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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2003
or
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to ___________________
Commission File Number: 1-13004
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0755371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Anderson Lane, Austin, Texas 78752
(Address of principal executive offices) (Zip Code)
(512) 837-7100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|X| Yes | | No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act).
|X| Yes | | No
As of March 31, 2003, Registrant had 31,864,281 shares of Class A common
stock, No Par Value, outstanding and 817,696 shares of Class B common stock, No
Par Value, outstanding.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Position, March 31, 2003
(Unaudited) and December 31, 2002 3
Consolidated Statements of Operations, Three Months
Ended March 31, 2003 and 2002 (Unaudited) 5
Consolidated Statements of Cash Flows, Three Months
Ended March 31, 2003 and 2002 (Unaudited) 6
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS 14
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES
20
PART II. OTHER INFORMATION 21
2
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
MARCH 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
Investments:
Fixed maturities held-for-investment, at
amortized cost (market $13,595,715
in 2003 and $13,351,100 in 2002) $ 11,446,989 $ 11,384,137
Fixed maturities available-for-sale, at
fair value (cost $174,904,071 in
2003 and $186,336,345 in 2002) 182,288,918 191,777,625
Equity securities, at fair value (cost
$1,231,439 in 2003 and $653,282 in 2002) 1,292,419 639,316
Mortgage loans on real estate (net of reserve
of $50,000 in 2003 and 2002) 606,001 619,084
Policy loans 20,887,711 20,596,371
Other long-term investments 3,298,934 992,067
------------ ------------
Total investments 219,820,972 226,008,600
Cash and cash equivalents 49,271,458 19,211,802
Accrued investment income 2,073,335 2,338,837
Reinsurance recoverable 4,428,031 2,254,175
Deferred policy acquisition costs 45,304,726 44,979,357
Other intangible assets 2,268,125 2,018,125
Federal income tax recoverable 91,155 --
Deferred federal income tax asset -- 1,078,985
Cost of customer relationships acquired 17,466,023 14,191,172
Excess of cost over net assets acquired 13,868,987 7,783,405
Property, plant and equipment 5,590,457 5,590,498
Receivable for security in process of settlement 2,280,000 --
Other assets 1,852,716 836,045
------------ ------------
Total assets $364,315,985 $326,291,001
============ ============
See accompanying notes to consolidated financial statements. (Continued)
3
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, CONTINUED
MARCH 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Future policy benefit reserves $ 222,348,933 $ 203,546,435
Dividend accumulations 4,813,614 4,859,391
Premium deposits 5,190,818 4,794,131
Policy claims payable 5,091,944 4,794,096
Other policyholders' funds 3,383,981 3,209,348
------------- -------------
Total policy liabilities 240,829,290 221,203,401
Commissions payable 1,703,483 1,912,972
Federal income tax payable -- 311,884
Deferred federal income tax liability 52,002 --
Other liabilities 1,751,178 1,070,439
------------- -------------
Total liabilities 244,335,953 224,498,696
STOCKHOLDERS' EQUITY:
Common stock:
Class A, no par value, 50,000,000 shares
authorized, 34,423,974 shares issued in
2003 and 31,862,980 shares issued in
2002, including shares in treasury of
2,559,693 in 2003 and 2002 146,319,612 129,125,099
Class B, no par value, 1,000,000 shares
authorized, 817,696 shares issued and
outstanding in 2003 and 2002 1,870,389 1,870,389
Retained deficit (26,226,794) (25,887,787)
Accumulated other comprehensive income (loss):
Unrealized gains on securities, net of tax 4,914,246 3,582,025
------------- -------------
126,877,453 108,689,726
Treasury stock, at cost (6,897,421) (6,897,421)
------------- -------------
Total stockholders' equity 119,980,032 101,792,305
------------- -------------
Total liabilities and stockholders' equity $ 364,315,985 $ 326,291,001
============= =============
4
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------
2003 2002
------------ ------------
REVENUES:
Premiums $15,937,561 $12,074,618
Annuity and universal life considerations 84,550 73,539
Net investment income 3,427,907 3,454,512
Realized gains 53,938 36,902
Other income 201,546 129,178
------------ ------------
Total revenues 19,705,502 15,768,749
BENEFITS AND EXPENSES:
Insurance benefits paid or provided:
Increase (decrease) in future policy benefit reserves (1,536,691) 1,733,980
Policyholders' dividends 706,589 709,446
Claims and surrenders 9,727,997 6,077,929
Annuity expenses 36,787 72,437
------------ ------------
Total insurance benefits paid or provided 8,934,682 8,593,792
Commissions 3,572,895 2,976,825
Other underwriting, acquisition and insurance expenses 4,942,378 2,661,403
Capitalization of deferred policy acquisition costs (3,236,172) (2,473,566)
Amortization of deferred policy acquisition costs 2,910,803 1,827,154
Amortization of cost of customer relationships acquired
and other intangibles 3,010,366 124,507
------------ ------------
Total benefits and expenses 20,134,952 13,710,115
------------ ------------
Income (loss) before Federal income tax (429,450) 2,058,634
Federal income tax expense (benefit) (90,443) 555,831
------------ ------------
NET INCOME (LOSS) $(339,007) $1,502,803
============ ============
PER SHARE AMOUNTS:
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE OF
COMMON STOCK ($0.01) $0.05
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 31,287,658 29,073,066
============ ============
See accompanying notes to consolidated financial statements.
5
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2003 2002
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (339,007) $ 1,502,803
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Realized gains on sale of investments and other assets (53,938) (36,902)
Net deferred policy acquisition costs (325,369) (646,412)
Amortization of cost of customer relationships
acquired and other intangibles 3,010,366 124,507
Depreciation 187,139 166,127
Change in:
Accrued investment income 457,315 (495,773)
Reinsurance recoverable (953,147) (1,448,353)
Future policy benefit reserves 961,706 1,700,756
Other policy liabilities 439,663 (387,148)
Deferred federal income tax 52,002 (199,755)
Federal income tax (403,039) 206,013
Commissions payable and other liabilities (1,609,447) (833,744)
Other, net (83,477) 51,089
------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,340,767 (296,792)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of fixed maturities, available-for-sale 101,500 2,239,875
Sale of equity securities, available-for-sale 481,033 11,451
Maturity of fixed maturities, available-for-sale 49,718,360 1,777,592
Purchase of fixed maturities, available-for-sale (22,865,557) (5,975,662)
Purchase of equity securities, available-for-sale (104) --
Principal payments on mortgage loans 13,083 53,140
Sale of other long-term investments and property, plant and
equipment -- 3,000
Receivable for security in process of settlement (2,280,000) --
See accompanying notes to consolidated financial statements. (Continued)
6
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2003 2002
------------ -----------
Cash from acquisition $ 3,869,228 $ 2,882,353
Increase in policy loans, net (77,150) (524,563)
Purchase of other long-term investments and property,
plant and equipment (241,504) (222,680)
------------ -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 28,718,889 244,506
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,059,656 (52,286)
Cash and cash equivalents at beginning of period 19,211,802 6,793,852
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,271,458 $ 6,741,566
============ ===========
Supplemental:
Cash paid during the period for income taxes $ 244,388 $ 562,038
============ ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first quarter of 2003, the Company issued 2,560,994 Class A common shares
to purchase all the capital stock of First Alliance Corporation. In the first
quarter of 2002, the Company issued 752,701 Class A common shares to purchase
all the capital stock of Combined Underwriters Life Insurance Company and issued
304,928 Class A common shares to purchase all the capital stock of Lifeline
Underwriters Life Insurance Company. In conjunction with the acquisitions, cash
and cash equivalents were provided by acquisitions as follows:
2003 2002
------------ ------------
Fair value of capital stock issued $ 17,194,513 $ 11,961,784
Fair value of tangible assets acquired
excluding cash and cash equivalents (21,448,888) (14,883,146)
Fair value of intangible assets acquired (12,243,483) (14,519,409)
Liabilities assumed 20,367,086 20,323,124
------------ ------------
Cash and cash equivalents provided by
mergers and acquisitions $ 3,869,228 $ 2,882,353
============ ============
Issuance of 2,560,994 Class A shares $ 17,194,513
============
Issuance of 1,057,629 Class A shares $ 11,961,784
============
See accompanying notes to consolidated financial statements.
7
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
(1) FINANCIAL STATEMENTS
The interim 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),
Funeral Homes of America, Inc. (FHA), Insurance Investors, Inc. (III),
Central Investors Life Insurance Company of Illinois (CILIC), Excalibur
Insurance Corporation (Excalibur), Combined Underwriters Life Insurance
Company (Combined), Lifeline Underwriters Life Insurance Company
(Lifeline), First Alliance Corporation (First Alliance), and First
Alliance Insurance Company (FAIC). Citizens and its consolidated
subsidiaries are collectively referred to as "the Company."
The statement of financial position for March 31, 2003, the statements of
operations for the three-month periods ended March 31, 2003 and 2002, and
the statements of cash flows for the three-month periods then ended have
been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations
and changes in cash flows at March 31, 2003 and for comparative periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) have been
omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's December 31, 2002 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the
period ended March 31, 2003 are not necessarily indicative of the
operating results for the full year.
(2) PROPOSED ACQUISITION
On March 7, 2003, the Company entered into a Plan and Agreement of Merger
with Mid-American Alliance Corporation (Mid-American) a Missouri insurance
holding company, whereby the Company will acquire all of the outstanding
shares of Mid-American for shares of Citizens Class A common stock. The
transaction values Mid-American's shares at $1.35 each and Citizens Class
A shares based on the average closing price for the 20 trading days
preceding closing. Closing is expected in mid 2003. The Company and
Mid-American are in the process of making the appropriate legal filings in
connection with the acquisition. The proposed merger requires the
8
approval of Mid-American's shareholders and the merger agreement contains
the customary conditions. Closing of the acquisition is contemplated to
occur in mid 2003, assuming all conditions are met and all regulatory and
shareholder approval is obtained. The value of the transaction has been
established as $8.2 million.
On February 18, 2003, Citizens consummated the acquisition of First
Alliance. Pursuant to the terms of the agreement, which were approved by
First Alliance's shareholders and regulatory authorities, Citizens issued
approximately 2.6 million shares of its Class A Common Stock to acquire
First Alliance. The aggregate market value of the consideration was
approximately $17.2 million. The transaction was accounted for as a
purchase. The excess of cost over net assets acquired amounted to
approximately $5.9 million.
On March 19, 2002, Citizens consummated the acquisitions of Combined and
Lifeline. Pursuant to the terms of the agreements, which were approved by
Combined's and Lifeline's shareholders and regulatory authorities,
Citizens issued approximately 753,000 shares of its Class A Common Stock
to acquire Combined and approximately 305,000 shares of its Class A Common
Stock to acquire Lifeline. The aggregate market value of the consideration
was approximately $12.0 million. The transactions were accounted for as
purchases. The excess of cost over net assets acquired amounted to
approximately $1.1 million.
(3) SEGMENT INFORMATION
The Company has two reportable segments identified by geographic area:
International Business and Domestic Business. International business,
consisting of ordinary whole-life business, is offered to residents of
Central and South America. The Company has no assets, offices or employees
outside of the United States of America (U.S.) and requires that all
transactions be in U.S. dollars and paid in the United States. Domestic
Business, consisting of traditional life and burial insurance, pre-need
policies, accident and health specified disease, hospital indemnity and
accidental death policies, is sold throughout the southern U.S. The
accounting policies of the segments are in accordance with U.S. GAAP and
are the same as those described in the summary of significant accounting
policies. The Company evaluates performance based on U.S. GAAP income
before federal income taxes for its two reportable segments.
Geographic Areas - The following summary represents financial data by
segment of the Company's continuing operations.
THREE MONTHS ENDED MARCH 31,
------------------------------
2003 2002
----------- -----------
REVENUES
Domestic $ 7,123,032 $ 2,795,517
International 12,582,470 12,973,232
----------- -----------
Total Revenues $19,705,502 $15,768,749
=========== ===========
9
The following summary, representing revenues, amortization expense and pre-tax
income from continuing operations and identifiable assets for the Company's
reportable segments for the periods indicated is as follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------
2003 2002
------------ -----------
Revenue, excluding net investment income and realized
gain on investments:
Domestic $ 5,864,435 $ 2,176,601
International 10,359,222 10,100,734
------------ -----------
Total consolidated revenue, excluding net investment
income and realized gain on investments $ 16,223,657 $12,277,335
============ ===========
Net investment income:
Domestic $ 1,239,100 $ 612,375
International 2,188,807 2,842,137
------------ -----------
Total consolidated net investment income $ 3,427,907 $ 3,454,512
============ ===========
Amortization expense:
Domestic $ 3,677,145 $ 344,889
International 2,244,024 1,606,772
------------ -----------
Total consolidated amortization expense $ 5,921,169 $ 1,951,661
============ ===========
Realized gain on investments:
Domestic $ 19,497 $ 6,542
International 34,441 30,360
------------ -----------
Total consolidated realized gain $ 53,938 $ 36,902
============ ===========
Income (loss) before federal income tax:
Domestic $ (276,030) $ 582,382
International (153,420) 1,476,252
------------ -----------
Total consolidated income (loss) before
federal income tax $ (429,450) $ 2,058,634
============ ===========
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
Assets:
Domestic $147,084,192 $118,041,708
International 217,231,793 208,249,293
------------ ------------
Total $364,315,985 $326,291,001
============ ============
10
Major categories of premiums are summarized as follows:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2002
------------------ ------------------
Premiums:
Ordinary life $11,886,552 $10,777,784
Group life 105,080 133,363
Accident and health 3,945,929 1,163,471
----------- -----------
Total premiums $15,937,561 $12,074,618
=========== ===========
(4) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2003 and 2002, the other
comprehensive income (loss) amounts included in total comprehensive income
(loss) consisted of unrealized gains (losses) on investments in fixed
maturities and equity securities available-for-sale of $1,332,221 and
$(2,332,799), respectively, net of tax. Total comprehensive income (loss)
for the three months ended March 31, 2003 and 2002, was $993,214 and
$(829,996), respectively.
(5) EARNINGS PER SHARE
Basic and diluted earnings per share have been computed using the weighted
average number of shares of common stock outstanding during each period.
The weighted average shares outstanding for the three months ended March
31, 2003 and 2002 were 31,287,658 and 29,073,066, respectively. The per
share amounts have been adjusted retroactively for all periods presented
to reflect the change in capital structure resulting from a 15% stock
dividend paid in 2002. The 2002 stock dividend resulted in the issuance of
4,162,414 Class A shares (including 333,873 shares in treasury) and
106,656 Class B shares. In addition, 2,560,994 Class A shares were issued
in February 2003 in conjunction with the acquisition of First Alliance and
1,057,629 Class A shares were issued in March 2002 in conjunction with the
acquisitions of Combined and Lifeline.
(6) ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 142 "Goodwill and Other Intangible Assets." Under the
guidelines of SFAS No. 142, excess of cost over net assets acquired
(goodwill) amounting to $13,195,725 and $7,783,405 and other intangible
assets amounting to $2,268,125 and $2,018,125 as of March 31, 2003 and
December 31, 2002, respectively, were determined to have an indefinite
useful life and will no longer be amortized. Instead goodwill and other
intangible assets will be subjected to annual impairment analyses under
the provisions of SFAS No. 142 and SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," respectively.
On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 addressed financial accounting
and
11
reporting for obligations associated with the retirement of tangible
long-lived assets that result from the acquisition, construction,
development or normal operations of a long-lived asset. SFAS No. 143 did
not and is not expected to have a significant effect on the financial
position, results of operations or liquidity of the Company.
In October 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 superseded and amended SFAS No. 121 and relevant
portions of SFAS No. 30. SFAS No. 144 was adopted on January 1, 2002. SFAS
No. 144 did not have a material effect on the financial position, results
of operation or liquidity of the Company.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 affected income statement
classification of gains and losses from extinguishment of debt and made
certain other technical corrections. SFAS No. 145 was adopted on January
1, 2003. SFAS No. 145 did not have a material effect on the financial
position, results of operations or liquidity of the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 spread out the
reporting of expenses related to restructurings initiated after 2002.
Commitment to a plan to exit an activity or dispose of long-lived assets
will no longer be enough evidence to record a one-time charge for most
anticipated exit or disposal activities. Companies will instead record
exit or disposal costs when they are "incurred" and can be measured by
fair value and the recorded liability will subsequently be adjusted for
changes in estimated cash flows. SFAS No. 146 also revised accounting for
specified employee and contract terminations that are part of
restructuring activities. The Company adopted SFAS No. 146 on January 1,
2003. SFAS No. 146 did not have a material effect on the financial
position, results of operations or liquidity of the Company.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an Interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborated on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued and also clarified that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of
the obligation undertaken. The Company adopted FASB Interpretation No. 45
on January 1, 2003. FASB Interpretation No. 45 did not have a material
effect on the financial position, results of operations or liquidity of
the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
No. 123." This statement amends SFAS No. 123, "Accounting for Stock Based
Compensation," to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, SFAS
12
No. 148 amended the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements.
Certain of the disclosure modifications are required for fiscal years
ended after December 31, 2002. The Company currently offers no stock-based
employee compensation. The Company adopted SFAS No. 148 on January 1,
2003. SFAS No. 148 did not have a material effect on the financial
position, results of operations or liquidity of the Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51." This
interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable
interests in variable interest entities obtained after January 31, 2003.
This interpretation requires certain disclosures in financial statements
issued after January 31, 2003. Based on current operations, the Company
does not anticipate that FASB Interpretation No. 46 will have a material
effect on the financial position, results of operations or liquidity of
the Company.
(7) PURCHASE ACCOUNTING
The allocation of values acquired in the acquisition of First Alliance
Corporation is preliminary as of the date of the financial statements.
Estimates involved in the application of purchase accounting to the
transaction may change over the next two quarters as the Company refines
those estimates, such as completion of development and application of
purchase accounting assumptions with respect to policy reserves at the
policy level.
13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Certain statements contained in this Form 10-Q 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 us with the Securities and Exchange Commission, in press
releases, and in oral and written statements made by or with our approval 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) our statements of plans and objectives or our
management or Board of Directors including those relating to products or
services, (iii) statements of future economic performance and (iv) those of
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 that may cause actual
results to differ materially from those in such statements. Factors that could
cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of foreign and U.S.
economies in general and the strength of the local economies in which operations
are conducted; (ii) the effects of and changes in trade, monetary and fiscal
policies and laws; (iii) inflation, interest rates, market and monetary
fluctuations and volatility; (iv) the timely development and acceptance of new
products and services and perceived overall value of these products and services
by existing and potential customers; (v) changes in consumer spending, borrowing
and saving habits; (vi) concentrations of business from persons residing in
third world countries; (vii) acquisitions; (viii) the persistency of our
existing and future insurance policies; (ix) our dependence on its Chairman of
the Board; (x) our ability to control expenses; (xi) the effect of changes in
laws and regulations (including laws and regulations concerning insurance) with
which we and our 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 our
organization and compensation plans; (xiv) the costs and effects of litigation
and of unexpected or adverse outcomes in such litigation; and (xv) our success
in managing the risks involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and we undertake 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.
14
On March 19, 2002, we acquired all the outstanding shares of Combined
Underwriters Life Insurance Company ("Combined") and Lifeline Underwriters Life
Insurance Company ("Lifeline"), two Texas life and health insurance companies,
for approximately 1.1 million shares of our Class A common stock. The aggregate
market value of the consideration was approximately $12.0 million.
On February 18, 2003, we acquired all the outstanding shares of First Alliance
Corporation ("First Alliance"), the parent of First Alliance Insurance Company,
a Kentucky life insurer, for approximately 2.6 million shares of our Class A
common stock. The aggregate market value of the consideration was approximately
$17.2 million.
On March 7, 2003, we entered into a Plan and Agreement of Merger with
Mid-American Alliance Corporation (Mid-American) a Missouri insurance holding
company, whereby we will acquire all of the outstanding shares of Mid-American
for shares of our Class A common stock. The transaction values Mid-American's
shares at $1.35 each and our Class A shares based on the average closing price
for the 20 trading days preceding closing. Closing is expected in mid 2003. The
parties are in the process of making the appropriate legal filings in connection
with the acquisition. The proposed merger requires the approval of
Mid-American's shareholders and the merger agreement contains the customary
conditions. Closing of the acquisition is contemplated to occur in mid 2003,
assuming all conditions are met and all regulatory and shareholder approval is
obtained. The value of the transaction has been established as $8.2 million.
Management believes that the acquisitions should enhance premium income and
total revenue and augment our domestic marketing program. The marketing
operations of these companies continue to write whole life insurance and
supplemental accident and health products that have historically been the
foundation of their business.
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
For the three months ended March 31, 2003, Citizen's incurred a net loss of
$339,007 or $0.01 per share, compared to net income of $1,502,803, or $0.05 per
share, for the same period in 2002. Increased surrenders, accident and health
claims, insurance expenses and amortization of cost of customer relationships
acquired combined with a decrease in net investment income contributed to the
net loss for the three months ended March 31, 2003.
Total revenues increased $3,936,753 or 24.9% in 2003 to $19,705,502 compared to
the first three months of 2002 when revenues were $15,768,749. The increase in
revenue is primarily related to an increase of $4.6 million in revenues related
to the acquisitions of Combined, Lifeline and First Alliance, offset by a
reduction in CICA revenues driven by a drop in net investment income and lower
accident and health (A&H) premiums. Combined and Lifeline had only a nominal
effect on 2002 results due to the March 19, 2002 acquisition date.
Premium income for the first three months of 2003 was $15,937,561 compared to
$12,074,618 for the same period in 2002. The 2003 increase of $3,862,943 was
comprised of an increase of $4.2 million in premium income related to the
acquisitions of Combined, Lifeline and First Alliance and a small reduction of
CICA premiums as renewal life premiums and accident and
15
health premiums declined. Management's implementation of significant rate
increases in supplemental non-cancelable accident and health products due to
increased loss ratios contributed to the decrease in accident and health
premiums.
Production of new life insurance premiums by the associates of CICA, measured in
issued and paid, annualized premiums, increased only 1.6% in 2003 due to the
economic downturn in Latin American countries. In addition, management initiated
a domestic ordinary life sales program in late 2000 targeting urban areas. This
program's initial results to date have been insignificant; however, with the
recent acquisitions, coupled with new marketing management, the additional sales
forces of the acquisitions should provide expanded sales efforts for our
domestic marketing program. Management also believes that the acquisitions of
Combined, Lifeline and First Alliance will enhance premium income and total
revenue.
Combined had a significant amount of accident and health premiums when we
acquired it. Although Combined continues to write specified benefit accident and
health policies, management has discontinued the sale of Combined's major
medical products and moved to terminate all in-force major medical business.
This action will result in a decrease of approximately $2.3 million of annual
premium revenue during 2003 but management believes it will enhance future
profitability. Management continues to focus on the retention of business
written by Combined, given that company's historical lapse rates.
Net investment income decreased slightly for the three months ended March 31,
2003, amounting to $3,427,907 compared to $3,454,512 for the first three months
of 2002. The 2003 decrease reflects invested assets decreasing from $226,008,600
at December 31, 2002 to $219,820,972 at March 31, 2003. Offsetting this decrease
was the large balance in cash, $49,271,458 at March 31, 2003 compared to
$19,211,802 at March 31, 2002. Calls of U.S. Government Agency securities that
were in the process of being reinvested were the primary reasons for the
decrease in invested assets and the increase in cash. The acquisition of First
Alliance increased invested assets by $18.0 million and 2003 investment income
by $112,453. The 2003 results reflected the actions taken in previous years to
change the mix and duration of our invested assets to place less emphasis on
government guaranteed mortgage pass-through instruments and more emphasis on
investments in callable instruments issued by U.S. government agencies. During
2003 and 2002, significant decreases in interest rates occurred which slowed the
growth in net investment income. As a result, we expect returns on newly
invested funds to decline in the short-term. We do not believe such declines
will have a materially adverse effect on our future operating results.
Increase (decrease) in future policy benefit reserves decreased from $1,733,980
for the three months ended March 31, 2002 to ($1,536,391) for the first three
months of 2003. The reserve decrease in 2003 is consistent with the increase in
surrenders experienced over the past two quarters due to the economic conditions
in key Latin American markets. Additionally, a $1,200,000 decrease in accident
and health reserves occurred during 2003 as a result of the non-renewal of
approximately $2.5 million of major medical premiums.
Policyholder dividends decreased slightly to $706,589 from $709,446 during the
first three months of 2003. Virtually all of CICA's policies sold between 1984
and 1998 were participating. Participating policies represent, approximately 54%
of the Company's business in-force, although the percentage of participating
business has declined due to acquisitions in recent years.
16
Claims and surrenders increased $3,650,068 from $6,077,929 for the three months
ended March 31, 2002 to $9,727,997 for the same period in 2003. The 2003
increase is comprised an increase of $1.1 million in claims and surrenders
related to the acquisitions of Combined, Lifeline and First Alliance while
CICA's surrenders increased by approximately $1.1 million.
Death claims increased slightly from $1,490,036 in the first quarter of 2002 to
$1,542,761 in the first quarter of 2003. The increase is directly related to the
acquisition of Combined, Lifeline and First Alliance, whose death claims totaled
$319,584 in 2003. CICA has historically adhered to an underwriting policy which
requires thorough medical examinations on all applicants who are foreign
residents, except children, regardless of age or face amount of the policy
applied for, including x-rays and electrocardiograms. On all policies of
$150,000 or more, inspection reports are required which detail the background
resources and lifestyle of the applicant.
Surrender expense increased from $2,716,681 in the first quarter of 2002 to
$4,143,991 in the first quarter of 2003. Surrenders from Combined, Lifeline and
First Alliance amounted to $232,266 in 2003. The current uncertain economic
climate in several Latin American countries was the primary reason for the
increased surrender activity. The economies in Argentina, and Venezuela in
particular were in near-depressions during 2002. As such, continued increases in
surrenders relating to insured's residing in these countries are expected.
However, we are optimistic about the long-term prospects for these countries.
Accident and health benefits increased from $623,989 in 2002 to $2,683,510 in
2003. This increase in accident and health benefits is directly related to the
acquisition of Combined and Lifeline discussed above, which generated $1.1
million in claims. Significant rate increases were implemented on the accident
and health business remaining in force, and management expects to continue to
implement increases. During 2003, we have non-renewed approximately $2.3 million
of major medical premiums on Combined and Lifeline's books.
Endowments increased from $1,179,486 in the first quarter of 2002 to $1,252,510
in the first quarter of 2003. Like policy dividends, endowments are factored
into the premiums and as such the increase should have no adverse impact on
profitability.
The remaining components of claims and surrenders amounted to $105,225 for the
first quarter of 2003, compared to $67,737 for the first quarter of 2002. These
are made up of supplemental contract benefits, interest on policy funds and
assorted other miscellaneous policy benefits.
During 2003, commissions increased to $3,572,895 from $2,976,825 in 2002. The
2003 increase is largely attributable to the acquisition of Combined, Lifeline
and First Alliance. The remainder of the 2003 increase was due to the slight
increase in CICA's production of new life insurance premiums. During 2002, CICA
terminated its arrangement with its International Marketing Manager and
transferred such responsibility to the home office. As a result commission
expense will decline and operating expenses will increase.
Underwriting, acquisition and insurance expenses increased from $2,661,403 in
the first quarter of 2002 to $4,942,378 for the same period in 2003. The first
quarter 2003 increase was due to severance related expenses in the acquisition
of Combined, Lifeline and First Alliance. Additionally, in May 2002, in an
attempt to more efficiently manage and communicate with our independent
marketing consultants, we canceled our contract with an independent
international
17
company that had served as the managing general agent for our international
marketing activities since early 1997. We no longer pay an overriding commission
to this former managing firm on all new business issued internationally but we
now directly bear the related costs of all marketing, management and promotional
activities. Included in 2003 expenses is approximately $600,000 related to the
annual marketing convention for international producers, an expense previously
borne by the International Marketing Manager. We believe this change will
generate cost savings in the future. Other factors in the increased expenses
relates to the start-up costs of the domestic marketing program and merger and
acquisition activities.
Deferred policy acquisition costs capitalized in the first quarter of 2003 were
$3,236,172 compared to $2,473,566 for the same period of the previous year.
Amortization of these costs was $2,910,803 for the first quarter of 2003
compared to $1,827,154 for the same period of 2002. Most of the 2003 increase
related to the increased surrender activity caused by the current uncertain
economic climate in several Latin American countries.
Amortization of cost of customer relationships acquired increased to $3,010,366
during the first three months of 2003 from $124,507 for the same period in 2002.
The increase relates to the amortization of cost of customer relationships
acquired with respect to the acquisition of Combined, Lifeline and First
Alliance. During the first quarter of 2003, approximately $1.2 million of such
amortization was recorded as a result of the non-renewal of the major medical
business described above.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity increased to $119,716,032 at March 31, 2003 from
$101,792,305 at December 31, 2002. The increase was attributable to $17,194,513
of Class A common stock issued for the acquisition of First Alliance
Corporation, the net loss of $339,007 during the first quarter of 2003 and
unrealized gains as of March 31, 2003 of $1,332,221, net of tax. Increases in
the market value of our available-for-sale bond portfolio caused by higher bond
prices resulted in the change in unrealized gains, net of tax.
Invested assets decreased from $226,008,600 at December 31, 2002 to $219,820,972
at March 31, 2003. Calls of U.S. Government Agency securities that were in the
process of being reinvested in excess of the invested assets acquired in the
First Alliance Corporation acquisition were the primary reasons for the
decrease. At March 31, 2003 and December 31, 2002, fixed maturities have been
categorized into two classifications: Fixed maturities held-to-maturity, which
were valued at amortized cost, and fixed maturities available-for-sale which
were valued at fair value. Fixed maturities available-for-sale and fixed
maturities held-to-maturity were 82.9% and 5.2%, respectively, of invested
assets at March 31, 2003. Fixed maturities held-to-maturity, amounting to
$11,446,989 consist primarily of U.S. Treasury and U.S. government agency
securities. Management has the intent and believes the Company has the ability
to hold the securities to maturity.
Our mortgage loan portfolio, which constituted 0.3% of invested assets at
December 31, 2002 and March 31, 2003, has historically been composed primarily
of seasoned small residential
18
loans in Texas. Management established a reserve of $50,000 at March 31, 2003
and December 31, 2002 (approximately 8% of the mortgage portfolio's balance) to
cover potential unforeseen losses in our mortgage portfolio. At March 31, 2003,
no loans were past due more than ninety days.
Policy loans comprised 9.5% of invested assets at March 31, 2003. 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 we maintain more than adequate
liquidity despite the uncertain maturities of these loans.
Our cash balances increased over $30 million to $49,271,458 at March 31,2003
compared to $19,211,802 at March 31, 2002, and were significantly in excess of
Federal Deposit Insurance Corporation coverage at March 31, 2003 and December
31, 2002. Management monitors the solvency of all financial institutions in
which it has funds to minimize the exposure for loss. Management does not
believe we are at significant risk for such a loss.
Our subsidiary, CICA, owned 2,398,031 shares of our Class A common stock at
March 31, 2003 and December 31, 2002. In our consolidated financial statements,
the shares of Citizens Class A common stock owned by CICA are combined with the
other treasury shares and the aggregate treasury shares are reported at cost in
conformity with U.S. GAAP.
The NAIC has established minimum capital requirements in the form of Risk-Based
Capital ("RBC"). Risk-based capital considers the type of business written by a
company, the quality of its assets, and total 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, 2002 and March 31, 2003,
all life insurance subsidiaries were above required minimum levels.
On June 1, 2002, we paid a 15% stock dividend to holders of record as of May 1,
2002. The dividend resulted in the issuance of 4,162,414 Class A shares
(including 333,873 shares in treasury) and 106,656 Class B shares.
FINANCIAL ACCOUNTING STANDARDS
See Note 6 of our Consolidated Financial Statements for a discussion of recently
promulgated accounting standards and interpretations which we have adopted and
our estimates of their impact upon us.
19
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The unrealized gains (losses) that could be caused by decreases and increases in
the interest rates of 100, 200 and 300 basis points, respectively, on our
available-for-sale fixed maturities is as follows at March 31, 2003:
DECREASES IN INTEREST RATES INCREASES IN INTEREST RATES
------------------------------------------ -------------------------------------------------
300 BASIS 200 BASIS 100 BASIS 300 BASIS 200 BASIS 100 BASIS
POINTS POINTS POINTS POINTS POINTS POINTS
----------- ----------- ---------- ------------ ------------ ------------
$16,896,000 $11,171,000 $5,890,000 $(10,343,000) $(19,820,000) $(28,589,000)
=========== =========== ========== ============ ============ ============
At March 31, 2003 and December 31, 2002, there were no fixed maturities or other
investments that we classified as trading instruments. At March 31, 2003 and
December 31, 2002, we had no investments in derivative instruments.
ITEM 4
CONTROLS AND PROCEDURES
Management recognizes its responsibility for maintaining effective and efficient
internal controls and disclosure controls (the controls and procedures by which
we ensure that information disclosed in annual and quarterly reports filed with
the Securities and Exchange Commission ("SEC") is accurately processed,
summarized and reported within the required time period). We have procedures in
place for gathering the information that is needed to enable us to file required
reports with the SEC. We have a group of officers who are responsible for
reviewing all quarterly and annual SEC reports. This group consists of Rick D.
Riley, Vice Chairman and CEO, Mark A. Oliver, President, Marcia Emmons, Vice
President and Counsel and Richard C. Scott, Director.
Under the supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of our disclosure controls and procedures, as such term is defined under Rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended,
within 90 days of the filing date of this report. Based on the evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced above.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 24, 2003, the Court of Appeals for the Third District of
Texas affirmed in part and modified in part, a July 31, 2002, class
action certification which was granted by a Travis County, Texas
district court judge to the plaintiffs in a lawsuit filed in 1999
styled Delia Bolanos Andrade, et. al. v. Citizens Insurance Company
of America, Citizens, Inc., Negocios Savoy, S.A., Harold E. Riley,
and Mark A. Oliver, Case Number 99-09099. The suit alleges that life
insurance policies offered to certain non-U.S. residents by one of
our insurance susidiaries, Citizens Insurance Company of America,
are actually "securities" that were offered or sold in Texas by
unregistered dealers in violation of the registration provisions of
the Texas securities laws. The suit seeks class action status naming
as a class all non-U.S. residents who purchased insurance policies
or made premium payments since August 1996 and assigned policy
dividends to an overseas trust for the purchase of our Class A
common stock. The remedy sought is rescission of the insurance
premium payments. We intend to file a petition with the Texas
Supreme Court in the near future for review of the decision of the
Court of Appeals. Review by the Texas Supreme Court is
discretionary. We believe the Plaintiff's claim under the Texas
securities laws is not valid and that the class defined is not
appropriate for class certification and does not meet the legal
requirements for class action treatment under Texas law. Recent
decisions from the Texas Supreme Court indicate a more
defense-oriented approach to class certification cases, especially
in class action cases encompassing claimants from more than one
state or jurisdiction.
We expect the Texas Supreme Court will grant our petition for review
and will ultimately rule in our favor, decertify the class and
remand the matter to district court for further action. It is our
intention to defend vigorously against the request for class
certification, as well as to defend vigorously against the
individual claims. During the time of our appeal to the Texas
Supreme Court, there will be no further district court proceedings
in the case. We are unable to determine the potential financial
magnitude of the claims in the event of a final class certification
and the plaintiffs prevailing on the substantive action, although we
would expect a significant adverse financial impact relating to any
adverse final class action judgment.
In addition, from time to time we are 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 our results of operations or financial
condition.
21
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - 99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) 8K Reports. We did not file any current reports on form 8-K
during the period covered by this report.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS, INC.
By: /s/ Mark A. Oliver
------------------------------------
Mark A. Oliver, FLMI
President
By: /s/ David J. Mehle
------------------------------------
David J. Mehle
Executive Vice President,
Treasurer and CFO
Date: May 13, 2003
23
I, Rick D. Riley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Citizens, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
24
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003 /s/ Rick D. Riley
----------------------------------------
Rick D. Riley
Chief Executive Officer
25
I, David J. Mehle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Citizens, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrants
board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
26
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003 /s/ David J. Mehle
----------------------------------------
David J. Mehle
Chief Financial Officer
27
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
28