The Company owns an office complex in Springfield, Illinois, which houses the primary insurance operations. The office buildings in this complex contain 57,000 square feet of office and warehouse space, and are carried at $1,598,403. The facilities occupied by the Company are adequate relative to the Company's present operations.
Commercial property mainly consists of property held in HPG, CW, and Lexington entities. See Item 1, “Business” for additional information regarding descriptions and operating results of these properties.
The purpose of this section is to discuss and analyze the Company's consolidated results of operations, financial condition and liquidity and capital resources for the three years ended December 31, 2007. This analysis should be read in conjunction with the consolidated financial statements and related notes, which appear elsewhere in this Form 10-K. The Company reports financial results on a consolidated basis. The consolidated financial statements include the accounts of UTG and its subsidiaries at December 31, 2007.
Premiums and policy fee revenues, net of reinsurance premiums and policy fees, increased 12% when comparing 2007 to 2006 and decreased 6% from 2006 to 2005. This increase is related to the ACAP acquisition. Excluding the acquired companies, premiums and policy fee revenues, net of reinsurance premiums and policy fees, decreased 16%. The Company writes very little new business. Unless the Company acquires a block of in-force business as it did in December 2006, management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. The Company’s average persistency rate for all policies in force for 2007, 2006 and 2005 was approximately 96.1%, 95.9%, and 95.8%, respectively. Persistency is a measure of insurance in force retained in relation to the previous year.
The Company has introduced new and updated products in recent periods including the First Annuity, Kid Kare, Full Circle Term and Sentinel Term. Management is currently exploring the feasibility of marketing certain products through its affiliated bank, First Southern National Bank. It is anticipated such marketing efforts would include products such as the new term products and an annuity product. Sales would be supported through the use of the web with Company personnel providing the prospective customer support. Final details have not been completely worked out yet, but launch of this program is anticipated sometime during 2008. Management anticipates insignificant sales under this program initially. Currently the Company has no other plans to increase marketing efforts. New product development is anticipated to be utilized in conservation efforts and sales to existing customers. Such sales are not expected to be material.
Realized investment gains, net of realized losses, were $5,467,207, $11,446,279 and $1,431,936 in 2007, 2006 and 2005, respectively. The net realized gains in 2007 are primarily the result of three sales. In May 2007, the Company sold its 50% interest in Harbor Village Partners LP, realizing a loss of approximately $643,000. Management determined the project was not performing as desired and that it was in the Company’s best long-term interest to divest of its equity investment. As part of the sale, UG is entitled to receive a 10% profit share of future earnings of the development project up to $1,400,000. This future potential was not considered in the current calculation of loss on the sale. Should any future profits be received by the Company from this project, they will be recorded as income in the period received. In June 2007, the Company completed the sale of a real estate holding identified as Drs. Hospital. The Company reported a gain on the sale of approximately $2,600,000. In December of 2007, the Company sold its 50% interest in Boone Parklands, LLC that was acquired in April of 2007. The Company realized a gain of approximately $3,800,000 from the sale.
The net realized gains in 2006 are primarily comprised of a gain from the sale of investment real estate held by two 67% owned subsidiaries of the Company. The real estate was sold for the agreed upon total sales price of $25,500,000. The Company recognized a realized gain of approximately $7,768,000. In addition, the Company had net realized gains of approximately $3,819,000 from the disposal of certain equity securities.
The net realized gains in 2005 were primarily the result of the sale of 2,216,776 shares of common stock owned of BNL Financial Corporation (“BNL”). These shares represented approximately 10.57% of the then current outstanding shares of BNL and represent all shares owned by UG. The shares were reacquired by the issuing entity for an agreed upon sales price of $2,300,000.
Benefits, claims and settlement expenses net of reinsurance benefits and claims, increased $3,035,955 from 2006 to 2007 and increased $2,209,034 from 2005 to 2006. Excluding the results of the acquired companies, this item decreased $1,852,093 from 2006 to 2007. Although claims experience was higher in 2007 than 2006, the associated reserves that were released related to the claims were a greater percentage of the claim amount than in the prior year, thus reducing the impact the increased claims had on the current period results. The increase from 2005 to 2006 relates primarily to changes in the Company’s death claim experience. Death claims were approximately $1,247,000 more in 2006 as compared to 2005. There is no single event that caused the mortality variances. Policy claims vary from year to year and therefore, fluctuations in mortality are to be expected and are not considered unusual by management.
Operating expenses increased 24% in 2007 compared to 2006 and increased 17% in 2006 compared to 2005. The increase in operating expenses in the current year is primarily related to the increase in activity related to the new companies acquired at the end of 2006. These costs include such items as new staff, postage and supplies. The increase in expenses is consistent with Management’s expectations relating to the acquisition. The increases in expenses during 2006 relate primarily to costs associated with the acquisition of Acap Corporation. The Company incurred approximately $310,000 in costs relating to due diligence work on the acquisition. Additionally, costs such as hiring new staff and training in preparation for the transition of work to Springfield were incurred during the fourth quarter of 2006. The Company also saw an increase in expenses during 2006 of approximately $150,000 relating to the completion of a SAS 70 audit. The SAS 70 audit report is a very valuable item relating to the continued pursuit of TPA work. A SAS 70 audit is an independent verification the Company has good internal controls and procedures in place for the key areas of operations. The Company anticipates continuing to annually update the SAS 70 audit report, with expected ongoing costs of approximately one-third of the original audit cost. Management places significant emphasis on expense monitoring and cost containment. Maintaining administrative efficiencies directly impacts net income.
The significant increase in interest expense of $1,157,302 in 2007 compared to 2006 was a result of funds borrowed, of approximately $15,700,000, relating to the acquisition of Acap Corporation. Interest expense increased in 2006 also as a result of the acquisition. Prior to the acquisition, the Company had no outstanding debt since the retirement of previous debt in 2004. The Company anticipates aggressively repaying the current debt.
Mortgage loan investments represent 10% and 7% of total assets of the Company at year-end 2007 and 2006, respectively. The Company’s mortgage loan investments result from opportunities available through FSNB, an affiliate of Mr. Jesse T. Correll. Mr. Correll is the CEO and Chairman of the Board of Directors of UTG, and directly and indirectly through affiliates, its largest shareholder. FSNB has been able to provide the Company with additional expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market. During 2007, 2006 and 2005 the Company issued approximately $19,765,000, $5,359,000 and $24,576,000 respectively, in new mortgage loans. These new loans were originated through FSNB and funded by the Company through participation agreements with FSNB. FSNB services all of the Company’s mortgage loans including the loans covered by these participation agreements. The Company pays FSNB a .25% servicing fee on these loans and a one-time fee at loan origination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan. UG paid $85,612, $93,288 and $76,970 in servicing fees and $54,281, $23,214 and $112,109 in origination fees to FSNB during 2007, 2006 and 2005, respectively. The Company anticipates these opportunities to continue to be available and will pursue those investments that provide attractive yields.
Sub-prime mortgage lending has received significant attention in recent months. Default rates have risen sharply on these loans causing a negative impact in the economy in general. While the Company does not have a material direct exposure to sub-prime mortgage loans, the Company could still be negatively impacted indirectly through fixed maturity holdings and stock holdings in financial institutions that do have sub-prime loan exposures. Declines in values relating to such entities will negatively impact the Company through unrealized investment losses, should any of these entities declare bankruptcy, the Company would then report a realized loss on its investment. Management monitors events relating to this topic. We believe while we may have indirect exposures, the risk of significant loss is very low for the Company.
Total investment real estate holdings represent approximately 8% and 9% of the total assets of the Company, net of accumulated depreciation, at year-end 2007 and 2006 respectively. The Company has made several investments in real estate in recent years. Expected returns on these investments exceed those available in fixed income securities. However, these returns may not always be as steady or predictable.
Cash and cash equivalents increased approximately $9,274,000 comparing 2007 to 2006. The increase can be attributed to the sale of real estate held by Boone Parklands, LLC in December of 2007 resulting in proceeds of approximately $15,750,000. The Company realized a gain of approximately $3,800,000 on the sale. This investment was acquired in April 2007.
Deferred policy acquisition costs decreased 15% in 2007 compared to 2006. Deferred policy acquisition costs, which vary with, and are primarily related to producing new business, are referred to as DAC. DAC consists primarily of commissions and certain costs of policy issuance and underwriting, net of fees charged to the policy in excess of ultimate fees charged. To the extent these costs are recoverable from future profits, the Company defers these costs and amortizes them with interest in relation to the present value of expected gross profits from the contracts, discounted using the interest rate credited by the policy. The Company had $0 in policy acquisition costs deferred, $9,000 in interest accretion and $188,360 in amortization in 2007, and had $0 in policy acquisition costs deferred, $7,000 in interest accretion and $232,476 in amortization in 2006.
Total liabilities decreased 2% in 2007 compared to 2006. This decrease is attributable primarily to a decrease in the total future policy benefits held. As policies in force terminate, the corresponding reserve liability held for those policies is released.
At December 31, 2007, the Company has outstanding notes payable of $19,914,346 as compared to $22,990,081 a year ago. Approximately $13,500,000 of this debt is related to the acquisition of Acap Corporation and the majority remaining is attributable to borrowings of a subsidiary, Lexington, relating to a real estate investment. The Company has three lines of credit available for operating liquidity or acquisitions of additional lines of business. There are no outstanding balances on any of these lines of credit as of the balance sheet date. The Company's long-term debt is discussed in more detail in Note 11 to the consolidated financial statements.
The Company has three principal needs for cash - the insurance company’s contractual obligations to policyholders, the payment of operating expenses and servicing its outstanding debt. Cash and cash equivalents as a percentage of total assets were 4% and 2% as of December 31, 2007 and 2006, respectively. Fixed maturities as a percentage of total invested assets were 60% and 69% as of December 31, 2007 and 2006, respectively.
Cash provided by (used in) operating activities was $809,699, $(1,875,494) and $(290,936) in 2007, 2006 and 2005, respectively. Reporting regulations require cash inflows and outflows from universal life insurance products to be shown as financing activities when reporting on cash flows.
In November 2007, UG became a member of the FHLB. This membership will allow the Company access to additional credit up to a maximum of 50% of the total assets of UG. To be a member of the FHLB, UG was required to purchase shares of common stock of FHLB. Borrowing capacity is based on 50 times each dollar of stock acquired in FHLB above the “base membership” amount. The Company’s current LOC with the FHLB is $15,000,000. During 2007, the Company had borrowings and repayments of $5,443,350. At December 31, 2007, the Company had no outstanding borrowings attributable to this LOC.
AC and TI each had a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively. These lines had been in place since 2004 and were left in place following the acquisition. The lines were for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate. Principal was due upon maturity. The lines matured during the second quarter of 2007. Management has determined these lines are no longer needed, therefore, upon maturity in 2007, these lines were not renewed. Neither of the lines had any activity during 2007.
UTG is a holding company that has no day-to-day operations of its own. Funds required to meet its expenses, generally costs associated with maintaining the Company in good standing with states in which it does business, and the servicing of its debt are primarily provided by its subsidiaries. On a parent only basis, UTG's cash flow is dependent on management fees received from its insurance subsidiaries, stockholder dividends from its subsidiaries and earnings received on cash balances. On December 31, 2007, substantially all of the consolidated shareholders equity represents net assets of its subsidiaries. The Company's insurance subsidiaries have maintained adequate statutory capital and surplus. The payment of cash dividends to shareholders by UTG is not legally restricted. However, the state insurance department regulates insurance company dividend payments where the company is domiciled.
At December 31, 2007, UG has a ratio that is in excess of 5.8, which is 580% of the authorized control level. AC and TI have ratios in excess of 10.4 and 11.5, which is 1040% and 1150% of the authorized control level, respectively. Accordingly, all three companies meet the RBC requirements.
The FASB also issued Statement No. 156, Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140. The Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if possible. The Statement permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value. The Statement is effective for fiscal years beginning after September 15, 2006. The adoption of Statement No. 156 does not currently affect the Company’s financial position or results of operations.
We have also audited Schedule I as of December 31, 2007, and Schedules II, IV and V as of December 31, 2007, 2006 and 2005, of UTG, Inc. and subsidiaries and Schedules II, IV and V for the years then ended. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.
ORGANIZATION - At December 31, 2007, the significant majority-owned subsidiaries of UTG, Inc were as depicted on the following organizational chart.
Real estate - investment real estate at cost less allowance for depreciation and, as appropriate, provisions for possible losses. Accumulated depreciation on investment real estate was $594,043 and $593,877 as of December 31, 2007 and 2006, respectively.
Amounts paid, or deemed to have been paid, for reinsurance contracts are recorded as reinsurance receivables. Reinsurance receivables are recognized in a manner consistent with the liabilities relating to the underlying reinsured contracts. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.
Benefit reserves for universal life insurance and interest sensitive life insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims in excess of related policy account balances. Interest crediting rates for universal life and interest sensitive products range from 4.0% to 5.5% as of December 31, 2007 and 2006.
COST OF INSURANCE ACQUIRED - When an insurance company is acquired, the Company assigns a portion of its cost to the right to receive future cash flows from insurance contracts existing at the date of the acquisition. The cost of policies purchased represents the actuarially determined present value of the projected future cash flows from the acquired policies. The Company utilized 9% discount rate on approximately 14% of the business, 12% discount rate on approximately 83% of the business and 15% discount rate on approximately 3% of the business. Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits. The interest rates utilized in the amortization calculation are 9% on approximately 7% of the balance, 12% on approximately 50% of the balance and 15% on 43% of the balance. The interest rates vary due to differences in the blocks of business. The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised.
Cost of insurance acquired was tested for impairment as part of the regular reporting process. The fair value of the cost of insurance acquired was estimated using the expected present value of future cash flows. No impairment loss was realized during any of the three years presented.
M.PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $2,681,009 and $2,542,750 at December 31, 2007 and 2006, respectively. Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of three to thirty years. Depreciation expense was $258,298, $261,148, and $250,795 for the years ended December 31, 2007, 2006, and 2005, respectively.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the 2007 presentation. Such reclassifications had no effect on previously reported net income or shareholders' equity.
USE OF ESTIMATES - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG LIVED ASSETS - The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long lived assets may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. In the opinion of management, no such impairment existed at December 31, 2007.
Ohio domiciled insurance companies require five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. For the year ended December 31, 2007, UG had a statutory gain from operations of $4,661,648. At December 31, 2007, UG's statutory capital and surplus amounted to $30,130,717. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. In 2007 and 2006, UG paid $3,000,000 and $5,100,000, of which none were was considered to be an extraordinary dividend, respectively, to UTG.
The following table summarizes securities held, at amortized cost, that are below investment grade by major classification:
At December 31, 2007 and 2006, the Company did not hold any fixed maturity investments that exceeded 10% of shareholder’s equity. The Company held two equity investments totaling $18,611,018 and one equity investment of $11,677,170 that exceeded 10% of shareholder’s equity at December 31, 2007 and 2006, respectively.
The amortized cost and estimated market value of debt securities at December 31, 2007, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
The Company's insurance subsidiaries are domiciled in Ohio and Texas. The insurance subsidiaries prepare their statutory-based financial statements in accordance with accounting practices prescribed or permitted by the respective insurance department. These principles differ significantly from accounting principles generally accepted in the United States of America. "Prescribed" statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, from company to company within a state, and may change in the future. UG's total statutory shareholders' equity was approximately $30,131,000 and $31,210,000 at December 31, 2007 and 2006, respectively. UG reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $4,662,000, $5,162,000, and $5,114,000 for 2007, 2006, and 2005 respectively. AC's total statutory shareholders' equity was approximately $8,166,000 and $8,943,000 at December 31, 2007 and 2006. AC reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $999,000 for 2007. TI's total statutory shareholders' equity was approximately $2,432,000 and $2,762,000 at December 31, 2007.and 2006, respectively. TI reported a statutory operating income before taxes (exclusive of inter-company dividends) of approximately $290,000 for 2007.
Currently, UG is utilizing reinsurance agreements with Optimum Re Insurance Company, (Optimum) and Swiss Re Life and Health America Incorporated (SWISS RE). Optimum and SWISS RE currently hold an “A-” (Excellent) and "A+" (Superior) rating, respectively, from A.M. Best, an industry rating company. The reinsurance agreements were effective December 1, 1993, and covered most new business of UG. The agreements are a yearly renewable term (YRT) treaty where the Company cedes amounts above its retention limit of $100,000 with a minimum cession of $25,000.
During 1998, AC closed a coinsurance transaction with Universal Life Insurance Company (“Universal”). Pursuant to the coinsurance agreement, AC coinsured 100% of the individual life insurance policies of Universal in force at January 1, 1998. At December 31, 2007, the Universal agreement has insurance in-force of approximately $12,903,000, with reserves being held on that amount of approximately $5,108,000.
The treaty with Canada Life provides that AC is entitled to 85% of the profits (calculated pursuant to a formula contained in the treaty) beginning when the accumulated profits under the treaty reach a specified level. As of December 31, 2007, there remains $1,445,907 in profits to be generated before AC is entitled to 85% of the profits. Should future experience under the treaty match the experience of recent years, which cannot reliably be predicted to occur, the accumulated profits would reach the specified level towards the end of 2009. However, regarding the uncertainty as to when the specified level may be reached, it should be noted that the experience has been erratic from year to year and the number of policies in force that are covered by the treaty diminishes each year.
All reinsurance for TI is with a single, unaffiliated reinsurer, Hannover Life Reassurance (Ireland) Limited ("Hannover"), secured by a trust account containing letters of credit totaling $258,852, granted in favor of TI. TI administers the reinsurance policies, for which it receives an expense allowance from Hannover. The aggregate reduction in surplus of termination of this reinsurance agreement, by either party, as of December 31, 2007 is $91,168. Hannover currently holds an “A” (Excellent) rating by A.M. Best. At December 31, 2007, the Hannover agreement has insurance in-force of approximately $24,296,000, with reserves being held on that amount of approximately $109,000.
On December 31, 2006, AC and TI entered into 100% coinsurance agreements whereby each company ceded all of its A&H business to an unaffiliated reinsurer, Reserve National Insurance Company (Reserve National). As part of the agreement, the Company remained contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year. At the end of the one year period, on December 31, 2007, an accounting of these claims was produced. Any difference in the actual claims to the claim reserve liability transferred will be refunded to / paid by the Company. As of December 31, 2007, AC owes $93,384 and TI owes $902 to the unaffiliated third party. The amounts have been included in each company’s current year financial statements. Reserve National currently holds an “A-“ (Excellent) rating by A.M. Best. During 2007, the policies coinsured under there agreements were assumption reinsured by Reserve National, thus releasing the Company from any further contingent liability under these policies.
The insurance industry has experienced a number of civil jury verdicts which have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Some of the lawsuits have resulted in the award of substantial judgments against the insurer, including material amounts of punitive damages. In some states, juries have substantial discretion in awarding punitive damages in these circumstances. In the normal course of business the Company is involved from time to time in various legal actions and other state and federal proceedings. There were no proceedings pending or threatened as of December 31, 2007.
On June 10, 2002 UTG and Fiserv formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions. Fiserv is responsible for the marketing and sales function for the alliance, as well as providing the operations processing service for the Company. The Company will staff the administration effort. Fiserv (NASDAQ: FISV) is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin.
On February 20, 2003, UG purchased $4,000,000 of a trust preferred security offering issued by FSBI. The security has a mandatory redemption after 30 years with a call provision after 5 years. The security pays a quarterly dividend at a fixed rate of 6.515%. The Company received $264,219 of dividends in 2007, 2006 and 2005, respectively.
On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved, the UTG, Inc. Employee and Director Stock Purchase Plan (See Note 10.A. to the consolidated financial statements).
The original issue price of shares at the time this program began was established at $12.00 per share. Through March 1, 2008, UTG had 109,319 shares outstanding that were issued under this program. At December 31, 2007, shares under this program have a value of $15.49 per share pursuant to the above formula.
At December 31, 2007 and 2006, the Company had $19,914,346 and $22,990,081, respectively, of long-term debt outstanding.
At December 31, 2006, Harbor Village Partners (‘HVP”), a then 50% owned affiliate of the Company, had $8,000,000 of debt through various borrowings. In May 2007, the Company sold its interest in HVP to an outside third party. As a result of this sale, HVP is no longer a consolidated subsidiary of the Company. Further, the previous outstanding debt of HVP is no longer reflected in the financial statements of UTG, nor does UTG have any responsibility for this debt.
In January 2007, UG became a 50% owner of the newly formed RLF Lexington Properties LLC (“Lexington”). The entity was formed to hold, for investment purposes, certain investment real estate acquired. As part of the purchase price of the real estate owned by Lexington, the seller provided financing through the issuance of five promissory notes of $1,200,000 each totaling $6,000,000. The notes bear interest at the fixed rate of 5%. No payments are due under the terms of the notes until maturity of each note. The notes come due beginning on January 5, 2008, and each January 5 thereafter until 2012 when the final note is repaid.
On February 7, 2007, HPG Acquisitions (“HPG”), a 64% owned affiliate of the Company, borrowed funds from First National Bank of Midland, through execution of a $373,862 promissory note. The note is secured by real estate owned by the HPG. The note bears interest at a fixed rate of 5%. The first payment is due January 15, 2008. There will be 119 regular payments of $3,965 followed by one irregular last payment estimated at $32,424. HPG made repayments of $3,965 during 2007. At December 31, 2007, the outstanding principal balance on this debt was $369,897.
The FASB also issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R). The Statement requires that an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, the component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as current costs, and disclose additional information in the notes regarding certain effects on net periodic benefit costs for the next fiscal year. The Statement is effective for fiscal years ending after December 15, 2006. The adoption of Statement No. 158 does not currently affect the Company’s financial position or results of operations, since the Company does not have any defined benefit pension plans.
The FASB also issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -including an amendment of FASB Statement No. 115. The Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Statement is effective for fiscal years ending after November 15, 2007. The adoption of Statement No. 159 does not currently affect the Company’s financial position or results of operations.
In addition, the Company entered into stock put option agreements under which certain individuals had the opportunity to sell to UTG up to 264 shares of common stock of ACAP during the period ending December 16, 2007. The purchase price for shares under the stock put option agreements was the same as under the Agreement. All shares subject to the stock put option agreements were presented and acquired by UTG prior to their expiration.
Including the purchase of all the shares subject to the stock put option agreements, the Company has acquired 72.8% of the outstanding shares of common stock of ACAP, and the total cost of the transaction to the Company (including the loan to ACAP for the payment of ACAP indebtedness and redemption of ACAP preferred stock) was $24 million, which was paid in cash.