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to participate in the oil and gas business. ALFC's non-insurance
businesses are immaterial to Citizens overall structure. Citizens
plans to continue to devote virtually all of its resources to the
development and operation of its insurance business.
Citizens acquired IIH on March 12, 1996. IIH shareholders received
one share of Citizens' Class A Common Stock for each eight shares of
IIH Common Stock owned. Additionally, Citizens acquired the
approximately 6% not already owned by IIH, based upon an exchange
ratio of one share of Citizens' Class A common stock for each four
shares of CILIC owned. The acquisition of these two companies
involved the issuance of approximately 171,000 of Citizens' Class A
shares which was accounted for as a purchase.
On October 28, 1996, CICA announced that it had signed definitive
written agreements for the acquisition of American Investment Network,
Inc. (American Investment), a life insurance holding company
headquartered in Jackson, Mississippi 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
provides that following the acquisition by CICA, American Investment
shareholders will receive 1 share of Citizens, Inc. Class A Common
Stock for each 7.2 shares of American Investment Common Stock owned.
Citizens expects to issue approximately 700,000 Class A shares in
connection with the transaction, which will be 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 is
subject to approval by American Investment's shareholders and
regulatory authorities. The Mississippi Department of Insurance held
a public hearing on March 6, 1997 to consider the matter.
On October 31, 1996, CICA, CICA Acquisition, Inc. (a subsidiary
organized for purposes of this transaction) and FAIC entered into a
merger agreement for the merger of CICA Acquisition, Inc. into FAIC.
As part of this merger, CICA will acquire the approximately 5.5% of
FAIC shares owned by minority investors at an exchange rate of 0.111
shares of Class A Common Stock for each 1 share of FAIC owned by
minority investors. The merger became effective March 7, 1997, and
Citizens expects to issue approximately 133,000 shares of Class A
Common Stock in this transaction which was accounted for as a
purchase.
To streamline its corporate structure, Citizens and ALFC entered into
a merger agreement dated November 22, 1996 for the merger of ALFC into
Citizens. No shares of Citizens were issued in the merger which
became effective in January 1997. Also on November 22, 1996, CICA and
ALLIC entered into a merger agreement for the merger of ALLIC into
CICA. Management does not expect to complete this merger until CICA's
application for certificate of authority filed with the Mississippi
Insurance Department is approved, which approval is expected in the
second quarter of 1997.
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Certain statements contained in this Annual Report on Form 10-K 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 of
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.
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(b) FINANCIAL INFORMATION REGARDING THE INSURANCE BUSINESS
Citizens, through CICA, ALLIC and CILIC operates principally in one
business segment, that of selling selected lines of individual life
and accident and health ("A&H") insurance policies. Except for
certain insignificant operations acquired as a part of ALFC's
holdings, Citizens has no present intention to engage in any non-
insurance related business. The following tables set forth certain
statistical information concerning the operations of the Company for
each of the five years ended December 31, 1996. The information is
presented in accordance with generally accepted accounting principles.
TABLE I
The following table sets forth (i) life insurance in force and (ii) mean life
insurance in force.
IN FORCE MEAN LIFE
BEGINNING IN FORCE INSURANCE
OF YEAR END OF YEAR IN FORCE
(a) (b) (a) (b) (a) (b)
------- ------- -------
1996 $2,151,955 $2,231,017 $2,191,486
1995 2,144,709 2,151,955 2,148,332
1994 2,030,615 2,144,709 2,087,662
1993 1,696,606 2,030,615 1,863,611
1992 1,339,964 1,696,606 1,518,285
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(a) In thousands (000s)
(b) Before ceding reinsurance to reinsurers.
The increases in insurance in force as shown above reflect the volumes of new
business written by the Company over the past five years. Approximately
$40,243,000 of the 1995 increase relates to the acquisition of ALLIC described
previously.
TABLE II
The following table sets forth (i) the ratio of lapses and
surrenders to mean life insurance in force and (ii) life reinsurance ceded.
RATION OF REINSURANCE CEDED(b)
LAPSES AND --------------------
SURRENDERS AMOUNT REINSURANCE
LAPSES AND TO MEAN OF PREMIUM
SURRENDERS (a) IN FORCE REINSURANCE (a) CEDED
-------------- -------- --------------- -----
1996 $101,860 4.6% $296,378 $2,511,318
1995 87,273 4.1 290,677 2,241,111
1994 84,390 4.0 285,104 2,309,672
1993 98,712 5.3 303,727 1,939,425
1992 83,305 5.5 238,677 1,486,531
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(a) In thousands (000s)
(b) Approximately 95 percent of the reinsurance is yearly renewable term
insurance, with the remainder being coinsurance.
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The increased lapsation during 1996 reflects the inclusion of the ALLIC
insurance business.
TABLE III
The following table sets forth information with respect to total insurance
premiums.
ORDINARY ANNUITY & ACCIDENT
LIFE (a) UNIVERSAL LIFE GROUP LIFE AND HEALTH (a) TOTAL
-------- -------------- ---------- -------------- -----
1996 $49,563,720 $389,084 $309,953 $ 4,040,688 $ 54,303,445
1995 45,120,631 119,335 306,256 698,206 46,244,428
1994 42,984,741 75,564 541,370 259,250 43,860,925
1993 36,491,961 106,955 1,106,590 284,510 37,990,016
1992 28,415,877 3,067 469,514 316,395 29,204,853
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(a) After deduction for reinsurance ceded.
Premium income has grown substantially since 1991 due to the volume of new
business written each year. However, new sales of life insurance decreased in
1995, and remained at similar levels in 1996; therefore, the overall increase
since 1995 is less than for previous years. The acquisition of ALLIC mitigated
the total decline in new life insurance sales, although only three months of
ALLIC's premiums are reflected in the above table for 1995. In 1992, the FCC
acquisition added a small block of Universal Life business to the Company's
portfolio. During 1992, the Federal Government increased the amount of
insurance for veterans under the Servicemen's Group Life Insurance program,
causing a one-time increase in group life premiums.
TABLE IV
The following table sets forth information relating to the ratio of
underwriting and other expenses to insurance revenues.
COMMISSIONS, UNDERWRITING
AND OPERATING EXPENSES,
POLICY RESERVE INCREASES,
COMMISSIONS, UNDERWRITING POLICYHOLDER BENEFITS AND
AND OPERATING EXPENSES DIVIDENDS TO POLICYHOLDERS
---------------------- --------------------------
RATIO TO RATIO TO
INSURANCE INSURANCE INSURANCE
PREMIUMS (a) AMOUNT PREMIUMS AMOUNT PREMIUMS
------------ ------ -------- ------ --------
1996 $54,303,445 $21,948,637 40.4% $59,113,575 108.9%
1995 46,244,428 17,375,574 37.6 50,767,435 109.8
1994 43,860,925 17,461,910 39.8 48,763,076 111.2
1993 37,990,017 15,918,491 41.9 43,644,554 114.9
1992 29,204,853 13,546,624 46.4 35,301,078 120.8
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(a) After premiums ceded to reinsurers.
Prior to 1996, the ratios of expenses to premiums had declined each year since
1989. These declines are the result of three factors: 1) underwriting and
operating expenses have generally
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not increased at the same rate as premium income due to the Company's efficient
method of operation; 2) sales commissions as a percentage of total premium
income are declining annually as the business enters renewal stages and
commissions are paid at a lower rate than first year; and 3) the amount of new
insurance written annually represents a smaller percentage of the Company's
total premium income. However, in 1996, with the addition of ALLIC and the
considerable expense associated with its marketing operation start-up, the
ratio reached its highest level since 1993.
TABLE V
The following table sets forth changes in new business produced
between participating and nonparticipating policies.
PARTICIPATING NONPARTICIPATING
TOTAL NEW -------------------------- ----------------------------
BUSINESS (a) AMOUNT (a) PERCENT AMOUNT (a) PERCENT
------------ ---------- ------- ---------- -------
1996 $337,051 $294,408 87.3% $42,643 12.7%
1995 296,811 271,108 91.3 25,703 8.7
1994 380,281 352,542 92.7 27,739 7.3
1993 376,460 345,882 91.9 30,578 8.1
1992 315,142 278,694 88.4 36,448 11.6
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(a) In thousands (000s)
The percentage of the new business produced that is participating has increased
steadily due to the fact that the Ultra Expansion products are all
participating and represent the majority of new business. The decline in new
business during 1995 was caused in part by disruptions in the international
market. See Management's Discussion and Analysis.
TABLE VI
The following table sets forth changes in new business issued according
to policy types.
WHOLE LIFE
AND ENDOWMENT TERM UNIVERSAL LIFE
TOTAL NEW ----------------------- ---------------------- ----------------------
BUSINESS (a) AMOUNT (a) PERCENT AMOUNT (a) PERCENT AMOUNT (a) PERCENT
------------ ---------- ------- ---------- ------- ---------- -------
1996 $337,051 $296,985 88.1% $40,066 11.9% $0 -
1995 296,811 270,963 91.3 25,848 8.7 0 -
1994 380,281 352,357 92.7 27,924 7.3 0 -
1993 376,460 345,683 91.8 30,777 8.2 0 -
1992 315,142 279,941 88.8 34,243 10.9 958 0.3%
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(a) In thousands (000s)
This table illustrates that virtually all of the new business written is whole
life. The 1995 results reflect a decrease in new business during the year.
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TABLE VII
The following table sets forth deferred policy acquisition costs
capitalized and amortized compared to new business issued.
DEFERRED POLICY
TOTAL NEW ACQUISITION COSTS
BUSINESS --------------------------------
ISSUED CAPITALIZED AMORTIZED
------ ----------- ----------
1996 $337,051,000 $10,531,222 $10,221,917
1995 296,811,000 10,579,704 8,511,876
1994 380,281,000 13,128,049 7,203,593
1993 376,460,000 13,472,064 6,455,401
1992 315,142,000 10,670,569 4,412,007
Capitalized policy acquisition expenses increased steadily until 1994, such
increases reflecting the growing amount of new business issued. In 1994, the
rate of capitalization was affected by an adjustment due to the lower interest
environment. The amortization of these costs has grown as the aggregate
deferred acquisition cost asset has increased. In 1996, this amortization
increased due to the increase in surrender activity. For 1995 and 1996, the
capitalized decrease reflects the reduction in the amount of new business
produced and lower commission expenses incurred as a result thereof.
TABLE VIII
The following table sets forth investment results.
RATIO OF NET
INVESTMENT INCOME
MEAN AMOUNT OF NET INVESTMENT TO MEAN AMOUNT
INVESTED ASSETS (a) INCOME (b) OF INVESTED ASSETS (a)
------------------- ---------- ----------------------
1996 $134,167,938 $9,185,506 6.8%
1995 111,926,695 7,026,909 6.3
1994 90,419,823 5,295,784 5.9
1993 82,598,407 4,771,079 5.8
1992 66,704,026 3,929,495 5.9
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(a) The years 1992 forward includes assets acquired from FCC on July 31, 1992.
The year 1995 includes assets acquired from ALLIC on September 14, 1995.
The year 1996 includes assets acquired from CILIC on March 12, 1996.
(b) Does not include realized and unrealized gains and losses on investments.
Available yields began to increase in mid-1994 and the Company was able to
obtain a slight growth in the return on invested assets. This growth continued
throughout most of 1995, and continued through 1996. The Company hired an
investment advisor in 1995, and this action contributed to the increased yield
in 1996.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) BUSINESS OF CITIZENS
Citizens' principal business is ownership of CICA and ALLIC and
their affiliates. Additionally, it provides management services
to these companies under a management services agreement. At
December 31, 1996, Citizens had approximately 75 full and
part-time employees.
(ii) BUSINESS OF CICA
Historically, CICA's revenues have been derived from insurance
premiums and revenues from investments. CICA is a
Colorado-domiciled life insurance company marketing primarily
ordinary whole-life products on an international basis through
marketing companies. During the fiscal year ended December 31,
1996, 99.2% of CICA's premium income was attributable to life,
endowment and term insurance; 0.2% to individual annuities; and
0.6% to accident and health insurance. Of the life policies in
force at December 31, 1996 and 1995, 13.0% and 13.2%, were
nonparticipating and 87.0% and 86.8%, respectively were
participating.
CICA's Ultra Expansion products are a series of participating
whole life policies targeted for international markets. All of
the Ultra products are participating with dividends ranging from
2% of the premium in the first year to 123% in the 20th year. A
unique feature of the Ultra products is that the dividends are
payable immediately upon payment of the annual premium. In late
1990, an immediate endowment was added to the product line. This
endowment is paid annually in an amount determined by the insured
at the time the policy is sold. In December 1992, CICA added a
flexible amount deposit rider as a new feature to the Ultra
products. All of these products carry surrender charges for the
first 14 years and continuing benefit limitations to exclude
certain causes of death that are not anticipated in standard
mortality ratings. There are no other material policies or
products offered by CICA.
The CICA underwriting policy requires a medical examination of
applicants for ordinary insurance in excess of certain prescribed
limits. These limits are graduated according to the age of the
applicant and the amount of insurance. Generally, the maximum
amount of ordinary life insurance issued domestically without a
medical examination is $200,000 for ages 0 through 35; $100,000
for ages 36 through 45; $50,000 for ages 46 through 50; $15,000
for ages 51 through 55; and $10,000 for ages 56 and over. Limits
for insuring non- United States applicants without a medical
examination are: $150,000 for ages 0 through 39; $50,000 for ages
40 through 65; and all amounts over age 65.
On life policies, CICA's maximum coverage on any one life is not
limited by company policy. However, CICA reinsures the amount of
coverage which is in
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excess of its retention policy. See "Business of CICA -
Reinsurance." CICA does not accept substandard risks above Table
6 (generally policyholders who cannot qualify for standard
ordinary insurance because of past medical history) in exchange
for which CICA would charge higher premiums.
CICA has $21.8 million of insurance in force on individuals that
are classified as substandard risks, the majority of such business
having been acquired in the purchase of other companies.
Management believes the exposure to loss as a result of insuring
these individuals is minimal, since the premiums are increased to
cover the nature of the risk, additional reserves are established,
and the amount of insurance represents less than 1.0% of the total
insurance in force.
GEOGRAPHICAL DISTRIBUTION OF BUSINESS. For the year ended
December 31, 1996, insurance policies held by residents of the
State of Texas accounted for 1.8% of CICA's total premium income
from direct business, and policies held by residents of Colorado
represented 1.2% of premium income from direct business for the
same period. All other states of the United States totaled 5.2%
of the premium income from direct business with no single state,
except as set forth above, accounting for as much as 1% of premium
income. Business on foreign residents accounted for the remaining
91.8%. For the years ended December 31, 1995 and 1994, residents
of the State of Texas accounted for 2.7% and 3.0%, respectively of
CICA's total premium income. Residents of Colorado provided 2.1%
and 2.1%, respectively, during the same period. No other states in
the U.S. amounted to 1% of total premium income during the
periods. Business on foreign citizens represented 91.8% of 1995
and 1994 premium income.
The participating whole life policies accepted by CICA on high net
worth residents of foreign countries have an average face amount
of approximately $60,000 and are marketed primarily to the top 5%
of the population in terms of household income.
CICA accepts applications for international insurance policies
marketed by several independent international marketing firms with
whom CICA has nonexclusive marketing contracts. These firms
market life insurance products to citizens of foreign countries,
with a present emphasis in Latin America. Such life products are
specially designed by CICA to be compatible with marketing methods
and commission requirements.
The international marketing firms have many years' experience
marketing life insurance products for CICA. The contract with the
marketers provides that they have the responsibility for
recruiting and training salesmen. They are responsible for all of
their overhead costs and bear the expense of awards. These firms
guarantee any advances against future commissions made by CICA to
marketers and their agents. In consideration for the services
rendered, the marketing contractors receive an override commission
on all new policies sold by them or their salesmen. See "Business
of CICA - Commissions." The marketing
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contracts may be terminated for various causes, at any time by
mutual consent of the parties or upon 30 days' notice by either
party.
These firms provide recruitment, training and supervision of their
managers and salesmen in the sale of dollar-denominated life
insurance products; however, all managers and salesmen contract
directly with CICA and receive their commission from CICA.
Accordingly, should the marketing arrangement between any firm and
CICA be canceled for any reason, CICA believes it could continue
suitable marketing arrangements with the individuals of the
marketing firms without appreciable loss of present and future
sales. There is, however, always a risk that sales could
decrease.
At present, CICA is dependent on the non-U.S. markets for
virtually all of its new business. This subjects CICA to
potential risks with regard to the continued ability to write such
business should adverse events occur in the countries from which
CICA receives applications. These potential risks include lapses
of policies if funds that flow out of such countries were to
become restricted and the improbable necessity that incorporating
an insurance subsidiary in such countries would become required.
Based on more than 30 years' experience in the marketplace in
which CICA competes, management believes such risks are not
material. The Company maintains no assets outside the U.S. and
requires all premiums to be paid in the U.S. with U.S. dollars via
drafts drawn on banks in the U.S.; therefore, it could lose no
funds from currency devaluation or foreign appropriation.
Further, management does not believe that the flow of funds will
be restricted in the future, because almost all of the insureds
are in the upper percentiles of incomes in their country. Such
insureds are actively involved in business leadership roles in
their communities and would be vehemently opposed to funds flow
restriction. Many of the inherent risks in foreign countries,
such as political instability, hyper-inflation and economic
disruptions tend to improve rather than hurt CICA's business
because it encourages individuals to convert assets out of local
currencies to the more stable U.S. dollar. Additionally,
management has made a concerted effort to expand the number of
foreign countries from which it accepts business in an effort to
reduce the impact on CICA of political or economic problems in any
one country or region.
MARKETING OPERATIONS. CICA holds licenses to do business in 11
states and accepts applications from numerous foreign countries.
Additionally, CICA has applications for admission pending in two
states. CICA's operations are conducted on the independent
contractor basis, with a sales force at December 31, 1996 of 1,319
individuals and December 31, 1995 of 1,308 individuals.
COMMISSIONS. CICA's marketing managers are independent
contractors, responsible for their respective expenses, that are
compensated on a percentage of premium basis. The maximum amount
of commission expense which may be incurred by CICA on an
individual life insurance policy is 110% of the first year
premium, 10% of the premium for each of the next nine years and 2%
of the
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premium for the eleventh and subsequent years as a continuing
service fee. Percentage amounts paid to salesmen on individual
term, annuity and accident and health insurance are substantially
less than the levels paid for individual ordinary life insurance.
The marketing managers receive overriding first year and renewal
commissions on business written by individuals under their
supervision and all marketing expenses except sales conventions
related thereto are included in the above percentages.
RESERVES. CICA establishes actuarial reserves as liabilities to
meet obligations on all outstanding policies. Reserves and
deferred acquisition costs are prepared in conformity with the
American Academy of Actuaries Committee on Financial Reporting
Principles. In determining such reserves CICA used the 1955 to
1960, 1965 to 1970, and 1975 to 1980 Select and Ultimate Mortality
Tables with interest rates at 4% or in a range graded from 9% to
5% with recent issues reserved at 7% graded to 6 1/2%. Withdrawal
assumptions are based primarily on actual historical experience.
Statutory reserves are used for paid-up life business. Claims
reserves include an amount equal to the expected benefit to be
paid on reported claims in addition to an estimate of claims that
are incurred but not reported, based on actual historical
experience. CICA receives an independent actuarial certification
of its reserves prepared in accordance with both Generally
Accepted Accounting Principles and Statutory Accounting
Principles. The certifications have noted no deficiencies for the
years presented herein.
REINSURANCE. CICA assumes and cedes insurance with other
insurers, reinsurers and members of various reinsurance pools.
Reinsurance arrangements are utilized to provide greater
diversification of risk and minimize exposure on larger risks.
(a) INSURANCE CEDED. CICA generally retains $75,000 of risk
on any one person. As of December 31, 1996, the aggregate amount
of life insurance ceded amounted to $293,864,000 or 13.5% of total
direct and assumed life insurance in force, and $289,675,000 or
13.7% in 1995. CICA is contingently liable with respect to ceded
insurance should any reinsurer be unable to meet the obligations
reinsured.
As of December 31, 1996, CICA had in effect automatic reinsurance
agreements that provide for cessions of ordinary insurance from
CICA. Additionally, CICA has reinsurance treaties in force with
several reinsurers of life and accident and health insurance.
These treaties provide for both automatic and facultative
reinsurance of standard and substandard risks ceded to them by
CICA for life, accident and health and supplemental benefits above
CICA's retention limit on a yearly renewable term, coinsurance or
modified coinsurance basis.
A treaty with Employers Reassurance (ERC) has historically been
the primary vehicle utilized by CICA for its international
business. The treaty is structured in
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such a way as to allow CICA to "self administer" the cessions on a
reduced cost basis. Prior to July 1, 1993, 100% of the risk up to
$300,000 in excess of CICA's retention was ceded to ERC. On July
1, 1993, the treaty was amended and a like agreement was executed
with Businessmen's Assurance (BMA). During 1995, a third carrier
was added as a principal reinsurer, Riunione Adriatica di Sicurta,
of Italy (RAS).
The ERC and BMA agreements provide that for risks reinsured in
specified countries on and after July 1, 1993, 70% of each risk in
excess of CICA's retention will be ceded to ERC and 30% to BMA.
The RAS agreement provides that on risks reinsured in specified
countries on or after January 1, 1995, 100% of the risk in excess
of CICA's retention will be ceded to RAS. CICA pays the premium
to ERC, BMA and RAS on an annual basis and is responsible for the
production of the reporting monthly and annually to ERC, BMA and
RAS to allow proper accounting for the treaties.
The cessions are on a yearly renewable term basis and are
automatic up to $300,000 for ERC and RAS and $425,000 for BMA at
which point the reinsurance is subject to a facultative review by
the reinsurers. At December 31, 1996, CICA had ceded $189,449,000
in face amount of insurance to ERC, $26,669,000 to BMA and
$41,813,000 to RAS under these agreements.
RAS is an unauthorized reinsurer in the state of Colorado; however
RAS has agreed to comply with all Colorado statutes regarding such
companies. Under these statutes, RAS will provide a letter of
credit, issued by a U.S. bank meeting the Colorado requirements,
equal to any liabilities it incurs under this agreement.
A reinsurance treaty with Connecticut General Life Insurance
Company (CG) covers all of CICA's accidental death insurance
supplementing its life insurance policies. These cessions are on
a yearly renewable term basis and occur automatically if total
accidental death benefits known to CICA are less than $250,000 or
otherwise on a facultative review basis. At December 31, 1996,
CICA had ceded $1,327,293,000 in face amount to CG under this
treaty.
Citizens closely monitors the solvency of its reinsurers to
minimize the risk of loss in the event of a failure by one of the
parties. The primary reinsurers of the Company, ERC, BMA, RAS and
CG are large, well capitalized entities which have no current or
prior history of financial difficulty.
(b) INSURANCE ASSUMED. At December 31, 1996, CICA had in force
reinsurance assumed as follows:
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TYPE OF AMOUNT
BUSINESS IN FORCE AT
NAME OF COMPANY LOCATION ASSUMED END OF YEAR
--------------- -------- ------- -----------
Prudential Insurance Newark, Ordinary
Company (Prudential) New Jersey Group Life $304,380,000
The reinsurance agreement with Prudential provides for CICA to
assume a portion of the insurance under a group insurance policy
issued by Prudential to the Administrator of Veterans' Affairs, in
accordance with the Servicemen's Group Life Insurance provisions
of Sub-Chapter III of Chapter 19, of Title 38, United States Code.
CICA's portion of the total insurance under the policy is
allocated to CICA in accordance with the criteria established by
the Administrator. The agreement continues in full force and
effect at December 31, 1996.
CICA has also entered into a Serviceman's Group Life Insurance
Conversion Pool Agreement with Prudential, under the above
described agreement, whereby CICA assumed a portion of the risk of
Prudential under the group policy due to excess mortality under
the conversion pool agreement resulting from issuing conversion
policies as prescribed for membership in the conversion pool.
INVESTMENTS. State insurance statutes prescribe the quality and
percentage of the various types of investments which may be made
by insurance companies and generally permit investment in
qualified state, municipal, federal and foreign government
obligations, high quality corporate bonds, preferred and common
stock, real estate and mortgage loans by certain specified
percentages. CICA's invested assets at December 31, 1996
were distributed as follows: fixed maturities - 70.9%, equity
securities - 8.2%, mortgage loans - 1.2%, policy loans - 14.8%,
government insured student loans - 0.3%, short-term investments -
0% and other long-term investments - 2.9% (see Note 2 of the
"Notes to Consolidated Financial Statements"). Citizens did not
foreclose on any mortgage loans in 1996. All mortgage loans are
supported by independently appraised real estate. The investment
policy of Citizens with regard to mortgage loans is consistent
with the provisions of the Colorado Insurance Code.
At December 31, 1996, 95.9% of CICA's investments in fixed
maturities were comprised of U.S. Treasury securities and
obligations of U.S. government corporations and agencies,
including U.S. government guaranteed mortgage-backed securities,
compared to 97.2% at December 31, 1995. Of these mortgage-backed
securities, all were guaranteed by U.S. government agencies or
corporations that are backed by the full faith and credit of the
U.S. government or that bear the implied full faith and credit of
the U.S. government.
REGULATION. CICA is subject to regulation and supervision by the
insurance department of each state or other jurisdiction in which
it is licensed to do business. These departments have broad
administrative powers relating to the granting and revocation of
licenses to transact business, the licensing of marketing persons,
the approval of policy forms, the advertising and solicitation of
insurance, the form and content of mandatory financial statements,
the reserve
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requirements, and the type of investments which may be made. CICA
is required to file detailed annual reports with each such
insurance department, and its books and records are subject to
examination at any time. In accordance with state laws and the
rules and practices of the National Association of Insurance
Commissioners, CICA is examined periodically by examiners of its
domiciliary state and by representatives (on an "association" or
"zone" basis) of the other states in which it is licensed to do
business. CICA's most recent examination which was completed
during 1992, was for the six years ended December 31, 1991, and
was conducted by a public accounting firm representing the
Colorado Division of Insurance. CICA has been notified by the
Colorado Division of Insurance to expect an examination during
1997 as of December 31, 1996. CICA is audited annually by an
independent public accounting firm. See also "Management's
Discussion and Analysis of Results of Operations."
Various states, including Colorado, have enacted "Insurance
Holding Company" legislation which requires the registration and
periodic reporting by insurance companies which control, or are
controlled by, other corporations or persons. Under most of such
legislation, control is presumed to exist with the ownership of
ten percent or more of an insurance company's voting securities.
Citizens is subject to such regulation and has registered under
such statutes as a member of an "insurance holding company
system." The legislation typically requires periodic disclosure
concerning the transactions between the registered insurer, the
ultimate controlling party, and all affiliates and subsidiaries of
the ultimate controlling party, and in many instances requires
prior approval of intercorporate transfers of assets (including in
some instances payment of dividends by the insurance subsidiary)
within the holding company system.
Since CICA does not physically conduct business in countries
outside the U.S. but rather accepts applications from overseas
marketers, it is not subject to regulation in countries where most
of its insureds are residents. The prospect of such regulation is
viewed as remote by management of Citizens because obtaining
insurance through application by mail outside of one's country is
a common practice in many foreign countries, particularly those
where CICA's insureds reside.
COMPETITION. The life insurance business is highly competitive,
and CICA competes with a large number of stock and mutual
companies. CICA believes that its premium rates and its policies
are generally competitive with those of other life insurance
companies, many of which are larger than CICA, selling similar
types of insurance.
CICA's marketing plan stresses the sale of dollar-denominated life
insurance products to high net worth individuals residing in
foreign countries, with present emphasis in Latin America.
Approximately 86% of CICA's total first year and renewal
premium income during 1996 came from that market, and virtually
all new insurance production during 1996 and 1995 was derived from
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that source. See "Business of CICA - Geographical Distribution of
Business." Management believes that CICA is a significant
competitor in this market and attributes its success in
penetrating that market to the expertise of management, the
uniqueness of its life insurance products and competitiveness of
its pricing methods.
CICA faces competition from several other American life insurance
companies that also sell U.S. dollar denominated policies to
non-U.S. citizens, with no one company being dominant in the
market. Some companies may be deemed to have a competitive
advantage due to histories of successful operations and large
agency forces. Management believes that its experience, combined
with the special features of the Ultra Expansion policies, allows
CICA to compete effectively in maintaining and pursuing new
business.
Management believes that CICA competes indirectly with non-U.S.
companies in its business, particularly with respect to Latin
American companies. CICA, as a U.S. domestic insurer paying
claims in U.S. dollars in the U.S., has a different clientele and
product than foreign-domiciled companies. CICA's product is
usually acquired by persons in the top 5% of income of their
respective countries. The policies sold by foreign companies are
sold broadly and are priced based on the mortality of the entire
populace of the respective geographic region. Because of the
predominance of lower incomes in most of these countries, the
mortality experience tends to be very high on the average, causing
mortality charges which are considered unreasonable based on the
life mortality experience of the upper five percent of income of
the population.
Additionally, the assets that back up the policies issued by
foreign companies are invested in the respective countries, and
thus, are exposed to the inflationary risks and economic crises
that historically have impacted many foreign countries. Another
reason that CICA experiences an advantage is that many of its
policyholders desire to transfer capital out of their countries
due to the perceived financial strength and security of the United
States by foreigners. Also, management realizes that CICA
competes indirectly with other U.S. and European insurers in
countries where CICA's insureds reside. CICA's experience has
been that its market niche is in attracting insureds who want the
safety and security of a U.S. domestic insurer. Management of
Citizens considers it to be difficult and speculative to estimate
the potential of the foreign market for U.S. insurers. However,
based upon the volume of new premium generated by CICA that
originates from several countries in Latin America, management
believes that CICA receives a substantial share of such business.
However, Citizens does not have market share data to confirm
management's belief.
In CICA's limited block of accident and health insurance, (0.5% of
total premium income), it is in competition with many life
insurance companies as well as with voluntary and
government-sponsored plans for meeting
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hospitalization and medical expenses such as Blue Cross/Blue
Shield, "Medicare" and "Medicaid." Future expansion of such
programs or the establishment of additional government health
programs could adversely affect the future of accident and health
insurance on CICA's books, most of which has been acquired in the
acquisition of other companies.
FEDERAL INCOME TAXATION. CICA is a "small company" as that term
is defined in the Internal Revenue Code (the "Code"), section 806.
As such, CICA qualified for a special small company deduction
(presently equal to 60% of "tentative life insurance company
taxable income") which serves to decrease significantly the amount
of tax which might otherwise have to be paid.
The Omnibus Reconciliation Act of 1993 (the "1993 Act") was signed
into law on August 10, 1993. Among its provisions was an increase
to corporate tax rates to 35% on taxable income between
$10,000,000 and $15,000,000 and to 38% on taxable income between
$15,000,000 and $18,300,000. This legislation had no material
impact on the financial position of the Company.
The Revenue Reconciliation Act of 1990 revised the method in which
insurance companies claim deductions for policy acquisition costs.
Previously, insurance companies were allowed to deduct actual
policy acquisition costs as they were incurred. Beginning in
1990, policy acquisition costs are determined as a percentage of
annual net premiums and are then deductible on a straight-line
basis over a ten-year period rather than treated as an immediate
deduction. This change in treatment for acquisition costs has had
a significant impact on CICA's taxable income due to the
relatively large amounts of such deferrals caused by the increases
in new business. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
CICA files a consolidated Federal income tax return with Citizens
and its subsidiaries. At December 31, 1995, the Company had net
operating loss carryforwards of $81,000 available to offset
taxable income in future years.
(iii) BUSINESS OF CTI
CTI is a wholly-owned subsidiary of CICA and engages in the
business of providing data processing services and acquisition and
leasing of furniture and equipment for its parent as well as data
processing services and software to other companies. Pursuant to
an Information Systems Management and Services Contract dated
October 1, 1991, CTI provides data processing services to the
Company for a fixed fee of $53,000 per month. As of and for the
year ended December 31, 1996, CTI's total assets were $787,000 and
revenues were $674,000. All intercompany fees and expenses have
been eliminated in the consolidated financial statements.
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(iv) BUSINESS OF III
For much of the past decade, III has been dormant. In August,
1993, Citizens sold the stock of III to CICA for its book value.
CICA subsequently contributed debit balances receivable of
approximately $169,000 to III. III collected such receivables
and, as additional consideration, received an airplane which it
operates for Citizens and CICA. During 1994, CICA made an
additional capital contribution of $200,000 to III. Also, during
1994, III acquired a different airplane for use in providing
aviation transportation and services to Citizens and the airplane
previously owned by III was sold. As of and for the year ended
December 31, 1996, III's total assets were $790,000 and revenues
were $166,000. All intercompany fees and expenses have been
eliminated in the consolidated financial statements.
(v) BUSINESS OF ALFC
ALFC, a wholly-owned subsidiary of Citizens, served as the parent
holding company for the American Liberty group prior to its
acquisition by Citizens. ALFC's total assets, at December 31,
1996, which consist primarily of investments in its subsidiaries'
stock, were $8,177,000 and revenues were $76,000. At December 31,
1996, a Plan and Agreement of Merger between Citizens, Inc. and
ALFC was pending. During January 1997, ALFC was merged into
Citizens, Inc. with Citizens surviving. All intercompany fees and
expenses have been eliminated in the consolidated financial
statements.
(vi) BUSINESS OF ALLIC
Historically, ALLIC's revenues have been derived from insurance
premiums and revenues from investments. ALLIC is a
Louisiana-domiciled life insurance company marketing primarily
ordinary, whole-life products and accident and health specified
disease, hospital indemnity and accidental death policies. During
the fiscal year ended December 31, 1996, 47.9% of ALLIC's premium
income was attributable to life, endowment and term insurance;
2.8% to individual annuities; and 49.3% to accident and health
insurance. Of the life policies in force at December 31, 1996,
66.9% were nonparticipating and 33.1% were participating. During
the fiscal year ended December 31, 1995, 48.1% of ALLIC's premium
income was attributable to life, endowment and term insurance;
4.0% to individual annuities; and 47.9% to accident and health
insurance. Of the life policies in force at December 31, 1995,
80.9% were nonparticipating and 19.1% were participating.
On November 22, 1996, ALLIC executed a Plan and Agreement of
Merger with CICA wherein, effective January 1, 1997, ALLIC will
merge with and into CICA, with CICA surviving. At December 31,
1996, the Plan was waiting approval of regulatory authorities in
Louisiana and the licensing of CICA to
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continue ALLIC's business in Mississippi. Management expects to
consummate the transaction during the second quarter of 1997.
The products offered by ALLIC are focused on niche markets in
which the Company believes it can effectively compete. The
primary niche markets currently targeted include the sale of
"pre-need" burial policies and daily hospital indemnity policies
for specified illnesses.
On life policies, ALLIC's maximum coverage on any one life is not
limited by company policy. However, ALLIC reinsures the amount of
coverage which is in excess of the its retention policy. See
"Business of ALLIC - Reinsurance."
GEOGRAPHICAL DISTRIBUTION OF BUSINESS. For the year ended
December 31, 1996, insurance policies held by residents of the
State of Oklahoma accounted for 49.7% of ALLIC's total premium
income from direct business. Policies held by residents of
Mississippi represented 16.5%, Louisiana - 11.6%, Georgia - 8.3%
and Texas - 7.9% of premium income from direct business for the
same period. All other states of the United States totaled 6% of
the premium income from direct business with no single state,
except as set forth above, accounting for as much as 2% of premium
income. For the year ended December 31, 1995, residents of
Oklahoma accounted for 48.5% of total premium income from direct
business. Policies held by residents of Mississippi represented
15.1%, Louisiana - 12.4%, Georgia - 9.9%, Texas - 8.1%, and
Florida - 2.2% of premium income for the same period. No other
states in the U.S. amounted to 2% of total premium income during
the period.
The life policies written by ALLIC have an average face amount of
approximately $4,000. The low face amount is typical for pre-need
and burial business. At December 31, 1996, ALLIC had
approximately 9,800 such policies in force.
MARKETING OPERATIONS. ALLIC holds licenses to do business in 20
states. ALLIC's operations are conducted through independent
contractors on a basis similar to a general agency approach, with
a marketing force at December 31, 1996 of approximately 200
representatives.
COMMISSIONS. ALLIC's marketing representatives are independent
contractors, responsible for their respective marketing-related
expenses, and they are compensated on a percentage of premium
basis. During 1996, the maximum amount of commission expense
incurred by ALLIC on an individual life insurance policy was 105%
of the first year premium, 15% of the second through tenth year
premium. For accident and health insurance, the maximum
commission was 100% of premium in the first year and 18%
thereafter. Marketing managers receive overriding first year and
renewal commissions on business written by individuals under their
supervision.
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RESERVES. ALLIC records actuarial reserves established to meet
obligations on outstanding policies as liabilities. Reserves and
deferred acquisition costs are prepared in conformity with the
American Academy of Actuaries Committee on Financial Reporting
Principles. In determining such reserves ALLIC used the 1965 to
1970 Select and Ultimate Mortality Tables with interest rates at
7% level for life Purchase GAAP reserves. Statutory reserves are
used for paid-up life business. Withdrawal assumptions are based
primarily on actual historical termination rates. Accident and
Health Purchase GAAP reserves are determined using various
percentages of published 1974 Cancer Tables with Linton C
termination rates and 1984 NAIC Cancer Tables with Linton CC
termination rates and interest at 7% level. Historic GAAP
reserves for pre-need life insurance were calculated using a
graded death benefit and 100% of the 1965 to 1970 Ultimate Table,
7% interest, with terminations on single premium business assumed
to be 2% per year and Linton A rates on all other plans. Claims
reserves include an amount equal to the expected benefit to be
paid on reported claims in addition to an estimate of claims that
are incurred but not reported, based on actual historical
experience. ALLIC receives an independent actuarial certification
of its reserves prepared in accordance with both Generally
Accepted Accounting Principles and Statutory Accounting
Principles. The certifications have noted no deficiencies for the
years presented herein.
REINSURANCE. ALLIC cedes insurance with other insurers,
reinsurers and members of various reinsurance pools. Reinsurance
arrangements are utilized to provide greater diversification of
risk and minimize exposure on larger risks.
(a) INSURANCE CEDED. ALLIC generally retains $30,000 of risk
on any one person for life insurance and cedes 100% of each
accidental benefit risk on accident and health insurance policies.
As of December 31, 1996, the aggregate amount of life insurance
ceded amounted to $995,000 or 2.3% of total direct and assumed
life insurance in force. ALLIC is contingently liable with
respect to ceded insurance should any reinsurer be unable to meet
the obligations assumed by it.
As of December 31, 1996, ALLIC had in effect one automatic
reinsurance agreement that provide for cessions of ordinary
insurance from ALLIC in excess of its retention of $30,000 with a
minimum cession of $2,000. On accident and health insurance,
there is an additional agreement which provides for automatic
cession of 100% in 1996 and thereafter of accidental death risks.
A treaty with Businessmen's Assurance (BMA) is the primary vehicle
utilized by ALLIC for its life reinsurance and Life Reassurance
for its accidental death risks. ALLIC closely monitors the
solvency of its reinsurers to minimize the risk of loss in the
event of a failure by one of the parties. The primary reinsurers
of the Company, BMA and Life Re are large, well capitalized
entities which have no current or prior history of financial
difficulty.
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(b) INSURANCE ASSUMED. At December 31, 1996, ALLIC had in
force no reinsurance assumed.
INVESTMENTS. State insurance statutes prescribe the quality and
percentage of the various types of investments which may be made
by insurance companies and generally permit investment in
qualified state, municipal, federal and foreign government
obligations, high quality corporate bonds, preferred and common
stock, real estate and mortgage loans by certain specified
percentages. ALLIC's invested assets at December 31, 1996 were
distributed as follows: fixed maturities - 90.5%, equity
securities - 2.5%, mortgage loans - none, policy loans - 1.5%,
government insured student loans - none, cash and short-term
investments - 4.5% and other long-term investments - 0.6%.
At December 31, 1996, 32.9% of ALLIC investments in fixed
maturities were comprised of U.S. Treasury securities and
obligations of U.S. government corporations and agencies,
including U.S. government guaranteed mortgage- backed securities.
Of these mortgage-backed securities, all were guaranteed by U.S.
government agencies or corporations that are backed by the full
faith and credit of the U.S. government or that bear the implied
full faith and credit of the U.S. government. Of the remaining
fixed maturities, 63.0% are corporate securities and 4.1% are
issued by States or Territories of the U.S. and Canada. None of
ALLIC's bonds are less than investment grade.
REGULATION. ALLIC is subject to regulation and supervision by the
insurance department of each state or other jurisdiction in which
it is licensed to do business.
These insurance departments have broad administrative powers
relating to the granting and revocation of licenses to transact
business, the licensing of salesmen, the approval of policy forms,
the advertising and solicitation of insurance, the form and
content of mandatory financial statements, the reserve
requirements, and the type of investments which may be made.
ALLIC is required to file detailed annual reports with each such
insurance department, and its books and records are subject to
examination at any time. In accordance with state laws and the
rules and practices of the National Association of Insurance
Commissioners, ALLIC is examined periodically by examiners of its
domiciliary state and by representatives (on an "association" or
"zone" basis) of the other states in which it is licensed to do
business. ALLIC's most recent examination which was completed
during 1995, was for the three years ended December 31, 1994, and
was conducted by the Louisiana Division of Insurance.
Various states, including Louisiana, have enacted "Insurance
Holding Company" legislation which requires the registration and
periodic reporting by insurance companies which control, or are
controlled by, other corporations or persons. Under most of such
legislation, control is presumed to exist with the ownership of
ten percent or more of an insurance company's voting securities.
Citizens is
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subject to such regulation and has registered under such statutes
as a member of an "insurance holding company system." The
legislation typically requires periodic disclosure concerning the
transactions between the registered insurer, the ultimate
controlling party, and all affiliates and subsidiaries of the
ultimate controlling party, and in many instances requires prior
approval of intercorporate transfers of assets (including in some
instances payment of dividends by the insurance subsidiary) within
the holding company system.
COMPETITION. The life insurance business is highly competitive
and ALLIC competes with a large number of stock and mutual
companies. ALLIC believes that its premium rates and its policies
are generally competitive with those of other life insurance
companies, many of which are larger than ALLIC, selling similar
types of insurance.
ALLIC's marketing plan stresses the sale of pre-need or burial
policies as its primary life insurance product. Approximately
forty-eight percent (48%) of the Company's total first year and
renewal premium income during 1996 came from that market, and a
similar percentage of new insurance production during 1995 was
derived from that source. See "Business of ALLIC - Geographical
Distribution of Business." Management believes that ALLIC has the
potential to be a significant competitor in this market and
attributes its success in penetrating that market to the expertise
of management, the uniqueness of its life insurance products and
competitiveness of its pricing methods.
ALLIC faces competition from several other life insurance
companies that also sell pre-need and burial policies, with no one
company being dominant in the market. Some companies may be
deemed to have a competitive advantage due to histories of
successful operations and large agency forces. Management
believes that its experience, combined with the special features
of the pre-need program allows ALLIC to compete effectively in
maintaining and pursuing new business. However, the high cost
associated with the expansion of this market may inhibit ALLIC's
ability to penetrate to a significant degree.
The second aspect of ALLIC's marketing program involves the sale
of hospital indemnity policies for specified illnesses. This
block of business accounted for approximately 49% of total first
year and renewal premium in 1996. ALLIC is in competition with
many life insurance companies as well as with voluntary and
government-sponsored plans for meeting hospitalization and medical
expenses such as Blue Cross/Blue Shield, "Medicare" and
"Medicaid." Future expansion of such programs or the
establishment of additional government health programs could
adversely affect the future of accident and health insurance on
ALLIC's books.
FEDERAL INCOME TAXATION. ALLIC is a "small company" as that term
is defined in the Internal Revenue Code (the "Code"), section 806.
As such, ALLIC qualified for a special small company deduction
(presently equal to 60% of
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"tentative life insurance company taxable income") which serves to
decrease significantly the amount of tax which might otherwise
have to be paid.
The Omnibus Reconciliation Act of 1993 (the "1993 Act") was signed
into law on August 10, 1993. Among its provisions was an increase
to corporate tax rates to 35% on taxable income between
$10,000,000 and $15,000,000 and to 38% on taxable income between
$15,000,000 and $18,300,000. This legislation had no material
impact on the financial position of the Company.
The Revenue Reconciliation Act of 1990 revised the method in which
insurance companies claim deductions for policy acquisition costs.
Previously, insurance companies were allowed to deduct actual
policy acquisition costs as they were incurred. Beginning in
1990, policy acquisition costs are determined as a percentage of
annual net premiums and are then deductible on a straight-line
basis over a ten-year period rather than treated as an immediate
deduction. This change in treatment for acquisition costs has had
a significant impact on ALLIC's taxable income due to the
relatively large amounts of such deferrals caused by the increases
in new business. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations." ALLIC presently
qualifies for a small company exception which allows it to deduct
the costs over a shorter five-year period.
In 1996 ALLIC filed a separate Federal income tax return. ALLIC
filed a consolidated Federal income tax return with ALFC and
its subsidiaries prior to the acquisition by Citizens. At December
31, 1996 ALLIC had net operating loss carryforwords of $613,000
to offset taxable income in future years.
(vii) BUSINESS OF FAIC
FAIC was formed in November 1984 for the purpose of organizing and
financing proposed funeral home companies (FHL and FHA) and a
proposed Louisiana life insurance company. FAIC offered stock to
residents of the State of Louisiana during 1993 and 1994, raising
approximately $1,200,000 in gross proceeds. FHL was capitalized
with approximately $530,000 of the offering proceeds and FHA was
capitalized with approximately $500,000. The offering was
suspended in 1995. Currently, FAIC's activities are limited to
ownership of FHL and FHA, comprising its total assets of $1
million at December 31, 1996 with total revenues of $4,700. See
Item 1(a) General Development of Business.
(viii) BUSINESS OF FHL
Formed in 1989, FHL owns and operates a funeral home in Baker,
Louisiana. Constructed in 1992, the Baker Funeral Home
constitutes the primary business function of FHL. At December 31,
1996, FHL had total assets of $599,000 and total revenues of
$261,000.
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(ix) BUSINESS OF FHA
FHA was formed in 1993 to construct an additional funeral home.
Currently those plans have been suspended and the company is
dormant. At December 31, 1996, FHA had total assets of $517,000
and total revenues of $21,000.
(x) BUSINESS OF IIH
Insurance Investors and Holding Company served as the parent
holding company for Central Investors Life Insurance Company of
Illinois prior to the 1996 acquisition by Citizens. Formerly a
Registrant under the Securities Act of 1933, this Company is
currently dormant.
(xi) BUSINESS OF CILIC
CILIC is an Illinois domiciled life insurer admitted to do
business in four states. Dormant for several years, the Company
services a closed block of life insurance policies. At December
31, 1996, CILIC had assets of $2.7 million and revenues of
$179,000.
ITEM 2. DESCRIPTION OF PROPERTIES
CICA owns its principal office in Austin, Texas, consisting of an
80,000 square foot office building. Approximately 27,000 square
feet is occupied by CICA and its affiliates with the remainder of
the building being leased or for lease. At December 31, 1996, the
occupancy rate of the property was approximately 95%.
CICA also owns 1.10 acres of land with a 13,000 square foot office
building which previously served as the Company's executive
offices. The property has a book value of $158,000. A triple-net
lease was executed during 1995 on the building for a term of three
years, with a purchase option at a price of $850,000 during the
period.
During 1995, CICA acquired through foreclosure, a 7,500 square
foot office property in Wheatridge, Colorado for $116,000.
Subsequently, the Company renovated the property, bringing its
investments to $230,000. This property has previously been
appraised for $475,000. Management had planned to use this
building in conjunction with the Company's operations; however,
decided to dispose of property and listed it for sale at $490,000
in December 1996.
Through the acquisition of ALFC described above, the Company also
owns a 6,324 square foot funeral home in Baker, Louisiana with a
total cost of $473,000. This facility is owned and operated by a
subsidiary, FHL.
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ITEM 3. LEGAL PROCEEDINGS
The Company from time to time may be a party to various legal
proceedings incidental to its business. Management does not
expect the ultimate resolution of these legal proceedings to have
a material adverse impact on the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders of Citizens during the
fourth calendar quarter of 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Citizens' Class A common stock is traded on the American Stock
Exchange (Amex). The high and low prices per share as supplied by
the Amex Monthly Statistical Report are as follows.
1996 1995
------------------ ----------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ------ ------ ------ -----
March 31 9.13 8.50 9.25 7.13
June 30 7.50 5.13 9.69 8.25
September 30 8.13 7.38 15.63 7.25
December 31 9.75 7.69 9.88 8.06
(b) Citizens' Class A common stock is listed on the American Stock
Exchange under the symbol CIA.
(c) As of December 31, 1996, the approximate number of record owners
of Citizens' Class A common stock was 14,200. Management
estimates the number of beneficial owners to be approximately
48,000.
(d) Citizens has not paid dividends in any of the past three years and
does not intend to pay cash dividends in the immediate future.
For restrictions on the present and future ability to pay
dividends, see Note 7 of the "Notes to Consolidated Financial
Statements."
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth, in summary form, selective data of the
Company. This data, which is not covered in the report of the
independent auditors, should be read in conjunction with the
consolidated financial statements and notes which are included
elsewhere herein (amounts in thousands except per share amounts).
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA)
------------------------------------------------------------------------
1993 1992
1996 1995 1994 (AS RESTATED) (AS RESTATED)
------------ ------------ ------------ ------------ ------------
NET OPERATING REVENUES $ 63,822 $ 53,130 $ 49,212 $ 42,761 $ 33,134
NET INCOME $ 2,214 $ 2,750 $ 4,175 $ 5,526 $ 3,907
NET INCOME PER SHARE $ .11 $ .16 $ .25 $ .34 $ .24
TOTAL ASSETS $ 214,455 $ 205,486 $ 149,798 $ 134,105 $ 116,230
TOTAL LIABILITIES $ 147,572 $ 140,773 $ 114,742 $ 106,090 $ 93,442
TOTAL STOCKHOLDERS' EQUITY $ 66,883 $ 64,713 $ 35,056 $ 28,015 $ 22,787
BOOK VALUE PER SHARE $ 3.29 $ 3.24 $ 1.99 $ 1.68 $ 1.37
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See Part I (b) - Financial information regarding the insurance business and
Item 7 - Management's Discussion and Analysis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 9, 1994, Citizens announced that it had signed
definitive written agreements for the acquisition of (i) American
Liberty Financial Corporation, a Baton Rouge, Louisiana-based life
insurance holding company with $26 million in assets, $8 million
of stockholders' equity, revenues of $9 million and $40 million of
life insurance in force and (ii) Insurance Investors & Holding
Co., a Peoria, Illinois based life insurance holding company with
$2.5 million in assets and $1 million of stockholders' equity.
The American Liberty acquisition was completed on September 14,
1995 with American Liberty shareholders receiving 1.10 shares of
Citizens' Class A Common Stock for each share of American Liberty
Common Stock owned and 2.926 shares of Citizens' Class A Common
Stock for each share of American Liberty Preferred Stock owned.
Citizens issued approximately 2.3 million Class A shares in
connection with the transaction, which was accounted for as a
purchase.
The Insurance Investors agreement, consummated March 12, 1996,
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 acquired all shares of Central Investors
Life Insurance Company, a 95% owned subsidiary of Insurance
Investors & Holding, based upon an exchange ratio of one share of
Citizens' Class A common stock for each four shares of Central
Investors owned. The transaction, which was accounted for as a
purchase, involved the issuance of approximately 171,000 shares.
On October 28, 1996, Registrant announced that it had signed
definitive written agreements for the acquisition of American
Investment Network, Inc. (American Investment), a life insurance
holding company headquartered in Jackson, Mississippi 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 provides that following the
acquisition by Registrant, American Investment shareholders will
receive 1 share of Registrant's Class A Common Stock for each 7.2
shares of American Investment Common Stock owned. Citizens
expects to issue approximately 700,000 Class A shares in
connection with the transaction, which will be 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 is subject to approval by American Investment's
shareholders and regulatory authorities and is expected to close
in mid 1997.
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RESULTS OF OPERATIONS
Net income for the year ended December 31, 1996 was $2,213,726 or
$.11 per share compared to $2,750,212 or $.16 per share in 1995
and $4,174,558 or $.25 per share in 1994. Increases in expenses
associated with ALLIC's marketing activities and a minimal
increase in the sale of new international life insurance premiums
caused the decline in earnings in 1996. Decreased writing of new
life insurance premiums contributed to the lower earnings in 1995,
coupled with increased operating expenses incurred to acquire and
convert ALFC.
Total revenues for the year ended December 31, 1996 were
$63,822,160 compared to $53,130,172 in 1995, an increase of 20.1%.
The substantial revenue growth in 1996 is attributable to the
inclusion of ALLIC for the entire year, which contributed
approximately $9,200,000 to revenues. The 1995 revenues were 7.9%
greater than 1994 when total revenues were $49,211,998. The
smaller increase in revenues during 1995 resulted primarily from a
reduction in new premium sales, whose decline offset increased
investment income during the year. In 1995, the revenues of ALLIC
are included only from the purchase date of September 14, 1995,
and as such, only $2.6 million of ALLIC's total revenues of $9
million were included in the Company's results.
Premium income reached $53,914,361 in 1996, a 16.9% increase over
the previous year when premium income totaled $46,125,093. The
1995 amount represented a 5.3% increase over 1994 when premiums
amounted to $43,785,361. Premiums for 1996 were boosted by the
inclusion of ALLIC. ALLIC contributed $3.8 million of accident
and health premium and an additional 4.1 million of life premiums.
Additionally, CICA increased new premium sales to $9.7 million
during the year from $9.5 million in 1995, which was a decrease
from $11.8 million in 1994. In 1994 and 1995, management did not
emphasize new business production due to its desire to increase
Company capitalization before further expanding its premium
writing. Additionally, during 1995, the Company saw significant
disruption in the Argentine economy, lowering sales from that
region which had been a major contributor to the Company's overall
sales in recent years. Management believes the disruption has
passed in that market and expects to see improved production from
that area in the future although these expectations may not be
realized for a variety of reasons including political and
governmental disturbances, economic disturbances and other factors
beyond the Company's control.. Additionally, only a small portion
of the premium revenues of ALLIC are included in the 1995 results
as described above.
During late 1995 and 1996, management made a significant effort to
expand the writing of pre-need insurance on the part of ALLIC.
Included in this effort was the addition of several field agency
managers, the design of new products, and printing of promotional
materials. Despite this commitment and incurrence of
approximately $700,000 in expenses, management abandoned these
efforts late in 1996. It is management's belief that ALLIC is
better served to continue to exploit its niche
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selling specialty accident and health life products through
existing distribution channels although factors such as the
reaction of the remaining ALLIC sales representatives to
discontinuation of this effort as well as general competitive
factors will affect the actual outcome. Because only a nominal
amount of new premium was written through the now discontinued
expansion efforts, management does not expect the change in focus
to have a material effect on new sales. Management does, however,
believe that the loss of momentum as a result of withdrawal of the
program will cause a disruption in ALLIC's sales. The annual
sales of new premiums produced by ALLIC represents less than 10%
of total new premiums produced by the Company; therefore
management does not believe this will have an adverse effect on
the Company.
Net investment income increased 30.7% during 1996 to $9,185,506
from $7,026,909 in 1995. In 1994, such income was $5,295,784.
The 1996 results reflect actions taken during late 1994 and early
1995 to extend the duration of the Company's portfolio slightly to
take advantage of higher yields. Overall, the duration was
increased to approximately 6 years from 4 to 5 years.
Additionally, the acquisition of ALLIC which increased the
Company's invested assets by approximately $17.8 million,
contributed, along with the Company's own internal growth. ALLIC
represented $550,000 of 1995's investment income; however, this
amount represented only slightly more than three months of
earnings on that asset base. In 1996, the contribution was $1.2
million. The low yields available in the bond market during the
Company's growth period have made it difficult to increase the
return on the Company's invested assets without exposing the
portfolio to undue risk; however, management believes that as
yields rise (which occurred during 1994 and early 1995 and again
in late 1996) the Company is positioned to take advantage of the
investment opportunities that will present themselves and, thus,
enhance future returns. Management hired the investment advisory
firm of Asset Allocation and Management, Inc. of Chicago ("AAM"),
Illinois in late 1995 to manage the Company's fixed maturity
portfolio. It is the belief of management that an overall
increase in returns can be achieved by implementing the plans of
AAM to provide more diversity in the portfolio without
significantly increasing risk. During 1996, a nominal
reconfiguration was begun. In lieu of purchasing U.S. Treasury
instruments, the Company began to purchase U.S. Government
guaranteed mortgage pass-through securities. Management believes
that an approximate 50 basis point increase in return can be
achieved through the switch assuming current market yields do not
decline.. Additionally, approximately $3 million of A to AA rated
private placement bonds were acquired. Management expects to
continue this strategy throughout 1997 as opportunities present
themselves.
Future policy benefit reserves increased $8,198,243 in 1996,
compared to $11,033,763 in 1995 and $11,910,751 in 1994.
Increased surrender activity during the year was the primary
reason for the lower reserve increase in 1996. The decreased
production in 1995, coupled with lower reserves as a result of a
lower capitalization rate on policy acquisition costs, along with
higher surrender activity in the international market as a result
of the disruption described above, were the reasons for
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30
the lower reserve increase in 1995. Increasing premium income and
favorable persistency in relation to premiums are the primary
reasons for the increase in 1994. Increases in surrender activity
on the block of Universal Life business acquired in the First
Centennial Corp. acquisition in 1992 slowed the level of increase,
particularly in 1994. These surrenders, which were expected by
management, were increased by the relatively low interest rates
paid on these plans during 1994 compared to the rates that were in
effect several years ago when the plans were sold. Additionally,
in the early years of a policy, the net reserves (benefit reserve
less deferred acquisition costs) are small due to the large
capitalized costs in the first and second policy years. As the
policy matures, the reserve increases. The Company's reserves
are certified annually by an independent actuary. Such
certification noted no deficiencies for the years presented.
Overall policyholder dividends remained relatively stable in 1996
amounting to $2,363,201 from $2,422,168 in 1995 and $2,381,581 in
1994. In late 1993, management reduced the dividends paid on
various plans to reflect the lower levels of return that were
available in the bond market. As a result, the dividends paid in
recent years have not been growing. Virtually all CICA's policies
that have been sold since 1989 are participating. Participating
policies represent a large majority (87%) of the Company's
business in force and over 90% of new issues in 1996 and 1995. As
a result, management expects continued growth in this item subject
to factors such as persistency and future sales; however,
dividends are factored into the policies' premiums and thus
management does not believe continued increases in dividend
expense will impair or dilute future profitability.
Claims and surrenders increased 34.4% in 1996, reaching
$25,919,054 from $19,282,954 in 1995. In 1994, such expenses were
$16,635,259. The 1995 increases result primarily from growth in
surrenders and endowments.
Death benefits increased to $3,667,159 in 1996, compared to
$2,923,339 in 1995. In 1994, such benefits were $2,533,569.
ALLIC claims amount to $1,313,390 of the 1996 results. A large
portion of the 1995 increase ($290,945) is attributable to the
acquisition of ALLIC in September. The remaining increase in 1995
is due to the growth in the Company's in force business. During
1994, the claims incurred on the Servicemen's Group Life Insurance
("Segli") program returned to levels seen prior to 1993, declining
by approximately $500,000. Additionally, during 1994 claims on
the Company's in force business remained static with those
incurred in 1993, despite the increasing block of business in
force. The Company has historically adhered to a strict
underwriting policy which requires complete medical examinations
on all applicants who are foreign residents, except children,
regardless of age or face amount of the policy applied for. For
1996 and future years, management initiated a change to more
selective medical examinations in conjunction with dry spot blood
tests and extensive medical questions on the application in order
to lower the cost of new business without sacrificing necessary
information for the underwriter. Additionally, X-rays and
electrocardiograms are required depending on age and face
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31
amount of the policy. On all policies of $150,000 or more,
inspection reports are required which detail the background
resources and lifestyle of the applicant. The Company has
developed numerous contacts throughout Latin America with which
its underwriters can validate information contained in the
application, medical or inspection report. The relatively high
death claims experienced on the ALLIC block of business are
expected due to the nature of the business (burial insurance) and
the higher ages associated with such business.
Endowment expense grew from $4,631,261 in 1995 to $5,192,607 in
1996, a 12.1% increase. In 1994, such expenses were $4,475,462.
Beginning in late 1990, Citizens introduced a new series of plans
called "Ultra Expansion Plus" which carried an immediate endowment
benefit of an amount elected by the policyowner. This endowment
is factored into the premium of the policy and is paid annually.
Management does not expect this benefit to adversely impact
profitability since it is factored into the cost of the policy.
Policy surrenders were $14,421,683 in 1996, compared to
$10,611,335 in 1995 and $8,637,306 in 1994. The increase in
surrenders is, in the opinion of management, due to acquisitions
and the growing block of business in force, as well as
representative of the economic problems seen in Argentina during
1995 and early 1996.
During 1996, commissions increased to $12,447,664 from $10,273,173
in 1995. During 1995, commissions declined to $10,273,173 from
$12,382,372 in 1994. The majority of such amounts paid relates
to first year commissions which were $8,677,297, $7,292,264 and
$9,925,028, respectively, in 1996, 1995, and 1994. The 1996
increases relate to improved sales activity in CICA and
approximately $1.5 million associated with ALLIC. The decline in
first year commissions during 1995 relates to the slowdown in new
sales discussed earlier.
Underwriting, acquisition and insurance expenses increased to
$9,500,973 in 1996 from $7,102,401 in 1995 and $5,079,538 in 1994.
The 1996 expenses include approximately $3.2 associated with
ALLIC. Due to the consolidation of ALLIC's operations with CICA,
management believes significant reductions can be achieved through
economies of scale. In order to convert a majority of CICA's
marketing overhead from fixed to variable, management began
discussions in early 1997 with an independent international
marketing company to serve as managing agent for the Company's
international marketing activities. This firm would receive an
overriding commission on all new business sold internationally in
exchange for the absorption of all marketing management and
promotion activities. By taking such actions, management believes
approximately $900,000 of fixed overhead can be converted to a
variable expense in 1997 and thereafter.
Management has utilized firms such as this in previous periods
with great success at obtaining increases in sales and expense
reductions. Additionally, management undertook the expense
reductions associated with ALLIC's marketing operations discussed
previously. These actions should result in an additional $700,000
of annual overhead reduction in future periods based upon the 1996
level of
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expenditures and the factors described earlier regarding the
discontinued marketing operations. The 1995 expense increase
reflects the growth experienced by the Company in recent years,
particularly in the marketing area. As a result of a change in
late 1993 in the management of marketing efforts, the Company
absorbs a greater portion of the expense in exchange for paying
lower first year commissions. The growth in expense in 1994 is
primarily related to the increased home office marketing costs.
Capitalized deferred policy acquisition costs were $10,531,222 in
1996, compared to $10,579,704 in 1995 and $13,128,049 in 1994.
The decline in amounts in 1995 reflects the lower level of new
sales experienced during the year, as well as the lower interest
rate environment. There was an adjustment of capitalization for
1994 and after issued policies to reflect the lower interest rates
available to be earned on the Company's investment portfolio
compared to earlier years. Amortization of these costs was
$10,221,917, $8,511,876 and $7,203,593 respectively in 1996, 1995,
and 1994. The increased surrender activity discussed above
contributed to the increased amortization in 1996.
Amortization of cost of insurance acquired and excess of cost over
net assets acquired increased to $1,398,859 in 1996 from $678,997
in 1995 and $606,487 in 1994. The increase is attributable to the
goodwill and cost of insurance recorded on the acquisitions of
ALLIC and IIH.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity increased to $66,830,016 at December 31, 1996
from $64,712,990 in 1995. The acquisition of IIH and the income
earned during the period were the primary reasons for the growth
in equity during 1996. The IIH acquisition discussed previously,
increased invested assets by $2,995,000 and stockholders' equity
by $1,542,501. The increase in equity during the year would have
been greater but for a $1,978,000 unrealized loss (net of tax) on
the Company's available-for-sale bond portfolio. This unrealized
loss was attributable to decreases in prices in the bond market in
1996.
On October 27, 1994, Citizens completed the offering of 916,375
shares of its Class A Common Stock under an exemption from
registration under the Securities Act of 1933. The offering was
made under Regulation S, which permits shares offered outside of
the United States to non-United Stated persons pursuant to its
guidelines may be resold in the United States by persons who are
not an issuer, underwriter or dealer following a certain period
after the close of the offering period. The offering price was
$7.00 per share. The closing market price of the Class A common
shares on the date of the offering commencement was $7.75 per
share (as reported by the American Stock Exchange). The Company
sold 916,375 shares, generating gross proceeds of more than $6.4
million, and net proceeds of approximately $5.4 million.
Management was pleased with the amount of capital generated
through the offering; however, it believes that the offering
period was too short in light of the manner in
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33
which business is typically transacted overseas. Because of the
success of the offering in the limited time period, a second
offering was initiated in May 1995. The second offering, to the
Company's international policyholders, expires in October 31, 1997.
It currently prices the shares at $7.50 and requires a three-year
holding period. As of December 31, 1996, approximately 135,350
shares had been purchased through the second Reg. S offering,
resulting in a net increase to capital of $1,084,000.
Invested assets grew to $138,311,136 in 1996 from $130,024,739 at
December 31, 1995, an increase of 6.4%. The acquisition of IIH
contributed approximately $2 million to said increase. The
balance of the growth is attributable to the internal growth
achieved by the Company. At December 31, 1996, 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 $5,627,256 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, (1.5% at December 31,1995)
has historically been composed of small residential loans in
Texas. At December 31, 1996, no mortgage loans were in default.
At December 31, 1995, one mortgage loan was in default with a
principal balance of approximately $92,000. During 1995, the loan
to an affiliate described below was foreclosed. Management has
established a reserve of $50,000 at 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 14.3% of invested assets at December 31,
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, 1996. Management monitors the solvency of all financial
institutions in which it has funds to minimize the exposure for
loss. At December 31, 1996, 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.
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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 $158,000 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 and 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 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.
CICA had outstanding at December 31, 1996, 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 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
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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.
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ITEM 8. FINANCIAL STATEMENTS
CITIZENS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
REFERENCE
---------
Independent auditor's report 43
Consolidated balance sheets at
December 31, 1996 and 1995 44-45
Consolidated statements of operations
- years ended December 31, 1996, 1995 and 1994 46-47
Consolidated statements of stockholders' equity
- years ended December 31, 1996, 1995 and 1994 48
Consolidated statements of cash flows
- years ended December 31, 1996, 1995 and 1994 49-50
Notes to consolidated financial statements 51-66
Schedules at December 31, 1996 and 1995:
Schedule II - Condensed Financial
Information of Registrant 67-69
Schedules for each of the years in the three-year
period ended December 31, 1996:
Schedule IV - Reinsurance 70
All other schedules have been omitted as the required information is
inapplicable or the information required is presented in the financial
statements or the notes thereto filed elsewhere herein.
-36-
37
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the 24 months preceding the date of the audited financial
statements of Citizens included herein, there has been no change
of accountants made by Citizens, nor has it reported on Form 8-K
any disagreements between the Company and its independent
accountants.
-37-
38
PART III
Items 10, 11, 12, and 13 of this Report incorporate by reference the
information in the Company's definitive proxy material under the headings
"Stock and Principal Stockholders," "Control of the Company," and "Election of
Directors." to be filed with the Securities and Exchange Commission within 120
days after December 31, 1996.
-38-
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 AND 2 FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements and schedules listed on the
following index to financial statements and financial
statement schedules are filed as part of this Form 10-K.
(a) 3 EXHIBITS
EXHIBIT
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
(1) Underwriting Agreement N/A
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (e)
(3) 3.1 Articles of Incorporation; as amended (d)
3.2 Bylaws (b)
(4) Instruments defining the rights of security holders, including
indentures N/A
(5) Opinion re: Legality N/A
(6) (Removed and Reserved) N/A
(7) (Removed and Reserved) N/A
(8) Opinion re: Tax Matters N/A
(9) Voting Trust Agreement N/A
(10) Material Contracts
10.1 Automatic Yearly Renewable term (NR) Life Reinsurance
Agreement between Citizens Insurance Company of
America and The Centennial Life Insurance Company
dated March 1, 1982 (a)
10.2 Stock Purchase Agreement between Citizens Insurance
Company of America and Citizens, Inc. (a)
10.3 Plan and Agreement of Merger and Exchange by and among
Insurance Investors & Holding Co., Central Investors
Life Insurance Company of Illinois, Citizens, Inc. and
Citizens Acquisition, Inc. (g)
10.4 Self-Administered Automatic Reinsurance Agreement -
Citizens Insurance Company of America and Riunione
Adriatica di Sicurta, S.p.A. (h)
-39-
40
10.5 Plan and Agreement of Exchange dated October 28, 1996
between Citizens, Inc. and American Investment
Network, Inc. (h)
10.6 Agreement and Plan of Merger dated October 31, 1996
between Citizens Insurance Company of America, CICA
Acquisition, Inc., and First American Investment
Corporation (h)
10.7 Plan and Agreement of Merger dated November 22, 1996
between Citizens, Inc. and American Liberty Financial
Corporation, as amended (h)
10.8 Plan and Agreement of Merger dated November 22, 1996
between Citizens Insurance Company of America and
American Liberty Life Insurance Company, as amended (h)
10.9 Bulk Accidental Death Benefit Reinsurance Agreement
between Connecticut General Life Insurance Company and
Citizens Insurance Company of America, as amended (h)
(11) Statement re: Computation of per share earnings N/A
(12) Statement re: Computation of ratios N/A
(13) Annual report to security holders, Form 10-Q or quarterly report to N/A
security holders
(14) (Removed and Reserved) N/A
(15) Letter re: Unaudited interim financial statements N/A
(16) Letter re: Change in certifying accountant N/A
(17) Letter re: Director resignation N/A
(18) Letter re: Change in accounting principles N/A
(19) Report furnished to security holders N/A
(20) Other documents or statements to security holders N/A
(21) Subsidiaries of the registrant Filed
herewith
(22) Published report regarding matters submitted to a vote of
security holders N/A
(23) Consents of expert and counsel Filed
herewith
(24) Power of Attorney See
signature
page
(25) Statement of eligibility of trustee N/A
(26) Invitations for competitive bids N/A
(27) Financial Data Schedule Filed
herewith
(28) (Removed and Reserved) N/A
(99) Additional Exhibits N/A
- ----------
(a) Filed as a part of the Amended No. 1 to Registration Statement on Form S-4,
SEC File No. 33--4753, filed on or about June 19, 1992.
-40-
41
(b) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein by reference.
(c) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated herein by reference.
(d) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
(e) Filed with or referenced in the Registrant's Current Report on Form 8-K
dated December 9, 1994 and incorporated herein by reference.
(f) Filed as a part of the Registration Statement on Form S-4, SEC File No.
33--59039, filed on or about May 2, 1995.
(g) Filed as a part of the Registration Statement on Form S-4, SEC File No.
33--63275, filed on or about October 6, 1995.
(h) Filed as a part of the Registration Statement on Form S-4, SEC File No.
333--16163, filed on or about November 14, 1996.
(b) REPORTS ON FORM 8-K
(1) Form 8-K dated October 28, 1996 reporting pursuant to Item 5 (Other Events)
the execution of a definitive acquisition agreement with American
Investment Network, Inc., a life insurance holding company based in
Jackson, Mississippi.
(2) Form 8-K dated November 19, 1996 reporting pursuant to Item 9 (Sales of
Equity Securities Pursuant to Regulation S).
(3) Form 8-K dated December 23, 1996 reporting pursuant to Item 9 (Sales of
Equity Securities Pursuant to Regulation S).
-41-
42
CITIZENS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
REFERENCE
---------
Independent auditors' report 43
Consolidated balance sheets at
December 31, 1996 and 1995 44-45
Consolidated statements of operations
- years ended December 31, 1996, 1995 and 1994 46-47
Consolidated statements of stockholders' equity
- years ended December 31, 1996, 1995 and 1994 48
Consolidated statements of cash flows
- years ended December 31, 1996, 1995 and 1994 49-50
Notes to consolidated financial statements 51-66
Schedules at December 31, 1996 and 1995:
Schedule II - Condensed Financial
Information of Registrant 67-69
Schedules for each of the years in the three-year
period ended December 31, 1996:
Schedule IV - Reinsurance 70
All other schedules have been omitted as the required information is
inapplicable or the information required is presented in the financial
statements or the notes thereto filed elsewhere herein.
-42-
43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Citizens, Inc.:
We have audited the consolidated financial statements of Citizens, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
KPMG PEAT MARWICK LLP
Dallas, Texas
February 21, 1997
-43-
44
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------ ------------ ------------
Investments (note 2):
Fixed maturities held to maturity,
at amortized cost (market $5,217,000
in 1996 and $5,700,000 in 1995) $ 5,627,256 $ 5,636,785
Fixed maturities available for sale at market,
(cost $110,759,634 in 1996 and
$97,515,359 in 1995) 109,723,050 99,464,551
Equity securities, at market (cost $89,580
in 1996 and $23,329 in 1995) 50,155 --
Mortgage loans on real estate (net of reserve
of $50,000 in 1996 and $145,080 in 1995) 1,672,522 1,910,608
Policy loans 19,819,125 18,911,275
Guaranteed student loans (net of reserve of
$10,000 in 1996 and 1995) 298,683 333,387
Other long-term investments 920,345 679,436
Short-term investments 200,000 3,088,697
------------ ------------
Total investments 138,311,136 130,024,739
Cash 6,085,383 4,160,156
Other receivables 594,088 1,219,107
Accrued investment income 1,682,084 2,022,809
Reinsurance recoverable 1,773,541 1,857,900
Deferred policy acquisition costs 36,933,753 36,624,448
Other intangible assets 1,633,625 1,820,325
Federal income tax receivable 357,608 --
Cost of insurance acquired (note 3) 7,219,594 7,522,827
Excess of cost over net assets acquired 13,677,800 14,045,848
Property, plant and equipment 5,442,578 5,546,075
Other assets 743,636 642,013
------------ ------------
$214,454,826 $205,486,247
============ ============
-44-
45
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ ------------- -------------
Liabilities:
Future policy benefit reserves (notes 4 and 5):
Life insurance $ 123,812,996 $ 114,727,748
Annuities 3,936,178 4,261,847
Accident and health 4,651,905 4,337,782
Dividend accumulations 3,961,603 3,602,706
Premium deposits 1,803,358 1,553,414
Policy claims payable (notes 5 and 10) 2,966,818 3,197,291
Other policyholders' funds 1,958,992 1,945,332
------------- -------------
Total policy liabilities 143,091,850 133,626,120
Other liabilities 2,052,001 2,001,320
Commissions payable 928,288 692,578
Notes payable (note 6) 489,166 772,834
Deferred Federal income tax (note 12) 842,250 2,372,742
Federal income tax payable -- 1,025,106
Minority interest -- 14,954
Amounts held on deposit 168,255 267,603
------------- -------------
Total liabilities 147,571,810 140,773,257
------------- -------------
Stockholders' equity (notes 7, 8, and 9):
Common stock:
Class A, no par value, 50,000,000 shares
authorized, 21,761,894 shares issued
in 1996 and 21,415,872 shares issued
in 1995, including shares in treasury of
2,077,947 in 1996
45,941,552 44,007,339
Class B, no par value, 1,000,000 shares
authorized, 621,049 shares issued and
outstanding in 1996 and 1995 283,262 283,262
Unrealized investment gain (loss) (note 2) (710,166) 1,267,747
Retained earnings 23,430,634 21,216,908
------------- -------------
68,945,282 66,775,256
Treasury stock, at cost (2,062,266) (2,062,266)
------------- -------------
Total stockholders' equity 66,883,016 64,712,990
------------- -------------
Commitments and contingencies (notes 5, 8, and 10) $ 214,454,826 $ 205,486,247
============= =============
See accompanying notes to consolidated financial statements.
-45-
46
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------ ------------
Revenues:
Premiums (notes 5 and 11):
Life insurance $ 49,873,673 $ 45,426,887 $ 43,526,111
Accident and health 4,040,688 698,206 259,250
Annuity and universal life
considerations 389,084 119,335 75,564
Net investment income (note 2) 9,185,506 7,026,909 5,295,784
Realized gains (losses) on
investments (note 2) 226,212 (109,096) (9,356)
Other income 136,566 75,062 94,364
Interest expense (29,569) (107,131) (29,719)
------------ ------------ ------------
Total revenues 63,822,160 53,130,172 49,211,998
------------ ------------ ------------
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future
policy benefit reserves 8,198,243 11,033,763 11,910,751
Policyholders' dividends 2,363,201 2,422,168 2,381,581
Claims and surrenders (note 5) 25,919,054 19,282,954 16,635,259
Annuity expenses 684,440 652,976 373,575
------------ ------------ ------------
Total insurance benefits
paid or provided 37,164,938 33,391,861 31,301,166
------------ ------------ ------------
Commissions 12,447,664 10,273,173 12,382,372
Other underwriting, acquisition
and insurance expenses 9,500,973 7,102,401 5,079,538
Capitalization of deferred policy
acquisition costs (10,531,222) (10,579,704) (13,128,049)
Amortization of deferred policy
acquisition costs 10,221,917 8,511,876 7,203,593
Amortization of cost of insurance
acquired and excess of cost
over net assets acquired 1,398,859 678,997 606,487
------------ ------------ ------------
Total benefits and expenses 60,203,129 49,378,604 43,445,107
------------ ------------ ------------
(Continued)
-46-
47
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 1995, AND 1994
1996 1995 1994
---------- ---------- ----------
Income before Federal income
taxes $3,619,031 $3,751,568 $5,766,891
Federal income tax expense 1,405,305 1,001,356 1,592,333
---------- ---------- ----------
(note 12)
Net income $2,213,726 $2,750,212 $4,174,558
========== ========== ==========
Net income per share
of common stock (note 8) $ .11 $ .16 $ .25
========== ========== ==========
See accompanying notes to consolidated financial statements.
-47-
48
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK UNREALIZED TOTAL
----------------------- INVESTMENT RETAINED TREASURY STOCKHOLDERS'
CLASS A CLASS B GAINS (LOSSES) EARNINGS STOCK EQUITY
------------ -------- -------------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1993 15,985,344 283,262 (352,374) 14,292,138 (2,193,666) 28,014,704
Cumulative effect of adoption of
Statement No. 115 at January 1, 1994
net of taxes -- -- 690,388 -- -- 690,388
Net income -- -- -- 4,174,558 -- 4,174,558
Unrealized investment losses, net -- -- (3,308,611) -- -- (3,308,611)
Sale of stock 5,384,334 -- -- -- -- 5,384,334
Sale of treasury stock 87,625 -- -- -- 12,375 100,000
------------ -------- ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1994 $ 21,457,303 $283,262 $(2,970,597) $18,466,696 $(2,181,291) $ 35,055,373
============ ======== =========== =========== =========== ============
Net income -- -- -- 2,750,212 -- 2,750,212
Unrealized investment gains, net -- -- 4,238,344 -- -- 4,238,344
Acquisition of ALFC (note 9) 22,246,163 -- -- -- -- 22,246,163
Sale of stock 638,980 -- -- -- -- 638,980
Stock issuance costs (257,495) -- -- -- -- (257,495)
Retire shares held in treasury
stock (114,782) -- -- -- 114,782 --
Sale of treasury stock 37,170 -- -- -- 4,243 41,413
------------ -------- ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1995 $ 44,007,339 $283,262 $ 1,267,747 $21,216,908 $(2,062,266) $ 64,712,990
============ ======== =========== =========== =========== ============
Net income -- -- -- 2,213,726 -- 2,213,726
Unrealized investment gains, net -- -- (1,977,913) -- -- (1,977,913)
Acquisition of IIH(note 9) 1,542,501 -- -- -- -- 1,542,501
Sale of stock 445,462 -- -- -- -- 445,462
Stock issuance costs (157,500) -- -- -- -- (157,500)
Exercise of options (note 8) 103,750 -- -- -- -- 103,750
------------ -------- ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1996 $ 45,941,552 $283,262 $ ( 710,166) $23,430,634 $(2,062,266) $ 66,883,016
============ ======== =========== =========== =========== ============
See accompanying notes to consolidated financial statements
-48-
49
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 2,213,726 $ 2,750,212 $ 4,174,558
Adjustments to reconcile net income to
net cash provided by operating activities,
net of assets acquired:
Realized gains (losses) on sale of
investments and other assets 226,212 (109,096) 9,356
Accrued investment income 372,781 (131,835) (511,086)
Net deferred policy acquisition costs (309,305) (2,086,984) (5,924,456)
Amortization of cost of insurance
acquired and excess cost over
net assets acquired 1,398,859 678,997 606,487
Other receivables 626,300 602,662 (1,460,131)
Future policy benefit reserves 8,357,859 9,929,505 11,910,751
Other policy liabilities 34,343 1,527,695 (1,219,297)
Deferred Federal income tax (407,226) (981,068) (383,195)
Federal income tax (1,368,629) (104,424) (982,197)
Commissions payable and other liab 226,675 (224,308) (154,510)
Amounts held on deposit (99,348) (42,829) (124,087)
Other, net 672,085 613,198 2,110,818
------------ ------------ ------------
Net cash provided by
operating activities 11,944,332 12,421,725 8,053,011
------------ ------------ ------------
Cash flows from investing activities:
Maturity of fixed maturities held to maturity -- 2,600,000 51,625
Sale of fixed maturities available for sale 16,403,929 28,419,387 13,152,225
Maturity of fixed maturities available for sale 5,811,179 -- 963,151
Purchase of fixed maturities available for sale (33,759,945) (38,614,148) (40,486,808)
Sale of equity securities 66,251 1,892 174,761
Principal payments on mortgage loans 391,804 652,819 935,276
Mortgage loans funded (203,718) (54,875) (340,474)
Guaranteed student loans funded (100,902) (272,635) (335,440)
Guaranteed student loans sold 135,606 179,491 475,796
Sale of other long-term investments and property plant
and equipment (303,567) 474,257 331,276
Cash and short-term investments
provided by merger 355,654 1,178,600 --
Increase in policy loans (net) (801,105) (3,491,760) (1,214,520)
Purchase of other long-term investments and property,
plant and equipment (691,632) (947,733) (1,237,652)
------------ ------------ ------------
Net cash used by investing activities (12,696,446) (9,874,705) (27,530,784)
------------ ------------ ------------
-49-
50
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ------------ ------------
Cash flows from financing activities:
Additional borrowings on notes payable -- 60,461 --
Payments on notes payable (603,068) -- (388,359)
Sale of stock 391,712 381,485 5,371,959
------------ ------------ ------------
Net cash provided (used) by
financing activities (211,356) 441,946 4,983,600
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (963,470) 2,988,966 (14,494,173)
------------ ------------ ------------
Cash and cash equivalents at
beginning of year 7,248,853 4,259,887 18,754,060
------------ ------------ ------------
Cash and cash equivalents
at end of year 6,285,383 7,248,853 4,259,887
============ ============ ============
Supplemental disclosures of cash flow information:
1996 1995 1994
------------ ------------ ------------
Cash paid during the year for:
Interest $ 38,826 $ 53,030 $ 61,304
============ ============ ============
Income taxes $ 3,195,245 $ 2,000,000 $ 2,957,724
============ ============ ============
Supplemental disclosures of non-cash investing and financing activities (see
also Note 9):
The Company issued Class A stock to purchase all of the capital stock of
IIH in 1996 and ALFC in 1995.
$ 1,542,501 $ 22,246,163 $ --
============ ============ ============
In conjunction with the acquisitions, liabilities were assumed as follows:
Fair value of tangible assets acquired $ 2,381,252 $ 18,744,097 $ --
Fair value of intangible assets acquired 614,665 18,574,952 --
------------ ------------ ------------
Net assets acquired 2,995,917 37,319,049 --
Capital stock issued (1,542,501) (22,246,163) --
------------ ------------ ------------
Liabilities assumed $ 1,453,416 $ 15,072,886 $ --
============ ============ ============
Issuance of 4,248 treasury shares
of stock $ -- $ 41,413 $ --
============ ============ ============
See accompanying notes to consolidated financial statements.
-50-
51
CITIZENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
The consolidated financial statements include the accounts and
operations of Citizens, Inc. (Citizens), incorporated in the state
of Colorado on November 8, 1977 and its wholly-owned subsidiaries,
Citizens Insurance Company of America (CICA), Computing
Technology, Inc. (CTI), formerly Continental Leasing Company,
Insurance Investors, Inc. (III), American Liberty Financial Corp.
(ALFC), and Insurance Investors and Holding Company (IIH). ALFC
and its subsidiaries, American Liberty Life Insurance Company
(ALLIC), First American Investment Corp. (FAIC), and American
Liberty Exploration Company (ALEC) were acquired by Citizens in
September 1995. IIH, which was acquired in March 1996, owns
Central Investors Life Insurance Company of Illinois (CILIC).
Citizens and its subsidiaries are collectively referred to as "the
Company." All significant intercompany accounts and transactions
have been eliminated.
Citizens, Inc. provides life insurance policies through three of
its subsidiaries - CICA, ALLIC, and CILIC. CICA sells ordinary
whole-life policies internationally, with approximately 94% of
premium income derived outside the United States. ALLIC issues
life policies primarily as burial insurance and pre-need policies.
Additionally, ALLIC offers accident and health specified disease,
hospital indemnity, and accidental death policies, as well as
annuities. CILIC does not actively market insurance policies, but
does administer an in force block of life insurance.
(b) INVESTMENTS, OTHER THAN AFFILIATES
Investments are shown on the following basis:
1. Fixed maturities, primarily consisting of bonds which the
Company has the ability and intent to hold to maturity are
carried at amortized cost. Fixed maturities which may be sold
prior to maturity to support the Company's investment
strategies are considered held as available for sale and
carried at fair value as of the balance sheet date.
2. Equity securities include non-redeemable preferred stock and
are reported at fair value.
-51-
52
3. Mortgage loans on real estate, policy loans, and guaranteed
student loans are reported at unpaid principal balances less
an allowance for uncollectible amounts, if any.
4. Other long-term investments consist primarily of real estate
which is reported at cost not to exceed fair market value net
of accumulated depreciation.
5. Short-term investments consist of treasury bills and
commercial paper with maturities of ninety days or less, or
commercial paper, and are carried at cost, which approximates
market.
Unrealized appreciation (depreciation) of equity securities and
fixed maturities held for sale is shown as a separate component of
stockholders' equity, net of tax in 1996 and 1995, and is not
included in the determination of net income.
Costs of investments sold are determined using the specific
identification method. Net realized gains and losses are included
in other income and expenses as incurred.
The Company has assets with a fair value of $8,382,149 at December
31, 1996 on deposit with various state regulatory authorities to
fulfill statutory requirements.
(c) PREMIUM REVENUE AND RELATED EXPENSES
Premiums on life and accident and health policies are reported as
earned when due or, for short duration contracts, over the
contract periods. Benefits and expenses are associated with
earned premiums so as to result in recognition of profits over the
estimated life of the contracts. This matching is accomplished by
means of provisions for future benefits and the capitalization and
amortization of deferred policy acquisition costs.
Annuities are accounted for in a manner consistent with accounting
for interest bearing financial instruments. Premium receipts are
not reported as revenues but rather as deposits to annuity
contracts.
(d) DEFERRED POLICY ACQUISITION COSTS AND COST OF INSURANCE ACQUIRED
Acquisition costs, consisting of commissions and policy issuance
and underwriting expenses which relate to and vary with, the
production of new business are deferred. These deferred policy
acquisition costs are amortized primarily over the estimated
premium paying period of the related policies in proportion to the
ratio of the annual premium recognized to the total premium
revenue anticipated using the same assumptions as were used in
computing liabilities for future policy benefits.
The Company uses the factor method to determine the amount of
costs to be capitalized and the ending asset balance. During
1994, the factors used to determine
-52-
53
costs capitalized were modified to more accurately reflect the
costs attributable to each issue year. The capitalized costs and
amortized costs for each year presented have been reclassified to
reflect this factor revision. This reclassification did not change
the ending asset balance for any year nor did it change the net
impact on earnings in any year. The method followed in computing
deferred policy acquisition costs limits the amount of such
deferred cost to their estimated realizable value.
The value of insurance acquired in the Company's various
acquisitions, which is included in cost of insurance acquired in
the accompanying consolidated financial statements, was determined
based on the present value of future profits discounted at a risk
rate of return. The cost of insurance acquired is being amortized
over 30 years in proportion to the profit over the lives of the
related policies.
(e) POLICY LIABILITIES AND ACCRUALS
Future policy benefit reserves have been computed by the net level
premium method with assumptions as to investment yields, dividends
on participating business, mortality and withdrawals based upon
the Company's and industry experience, which provide for possible
unfavorable deviation (see note 4).
Annuity benefits are carried at accumulated contract values based
on premiums paid by participants, annuity rates of return ranging
from 3.0% to 7% (primarily at 4.00% - 5.5%) and annuity
withdrawals.
Premium deposits accrue interest at rates ranging from 3.5% to
8.25% per annum. Premiums are credited to income when due and
accrued interest is credited annually to the deposit account.
Policy and contract claims are based on case-basis estimates for
reported claims, and on estimates, based on experience, for
incurred but unreported claims and loss expenses.
(f) EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE
ASSETS
The excess of cost over the fair value of net assets acquired in
the merger with Equities International Life Insurance Co., the
1992 acquisition of the net assets of First Centennial Corporation
(FCC), the 1995 acquisition of ALFC and the 1996 acquisition of
IIH are amortized on a straight-line basis ranging from 5 to 20
years.
Other intangible assets, primarily the value of state licenses,
are amortized on a straight-line basis over 10 years.
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(g) PARTICIPATING POLICIES
At December 31, 1996 and 1995, participating business approximated
86% and 91%, respectively, of life insurance in force and premium
income. The amount of dividends to be paid is determined annually
by the Board of Directors.
(h) EARNINGS PER SHARE
Earnings per share have been computed using the weighted average
number of shares of common stock outstanding during each period.
The effects of outstanding stock options and warrants have not
been included in the calculations because they are either not
material or are antidilutive. The weighted average shares
outstanding for the years ended December 31, 1996, 1995 and 1994
were 19,615,420, 17,668,047, and 16,882,164, respectively.
(i) INCOME TAXES
At December 31, 1995 the Company filed one consolidated return
which included Citizens, Inc., CICA, and all direct non-life
subsidiaries, excluding FAIC. Two additional returns were filed
at December 31, 1995 which included FAIC and its subsidiaries and
ALLIC.
For the year ended December 31, 1996 the Company will file four
separate tax returns as follows: 1) Citizens, Inc., CICA, and all
direct non-life subsidiaries, excluding FAIC, 2) ALLIC, 3)
CILIC, and 4) FAIC and its subsidiaries.
Deferred tax asset and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(j) ACCOUNTING PRONOUNCEMENTS
In May 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. Held-to-maturity debt securities
will be carried at amortized cost while trading and
available-for-sale securities will be carried at fair value.
Unrealized holding gains and losses for trading securities will be
included in earnings. Unrealized holding gains or losses for
available-for-sale securities will be included as a component of
equity on a net of tax basis. The Company adopted Statement 115
on January 1, 1994.
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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.
(k) CASH EQUIVALENTS
The Company considers as cash equivalents all securities whose
duration does not exceed ninety days at the date of acquisition.
These securities are reflected as short-term investments in the
accompanying consolidated financial statements.
(l) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994
amounts to conform with the 1996 presentation.
(m) DEPRECIATION
Depreciation is calculated on a straight line basis using
estimated useful lives ranging from 3 to 10 years. Leasehold
improvements are depreciated over the estimated life of 30 years.
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
(2) INVESTMENTS
A decline in the fair 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
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derived using the specific identification method for determining
the cost of securities sold.
The amortized cost and estimated fair values of investments in
debt securities as of December 31, 1996 and 1995 respectively, are
as follows:
1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
Fixed maturities held to maturity:
US Treasury securities $ 5,627,256 $ -- $ 410,256 $ 5,217,000
------------ ----------- ----------- ------------
Total 5,627,256 -- 410,256 5,217,000
============ =========== =========== ============
Fixed maturities available for sale:
US Treasury securities and
obligations of US government
corporations and agencies 67,828,066 639,107 (1,148,240) 67,318,933
Public Utilities 4,691,540 19,497 (237,212) 4,473,825
Debt securities issued by States
of the United States and political
subdivisions of the States 207,968 4,894 (8,252) 204,610
Debt securities issued by
foreign governments 291,219 11,807 (466) 302,560
Corporate securities 9,061,298 176,078 (352,721) 8,884,655
Mortgage-backed securities 28,679,543 233,705 (374,781) 28,538,467
------------ ----------- ----------- ------------
Total $110,759,634 $ 1,085,088 $(2,121,672) $109,723,050
============ =========== =========== ============
1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
Fixed maturities held to maturity:
US Treasury securities $ 5,636,785 $ 63,215 $ -- $ 5,700,000
----------- ---------- ----------- ------------
Total 5,636,785 63,215 $ -- 5,700,000
=========== ========== =========== ============
Fixed maturities available for sale:
US Treasury securities and
obligations of US government
corporations and agencies 55,793,997 1,151,978 (171,686) 56,774,289
Public Utilities 5,146,972 111,606 (66,978) 5,191,600
Debt securities issued by State
of the United States and
political subdivisions of the
States 290,418 17,582 -- 308,000
Debt securities issued by
foreign governments 400,398 30,091 (2,489) 428,000
Corporate securities 7,522,769 368,746 (40,375) 7,851,140
Mortgage-backed securities 28,360,805 550,760 (43) 28,911,522
----------- ---------- ------------- ------------
Total $97,515,359 $2,230,763 $ (281,571) $ 99,464,551
=========== ========== ============= ============
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Concurrent with the adoption of the implementation guidance related to
Statement 115, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities" issued by the
Financial Accounting Standards Board, the Company reclassified certain
investments from the held to maturity category to available for sale. The
amortized cost of securities transferred was $12,778,241 and the unrealized
gain on the date of transfer amounted to $145,937, net of taxes.
The amortized cost and fair value of fixed maturities at December 31, 1996,
by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
FIXED MATURITIES HELD TO MATURITY
AMORTIZED ESTIMATED
COST MARKET VALUE
---------- ------------
Due after ten years $5,627,256 $ 5,217,000
---------- ------------
$5,627,256 $ 5,217,000
========== ============
FIXED MATURITIES AVAILABLE FOR SALE
AMORTIZED ESTIMATED
COST MARKET VALUE
------------ ------------
Due in one year or less $ 5,892,729 $ 5,874,870
Due after one year through five years 26,636,077 26,892,633
Due after five years through ten years 27,249,273 26,718,714
Due after ten years 22,302,012 21,698,366
------------ ------------
82,080,091 81,184,583
Mortgage-backed securities 28,679,543 28,538,467
------------ ------------
Totals $110,759,634 $109,723,050
============ ============
The Company had no investments in any one entity which exceeded 10% of
stockholders' equity at December 31, 1996 other than investments guaranteed
by the U.S. Government.
The Company's investment in mortgage loans is concentrated 34% in Colorado,
50% in Texas and 16% in other states as of December 31, 1996.
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At December 31, 1996 and 1995, unrealized depreciation of equity securities
of $39,425 and $23,329, respectively, consisted of gross unrealized losses.
Major categories of investment income are summarized as follows:
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ---------- ----------
Investment income on:
Fixed maturities $ 6,999,425 $5,208,785 $4,045,481
Equity securities -- 15,823 --
Mortgage loans on real estate 178,330 195,321 242,331
Policy loans 1,442,423 1,478,333 1,001,939
Short-term investments 526,910 106,872 123,119
Other 910,223 900,341 795,352
----------- ---------- ----------
10,057,311 7,905,475 6,208,222
Investment expenses 871,805 878,566 912,438
----------- ---------- ----------
Net investment income $ 9,185,506 $7,026,909 $5,295,784
=========== ========== ==========
Equity securities of $23,328 and other long-term assets of $231,156 held by the
Company as of December 31, 1996, did not produce income during the preceding 12
months.
Proceeds from available for sale securities in 1996, 1995 and 1994 were
$22,215,108, $29,132,810 and $13,152,225, respectively. Gross realized gains
and losses on such sales were $175,125 and $199,890, respectively, for the year
ended December 31, 1996, and $346,370 and $426,841, respectively, for the year
ended December 31, 1995, and $645,912 and $420,119, respectively, for the year
ended December 31, 1994. Realized gains (losses) on investments are as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Realized gains (losses):
Fixed maturities $ (24,765) $ (80,471) $ 281,052
Equity securities -- -- (67,309)
Other 250,977 (28,625) (223,099)
--------- --------- ---------
Net realized gains (losses) on
investments 226,212 (109,096) (9,356)
========= ========= =========
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59
(3) COST OF INSURANCE ACQUIRED
Cost of insurance acquired is summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance at beginning of period $ 7,522,827 $ 2,271,866 $ 2,692,389
Increase related to acquisitions 121,000 5,562,574 --
Interest 564,212 171,541 198,121
Amortization (988,445) (483,154) (618,644)
----------- ----------- -----------
Balance at end of period $ 7,219,594 $ 7,522,827 $ 2,271,866
=========== =========== ===========
Accretion of interest on cost of insurance acquired is calculated based on
the rates of interest used in setting the related policy reserves. These
rates range from 6.5% to 8.5%.
Estimated amortization in each of the next five years is as follows.
Actual future amortization will differ from these estimates due to
variances from estimated future withdrawal assumptions.
1997 1,055,521
1998 1,055,718
1999 943,009
2000 889,187
2001 853,990
Thereafter 2,731,116
(4) FUTURE POLICY BENEFIT RESERVES
In applying purchase accounting to the future policy benefit reserves
acquired through mergers, the Company revalued policy benefit reserves to
reflect the Company's reserve assumptions with regard to interest rates,
lapse rates and surrenders. The percentage of future policy benefits
calculated under these assumptions at December 31, 1996 and 1995 are as
follows:
1996 1995
---- ----
Pre-American Liberty acquisitions 16.5% 20.4%
American Liberty 9.0 12.7
Central 1.0 --
Various assumptions used to determine the future policy benefit reserves
include the following: a) valuation interest rates from 4 - 9%, b) the
mortality assumptions are from the 1955-60, 1965-70, and 1975-80 Select and
Ultimate mortality tables, and c) withdrawals are based primarily on
actual historical termination rates.
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(5) REINSURANCE
CICA cedes all risks to other companies generally in excess of $75,000 per
insured and 100% of accidental death benefits through yearly renewable term
insurance or coinsurance contracts. ALLIC and CILIC cede life risks in
excess of approximately $35,000 per insured to other companies through
yearly renewable term insurance or coinsurance contracts. In addition,
ALLIC reinsures all accidental death policies through a coinsurance
arrangement whereby 90% of the benefit risk is assumed by the reinsurer.
Risks are reinsured with other companies to permit the recovery of a
portion of any direct losses. The Company remains contingently liable to
the extent that the reinsuring companies cannot meet their obligations
under these reinsurance treaties.
At December 31, 1996 and 1995, life insurance in force aggregating
approximately $304,380,000 and $285,001,000, respectively, was assumed and
$296,378,000 and $290,677,000, respectively, was ceded to other insurance
companies out of a total in force of approximately $2,231,017,000 and
$2,151,955,000, respectively. Premiums assumed were approximately
$310,000, $306,000, and $541,000 in the years ended December 31, 1996, 1995
and 1994, respectively. Premiums ceded were approximately $2,583,000,
$2,241,000, and $2,310,000 in the years ended December 31, 1996, 1995 and
1994, respectively. Claims and surrenders assumed were approximately
$314,000, $286,000 and $530,000 and claims and surrenders
ceded were approximately $264,000, $377,000 and $928,000 in the years ended
December 31, 1996, 1995 and 1994, respectively.
Amounts paid or deemed to have been paid for reinsurance contracts are
recorded as reinsurance receivables. The cost of reinsurance related to
long duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account
for the underlying policies.
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(6) NOTES PAYABLE
Notes payable as of December 31, 1996 and 1995 consist of:
1996 1995
-------- --------
Note A; payable to bank, 7%, dated June 20, 1988, payable
in nine annual installments of $66,667 beginning June 30,
1989, with remainder due June 30, 1998 $466,666 $533,334
Note B; payable to bank, prime (8.25% at December 31,
1996) dated May 24, 1995, payable in monthly installments
of $3,000 plus interest beginning June 30, 1995 22,500 64,500
Note C; payable to individual, 6%, dated April 27, 1995,
with principal and interest payable at maturity, April
26, 1996 -- 175,000
-------- --------
$489,166 $772,834
======== ========
Note A is secured by two life insurance policies and proceeds from the
surplus debenture between CICA and the Company.
Note B is secured by computer equipment.
(7) STOCKHOLDERS' EQUITY AND RESTRICTIONS
The two classes of stock of Citizens are equal in all respects, except (a)
the Class B common stock elects a simple majority of the Board of Directors
of Citizens and the Class A common stock elects the remaining directors;
and (b) each Class A share receives twice the cash dividends paid on a per
share basis to the Class B common stock.
Generally, the net assets of the insurance subsidiaries available for
transfer to the Company are limited to the greater of the subsidiary net
gain from operations during the preceding year or 10% of the subsidiary net
statutory surplus as of the end of the preceding year as determined in
accordance with accounting practices prescribed or permitted by insurance
regulatory authorities. Payments of dividends in excess of such amounts
would generally require approval by the regulatory authorities. Based upon
statutory net gain from operation and surplus of the individual insurance
companies as of and for the year ended December 31, 1996, approximately
$1,640,000 of dividends could be paid to the Company without prior
regulatory approval.
CICA, ALLIC, and CILIC have calculated their risk based capital (RBC) in
accordance with the National Association of Insurance Commissioners' Model
Rule and the RBC rules as adopted by their state of domicile, Colorado,
Louisiana, and Illinois respectively. The RBC as calculated exceeded
levels requiring company or regulatory action.
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(8) STOCK OPTIONS
During 1989, the Company entered into an agreement granting Stephen B.
Booke, a financial public relations consultant providing services to the
Company, the right and option to purchase 100,000 shares of Class A no par
common stock of the Company at $2.50 per share, the fair market value of
the common stock at the date of the agreement. Such option is for
authorized but unissued shares at the date of the agreement. The option
which would have expired on February 8, 1994 was extended for an additional
36 months during 1993. Transfer of this option is limited by the
agreement. During 1996, 41,500 shares were issued in conjunction with the
exercise of this option.
(9) ACQUISITION, MERGER AND PROPOSED ACQUISITION
The IIH agreement closed on March 12, 1996 and provided that
Investors' shareholders would receive one share of Citizens' Class A Common
Stock for each eight shares of Investors Common Stock owned. Additionally,
Citizens acquired all shares of Central Investors Life Insurance Company (a
94% owned subsidiary of Investors) not already owned by Investors, based
upon an exchange ratio of one share of Citizens' Class A common stock for
each four shares of Central Investors owned. The acquisition of these two
companies involved the issuance of approximately 171,000 of Citizens' Class
A shares which was accounted for as a purchase.
On October 28, 1996, CICA 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 provides that following the acquisition
by CICA, American Investment shareholders will receive 1 share of Citizens,
Inc. Class A Common Stock for each 7.2 shares of American Investment Common
Stock owned. Registrant expects to issue approximately 700,000 Class A
shares in connection with the transaction, which will be 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 Company's system. The agreement is subject to
approval by American Investment's shareholders and regulatory authorities.
The Mississippi Department of Insurance held a public hearing on March 6,
1997 to consider the matter.
On December 9, 1994, Citizens announced that it had signed definitive
written agreements for the acquisition of (i) American Liberty Financial
Corporation, a Baton Rouge, Louisiana based life insurance holding company
and (ii) Insurance Investors & Holding Co., a Peoria, Illinois based life
insurance holding company.
The ALFC agreement provided that following the acquisition by Citizens,
ALFC shareholders would receive 1.10 shares of Citizens' Class A ALFC for
each share of ALFC Common Stock owned and 2.926 shares of
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Citizens' Class A Common Stock for each one share of AFLC Preferred Stock
owned. Citizens issued approximately 2.3 million Class A shares 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 transaction was consummated on September 14,
1995.
(10) CONTINGENCIES
The Company is a party to various legal proceedings incidental to its
business. Contingent liabilities that might arise from litigation are not
considered material in relation to the financial position of the Company.
Reserves for claims payable are based on the expected claim amount to be
paid after a case by case review of the facts and circumstances relating
to each claim. A contingency exists with regard to these reserves until
such time as the claims are adjudicated and paid.
(11) INTERNATIONAL SALES
A significant portion of the Company's business is derived through sales
in Latin America. Approximately 74%, 64% and 77% of premiums recorded in
the 1996, 1995, and 1994 consolidated statements of operations,
respectively, represent policies sold to residents of Central and South
America. Sales in Argentina and Columbia represented approximately 38% and
18% of reported premiums in 1996, 40% and 19% in 1995, and 49% and 23% in
1994, respectively. 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.
(12) INCOME TAXES
A reconciliation of Federal income tax expense computed by applying the
Federal income tax rate of 34% to income before Federal income tax expense
for the years ended December 31, 1996, 1995 and 1994 follows:
1996 1995 1994
----------- ----------- -----------
Computed normal tax expense $ 1,230,470 $ 1,275,533 $ 1,960,743
Small life insurance company deduction (472,541) (423,084) (437,489)
Change in valuation allowance (10,097) (62,355) --
Small life deduction rate change 218,438 -- --
Amortization of excess of costs over
net assets acquired 331,373 109,041 63,228
Other 107,662 102,221 5,851
----------- ----------- -----------
Federal income tax expense $ 1,405,305 $ 1,001,356 $ 1,592,333
=========== =========== ===========
Income tax expense for the years ended December 31, 1996, 1995 and 1994
consists of:
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1996 1995 1994
----------- ----------- -----------
Current $ 1,812,531 $ 1,982,424 $ 1,975,528
Deferred (407,226) (981,068) (383,195)
----------- ----------- -----------
$ 1,405,305 $ 1,001,356 $ 1,592,333
=========== =========== ===========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 are presented below.
1996 1995
------------ ------------
Deferred tax assets:
Future policy benefit reserves $ 11,027,119 $ 10,804,429
Net operating loss carryforwards 762,809 614,071
Investments, available for sale 365,843 --
Other 836,098 1,007,636
------------ ------------
Total gross deferred tax assets 12,991,869 12,426,136
Less valuation allowance 545,860 555,957
------------ ------------
Net deferred tax assets 12,446,009 11,870,179
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs 9,257,148 9,315,657
Cost of insurance acquired 2,454,662 2,557,761
Investments available for sale -- 757,423
Other 1,576,449 1,612,080
------------ ------------
Total gross deferred tax liabilities 13,288,259 14,242,921
------------ ------------
Net deferred tax liability $ (842,250) $ (2,372,742)
============ ============
The Company has established a valuation allowance for net operating losses of
ALFC and IIH which may not be used prior to their expiration. The Company and
its subsidiaries have net operating losses at December 31, 1996 available to
offset future taxable income of approximately $2,243,557 for Federal income tax
and $227,000 for Federal alternative minimum tax purposes which expire through
2008. The net operating loss carryforward is subject to limitations under
Section 382 of the Internal Revenue Code.
At December 31, 1996, the Company had accumulated approximately $3,291,143 in
its "policyholders' surplus account." This is a special memorandum tax account
into which certain amounts not previously taxed, under prior tax laws, were
accumulated. No new additions will be made to this account. Federal income
taxes will become payable thereon at the then current tax rate (a) when and if
distributions to the shareholder, other than stock dividends and other limited
exceptions, are made in excess of the accumulated previously taxed income; or
(b) when a company ceases to be a life insurance company as defined by the
Internal Revenue Code and such termination is not due to another life insurance
company acquiring its assets in a nontaxable transaction. The Company does not
anticipate any transactions that would cause any part of this amount to become
taxable. However, should the balance at December 31, 1996 become taxable, the
tax computed at present rates would be approximately $1,119,000.
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(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimates of fair values are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments presented below are not
necessarily indicative of the amounts the Company might realize in actual
market transactions. The carrying amount and fair value for the financial
assets and liabilities on the consolidated balance sheets at each year-end
were:
1996 1995
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
Financial assets:
Fixed maturities $115,350,306 114,940,050 $105,101,336 105,164,551
Equity securities 50,155 50,155 -- --
Cash and
short-term 6,285,383 6,285,383 7,248,853 7,248,853
investments
Mortgage Loans 1,672,522 1,672,522 1,910,608 1,910,608
Student Loans 298,683 298,683 333,387 333,387
Financial Liabilities:
Note Payable 489,166 489,166 772,834 772,834
Fair values for fixed income securities and equity securities are based on
quoted market prices. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
assumptions, including the discount rate and estimates of future cash
flows.
Mortgage loans are secured principally by residential properties. Weighted
average interest rate for these loans as of December 31, 1996, was
approximately 9.6% with maturities ranging from one to fifteen years.
Management believes that reported amounts approximate fair value.
Student loans are guaranteed by the government. Weighted average interest
rate for these loans as of December 31, 1996, was approximately 7.9%.
Management believes that the reported amounts approximate fair value as
these loans are sold as soon as possible.
The carrying value of the note payable approximates fair value as the
interest rate charged on the note payable is indexed with the prime rate.
Policy loans have a weighted average interest rate of 7.6% as of December
31, 1996 and 1995 and have no specified maturity dates. The aggregate
market value of policy loans approximates the carrying value reflected on
the consolidated balance sheet. These loans typically carry an interest
rate that is tied to the crediting rate applied to the related policy
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and contract reserves. Policy loans are an integral part of the life
insurance policies which the Company has in force and cannot be valued
separately.
For cash, and short-term investments, accrued investment income, amounts
recoverable from reinsurers, other assets, federal income tax payable and
receivable, dividend accumulations, commissions payable, amounts held on
deposit, and other liabilities, the carrying amounts approximate fair
value because of the short maturity of such financial instruments.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table contains selected unaudited consolidated financial
data for each quarter.
1996
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 17,666,077 $ 16,976,294 $ 15,484,789 $ 13,695,000
Expenses 16,221,781 16,093,457 14,936,524 12,951,367
Other (542,568) (237,302) (366,799) (258,636)
Net income 901,728 645,535 181,466 484,997
Net income per share .04 .03 .01 .03
1995
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 16,115,722 $ 13,420,798 $ 12,872,679 $ 10,862,138
Expenses 15,659,326 11,727,114 11,488,128 10,497,876
Other (61,739) (31,757) (19,262) (28,407)
Net income 558,290 901,266 1,017,773 272,883
Net income per share .03 .05 .06 .02
1994
------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Revenues $ 13,752,088 $ 13,526,681 $ 12,114,056 $ 9,763,884
Expenses 11,982,416 11,810,114 10,461,651 9,190,926
Other (160,527) 74,999 (358,273) 499,090
Net income 878,741 1,447,695 929,361 918,761
Net income per share 0.04 0.09 0.06 0.06
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SCHEDULE II
CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CITIZENS, INC. (PARENT COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
Assets
Investment in subsidiaries 64,241,647 63,481,741
Accrued investment income 20,089 24,346
Real estate 356,339 287,979
Cash 1,318,221 884,241
Notes receivable (1) 521,686 673,953
Other assets 1,073,825 680,502
------------ ------------
$ 67,531,807 $ 66,032,762
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 466,667 $ 533,333
Accrued expense and other 182,124 786,439
------------ ------------
$ 648,791 $ 1,319,772
Stockholders' equity:
Common stock:
Class A $ 45,941,552 $ 44,007,339
Class B 283,262 283,262
Retained earnings 23,430,634 21,216,908
Unrealized investment gain (loss) of securities held
by subsidiaries, net (710,166) 1,267,747
Treasury stock (2,062,266) (2,062,266)
------------ ------------
66,883,016 64,712,990
------------ ------------
$ 67,531,807 $ 66,032,762
============ ============
(1) Eliminated in consolidation.
See accompanying independent auditor's report.
-67-
68
SCHEDULE II, CONTINUED
CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CITIZENS, INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Revenues:
Management service fees (1) $10,428,468 $ 8,068,030 $ 6,749,976
Investment income (1) 83,957 118,103 131,933
Other 2,357 11,551 7,691
Realized (gain) loss 151,334 (1,573) 147,691
----------- ----------- -----------
10,666,116 8,196,111 7,037,291
----------- ----------- -----------
Expenses:
General 9,374,706 7,710,834 $ 6,189,677
Interest 34,853 42,113 20,583
Taxes 447,450 327,815 263,917
----------- ----------- -----------
$ 9,857,009 $ 8,080,762 $ 6,474,177
----------- ----------- -----------
Income (loss) before equity in income of
unconsolidated subsidiaries 809,107 115,349 563,114
Equity in income of unconsolidated
subsidiaries 1,404,619 2,634,863 3,611,444
----------- ----------- -----------
Net income $ 2,213,726 $ 2,750,212 $ 4,174,558
=========== =========== ===========
(1) Eliminated in consolidation.
See accompanying independent auditor's report.
-68-
69
SCHEDULE II, CONTINUED
CITIZENS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CITIZENS, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,213,726 $ 2,750,212 $ 4,174,558
Adjustments to reconcile net loss to net cash
used by operating activities:
Realized (gains) loss on sales of investments (151,334) -- 313,796
Depreciation -- -- 36,214
Equity in net income of unconsolidated subsidiaries
(795,318) (3,871,812) (3,784,819)
Accrued expenses and other liabilities (604,315) 514,447 (236,873)
Accrued investment income 4,257 2,243 1,900
Other assets (393,323) 2,951 (243,866)
----------- ----------- -----------
Net cash provided (used) by
operating activities 273,693 (601,959) 260,910
----------- ----------- -----------
Cash flows from investing activities:
Capital contribution to subsidiary (400,000) -- (5,200,000)
Sale of equity securities -- -- 174,761
Payments on notes receivable 152,267 52,075 51,022
Sale of real estate 82,974 154,169 216,168
----------- ----------- -----------
Net cash provided (used) by investing
activities (164,759) 206,244 (4,758,049)
----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock, net 391,712 381,485 5,371,959
Payment on notes payable (66,666) (73,849) (343,746)
----------- ----------- -----------
Net cash provided by financing
activities 325,046 307,636 5,028,213
----------- ----------- -----------
Net increase (decrease) in cash 433,980 (88,079) 531,074
Cash at beginning of year 884,241 972,320 441,246
----------- ----------- -----------
Cash at end of year $ 1,318,221 $ 884,241 $ 972,320
=========== =========== ===========
See accompanying independent auditor's report.
-69-
70
SCHEDULE IV
CITIZENS, INC. AND SUBSIDIARIES
REINSURANCE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CEDED ASSUMED PERCENTAGE
GROSS TO OTHER FROM OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------------- -------------- -------------- -------------- ------------
Year ended December 31, 1996:
Life insurance in force $2,213,017,000 $ 296,378,000 $ 304,380,000 $2,221,019,000 13.7%
============== ============== ============== ==============
Premiums:
Life insurance 51,338,427 2,511,318 309,953 49,137,062 0.6%
Accident and health insurance 4,111,969 71,281 0 4,040,688 -%
-------------- -------------- -------------- --------------
Total premiums $ 55,450,396 2,582,599 309,953 53,177,750 0.6%
============== ============== ============== ==============
Year ended December 31, 1995:
Life insurance in force $1,866,954,000 $ 290,677,000 $ 285,001,000 $1,861,278,000 15.3%
============== ============== ============== ==============
Premiums:
Life insurance 47,361,742 2,241,111 306,256 45,426,887 0.7%
Accident and health insurance 698,206 0 0 698,206 --
-------------- -------------- -------------- --------------
Total premiums $ 48,059,948 2,241,111 306,256 46,125,093 0.7%
============== ============== ============== ==============
Year ended December 31, 1994:
Life insurance in force $1,759,915,000 $ 285,104,000 $ 384,794,000 $1,859,605,000 20.7%
============== ============== ============== ==============
Premiums:
Life insurance 45,294,285 2,309,544 541,370 43,526,111 1.2%
Accident and health insurance 259,378 128 0 259,250 --
-------------- -------------- -------------- --------------
Total premiums $ 45,553,663 2,309,672 541,370 43,785,361 1.2%
============== ============== ============== ==============
See accompanying independent auditor's report.
-70-
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
CITIZENS, INC.
Date: March 27, 1997 By: /s/ Mark A. Oliver
-----------------------------------
Mark A. Oliver, President
By: /s/ William P. Barnhill
-----------------------------------
William P. Barnhill, Treasurer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each individual whose signature appears below hereby designates and appoints
Harold E. Riley and Mark A. Oliver, and each of them, as such person's true and
lawful attorney's-in-fact and agents (the "Attorneys-in-Fact") with full power
of substitution and resubstitution, for each person and in such person's name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K, which
amendments may make such changes in this Annual Report on Form 10-K as either
Attorney-in-Fact deems appropriate and to file therewith, with the Securities
and Exchange Commission, granting unto such Attorneys-in-Fact and each of them,
full power and authority to do and perform each and every act and think
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such Attorneys-in-Fact or either of them, in
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
/s/ Mark A. Oliver /s/ Harold E. Riley
- ----------------------------- ---------------------------------
Mark A. Oliver, Director Harold E. Riley, Chairman of the
Board and Director
/s/ Ralph M. Smith /s/ Joe R. Reneau
- ----------------------------- ---------------------------------
Ralph M. Smith, Director Joe R. Reneau, Director
/s/ Timothy T. Timmerman
- ----------------------------- ---------------------------------
Flay F. Baugh, Director Timothy T. Timmerman, Director
/s/ Rick D. Riley /s/ Steve Shelton
- ----------------------------- ---------------------------------
Rick D. Riley, Director Steve Shelton, Director
/s/ T. Roby Dollar
- -----------------------------
T. Roby Dollar, Director
-71-
72
INDEX TO EXHIBITS
EXHIBIT
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
(1) Underwriting Agreement N/A
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (e)
(3) 3.1 Articles of Incorporation; as amended (d)
3.2 Bylaws (b)
(4) Instruments defining the rights of security holders, including
indentures N/A
(5) Opinion re: Legality N/A
(6) (Removed and Reserved) N/A
(7) (Removed and Reserved) N/A
(8) Opinion re: Tax Matters N/A
(9) Voting Trust Agreement N/A
(10) Material Contracts
10.1 Automatic Yearly Renewable term (NR) Life Reinsurance
Agreement between Citizens Insurance Company of
America and The Centennial Life Insurance Company
dated March 1, 1982 (a)
10.2 Stock Purchase Agreement between Citizens Insurance
Company of America and Citizens, Inc. (a)
10.3 Plan and Agreement of Merger and Exchange by and among
Insurance Investors & Holding Co., Central Investors
Life Insurance Company of Illinois, Citizens, Inc. and
Citizens Acquisition, Inc. (g)
10.4 Self-Administered Automatic Reinsurance Agreement -
Citizens Insurance Company of America and Riunione
Adriatica di Sicurta, S.p.A. (h)
10.5 Plan and Agreement of Exchange dated October 28, 1996
between Citizens, Inc. and American Investment
Network, Inc. (h)
10.6 Agreement and Plan of Merger dated October 31, 1996
between Citizens Insurance Company of America, CICA
Acquisition, Inc., and First American Investment
Corporation (h)
10.7 Plan and Agreement of Merger dated November 22, 1996
between Citizens, Inc. and American Liberty Financial
Corporation, as amended (h)
10.8 Plan and Agreement of Merger dated November 22, 1996
between Citizens Insurance Company of America and
American Liberty Life Insurance Company, as amended (h)
10.9 Bulk Accidental Death Benefit Reinsurance Agreement
between Connecticut General Life Insurance Company and
Citizens Insurance Company of America, as amended (h)
(11) Statement re: Computation of per share earnings N/A
(12) Statement re: Computation of ratios N/A
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders N/A
(14) (Removed and Reserved) N/A
(15) Letter re: Unaudited interim financial statements N/A
(16) Letter re: Change in certifying accountant N/A
(17) Letter re: Director resignation N/A
(18) Letter re: Change in accounting principles N/A
(19) Report furnished to security holders N/A
(20) Other documents or statements to security holders N/A
(21) Subsidiaries of the registrant Filed
herewith
(22) Published report regarding matters submitted to a vote of
security holders N/A
(23) Consents of expert and counsel Filed
herewith
(24) Power of Attorney See
signature
page
(25) Statement of eligibility of trustee N/A
(26) Invitations for competitive bids N/A
(27) Financial Data Schedule Filed
herewith
(28) (Removed and Reserved) N/A
(99) Additional Exhibits N/A
- ----------
(a) Filed as a part of the Amended No. 1 to Registration Statement on Form S-4,
SEC File No. 33--4753, filed on or about June 19, 1992.
(b) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein by reference.
(c) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated herein by reference.
(d) Filed with or referenced in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by reference.
(e) Filed with or referenced in the Registrant's Current Report on Form 8-K
dated December 9, 1994 and incorporated herein by reference.
(f) Filed as a part of the Registration Statement on Form S-4, SEC File No.
33--59039, filed on or about May 2, 1995.
(g) Filed as a part of the Registration Statement on Form S-4, SEC File No.
33--63275, filed on or about October 6, 1995.
(h) Filed as a part of the Registration Statement on Form S-4, SEC File No.
333--16163, filed on or about November 14, 1996.