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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the
quarterly period ended September 30, 2007
 or
 o
    
    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. Employerincorporation or organization)
    
    Identification No.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
  þ o
  o þ o
  o þ




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 INDEX
 PageNumberPart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Statements of Financial Position, September 30,
2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Operations, Three Months
Ended September 30, 2007 and 2006 (Unaudited)
    
    
    5Consolidated Statements of Operations, Nine Months
Ended September 30, 2007 and 2006 (Unaudited)
    
    
    6Consolidated Statements of Cash Flows, Nine Months
Ended September 30, 2007 and 2006 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2.
    
    Managements Discussion and Analysis
of Financial Condition and Results
of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative
Disclosures about Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    39Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    43Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    63Item 3.
    
    Defaults Upon Senior Securities
    
    
    63Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    64Item 5.
    
    Other Information
    
    
    64Item 6.
    
    Exhibits
    
    
    64Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 (In thousands)
 September 30,
    
    
    December 31,Assets
    
    2007
    
    
    2006(Unaudited)Investments:Fixed maturities available-for-sale, at fair value
(cost $507,868 and $497,939 in 2007 and
2006, respectively)
    
    $
    498,942
    
    
    
    488,318Equity securities available-for-sale, at fair value
(cost $17,358 and $279 in 2007 and
2006, respectively)
    
    
    19,071
    
    
    
    312Mortgage loans on real estate
    
    
    300
    
    
    
    456Policy loans
    
    
    25,472
    
    
    
    23,542Real estate and other long-term investments
(less $237 and $206 accumulated
depreciation in 2007 and 2006,
respectively)
    
    
    5,531
    
    
    
    2,427Total investments
    
    
    549,316
    
    
    
    515,055Cash and cash equivalents
    
    
    13,173
    
    
    
    24,521Accrued investment income
    
    
    6,597
    
    
    
    7,107Reinsurance recoverable
    
    
    13,861
    
    
    
    16,044Deferred policy acquisition costs
    
    
    96,967
    
    
    
    86,975Other intangible assets
    
    
    1,073
    
    
    
    1,093Cost of customer relationships acquired
    
    
    32,355
    
    
    
    34,812Excess of cost over net assets acquired
    
    
    11,386
    
    
    
    11,386Federal income tax receivable
    
    
    946
    
    
    
    Property and equipment, net
    
    
    7,023
    
    
    
    7,350Due premium, net
(less $1,410 and $1,440 allowance for doubtful
accounts in 2007 and 2006, respectively)
    
    
    5,909
    
    
    
    6,078Prepaid expenses
    
    
    783
    
    
    
    Other assets
    
    
    816
    
    
    
    763Total assets
    
    $
    740,205
    
    
    
    711,184
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, CONTINUED
(In thousands, except share amounts)
 September 30,
    
    
    December 31,Liabilities and Stockholders' Equity
    
    2007
    
    
    2006(Unaudited)Liabilities:Future policy benefit reserves:Life insurance
    
    $
    496,127
    
    
    
    473,355Annuities
    
    
    22,196
    
    
    
    20,761Accident and health insurance
    
    
    8,644
    
    
    
    10,604Dividend accumulations
    
    
    4,863
    
    
    
    5,027Premium deposits
    
    
    13,126
    
    
    
    11,897Policy claims payable
    
    
    7,493
    
    
    
    9,448Unearned premiums
    
    
    2,333
    
    
    
    1,812Other policyholders funds
    
    
    3,899
    
    
    
    3,771Total policy liabilities
    
    
    558,681
    
    
    
    536,675Commissions payable
    
    
    1,887
    
    
    
    2,581Federal income tax payable
    
    
    
    
    
    
    2,031Deferred Federal income tax
    
    
    1,703
    
    
    
    1,498Warrants outstanding
    
    
    2,327
    
    
    
    1,831Other liabilities and funds held for others
    
    
    10,851
    
    
    
    14,074Total liabilities
    
    
    575,449
    
    
    
    558,690Commitments and contingencies (Note 8)Cumulative convertible preferred stock  Series A
(Series A-1 - $500 stated value per share, 25,000 shares authorized,
issued and outstanding in 2007 and 2006; Series A-2 - $935 stated value
per share, 5,000 shares authorized, 4,014 issued and outstanding in 2007
and 2006)
    
    
    13,886
    
    
    
    12,883Stockholders Equity:Common stock:Class A, no par value, 100,000,000 shares
authorized, 43,495,800
shares issued in 2007
and 43,425,524 shares
issued in 2006,
including shares in
treasury of 3,135,738
in 2007 and 2006
    
    
    209,063
    
    
    
    210,066Class B, no par value, 2,000,000 shares
authorized, 1,001,714
shares issued and
outstanding in 2007 and 2006
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (45,659
    )
    
    
    (56,282
    )Accumulated other comprehensive loss:Unrealized losses on securities, net of tax
    
    
    (4,707
    )
    
    
    (6,346
    )161,881
    
    
    
    150,622Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    150,870
    
    
    
    139,611Total liabilities and stockholders equity
    
    $
    740,205
    
    
    
    711,184
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30
(In thousands, except per share amounts)
(Unaudited)
 2007
    
    
    2006Revenues:Premiums:Life insurance
    
    $
    33,782
    
    
    
    30,348Accident and health insurance
    
    
    359
    
    
    
    349Property insurance
    
    
    1,188
    
    
    
    763Net investment income
    
    
    7,354
    
    
    
    7,040Realized gains, net
    
    
    42
    
    
    
    40Increase in fair value of warrants
    
    
    (300
    )
    
    
    (291
    )Other income
    
    
    382
    
    
    
    351Total revenues
    
    
    42,807
    
    
    
    38,600Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    13,765
    
    
    
    13,111Increase in future policy benefit reserves
    
    
    8,656
    
    
    
    7,444Policyholders dividends
    
    
    1,682
    
    
    
    1,494Total insurance benefits paid or provided
    
    
    24,103
    
    
    
    22,049Commissions
    
    
    8,906
    
    
    
    8,189Other underwriting, acquisition and insurance
expenses
    
    
    6,728
    
    
    
    6,020Capitalization of deferred policy acquisition costs
    
    
    (6,576
    )
    
    
    (6,112
    )Amortization of deferred policy acquisition costs
    
    
    3,010
    
    
    
    3,240Amortization of cost of customer relationships
acquired and other intangibles
    
    
    810
    
    
    
    889Total benefits and expenses
    
    
    36,981
    
    
    
    34,275Income before federal income tax
    
    
    5,826
    
    
    
    4,325Federal income tax expense
    
    
    1,169
    
    
    
    1,498Net income
    
    $
    4,657
    
    
    
    2,827Net income available to common stockholders
    
    $
    4,154
    
    
    
    2,319Per Share Amounts:Basic and diluted earnings per share of Class A
common stock
    
    $
    0.10
    
    
    
    0.06Basic and diluted earnings per share of Class B
common stock
    
    $
    0.05
    
    
    
    0.03
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Nine Months Ended September 30
 (In thousands, except per share amounts)
 (Unaudited)
 2007
    
    
    2006Revenues:Premiums:Life insurance
    
    $
    97,058
    
    
    
    87,498Accident and health insurance
    
    
    1,162
    
    
    
    1,081Property insurance
    
    
    3,550
    
    
    
    2,528Net investment income
    
    
    21,485
    
    
    
    20,034Realized gains (losses), net
    
    
    (90
    )
    
    
    1,173Decrease (increase) in fair value of warrants
    
    
    (496
    )
    
    
    74Other income
    
    
    1,167
    
    
    
    1,068Total revenues
    
    
    123,836
    
    
    
    113,456Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    40,867
    
    
    
    41,314Increase in future policy benefit reserves
    
    
    23,980
    
    
    
    21,953Policyholders dividends
    
    
    4,334
    
    
    
    3,822Total insurance benefits paid or
provided
    
    
    69,181
    
    
    
    67,089Commissions
    
    
    26,292
    
    
    
    25,820Other underwriting, acquisition and insurance
expenses
    
    
    20,952
    
    
    
    21,329Capitalization of deferred policy acquisition costs
    
    
    (19,482
    )
    
    
    (19,126
    )Amortization of deferred policy acquisition costs
    
    
    9,490
    
    
    
    8,914Amortization of cost of customer relationships
acquired and other intangibles
    
    
    2,477
    
    
    
    2,720Total benefits and expenses
    
    
    108,910
    
    
    
    106,746Income before federal income tax
    
    
    14,926
    
    
    
    6,710Federal income tax expense
    
    
    4,303
    
    
    
    2,114Net income
    
    $
    10,623
    
    
    
    4,596Net income available to common stockholders
    
    $
    9,106
    
    
    
    3,074Per Share Amounts:Basic and diluted earnings per share of Class A
common stock
    
    $
    0.22
    
    
    
    0.08Basic and diluted earnings per share of Class B
common stock
    
    $
    0.11
    
    
    
    0.04
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended September 30
 (In thousands)
 (Unaudited)
 2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    10,623
    
    
    
    4,596Adjustments to reconcile net income to net cash
provided by operating activities:Realized losses (gains) on sale of
investments and other assets
    
    
    90
    
    
    
    (1,173
    )Net deferred policy acquisition costs
    
    
    (9,992
    )
    
    
    (10,212
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    2,477
    
    
    
    2,720Increase (decrease) in fair value of warrants
    
    
    496
    
    
    
    (74
    )Depreciation
    
    
    752
    
    
    
    957Amortization of premiums and discounts on
fixed maturities
    
    
    995
    
    
    
    1,048Deferred federal income tax expense (benefit)
    
    
    (530
    )
    
    
    101Change in:Accrued investment income
    
    
    510
    
    
    
    343Reinsurance recoverable
    
    
    2,183
    
    
    
    3,842Due premium
    
    
    169
    
    
    
    (5,116
    )Future policy benefit reserves
    
    
    22,099
    
    
    
    27,135Other policy liabilities
    
    
    (241
    )
    
    
    (1,461
    )Federal income tax
    
    
    (2,977
    )
    
    
    (851
    )Commissions payable and other liabilities
    
    
    (3,823
    )
    
    
    1,921Other, net
    
    
    (761
    )
    
    
    462Net cash provided by operating activities
    
    
    22,070
    
    
    
    24,238Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    3,344
    
    
    
    16,378Maturities and redemptions of fixed maturities,
available-for-sale
    
    
    49,256
    
    
    
    24,506Purchase of fixed maturities, available-for-sale
    
    
    (63,648
    )
    
    
    (59,159
    )Sale of equity securities, available-for-sale
    
    
    20
    
    
    
    177Purchase of equity securities, available-for-sale
    
    
    (17,097
    )
    
    
    Principal payments on mortgage loans
    
    
    156
    
    
    
    93Sale of other long-term investments and property
and equipment
    
    
    340
    
    
    
    90Principal payments on note receivable
    
    
    2
    
    
    
    475Increase in policy loans, net
    
    
    (1,930
    )
    
    
    (242
    )Purchase of other long-term investments and
property
and equipment
    
    
    (4,009
    )
    
    
    (850
    )Net cash used in investing activities
    
    
    (33,566
    )
    
    
    (18,532
    )
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Nine Months Ended September 30
(In thousands)
(Unaudited)
 2007
    
    
    2006Cash flows from financing activities:Annuity deposits
    
    $
    1,640
    
    
    
    1,838Annuity withdrawals
    
    
    (1,492
    )
    
    
    (1,421
    )Net cash provided by financing activities
    
    
    148
    
    
    
    417Net increase (decrease) in cash and cash equivalents
    
    
    (11,348
    )
    
    
    6,123Cash and cash equivalents at beginning of period
    
    
    24,521
    
    
    
    18,311Cash and cash equivalents at end of period
    
    $
    13,173
    
    
    
    24,434Supplemental disclosures of operating activities:Cash paid during the period for income taxes
    
    $
    7,810
    
    
    
    2,864
 Supplemental Disclosure of Non-Cash Investing and Financing Activities:
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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2007
(Unaudited)
 (1)
    
    Financial StatementsThe 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, CICA Life Insurance Company of America (CICA), Computing
Technology, Inc. (CTI), Funeral Homes of America, Inc. (FHA), Insurance Investors, Inc.
(III), Citizens National Life Insurance Company (CNLIC), Security Plan Life Insurance
Company (SPLIC), and Security Plan Fire Insurance Company (SPFIC). Citizens and its
consolidated subsidiaries are collectively referred to as the Company, we, or our.The consolidated statement of financial position at September 30, 2007, the consolidated
statements of operations for the three and nine-month periods ended September 30, 2007
and 2006, and the consolidated statements of cash flows for the nine-month periods then
ended have been prepared by the Company without audit. Certain adjustments have been
made to prior period financials, to include the prior period and inter-quarter
adjustments, as described in note 17 of the Companys Annual Report on Form 10-K/A for
the fiscal year ended December 31, 2006. In the opinion of management, all adjustments
to present fairly the financial position, results of operations and changes in cash flows
at September 30, 2007, and for comparative periods presented have been made.During the first quarter of 2007, the Company determined life reserves were overstated by
$1.0 million due to the use of an incorrect interest rate going back several years. A
correction was made during the quarter resulting in an increase to net income of
$660,000. Also, during the first quarter of 2007, the Company identified and corrected
discrepancies that went undetected at December 31, 2006 in the amount of $823,000,
related to the under-accrual of interest on various policyholder liabilities and
under-accrual of unearned profit liability reserve. These corrections caused a decrease
in net income of $543,000 in the first quarter of 2007. During the second quarter of
2007, the Company corrected an overstatement of policy claims payable of $650,000, which
resulted in an increase to net income of $429,000. During the third quarter of 2007, the
Company identified an understatement of accrued interest on policyholder funds, that
existed at December 31, 2006, in the amount of $269,000. The understatement was
corrected in the third quarter, resulting in a decrease to net
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income of $175,000. See Note 7 regarding the increase in the Federal income tax rate
from 34% to 35%. The net effect of all of these prior year corrections was an increase
in net income of $371,000, which is not considered to have a material impact on the
Companys financial position or results of operations.Certain information and footnote disclosures normally included in financial statements
prepared in accordance with United States of America (U.S.) generally accepted accounting
principles (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 Annual Report on Form 10-K, as amended, for the year ended
December 31, 2006 filed with the Securities and Exchange Commission. The results of
operations for the period ended September 30, 2007, are not necessarily indicative of the
operating results that may be achieved for the full year.On the cash flow statement the Company reclassified $1,420,000 from change in commissions payable and other
liabilities to change in future policy benefit reserves to conform to the current year
presentation. The change had no impact on cash flows from operations.(2)
    
    Accounting PronouncementsIn September 2005, the American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred
Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts
(SOP 05-1). SOP 05-1 provides guidance on accounting by insurance enterprises for
deferred acquisition costs on internal replacements of insurance and investment
contracts other than those specifically described in SFAS No. 97, Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses from the Sale of Investments. SOP 05-1 defines an internal replacement
as a modification in product benefits, features, rights, or coverages that occurs by the
exchange of a contract for a new contract, or by amendment, endorsement, or rider to a
contract, or by the election of a feature or coverage within a contract. Under SOP
05-1, modifications that result in a substantially unchanged contract will be accounted
for as a continuation of the replaced contract. A replacement contract that is
substantially changed will be accounted for as an extinguishment of the replaced
contract resulting in a release of unamortized deferred acquisition costs and unearned
inducements associated with the replaced contract. SOP 05-1 was implemented in the
first quarter of 2007 and did not have a material effect on the Companys financial
position or results of operations. Later clarification from the AICPA on SOP 05-1
implementation addressed reinstatements of previously lapsed policies. The unamortized
deferred policy acquisition costs (DAC) of lapsed policies should be written off per the
clarification.
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The Company had previously restored the DAC on lapsed policies that were subsequently
reinstated. SOP 05-1 is only applied prospectively for reinstatements occurring in
quarters beginning after December 31, 2006. The effect of adopting SOP 05-1 has been to
increase DAC amortization by $683,000 over what it would have been otherwise.On July 13, 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in
income tax positions. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of an income tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties, accounting in interim periods,
and additional disclosures. The effective date of this implementation guidance was
January 1, 2007, with the cumulative effect of the change in accounting principles
recorded as an adjustment to opening retained earnings. The implementation of FIN 48
had no affect on the Companys consolidated financial condition, as the Company has no
significant uncertain tax positions.In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No
157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a
framework for measuring fair value in GAAP and requires enhanced disclosures about fair
value measurements. However, SFAS 157 does not require new fair value measurements.
The guidance in SFAS 157 will be applied prospectively with the exception of certain
financial and hybrid instruments measured at initial recognition under SFAS 133 and for
block discounts of financial instruments. Additionally, SFAS 157 will increase the
disclosures required. The pronouncement is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of SFAS 157 on the
Companys financial instruments and its consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 permits the option to measure
most financial instruments and certain other items at fair value at specified election
dates. The change in value represents the unrealized gains and losses that will be
included in earnings. The fair value option will generally be applied on an
instrument-by-instrument basis and is generally an irrevocable election. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company plans to
adopt this guidance effective January 1, 2008. The Company is evaluating its assets and
liabilities to determine which financial instruments, if any, are eligible to account
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for at fair value under SFAS 159 and the related impact on the Companys consolidated
financial statements.(3)
    
    Revolving Line of CreditThe Company had a $75 million line of credit with Regions Bank that terminated and was
not replaced in October 2007. The line of credit provided for a maximum of $5,000,000
for general corporate purposes not related to the acquisition of insurance companies.
This line has not been used since 2005. No amount was outstanding on this line of
credit at September 30, 2007.(4)
    
    Segment InformationThe Company has three reportable segments: Life Insurance, Home Service Insurance, and
Other Non-Insurance Enterprises. The accounting policies of the segments are in
accordance with U.S. GAAP and are the same as those used in the preparation of the
Companys consolidated financial statements. The Company evaluates profit and loss
performance based on U.S. GAAP net income before federal income taxes for its three
reportable segments.The Life Insurance segment, consisting of ordinary whole-life policies, is sold
primarily throughout Central and South America and the Pacific Rim. Traditional
ordinary life, credit life and final expense policies are also marketed in the Midwest
and southern U.S. The Life Insurance segment is aggregated from CICA and CNLIC. The
Company has no assets, offices or employees outside of the U.S. and requires that all
transactions be in U.S. Dollars paid in the U.S.The Companys Home Service Insurance segment focuses on writing final expense ordinary
life insurance utilizing the home service marketing distribution method, whereby
approximately 320 employee-agents work on a route system to collect premiums and service
policyholders. The Company also uses the home service method to write small property
policies on Louisiana residents.The measurement of segment profit and loss and segment assets does not include material
transactions between segments. The Company has no reportable differences between
segments and consolidated operations.Prior to the fourth quarter of 2006, the Company operated segments for domestic and
international life insurance. In 2006, the Company determined these segments should be
combined, as the operations have become less diversified, the marketing philosophies are
similar and operations are under common management control.Additionally, internal analysis and reporting is based on total life insurance
operations. The segment amounts for 2006 have been reclassified to conform with the
current presentation.
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Three Months Ended September 30,2007
    
    
    2006(In thousands)Profit (Loss) MeasurementIncome (loss) before Federal income tax:Life Insurance
    
    $
    2,862
    
    
    
    2,933Home Service Insurance
    
    
    3,507
    
    
    
    1,279Other Non-Insurance Enterprises
    
    
    (543
    )
    
    
    113Total consolidated income
    
    $
    5,826
    
    
    
    4,325Selected Components of Profit (Loss) MeasurementRevenue:Life Insurance
    
    $
    29,709
    
    
    
    25,815Home Service Insurance
    
    
    13,212
    
    
    
    12,722Other Non-Insurance Enterprises
    
    
    (114
    )
    
    
    63Total consolidated revenue
    
    $
    42,807
    
    
    
    38,600Premiums:Life Insurance
    
    $
    25,498
    
    
    
    21,959Home Service Insurance
    
    
    9,831
    
    
    
    9,501Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated premiums
    
    $
    35,329
    
    
    
    31,460Net investment income:Life Insurance
    
    $
    3,952
    
    
    
    3,683Home Service Insurance
    
    
    3,384
    
    
    
    3,219Other Non-Insurance Enterprises
    
    
    18
    
    
    
    138Total consolidated net investment income
    
    $
    7,354
    
    
    
    7,040Amortization expense:Life Insurance
    
    $
    2,716
    
    
    
    2,985Home Service Insurance
    
    
    1,104
    
    
    
    1,144Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated amortizaion expense
    
    $
    3,820
    
    
    
    4,129Realized gains (losses) on sale of
investments and other assets:Life Insurance
    
    $
    49
    
    
    
    39Home Service Insurance
    
    
    (7
    )
    
    
    1Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated realized gains
    
    $
    42
    
    
    
    40
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##### Table of Contents



Nine Months Ended September 30,2007
    
    
    2006(In thousands)Profit (Loss) MeasurementIncome (loss) before Federal income tax:Life Insurance
    
    $
    7,368
    
    
    
    5,232Home Service Insurance
    
    
    8,540
    
    
    
    1,584Other Non-Insurance Enterprises
    
    
    (982
    )
    
    
    (106
    )Total consolidated income
    
    $
    14,926
    
    
    
    6,710Selected Components of Profit (Loss) MeasurementRevenue:Life Insurance
    
    $
    84,384
    
    
    
    73,961Home Service Insurance
    
    
    39,182
    
    
    
    38,463Other Non-Insurance Enterprises
    
    
    270
    
    
    
    1,032Total consolidated revenue
    
    $
    123,836
    
    
    
    113,456Premiums:Life Insurance
    
    $
    72,245
    
    
    
    62,737Home Service Insurance
    
    
    29,525
    
    
    
    28,370Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated premiums
    
    $
    101,770
    
    
    
    91,107Net investment income:Life Insurance
    
    $
    11,541
    
    
    
    10,564Home Service Insurance
    
    
    9,736
    
    
    
    9,108Other Non-Insurance Enterprises
    
    
    208
    
    
    
    362Total consolidated net investment income
    
    $
    21,485
    
    
    
    20,034Amortization expense:Life Insurance
    
    $
    9,192
    
    
    
    8,926Home Service Insurance
    
    
    2,775
    
    
    
    2,708Other Non-Insurance Enterprises
    
    
    
    
    
    
    Total consolidated amortizaion expense
    
    $
    11,967
    
    
    
    11,634Realized gains (losses) on sale of
investments and other assets:Life Insurance
    
    $
    6
    
    
    
    191Home Service Insurance
    
    
    (84
    )
    
    
    982Other Non-Insurance Enterprises
    
    
    (12
    )
    
    
    Total consolidated realized gains (losses)
    
    $
    (90
    )
    
    
    1,173
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##### Table of Contents



September 30,
    
    
    December 31,2007
    
    
    2006(In thousands)Assets:Life Insurance
    
    $
    419,882
    
    
    
    395,297Home Service Insurance
    
    
    304,948
    
    
    
    300,368Other Non-Insurance Enterprises
    
    
    15,375
    
    
    
    15,519Total consolidated assets
    
    $
    740,205
    
    
    
    711,184
 (5)
    
    Total Comprehensive Income
 Three Months Ended September 30,2007
    
    
    2006(In thousands)Net income
    
    $
    4,657
    
    
    
    2,827Other comprehensive income net of tax:Unrealized net gains on investments
in fixed maturities and equity securities available-for-sale
    
    
    4,919
    
    
    
    9,822Total comprehensive income
    
    $
    9,576
    
    
    
    12,649
 Nine Months Ended September 30,2007
    
    
    2006(In thousands)Net income
    
    $
    10,623
    
    
    
    4,596Other comprehensive income (loss) net of tax:Unrealized net gains (losses) on
investments in fixed maturities and equity securities available-for-sale
    
    
    1,639
    
    
    
    (721
    )Total comprehensive income
    
    $
    12,262
    
    
    
    3,875
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##### Table of Contents



(6)
    
    Earnings per Share
  Three Months Ended September 30,2007
    
    
    2006(In thousands except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    4,657
    
    
    
    2,827Less: Preferred stock dividends
    
    
    (169
    )
    
    
    (174
    )Accretion of deferred issuance
costs
and discounts on preferred stock
    
    
    (334
    )
    
    
    (334
    )Net income available to common
stockholders
    
    $
    4,154
    
    
    
    2,319Net income allocated to Class A
common stock
    
    $
    4,103
    
    
    
    2,290Net income allocated to Class B
common stock
    
    
    51
    
    
    
    29Net income available to common
stockholders
    
    $
    4,154
    
    
    
    2,319Denominator:Weighted average shares of Class A
outstanding  basic and diluted
    
    
    40,338
    
    
    
    40,234Weighted average shares of Class B
outstanding  basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding  basic and diluted
    
    
    41,340
    
    
    
    41,236Basic and diluted earnings per share of
Class A common stock
    
    $
    0.10
    
    
    
    0.06Basic and diluted earnings per share of Class B common stock
    
    $
    0.05
    
    
    $
    0.03
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##### Table of Contents



Nine Months Ended September 30,2007
    
    
    2006(In thousands except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    10,623
    
    
    
    4,596Less: Preferred stock dividends
    
    
    (514
    )
    
    
    (519
    )Accretion of deferred issuance costs
and discounts on preferred stock
    
    
    (1,003
    )
    
    
    (1,003
    )Net income available to common
stockholders
    
    $
    9,106
    
    
    
    3,074Net income allocated to Class A
common stock
    
    $
    8,994
    
    
    
    3,036Net income allocated to Class B
common stock
    
    
    112
    
    
    
    38Net income available to common
stockholders
    
    $
    9,106
    
    
    
    3,074Denominator:Weighted average shares of Class A
outstanding  basic and diluted
    
    
    40,313
    
    
    
    40,200Weighted average shares of Class B
outstanding  basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares
outstanding  basic and diluted
    
    
    41,315
    
    
    
    41,202Basic and diluted earnings per share of
Class A common stock
    
    $
    0.22
    
    
    
    0.08Basic and diluted earnings per share of
Class B common stock
    
    $
    0.11
    
    
    $
    0.04
 The effects of Series A-1 and A-2 Convertible Preferred Stock and warrants are
anti-dilutive; therefore, diluted income per share is reported the same as basic income
per share. The Series A-1 and A-2 Convertible Preferred Stock is anti-dilutive because
the amount of the dividend and accretion of deferred issuance costs and discounts for
the three and nine months ended September 30, 2007 per Class A common stock share
obtainable on conversion exceeds basic income per share available to common
stockholders. The warrants are anti-dilutive because the exercise price is in excess of
the average Class A common stock market price for the three and nine months ended
September 30, 2007.(7)
    
    Federal Income TaxesThe effective tax rate for the third quarter of 2007 was 20.1% versus 34.6% in the third
quarter of 2006. This lower effective rate was primarily the result of the Company
releasing the valuation allowance related to the net deferred tax asset of CNLIC in the
third quarter of 2007 in the amount of $1.2 million. This deferred tax
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##### Table of Contents



asset was
primarily the result of net operating losses of CNLIC. In 2008, CNLIC will be eligible
to be included in the life-nonlife consolidated tax return of the Company, and the
Company has postponed the proposed sale of CNLIC. CICA, the parent of CNLIC, should
have sufficient taxable income in 2008 to absorb the net operating loss carryovers of
CNLIC. The Company filed its 2006 tax return in the third quarter of 2007, and tax
true-ups and adjustments to prior year estimates increased the effective rate in the
third quarter of 2007. Additionally, the increase in fair value of outstanding warrants
of $300,000 and $291,000 are not deductible in 2007 and 2006. The Company also increased
the statutory tax rate from 34% to 35% in the third quarter of 2007, as the Company will
have taxable income in excess of $15 million in 2007, which added approximately $200,000 to third
quarter 2007 tax expense.The tax rate for the nine months ended September 30, 2007 was 28.8% versus 31.5% in
2006. The same items affecting the tax rate for the quarter are also impacting the nine
months effective tax rate.The Company implemented FIN 48 during the first quarter of 2007. One provision of FIN
48 requires accruing interest on potential tax deficiencies resulting from unsustainable
tax positions. The Company did not accrue any interest related to uncertain tax
positions during the three or nine months ended September 30, 2007, because it deems any
such positions as immaterial.The Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and various U.S. states. Most of the Company and its subsidiaries are not
subject to examination by U.S. tax authorities for years prior to 2004. Several
subsidiaries have open tax years going back as far as 1994 due to net operating loss
carry-forwards. Most state tax authorities cannot examine tax years prior to 2002.(8)
    
    Legal ProceedingsWe are a defendant in a lawsuit originally filed on August 6, 1999 in the Texas District
Court, Austin, Texas, now styled Citizens Insurance Company of America, Citizens, Inc.,
Harold E. Riley and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach, Respondent,
in which a class was originally certified by the trial court and affirmed by the Court
of Appeals for the Third District of Texas. We appealed the grant of class status to
the Texas Supreme Court which, on March 2, 2007, reversed the Court of Appeals
affirmation of the trial courts class certification order, decertified the class and
remanded the case to the trial court for further proceedings consistent with the Texas
Supreme Courts opinion. As a result, no class action is presently certified and
plaintiffs counsel must attempt to recertify the class if plaintiffs wish to proceed
with a class action. In order to recertify the class, the lead
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##### Table of Contents



plaintiff must establish
that he is qualified to represent the purported class. The underlying lawsuit alleges
that certain life insurance policies that we made available to non-U.S. residents, when
combined with a policy feature that allowed certain cash benefits to be assigned to two
non-U.S. trusts for the purpose of accumulating ownership of our class A common stock,
along with allowing the policyholders to make additional contributions to the trusts,
were actually offers and sales of securities that occurred in Texas by unregistered
dealers in violation of the registration provisions of the Texas securities laws. The
remedy sought was rescission and return of the insurance premium payments. We believe
the lawsuit is without merit and intend to continue a vigorous defense in any remaining
proceedings, including any attempt to recertify the class. If the class is recertified,
we could be exposed to costly and time consuming litigation, and an adverse judgment
could have a material adverse effect on our results of operations and financial
condition.Our wholly-owned Louisiana property and casualty insurer, Security Plan Fire Insurance
Company, or SPFIC, has been named as a defendant in a lawsuit filed in the United States
District Court, Eastern District of Louisiana, asserting allegations on behalf of a
purported class. The suit was filed on August 28, 2006, and was initially styled Connie
Abadie, et al. v. Aegis Security Insurance Co., et al., or Connie Abadie. Most of the
property and casualty insurers in Louisiana were also named in this lawsuit. The suit
sought payments for claims denied by SPFIC and other declaratory relief related to
Hurricane Katrina. It is presently unclear how many plaintiffs are insureds of SPFIC.
In order to expedite the handling of all the litigation related to Hurricane Katrina,
the court consolidated Connie Abadie into an action styled In Re: Katrina Canal Breaches
Consolidated Litigation, or the Katrina Consolidated Litigation. On March 15, 2007, a
Master Class Action Insurance Complaint was filed in the Katrina Consolidated
Litigation. On March 27, 2007, Connie Abadie was administratively closed by the Court
and superseded by the Master Class Action Insurance Complaint. Presently, the Master
Class Action Insurance Complaint is stayed by order of the Court.One of the defenses that certain defendants in the Katrina Consolidated Litigation have
asserted is that their insurance policies excluded claims for flood damage, even though
the floods resulting from Hurricane Katrina may have been caused by negligence. On
August 2, 2007, the U.S. Court of Appeals for the Fifth Circuit ruled in the Katrina
Consolidated Litigation that the flood exclusion language in certain property insurance
policies was effective to preclude claims for flood damage by policyholders whose
policies include such an exclusion. Although SPFIC was not a party to that lawsuit, its
policies do exclude flood damage claims. On September 30, 2007, the judge presiding over
the Katrina Consolidated Litigation issued a ruling holding that specific named peril
policies that do not list flooding as one of the named
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##### Table of Contents



perils, do not provide coverage
for flooding. SPFICs policies are named peril policies that do not list flooding as
one of the named perils. SPFIC intends to continue to vigorously defend any claims
resulting from flood damage on the grounds, among others, that its policies do not cover
such damage.The deadline for filing claims against insurers arising out of property damage from
Hurricane Katrina was August 29, 2007. A new complaint was filed by plaintiffs counsel
on August 29, 2007 to assert claims on behalf of the plaintiffs whose claims were not
included in the original Connie Abadie suit. The new suit is styled Susan Abadie, et
al. v. Aegis Security Insurance Company, et al., or Susan Abadie.SPFIC is also a defendant in a suit styled The State of Louisiana v. AAA Insurance, or
Road Home Litigation, which was filed in the Civil District Court for the Parish of
Orleans on August 23, 2007 by the state of Louisiana as subrogee/assignee of the
insureds of more than 200 different insurance companies. The suit was filed to recover
money that the state of Louisiana has paid to certain insureds under the Louisiana Road
Home Program. The suit was removed to the United States District Court for the Eastern
District of Louisiana on September 11, 2007. Based on the petitions, we do not
currently know how many SPFIC insureds have received money from the Louisiana Road Home
Program.The Master Class Action Insurance Complaint, Susan Abadie and the Road Home Litigation
are in early stages of litigation, and no discovery has yet occurred. Therefore, it is
not possible to evaluate how many claims in those cases relate to SPFIC, or the
potential exposure to SPFIC. However, in the event of an adverse outcome, the potential
exposure to SPFIC could be significant.In addition to the legal proceedings described above, we may from time to time be
subject to a variety of legal and regulatory actions relating to our future, current and
past business operations, including, but not limited to:
 
    
    disputes over insurance coverage or claims adjudication;
    
    regulatory compliance with insurance and securities laws in the United States
and in foreign countries;
    
    disputes with our marketing firms, consultants and employee agents over
compensation and termination of contracts and related claims;
    
    disputes regarding our tax liabilities; and
    
    disputes relating to businesses acquired and operated by us.
 In the absence of countervailing considerations, we would expect to defend any such
claims vigorously. However, in doing so, we could incur significant defense costs,
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##### Table of Contents



including not only attorneys fees and other direct litigation costs, but also the
expenditure of substantial amounts of management time that otherwise would be devoted to
our business. If we suffer an adverse judgment as a result of any claim, it could have
a material adverse effect on our business, results of operations and financial
condition.
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
 Certain statements contained in this report 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, any statements specifically identified as forward-looking
statements within this document. Many of these statements disclose risks we face as well. 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. Forward-looking statements include, without limitation, any
financial guidance and statements about our plans, strategies and prospects. 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 our 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) statements of assumptions underlying such statements. Words such as
believes, anticipates, expects, intends, should, plan, seek, estimate, targeted,
may, will and similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements. Although we believe that our plans,
intentions and expectations are reasonable, we may not achieve our plans, intentions or
expectations, and important factors could cause our actual results to differ materially from these
forward-looking 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 where our
policyholders reside; (ii) the effects of and changes in trade, monetary and fiscal policies and
laws; (iii) inflation, interest rates, stock market and monetary fluctuations and volatility;
(iv) the timely development of and acceptance of new insurance 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) a concentration of our insurance business
from persons residing in Latin America and the Pacific Rim; (vii)
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##### Table of Contents



uncertainties in assimilating
acquisitions; (viii) the persistency of existing and future insurance
policies sold by us; (ix) the dependence of the Company on its executive officers; (x) our
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; (xv) the other risk factors described in this
report under Risk Factors; ; and (xvi) the success of the Company at managing the risks
involved in the foregoing.
 Our 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 any such statement is made to reflect the occurrence of unanticipated
events.
 We make available, free of charge, through our Internet website ( http://www.citizensinc.com ), our
Annual Report on Form 10-K , Quarterly Reports on Form 10-Q , Current Reports on Form 8-K , Section 16
reports filed by officers and directors, news releases, proxies, and, if applicable, amendments to
those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as soon as
reasonably practicable after we electronically file such reports with, or furnish such reports to,
the Securities and Exchange Commission. We are not including any of the information contained on
our website as part of, or incorporating it by reference into, this report.
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance policies to predominately high
net worth, high income foreign residents, principally in Latin America and the Pacific
Rim through approximately 2,850 independent marketing consultants;
    
    ordinary whole life insurance policies to middle income households in the Midwest
and the southern United States through approximately 500 independent marketing
consultants; and
    
    final expense policies to middle to lower income households in Louisiana through
approximately 320 employee agents in our home service distribution channel.
 22




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Life Insurance.
  23




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##### Table of Contents



Home Service Insurance.
   24




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##### Table of Contents



Marketplace Conditions and Trends
  
    
    As an increasing percentage of the world population reaches retirement age, we
believe we will benefit from heightened awareness of the benefits of living products
over death products, as aging baby boomers will require cash accumulation to provide
expenses to meet their lifetime needs. Our ordinary life products are designed for
policyowners to accumulate cash values to provide for living expenses in an insureds
later years, while continuously providing a death benefit.
    
    Corporate bond defaults and credit downgrades, which have resulted in
other-than-temporary impairments in the value of some securities, have had a material
impact on life insurers in the past few years. We have not incurred any significant
losses from bond defaults. The majority of our investment portfolio is held in debt
instruments carrying the full faith and credit of the U.S. Government, or in U.S.
Government-sponsored enterprises. Most of the municipal bonds we own are privately
insured. We intend to manage our investment portfolio conservatively in the future in
these types of debt instruments. We have no directly held subprime risks and any
indirect holdings in our corporate bond portfolio are insignificant.
    
    Many of the events and trends affecting the life insurance industry have had an
impact on the life reinsurance industry. These events led to a decline in the
availability of reinsurance. While we currently cede a limited amount of our primary
insurance business to reinsurers, we may find it difficult to obtain reinsurance in the
future, forcing us to seek reinsurers who are more expensive to us. If we cannot
obtain affordable reinsurance coverage, either our net exposures will increase or we
would have to reduce our underwriting commitments.
    
    Because of the trends described above, coupled with increasing costs of regulatory
compliance such as the Sarbanes-Oxley Act of 2002, we believe there is a trend towards
consolidation of domestic life insurance companies. We believe this should be a
benefit to our acquisition strategy because there should be more complementary
acquisition candidates available for us to consider. Management continues to seek
acquisitions that can add value to our Company, although at this time, we have no
agreements or understandings with respect to any acquisition. Because of the growth in
our asset base and level of capital, management expects to seek opportunities for
larger acquisition transactions (those in the $50 million to $100 million purchase
price range).
 25




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##### Table of Contents



Quarter Ended September 30, 2007 Compared to the Quarter Ended September 30, 2006
 All comparisons below state the 2007 third fiscal quarter first and the 2006 third fiscal quarter
second.
 Overview
   Results of Operations
  Net Income perThree Months Ended
    
    Net Income
    
    Increase from Previous
    
    Class A CommonSeptember 30,
    
    (In thousands)
    
    Years Period
    
    Shares2007
    
    $
    4,657
    
    
    
    64.7
    %
    
    $
    0.102006
    
    
    2,827
    
    
    
    90.1
    
    
    
    0.06
   Premium Income
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##### Table of Contents



Net Investment Income
 Reserves
 Policyholder Dividends
 Claims and Surrenders
 Three Months Ended September 30,2007
    
    
    2006(In thousands)Death claims
    
    $
    5,215
    
    
    
    4,553Surrender expenses
    
    
    4,749
    
    
    
    4,382Endowments
    
    
    3,152
    
    
    
    2,585Casualty claims
    
    
    (176
    )
    
    
    1,418Other policy benefits
    
    
    732
    
    
    
    52Accident and health benefits
    
    
    93
    
    
    
    121Total claims and surrenders
    
    $
    13,765
    
    
    
    13,111
 27




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Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs (DAC)
 28




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##### Table of Contents



Federal Income Taxes.
 Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
 All comparisons below state the 2007 nine months first and the 2006 nine months second.
 Overview
   Results of Operations
  Net Income perNine Months Ended
    
    Net Income
    
    Increase from Previous
    
    Class A CommonSeptember 30,
    
    (In thousands)
    
    Years Period
    
    Shares2007
    
    $
    10,623
    
    
    
    131.1
    %
    
    $
    0.222006
    
    
    4,596
    
    
    
    9.2
    
    
    
    0.08
 29




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##### Table of Contents



Premium Income
 Net Investment Income
 Reserves
 Policyholder Dividends
 Claims and Surrenders
 Nine Months Ended September 30,2007
    
    
    2006(In thousands)Death claims
    
    $
    16,152
    
    
    
    16,016Surrender expenses
    
    
    13,121
    
    
    
    12,681Endowments
    
    
    9,183
    
    
    
    7,532Casualty claims
    
    
    649
    
    
    
    3,990Other policy benefits
    
    
    1,498
    
    
    
    687Accident and health benefits
    
    
    264
    
    
    
    408Total claims and surrenders
    
    $
    40,867
    
    
    
    41,314
 30




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Commissions
 Underwriting, Acquisition and Insurance Expense
 Deferred Policy Acquisition Costs
 31




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Federal Income Taxes.
 Liquidity and Capital Resources
     32




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33




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Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligation
    
    Total
    
    
    Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    Years(In thousands)Operating leases
    
    $
    1,051
    
    
    
    116
    
    
    
    675
    
    
    
    260
    
    
    
    Other
    
    
    86
    
    
    
    42
    
    
    
    44
    
    
    
    
    
    
    
    Total operating and other leases
    
    
    1,137
    
    
    
    158
    
    
    
    719
    
    
    
    260
    
    
    
    Future policy benefit reserves:Life insurance
    
    
    496,127
    
    
    
    184
    
    
    
    1,035
    
    
    
    9,715
    
    
    
    485,193Annuities
    
    
    22,196
    
    
    
    11,611
    
    
    
    5,204
    
    
    
    2,244
    
    
    
    3,137Accident and health
    
    
    8,644
    
    
    
    8,644
    
    
    
    
    
    
    
    
    
    
    
    Total future policy benefit reserves
    
    
    526,967
    
    
    
    20,439
    
    
    
    6,239
    
    
    
    11,959
    
    
    
    488,330Policy claims payable:Life insurance
    
    
    5,387
    
    
    
    5,387
    
    
    
    
    
    
    
    
    
    
    
    Accident and health
    
    
    1,468
    
    
    
    1,468
    
    
    
    
    
    
    
    
    
    
    
    Casualty
    
    
    638
    
    
    
    638
    
    
    
    
    
    
    
    
    
    
    
    Total policy claims payable
    
    
    7,493
    
    
    
    7,493
    
    
    
    
    
    
    
    
    
    
    
    Convertible Preferred Stock
    
    
    16,251
    
    
    
    
    
    
    
    16,251
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    551,848
    
    
    
    28,090
    
    
    
    23,209
    
    
    
    12,219
    
    
    
    488,330
  Parent Company Liquidity and Capital Resources
  34




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Critical Accounting Policies
  Policy Liabilities
   Deferred Policy Acquisition Costs
  35




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36




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Valuation of Investments in Fixed Maturity and Equity Securities
    Premium Revenue and Related Expenses
  37




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
    38




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Change in Interest RatesDecreases in Interest Rates(In thousands)100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    
    Points
    
    
    PointsSeptember 30, 2007
    
    $
    16,479
    
    
    
    27,828
    
    
    
    43,084December 31, 2006
    
    $
    20,429
    
    
    
    36,129
    
    
    
    55,312
 Increases in Interest Rates(In thousands)100 Basis
    
    
    200 Basis
    
    
    300 BasisPoints
    
    
    Points
    
    
    PointsSeptember 30, 2007
    
    $
    (32,326
    )
    
    
    (64,681
    )
    
    
    (98,459
    )December 31, 2006
    
    $
    (32,305
    )
    
    
    (59,302
    )
    
    
    (92,949
    )
   Market Risk Related to Equity Prices
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  39




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
    
    Stockholders equity as of January 1, 2006 was reduced by $3.1 million as a result of
our adoption of SAB 108.
    
    Pre-tax income for the year ended December 31, 2006 was reduced by $1.7 million due to
an impairment of goodwill (excess cost of net assets acquired) of approximately $1.0
million and additional amortization of intangible assets (cost of customer relationships
acquired) of approximately $0.7 million.
  
    
    Hired a new Vice President of Accounting, with significant statutory accounting and U.S.
GAAP experience during the third quarter of 2006;
    
    Hired a new Chief Actuary with a background in U.S. GAAP financial reporting during the
third quarter of 2006;
    
    Since the end of the second quarter of 2007, ensured that all of our financial statement
closing process journal entries for each of our subsidiaries have been recorded in their
general ledgers (previously, many such entries were in Excel only);
 40




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##### Table of Contents




    
    Created the position of Vice President of Financial Reporting (in the second quarter of
2007), committing resources to enable the timely review of supporting work papers for prior
and current accounting periods and to prevent and detect misapplications of U.S. GAAP;
    
    Strengthened accounting work paper review by senior members of management, including our
VP Financial Reporting and CFO, to ensure completeness and accuracy of
supporting work papers and schedules, including formalized sign-off processes; and
    
    Implemented additional layers of review at greater levels of precision over our
financial statement close process.
   
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley
and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach Respondent
 41




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Connie Abadie, et al. v. Aegis Security
Insurance Co., et al. Connie Abadie Connie Abadie In Re: Katrina Canal Breaches
Consolidated Litigation Connie Abadie
  Connie Abadie Susan Abadie, et al. v. Aegis Security Insurance
Company, et al. Susan Abadie.
 42




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The State of Louisiana v. AAA Insurance
 Susan Abadie
  
    
    disputes over insurance coverage or claims adjudication;
    
    regulatory compliance with insurance and securities laws in the United States and in
foreign countries;
    
    disputes with our marketing firms, consultants and employee agents over compensation
and termination of contracts and related claims;
    
    disputes regarding our tax liabilities; and
    
    disputes relating to businesses acquired and operated by us.
  
 ITEM 1.A RISK FACTORS
  43




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Risks Relating to Our Business
 A substantial amount of our revenue comes from foreign residents. This involves risks associated
with the possible application of foreign insurance and securities laws and regulations to our
business, as well as risks from political and economic instability and currency transfer
restrictions.
    44




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Our actual claims losses may exceed our reserves for claims and we may be required to establish
additional reserves, which in turn may adversely impact our results of operations and financial
condition.
  45




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We may be required to accelerate the amortization of deferred acquisition costs and the costs of
customer relationships acquired, which would increase our expenses and adversely affect our results
of operations and financial condition.
   46




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We may be required to recognize impairment in the value of our excess of cost over net assets
acquired that would increase our expenses and materially adversely affect our results of operations
and financial condition.
  We are a defendant in lawsuits, which may adversely affect our financial condition and detract from
the time our management is able to devote to our business, and we are subject to risks related to
litigation and regulatory matters.
 Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley
and Mark A. Oliver, Petitioners v. Fernando Hakim Daccach Respondent
 47




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Connie Abadie, et al. v. Aegis Security
Insurance Co., et al. Connie Abadie Connie Abadie In Re: Katrina Canal Breaches
Consolidated Litigation Connie Abadie
  Connie
Abadie Susan Abadie, et al. v. Aegis Security Insurance Company, et
al. Susan Abadie.
 The State of Louisiana v. AAA Insurance
 48




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##### Table of Contents



Susan Abadie
  
    
    disputes over insurance coverage or claims adjudication;
    
    regulatory compliance with insurance and securities laws in the United States and in
foreign countries;
    
    disputes with our marketing firms, consultants and employee agents over compensation
and termination of contracts and related claims;
    
    disputes regarding our tax liabilities; and
    
    disputes relating to businesses acquired and operated by us.
  Reinsurers with which we do business could increase their premium rates and may not honor their
obligations, leaving us liable for the reinsured coverage.
  49




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50




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We may not be able to continue our past strategy of acquiring other U.S. life insurance companies,
and we may not realize improvements to our financial results as a result of our past or any future
acquisitions.
    
    
    inaccurate assessment of undisclosed liabilities, disclosed contingent liabilities
or the adequacy of claims reserves;
    
    difficulties in realizing projected efficiencies, synergies and cost savings;
    
    failure to achieve anticipated revenues, earnings or cash flow;
    
    an increase in indebtedness and a limitation on our ability to access additional
capital when needed; and
    
    adverse changes in the economies of geographic regions in which the businesses of
our acquisitions are concentrated, due to natural disasters, changing population
demographics, governmental actions and other causes.
  Our international and domestic operations face significant competition.
  51




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
    
    Foreign operated companies with U.S. Dollar policies.We face direct competition
from companies that operate in the same manner as we operate in our international
markets. These competitors include National Western Life Insurance Company, Best
Meridian Insurance Company and, to a lesser extent, Pan American Life Insurance
Company and American International Group.
    
    Companies foreign to the countries in which policies are sold but that issue local
currency policies.Another group of our competitors in the international marketplace
consists of companies that are foreign to the countries in which the policies are
sold but issue life insurance policies denominated in the local currencies of those
countries. Local currency policies provide the benefit of assets located in the
country of foreign residents but entail risks of uncertainty due to local currency
fluctuations as well as the perceived instability and weakness of local currencies.
    
    Locally operated companies with local currency policies.We compete with
companies formed and operated in the country in which our foreign insureds reside.
Generally, these companies are subject to risks of currency fluctuations, and they
primarily use mortality tables based on experience of the local population as a
whole. These mortality tables are typically based on significantly shorter life
spans than those we use. As a result, the cost of insurance from these companies
tends to be higher than ours. Although these companies typically market their
policies to a broader section of the population than do our independent marketing
firms and consultants, there can be no assurance that these companies will not
endeavor to place a greater emphasis on our target market and compete more directly
with us.
  52




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Sales of our products may be reduced if we are unable to establish and maintain commercial
relationships with independent marketing firms and consultants, attract and retain employee agents
or develop and maintain our distribution sources.
  Loss of the services of our senior management team would likely hinder development of our operating
and marketing programs and our strategy for expanding our business.
  53




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We are subject to extensive governmental regulation in the United States, which increases our costs
of doing business and could restrict the conduct of our business.
  
    
    licensing companies to transact business;
    
    authorizing lines of business;
    
    mandating capital and surplus requirements;
    
    imposing dividend limitations;
    
    approving changes in control;
    
    licensing agents and distributors of insurance products;
    
    placing limitations on the minimum size and certain other provisions of life
insurance contracts;
    
    restricting companies ability to enter and exit markets;
    
    admitting statutory assets;
    
    mandating certain insurance benefits;
    
    restricting companies ability to terminate or cancel coverage;
    
    requiring companies to provide certain types of coverage;
    
    regulating premium rates, including the ability to increase premium rates;
    
    approving policy forms;
    
    regulating trade and claims practices;
    
    imposing privacy requirements;
    
    establishing reserve requirements and solvency standards;
    
    restricting certain transactions between affiliates;
    
    mandating assessments or other surcharges for guaranty funds;
    
    regulating market conduct and sales practices of insurers and their marketing
agents; and
    
    restricting contact with consumers, such as the recently created national do not
call list, and imposing consumer protection measures.
  54




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Changes in U.S. regulation may adversely affect our results of operations and financial condition
and limit our prospective growth.
  Our failure to maintain effective information systems could adversely affect our business.
   
    
    inadequate information on which to base pricing, underwriting and reserve
decisions;
    
    the loss of existing customers;
    
    difficulty in attracting new customers;
 55




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##### Table of Contents




    
    disputes with customers and our independent marketing firms, consultants and
employee agents;
    
    regulatory problems, such as failure to meet prompt payment obligations;
    
    litigation exposure; and
    
    increases in administrative expenses.
  We identified material weaknesses in our disclosure controls and controls over financial reporting
as of December 31, 2006. To the extent that we have not remedied, or do not remedy, these
weaknesses or fail to maintain our current system of internal controls to an effective level with
regard to material weaknesses we may identify, we may not be able to report our financial results
accurately. As a result, we could be required to restate our financial statements and be exposed
to increased regulatory scrutiny and litigation from investors and others.
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Our failure to protect confidential information and privacy could result in the loss of customers,
subject us to fines and penalties and adversely affect our results of operations and financial
condition.
  
    
    monitoring our record retention plans and policies and any changes in state or
federal privacy and compliance requirements;
    
    maintaining secure storage facilities for tangible records; and
    
    limiting access to electronic information in order to safeguard certain current
information.
   57




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The insurance industry in which we operate may be subject to periodic negative publicity, which may
negatively impact our financial results.
  General economic, financial market and political conditions may materially and adversely affect our
results of operations and financial condition.
  
    
    insurance industry cycles;
    
    levels of employment;
    
    levels of consumer spending;
    
    levels of inflation;
    
    movements of the financial markets,
    
    fluctuations in interest rates, monetary policy, demographics; and
    
    legislative and competitive changes.
  58




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##### Table of Contents



Our insurance subsidiaries are restricted by applicable laws and regulations in the amounts of
fees, dividends and other distributions they may make to us. The inability of our subsidiaries to
make payments to us in sufficient amounts for us to conduct our operations could adversely affect
our ability to meet our obligations or expand our business.
    59




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Risks Relating to Our Class A Common Stock
 The price of our class A common stock may be volatile and may be affected by market conditions
beyond our control.
  
    
    quarterly variations in actual or anticipated results of our operations;
    
    interest rate fluctuations;
    
    changes in financial estimates by securities analysts;
    
    valuations of similarly situated companies in our industry;
    
    our failure to meet the expectations of securities analysts and investors;
    
    actions or announcements by our competitors;
    
    competition and other factors affecting the life insurance business generally; and
    
    conditions in the U.S. and world economies.
 Our class A common stockholders will not control us for the foreseeable future, will have a limited
ability to influence our business policies and corporate actions and will not by themselves be able
to elect any directors.
  Our articles of incorporation and bylaws, as well as applicable state insurance laws, may
discourage takeovers and business combinations that our stockholders might consider to be in their
best interests.
  60




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##### Table of Contents




    
    holders of shares of our Class B common stock elect a simple majority of our board
of directors, and all of these shares are owned by the Harold E. Riley Trust; and
    
    our board of directors may issue one or more series of preferred stock without the
approval of our stockholders.
  We have never paid any cash dividends on our Class A common stock and do not anticipate doing so in
the foreseeable future.
  61




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There are a substantial number of shares of our Class A common stock eligible for future sale in
the public market. The sale of a large number of these shares could cause the market price of our
Class A common stock to fall.
    Holders of our Series A preferred stock may obtain the right to require us to redeem their Series A
preferred stock and we will be required to redeem any shares of Series A preferred stock that
remain outstanding on July 12, 2009.
   
    
    the average closing price of the stock is in excess of $3.50 per share for a
period of ten consecutive trading days prior to (but not including) the date that is
three trading days prior to the date of redemption;
    
    the stock is listed on NYSE or other eligible market; and
    
    the stock to be issued is registered under a registration statement effective with
the SEC.
  62




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Provisions applicable to our series A preferred stock may make it more difficult or prevent us from
raising funds or taking certain other actions.
 
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  63




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit Number
    
    The following exhibits are filed herewith:3.1
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    Amended and Restated Bylaws (b)4.1
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)10.1
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of America and
Riunione Adriatica di Sicurta, S.p.A. (d)10.2
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (e)10.3
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Citizens Insurance Company of America, Texas International Life Insurance Company and
Wells Fargo Bank, N.A. (f)10.4
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company
and Wells Fargo Bank, N.A. (g)
 64




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith:10.5(a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5(b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5(c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)10.5(d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)10.5(e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)10.5(f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)10.5(g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)10.5(h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)10.5(i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)10.5(j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)10.5(k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July
12, 2004 (h)10.5(l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and the
Shemano Group, Inc. (h)10.6
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Converium Reinsurance (Germany) Ltd.(i)10.7
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Scottish Re Worldwide (England) (j)
 65




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith:10.8
    
    First Amended and Restated Loan Agreement  Regions Bank, dated December 5, 2005(k)10.9
    
    First Amendment to First Amended and Restated Loan Agreement  Regions Bank, dated December
8, 2006 (l)11
    
    Statement re: Computation of per share earnings (see financial statements)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith.(a)
    
    Filed on March 15, 2004 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.(b)
    
    Filed on March 31, 1999 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.(c)
    
    Filed on July 15, 2004, with the Registrants Current Report on Form 8-K as Exhibit 4.1, and
incorporated herein by reference.(d)
    
    Filed on November 11, 1996 with the Registration Statement on Form S-4, SEC File No.
333-16163, as Exhibit 10.8, and incorporated herein by reference.(e)
    
    Filed on April 9, 1997 as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for
the Year Ended December 31, 1996, Amendment No. I, and incorporated herein by reference.(f)
    
    Filed on March 22, 2004 as Exhibit 10.8 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(g)
    
    Filed on March 22, 2004 as Exhibit 10.9 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(h)
    
    Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrants Current Report on Form
8-K, and incorporated herein by reference.(i)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.(j)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.(k)
    
    Filed on or about March 16, 2006, with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2005, as Exhibit 10.10(o), and incorporated herein by reference.(l)
    
    Filed on March 30, 2007, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2006, as Exhibit 10.9, and incorporated herein by reference. 66




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Harold E. RileyHarold E. RileyChief Executive Officer and ChairmanBy:
    /s/ Thomas F. KopeticThomas F. KopeticVice President, Chief Financial Officer
and Treasurer  67




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    The following exhibits are filed herewith:3.1
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    Amended and Restated Bylaws (b)4.1
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)10.1
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of America and
Riunione Adriatica di Sicurta, S.p.A. (d)10.2
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (e)10.3
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Citizens Insurance Company of America, Texas International Life Insurance Company and
Wells Fargo Bank, N.A. (f)10.4
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company
and Wells Fargo Bank, N.A. (g)
 68




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith:10.5(a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5(b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5(c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)10.5(d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)10.5(e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)10.5(f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)10.5(g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)10.5(h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)10.5(i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)10.5(j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)10.5(k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July
12, 2004 (h)10.5(l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and the
Shemano Group, Inc. (h)10.6
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Converium Reinsurance (Germany) Ltd.(i)10.7
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Scottish Re Worldwide (England) (j)
 69




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##### Table of Contents



Exhibit Number
    
    The following exhibits are filed herewith:10.8
    
    First Amended and Restated Loan Agreement  Regions Bank, dated December 5, 2005(k)10.9
    
    First Amendment to First Amended and Restated Loan Agreement  Regions Bank, dated December
8, 2006 (l)11
    
    Statement re: Computation of per share earnings (see financial statements)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith.(a)
    
    Filed on March 15, 2004 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.(b)
    
    Filed on March 31, 1999 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.(c)
    
    Filed on July 15, 2004, with the Registrants Current Report on Form 8-K as Exhibit 4.1, and
incorporated herein by reference.(d)
    
    Filed on November 11, 1996 with the Registration Statement on Form S-4, SEC File No.
333-16163, as Exhibit 10.8, and incorporated herein by reference.(e)
    
    Filed on April 9, 1997 as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for
the Year Ended December 31, 1996, Amendment No. I, and incorporated herein by reference.(f)
    
    Filed on March 22, 2004 as Exhibit 10.8 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(g)
    
    Filed on March 22, 2004 as Exhibit 10.9 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(h)
    
    Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrants Current Report on Form
8-K, and incorporated herein by reference.(i)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.(j)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.(k)
    
    Filed on or about March 16, 2006, with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2005, as Exhibit 10.10(o), and incorporated herein by reference.(l)
    
    Filed on March 30, 2007, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2006, as Exhibit 10.9, and incorporated herein by reference. 70