1. Prevailing interest rate levels, which may affect the ability of the Company to sell its products, the market value of the company's investments and the lapse ratio of the Company's policies, notwithstanding product design features intended to enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations, which may affect the relative tax advantages of the Company's products.
The Company has considered the feasibility of a marketing opportunity with First Southern National Bank, an affiliate of UTG's largest shareholder. Management has considered various products including annuity type products, mortgage protection products and existing insurance products, as a possibility to market to all banking customers. This potential is believed to be a viable niche, but is not expected to produce significant premium writings.
Net investment income decreased 6% when comparing 2001 to 2000 and increased 9% when comparing 2000 to 1999. During 2000, the Company received $632,000 in investment earnings from a joint venture real estate development project that was in its latter stages. The earnings from this activity represent approximately 4% of the 2000 investment income.
The overall investment yields for 2001, 2000 and 1999, are 6.52%, 7.03% and 6.46%, respectively.
The Company's investments are generally managed to match related insurance and policyholder liabilities. The comparison of investment return with insurance or investment product crediting rates establishes an interest spread. The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads, ranging from 1% to 2%. It is expected that monitoring of the interest spreads by management will provide the necessary margin to adequately provide for associated costs on the insurance policies the Company currently has in force and will write in the future. At the March 2001 Board of Directors meeting, the Boards of the insurance subsidiaries lowered crediting rates one half percent on all products that could be lowered. With this latest reduction, the vast majority of the Company's rate-adjustable products are now at their guaranteed minimum rates, and as such, cannot be lowered any further. These adjustments were in response to continued declines in interest rates in the marketplace. The decrease is expected to result in approximately $500,000 in interest crediting savings annually, when fully implemented. Policy interest crediting rate changes become effective on an individual policy basis on the next policy anniversary. Therefore, it will take a full year from the time the change is determined for the full impact of such change to be realized. The guaranteed minimum crediting rates on these products range from 3% to 5.5%.
Realized investment gains, net of realized losses, were $436,280, $(260,078) and $(530,894) in 2001, 2000 and 1999, respectively.
Benefits, claims and settlement expenses net of reinsurance benefits and claims, decreased 13% in 2001 as compared to 2000 and increased 2% in 2000 as compared to 1999. The decrease in premium revenues from normal policy terminations resulted in lower benefit reserve increases in each of the periods presented compared to the previous period. Fluctuations in death claim experience from year to year typically has a significant impact on variances in this line item. Death claims were $1,636,000 less in 2001 than in 2000 and $2,574,000 greater in 2000 than in 1999. 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. At the March 1999 Board of Directors meeting, the Boards of the insurance subsidiaries lowered crediting rates one half percent on all products that could be lowered. The change resulted in interest crediting reductions of approximately $600,000 per year. In March 2001, the Boards of the insurance subsidiaries lowered crediting rates one-half percent on all rate-adjustable products that could be lowered. With this latest reduction the vast majority of the Company's rate-adjustable products have been lowered to their guaranteed minimum rates, and as such, cannot be lowered any further. The decrease is expected to result in approximately $500,000 in interest crediting savings annually, when fully implemented. These adjustments were in response to continued declines in interest rates in the marketplace. Policy interest crediting rate changes become effective on an individual policy basis on the next policy anniversary. Therefore, it will take a full year from the time the change is determined for the full impact to be realized.
Amortization of cost of insurance acquired decreased 3% in 2001 compared to 2000 and increased 10% in 2000 compared to 1999. Cost of insurance acquired is established 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. Cost of insurance acquired is comprised of individual life insurance products including whole life, interest sensitive whole life and universal life insurance products. 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 25% of the balance and 15% on the remaining balance. The interest rates vary due to risk analysis performed at the time of acquisition on the business acquired. The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. The Company did not have any charge-offs during the periods covered by this report. Amortization of cost of insurance acquired is particularly sensitive to changes in persistency of certain blocks of insurance in-force. Persistency is a measure of insurance in force retained in relation to the previous year. The Company's average persistency rate for all policies in force for 2001, 2000 and 1999 has been approximately 91.6%, 89.8% and 89.4%, respectively.
Deferred taxes are established to recognize future tax effects attributable to temporary differences between the financial statements and the tax return. As these differences are realized in the financial statement or tax return, the deferred income tax established on the difference is recognized in the financial statements as an income tax expense or credit.
The Company had a net income (loss) of $2,185,607, $(1,846,840) and $(377,957) in 2001, 2000 and 1999 respectively. Significant one time charges and accruals to operating expenses combined with an increase in death claims during 2000 were the primary differences in the 2001 to 2000 results. The Company continues to monitor and adjust those items within its control.
Investment real estate holdings represent approximately 2.9% of the total assets of the Company. Total investment real estate is separated into two categories: Commercial 73% and Residential Development 27%. During 2001, UG acquired a two-thirds interest in a parcel of commercial real estate located in New Hampshire. The property is a 20 story office building including a parking garage and a connected enclosed retail mall all totaling 326,610 square feet. The property was acquired for investment purposes and had a carrying value at December 31, 2001 of $6,491,734.
Deferred policy acquisition costs decreased 19% in 2001 compared to 2000. 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 $141,000 in policy acquisition costs deferred, $247,000 in interest accretion and $1,887,577 in amortization in 2001.
Total liabilities decreased 2% in 2001 compared to 2000. Policy liabilities and accruals, which represents approximately 94% of total liabilities decreased slightly from the prior year. The total decline is attributable to a shrinking policy base and declining new business production.
Notes payable decreased 10% in 2001 compared to 2000. During 2001, the Company repaid $1,302,495 of principal on its affiliated subordinated debt. At December 31, 2001, FCC had $11,536,698 in notes payable.
Total shareholders' equity increased 10% in 2001 compared to 2000. This increase was mainly attributable to the Company's net income of $2,185,607 and unrealized gains on investments held for sale of $701,393 also influenced total shareholders' equity.
The Company has three principal needs for cash - the insurance companies' contractual obligations to policyholders, the payment of operating expenses and the servicing of its long-term debt. Cash and cash equivalents as a percentage of total assets were 5% and 4% as of December 31, 2001 and 2000, respectively. Fixed maturities as a percentage of total invested assets were 78% and 74% as of December 31, 2001 and 2000, respectively.
A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners ("NAIC"), as modified by the insurance company's state of domicile. Statutory accounting rules are different from accounting principles generally accepted in the United States of America and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The achievement of long-term growth will require growth in the statutory capital of the Company's insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as internally generated statutory earnings or equity contributions by the Company from funds generated through debt or equity offerings.
At year-end 2001, UG had one ratio outside the normal range. The ratio is related to the decrease in premium income. The decrease was attributable to the continued business decline in new business writings combined with a decrease in renewal premiums from normal terminations of existing business. As a result, UG fell slightly outside the normal range for this ratio.
At December 31, 2001, each of the insurance subsidiaries has a Ratio that is in excess of 4, which is 400% of the authorized control level; accordingly, the insurance subsidiaries meet the RBC requirements.
Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The adoption of Statement 143 will not affect the Company's financial position or results of operations, since the Company has no such asset retirement obligations.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Commonwealth Corporation and subsidiaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
We have also audited Schedule I as of December 31, 2001, and Schedules II, IV and V as of December 31, 2001 and 2000, of First Commonwealth Corporation and subsidiaries and Schedules II, IV and V for each of the three years in the period then ended. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.
FIRST COMMONWEALTH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Years Ended December 31, 2001
Benefits, claims and settlement expenses: Life 19,857,018 23,798,002 23,301,541 Reinsurance benefits and claims (2,349,102) (3,376,091) (3,610,459) Annuity 1,244,663 1,210,783 1,390,592 Dividends to policyholders 1,015,055 1,003,954 1,170,710 Commissions and amortization of deferred policy acquisition costs 1,921,974 2,834,313 3,759,898 Amortization of cost of insurance acquired 1,151,284 1,185,307 1,072,773 Operating expenses 6,483,157 9,304,655 7,499,188 Interest expense 987,886 1,243,819 1,344,888 -------------- --------------- -------------- 30,311,935 37,204,742 35,929,131 -------------- --------------- --------------
Basic weighted average shares outstanding 54,385 54,485 54,539 ============== =============== ==============
FIRST COMMONWEALTH CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Three Years Ended December 31, 2001
Additional paid-in capital Balance, beginning of year $ 51,861,366 $ 51,875,721 $ 51,875,820 Issued during year 0 0 0 Treasury shares acquired (792) (14,355) (99) -------------- -------------- -------------- Balance, end of year $ 51,860,574 $ 51,861,366 $ 51,875,721 ============== ============== ==============
Accumulated deficit Balance, beginning of year $ (22,701,428) $ (20,854,588) $ (20,476,631) Net income(loss) 2,185,607 $ 2,185,607 (1,846,840)$ (1,846,840) (377,957) $ (377,957) -------------- -------------- -------------- Balance, end of year $ (20,515,821) $ (22,701,428) $ (20,854,588) ============== ============== ==============
Accumulated other comprehensive deficit Balance, beginning of year $ (88,038) $ (1,915,335) $ (631,344) Other comprehensive income (deficit) Unrealized holding gain (loss) on securities net of minority interest and reclassification adjustment 701,393 701,393 1,827,297 1,827,297 (1,283,991) (1,283,991) -------------- ------------- -------------- -------------- -------------- ------------- Comprehensive income (deficit) $ 2,887,000 $ (19,543) $ (1,661,948) ============= ============== ============= Balance, end of year $ 613,355 $ (88,038) $ (1,915,335) ============== ============== ==============
FIRST COMMONWEALTH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Three Years Ended December 31, 2001
Cash flows from investing activities: Proceeds from investments sold and matured: Fixed maturities held for sale matured 27,205,225 5,607,700 1,430,000 Fixed maturities matured 50,952,814 27,103,149 31,032,290 Equity securities 6,312,727 189,270 0 Mortgage loans 14,738,313 4,279,622 4,715,678 Real estate 1,894,082 4,470,385 2,705,093 Policy loans 2,912,296 2,918,627 3,169,753 Other long-term investments 0 906,278 0 Short-term 2,229,528 1,042,826 1,336,251 --------------- -------------- ------------- Total proceeds from investments sold and matured 106,244,985 46,517,857 44,389,065 Cost of investments acquired: Fixed maturities held for sale (84,801,095) (19,996,972) (31,366,755) Fixed maturities (1,124,925) (1,486,255) (2,020,803) Equity securities (4,608,649) (2,669,899) (161,255) Mortgage loans (5,325,569) (21,862,521) (9,257,836) Real estate (6,711,273) (852,331) (635,303) Policy loans (2,429,852) (2,858,415) (3,186,825) Short-term (1,124,961) (497,393) (2,500,000) --------------- -------------- ------------- Total cost of investments acquired (106,126,324) (50,223,786) (49,128,777) Purchase of property and equipment (138,388) 0 0 Sale of property and equipment 201,064 (108,346) (234,791) --------------- -------------- ------------- Net cash provided by (used in) investing activities 181,337 (3,814,275) (4,974,503) --------------- -------------- -------------
Cash flows from financing activities: Policyholder contract deposits 11,361,882 12,724,345 14,176,188 Policyholder contract withdrawals (9,342,372) (10,962,425) (11,222,814) Payments of principal on notes payable (1,302,495) (2,025,000) (2,505,800) Purchase of stock of affiliates (623,531) (69,699) (76,823) Purchase of treasury shares (800) (14,500) (100) --------------- -------------- ------------- Net cash provided by (used in) financing activities 92,684 (347,279) 370,651 --------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 1,877,267 (6,807,456) (5,985,379) Cash and cash equivalents at beginning of year 12,960,007 19,767,463 25,752,842 --------------- -------------- ------------- Cash and cash equivalents at end of year $ 14,837,274 $ 12,960,007 $ 19,767,463 =============== ============== =============
A. ORGANIZATION - At December 31, 2001, the parent and significant majority-owned subsidiaries of First Commonwealth Corporation were as depicted on the following organizational chart.
The Company's significant accounting policies, consistently applied in the preparation of the accompanying consolidated financial statements, are summarized as follows:
D. BASIS OF PRESENTATION - The financial statements of FCC and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America which differ from statutory accounting practices permitted by insurance regulatory authorities.
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 4.5% to 5.5% for the years ended December 31, 2001, 2000 and 1999, respectively.
Cost of insurance acquired, End of year $ 14,219,005 $ 15,370,289 $ 16,555,596 ================ ================= ================
Interest Net Accretion Amortization Amortization --------- ------------ ------------ 2002 $ 1,243,000 $ 2,202,000 $ 959,000 2003 1,176,000 2,001,000 825,000 2004 1,092,000 1,774,000 682,000 2005 1,033,000 1,630,000 597,000 2006 980,000 1,505,000 525,000
Acquisition costs deferred: Commissions 108,000 184,000 566,000 Other expenses 33,000 89,000 154,000 ----------------- ----------------- ----------------- Total 141,000 273,000 720,000
Interest accretion 247,000 328,000 436,000 Amortization charged to income (1,887,577) (2,525,040) (3,219,012) ----------------- ----------------- ----------------- Net amortization (1,640,577) (2,197,040) (2,783,012) ----------------- ----------------- ----------------- Change for the year (1,499,577) (1,924,040) (2,063,012) ----------------- ----------------- -----------------
2001 2000 1999 ---------- ---------- ---------- Net amortization of deferred policy acquisition costs $ 1,640,577 $ 2,197,040 $ 2,783,012 Commissions 281,397 637,273 976,886 ---------- ---------- ---------- Total $ 1,921,974 $ 2,831,313 $ 3,759,898 ========== ========== ==========
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, 2001, UG had a statutory gain from operations of $2,212,215. At December 31, 2001, UG's statutory capital and surplus amounted to $16,105,265. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation.
The following table summarizes the companies with this situation and the maximum amount of income, which has not been taxed in each.
Shareholders' Untaxed Company Surplus Balance ---------------------- ----------------- -------------- ABE $ 5,457,880 $ 1,149,693 APPL 7,098,824 1,525,367 UG 28,897,113 4,363,821
UG FCC ------------- --------------- 2019 $ 1,165,779 $ 0 2020 0 525,451 ------------- --------------- TOTAL $ 1,165,779 $ 525,451 ============= ===============
The Company has established a deferred tax asset of $591,931 for its operating loss carryforwards and has established an allowance of $183,908. UG must average approximately $65,000 of taxable income per year to fully realize the net operating loss carryforward for which no allowance is established. Management believes future earnings of UG will be sufficient to fully utilize this net operating loss carryforward. FCC must average approximately $28,000 of taxable income to fully realize its net operating loss carryforwards. FCC's operating loss carryforward does not expire until the year 2020. Management has established an allowance of $183,908 for FCC's loss carryforwards. The total allowances established on deferred tax assets decreased $195,518 in 2001.
The provision or (credit) for income taxes differed from the amounts computed by applying the applicable United States statutory rate of 35% before taxes as a result of the following differences:
2001 2000 ---------------- --------------- Investments $ 23,896 $ (403,535) Deferred policy acquisition costs 2,223,872 2,748,724 Cost of insurance acquired 4,976,652 5,379,601 Agent balances 0 (6,239) Property and equipment (61,250) (68,250) Due premiums (741,968) (864,195) Future policy benefits (3,587,365) (4,369,310) Net operating loss carryforward (408,023) (716,175) Other liabilities (646,605) (1,185,691) Federal tax DAC (1,506,765) (1,663,475) ---------------- --------------- Deferred tax liability (asset) $ 272,444 $ (1,148,545) ================ ===============
At December 31, 2001, the Company had a total of $200,000 in investment real estate which did not produce income during 2001.
Cost or Gross Gross Estimated Amortized Unrealized Unrealized Market 2001 Cost Gains Losses Value ------------------------------------- -------------- -------------- -------------- --------------- Investments held for sale: U.S. Government and govt. Agencies and authorities $ 35,240,384 $ 942,455 $ 0 $ 36,182,839 States, municipalities and Political subdivisions 192,059 10,197 0 202,256 Collateralized mortgage Obligations 53,777,577 447,019 (220,973) 54,003,623 All other corporate bonds 8,374,074 321 (134,673) 8,239,722 -------------- -------------- -------------- --------------- 97,584,094 1,399,992 (355,646) 98,628,440 Equity securities 2,903,268 953,448 (4,000) 3,852,716 -------------- -------------- -------------- --------------- Total $ 100,487,362 $ 2,353,440 $ (359,646) $ 102,481,156 ============== ============== ============== ===============
Estimated Fixed Maturities Held to Maturity Amortized Market December 31, 2001 Cost Value --------------------------------------------- -------------- -------------- Due in one year or less $ 15,196,020 $ 15,398,291 Due after one year through five years 52,768,493 55,169,490 Due after five years through ten years 3,315,143 3,509,525 Due after ten years 3,597,268 3,514,813 Collateralized mortgage obligations 128,471 133,291 -------------- -------------- Total $ 75,005,395 $ 77,725,410 ============== ==============
Cost or Gross Gross Proceeds Amortized Realized Realized From Year ended December 31, 2000 Cost Gains Losses Sale ------------------------------------- --------------- ------------- --------------- --------------- Scheduled principal repayments, calls and tenders: Held for sale $ 5,611,476 $ 71 $ (3,847) $ 5,607,700 Held to maturity 27,047,819 59,463 (4,133) 27,103,149 Sales: Held for sale 0 0 0 0 Held to maturity 0 0 0 0 --------------- ------------- --------------- --------------- Total $ 32,659,295 $ 59,534 $ (7,980) $ 32,710,849 =============== ============= =============== ===============
The Company's reinsured business is ceded to numerous reinsurers. The Company believes the assuming companies are able to honor all contractual commitments, based on the Company's periodic reviews of their financial statements, insurance industry reports and reports filed with state insurance departments.
On November 20, 1998, FSF and affiliates acquired 929,904 shares of common stock of UTG from UTG and certain UTG shareholders. As consideration for the shares, FSF paid UTG $10,999,995 and certain shareholders of UTG $999,990 in cash. Included in the stock acquisition agreement is an earnings covenant whereby UTG warrants UTG and its subsidiaries and affiliates will have future earnings of at least $30,000,000 for a five-year period beginning January 1, 1998. Such earnings are computed based on statutory results excluding inter-company activities such as inter-company dividends plus realized and unrealized gains and losses on real estate, mortgage loans and unaffiliated common stocks. At the end of the covenant period, an adjustment is to be made equal to the difference between the then market value and statutory carrying value of real estate still owned that existed at the beginning of the covenant period. Should UTG not meet the covenant requirements, any shortfall will first be reduced by the actual average tax rate for UTG for the period, then will be further reduced by one-half of the percentage, if any, representing UTG's ownership percentage of the insurance company subsidiaries. This result will then be reduced by $250,000. The remaining amount will be paid by UTG in the form of UTG common stock valued at $15.00 per share with a maximum number of shares to be issued of 500,000. However, there shall be no limit to the number of shares transferred to the extent that there are legal fees, settlements, damage payments or other losses as a result of certain legal action taken. The price and number of shares shall be adjusted for any applicable stock splits, stock dividends or other recapitalizations. At December 31, 2001, the Company had total earnings of $14,505,204 applicable to this covenant. With one year remaining on the covenant, it appears highly unlikely UTG will meet the earnings requirements, resulting in UTG being required to issue additional shares to FSF or its assigns. Combining current results with management's expectation for 2002, it appears at this time UTG will be required to issue 500,000 shares at December 31, 2002 to satisfy this covenant.
On September 18, 2001, the case was dismissed without prejudice because Morlan lacked standing to pursue the claims against defendants. The plaintiffs have appealed the dismissal of the case to the United States Court of Appeals for the Seventh Circuit.
In addition to the appeal, a second action was filed entitled; Julie Barrette Ahrens, David Dzuiban, William Milam, David Schneiderman, individually and on behalf of all others similarly situated vs Universal Guaranty Life, United Trust Assurance Company, United Security Assurance Company. United States District Court for the Southern District of Illinois. Case No: 01-4314-JPG.
At a December 17, 2001 joint meeting of the board of directors of UTG, FCC and their insurance subsidiaries, the boards of directors of the insurance subsidiaries discussed and decided to further explore and pursue a possible sale of the insurance charters of each of APPL and ABE. In the alternative to a sale of the APPL charter, the boards also discussed and decided to further explore a possible merger of APPL into UG. Regardless of whether a merger is ultimately pursued or the charters of each subsidiary are sold, UG would likely assume and reinsure the existing insurance policies of those subsidiaries in any such transaction.
On January 1, 1993, FCC entered an agreement with UG pursuant to which FCC provides management services necessary for UG to carry on its business. UG paid $6,156,903, $6,061,515 and $6,251,340 to FCC in 2001, 2000 and 1999, respectively.
ABE pays fees to FCC pursuant to a cost sharing and management fee agreement. FCC provides management services for ABE to carry on its business. The agreement requires ABE to pay a percentage of the actual expenses incurred by FCC based on certain activity indicators of ABE business to the business of all the insurance company subsidiaries plus a management fee based on a percentage of the actual expenses allocated to ABE. ABE paid fees of $332,673, $371,211 and $392,005 in 2001, 2000 and 1999, respectively under this agreement.
All affiliated notes payable of FCC are due to its parent, UTG.
In November 1997, FCC borrowed $1,000,000 to facilitate the prepayment of a May 1998 principal payment due on existing senior debt. The note bears interest at the rate of 1% over the prime rate of interest as published in the Wall Street Journal, with interest payments due quarterly and principal due upon maturity of the note on November 8, 2006. During fiscal year 2000, the Company retired $500,000 of principal on this note. No principal payments were made on this note during fiscal year 2001.
Year Amount ----------------------- --------------------- 2002 $ 0 2003 0 2004 0 2005 2,608,099 2006 6,800,000
On a cash basis, the Company paid $944,392, $1,264,784 and $1,353,653 in interest expense for the years 2001, 2000 and 1999, respectively. The Company paid $1,370, $(200,000) and $516,200 in federal income tax for the years 2001, 2000 and 1999, respectively.
Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. This change provides investors with greater transparency regarding the economic value of goodwill and its impact on earnings. The amortization of goodwill ceased for the Company upon the adoption of the statement at January 1, 2002. The adoption of Statement 142 will result in an expense reduction of approximately $403,664 per year, subject to any impairment write-down that might arise from a management review.
On June 5, 2001, the board of directors of APPL, a West Virginia corporation and then 88% owned indirect subsidiary of FCC, approved, subject to shareholder and any required regulatory approvals, a reverse split of the common stock of APPL. Under the terms of the reverse stock split, any shareholder of APPL who owns less than 118,700 shares prior to the effective time of the reverse split would receive a cash payment based upon $6.50 per share (pre-reverse stock split) of APPL, and APPL would become a wholly owned subsidiary of UG, a wholly owned subsidiary of FCC.
Tax Before-Tax (Expense) Net of Tax 1999 Amount or Benefit Amount ---------------------------------------------- ----------------- ------------------ ----------------
Less: reclassification adjustment for losses realized in net income 0 0 0 ----------------- ------------------ ---------------- Net unrealized losses (1,283,991) 0 (1,283,991) ----------------- ------------------ ---------------- Other comprehensive deficit $ (1,283,991) $ 0 $ (1,283,991) ================= ================== ================
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) --------------------- ---------------------- --------------------- ---------------------- 1st 2nd 3rd 4th ----------------- ----------------- ---------------- ---------------- Premium and policy fees, net $ 4,554,451 4,768,808 4,137,361 3,811,796 Net investment income 3,966,217 3,886,349 3,557,158 3,533,178 Total revenues 8,318,267 8,914,604 7,920,861 8,448,724 Policy benefits including dividends 4,979,508 5,265,348 4,651,241 4,871,537 Commissions and amortization of DAC and COI 958,938 726,159 580,251 807,910 Operating expenses 1,342,077 1,587,138 1,499,503 2,054,439 Operating income (loss) 759,150 1,078,061 641,733 811,577 Net income (loss) 283,406 934,585 280,695 686,921 Basic earnings (loss) per share 5.21 17.18 5.16 12.63 --------------------- ---------------------- --------------------- ---------------------- 1st 2nd 3rd 4th ----------------- ----------------- ---------------- ---------------- Premium and policy fees, net $ 5,337,148 5,201,585 4,470,307 4,480,646 Net investment income 4,224,386 3,939,681 3,867,571 3,837,959 Total revenues 9,818,600 9,186,532 8,349,765 7,877,151 Policy benefits including dividends 6,201,943 5,580,580 5,206,574 5,647,551 Commissions and amortization of DAC and COI 1,239,870 876,936 649,180 1,253,634 Operating expenses 2,685,721 1,614,768 2,026,587 2,977,579 Operating income (loss) (638,936) 797,831 167,537 (2,299,126) Net income (loss) (371,009) 561,121 (16,814) (2,020,138) Basic earnings (loss) per share (6.80) 10.29 (0.31) (37.08)
--------------------- ---------------------- --------------------- ---------------------- 1st 2nd 3rd 4th ----------------- ----------------- ---------------- ---------------- Premiums and policy fees, net $ 6,007,511 5,705,270 5,337,120 4,531,242 Net investment income 3,633,479 3,592,440 3,615,934 3,656,647 Total revenues 9,686,009 9,029,285 8,936,918 8,106,959 Policy benefits including dividends 6,193,473 5,970,833 5,107,765 4,980,313 Commissions and amortization of DAC and COI 1,376,551 1,064,328 1,063,435 1,328,357 Operating expenses 2,039,613 1,837,828 1,784,267 1,837,480 Operating income (loss) (280,350) (168,450) 652,209 (373,369) Net income (loss) (148,594) (355,116) 670,460 (544,707) Basic earnings (loss) per share (2.72) (6.51) 12.29 (9.99)