During 2004, the Company paid in full the remaining debt owed to two former officers and directors of the Company and their respective families as a result of an April 2001 stock purchase transaction. These notes were paid from a draw on a line of credit, which was also repaid in 2004. As of December 31, 2004, the Company has no outstanding notes payable.
The second LOC available to the Company is a $ 5,000,000 line of credit (LOC) extended from Southwest Bank of St. Louis. As collateral for any draws under the line of credit, the Company pledged 100% of the common stock of its insurance subsidiary UG. Borrowings under the LOC bear interest at the rate of 0.25% in excess of Southwest Bank of St. Louis' prime rate. At December 31, 2004, the Company had no outstanding borrowings attributable to this LOC. During 2004, the Company had total borrowings of $ 2,275,000, which were repaid during the year. In addition, during 2002 the Company had total borrowings of $ 400,000 on this LOC which were all repaid during the year.
2004 2003 2002 ---------------- ----------------- ---------------- Cost of insurance acquired, beginning of year $ 14,616,667 $ 21,311,995 $ 31,237,167 Interest accretion 4,002,245 4,370,526 4,570,678 Amortization (5,871,380) (6,065,854) (6,086,128) ---------------- ----------------- ---------------- Net amortization (1,869,135) (1,695,328) (1,515,450) Impairment loss 0 (5,000,000) 0 Revaluation adjustment from UTG/FCC merger 0 0 (8,409,722) ---------------- ----------------- ---------------- Cost of insurance acquired, end of year $ 12,747,532 $ 14,616,667 $ 21,311,995 ================ ================= ================
Acquisition costs deferred: Commissions 0 56,000 49,000 Other expenses 5,000 5,000 20,000 ---------------- ----------------- ---------------- Total
R. PARTICIPATING INSURANCE - Participating business represents 20% of the ordinary life insurance in force at December 31, 2004 and 2003, respectively. Premium income from participating business represents 22%, 23%, and 25% of total premiums for the years ended December 31, 2004, 2003 and 2002, respectively. The amount of dividends to be paid is determined annually by the respective insurance subsidiary's Board of Directors. Earnings allocable to participating policyholders are based on legal requirements that vary by state.
Until 1984, the insurance company was taxed under the provisions of the Life Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal Responsibility Act of 1982. These laws were superseded by the Deficit Reduction Act of 1984. All of these laws are based primarily upon statutory results with certain special deductions and other items available only to life insurance companies. Under the provision of the pre-1984 life insurance company income tax regulations, a portion of "gain from operations" of a life insurance company was not subject to current taxation but was accumulated, for tax purposes, in a special tax memorandum account designated as "policyholders' surplus account". Federal income taxes will become payable on this account at the then current tax rate when and if distributions to shareholders, other than stock dividends and other limited exceptions, are made in excess of the accumulated previously taxed income maintained in the "shareholders surplus account". At December 31, 2004, the balances of the shareholders' surplus account and the untaxed balance for UG were $ 27,099,356 and $ 4,363,821, respectively.
The expense or (credit) for income differed from the amounts computed by applying the applicable United States statutory rate of 35% before income taxes as a result of the following differences:
Cost or Gross Gross Proceeds Amortized Realized Realized From Year ended December 31, 2003 Cost Gains Losses Sale ------------------------------------- --------------- ------------- --------------- --------------- Scheduled principal repayments, Calls and tenders: Held for sale $ 60,702,967 $ 2,283 $ (13,872) $ 60,691,378 Held to maturity 30,923,388 0 (227) 30,923,161 Sales: Held for sale 12,863,340 0 (240,652) 12,622,688 Held to maturity 4,825,213 319,980 (2,639) 5,142,554 --------------- ------------- --------------- --------------- Total $ 109,314,908 $ 322,263 $ (257,390) $ 109,379,781 =============== ============= =============== ===============
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 $ 264,842 and $ 226,104 of dividends in 2004 and 2003, respectively.
On June 5, 2001, the Board of Directors of UTG authorized the repurchase in the open market or in privately negotiated transactions of up to $ 1 million of UTG's common stock. On June 16, 2004, an additional $ 1 million was authorized for repurchasing shares. Repurchased shares are available for future issuance for general corporate purposes. Through February 24, 2005, UTG has spent $ 1,181,691 in the acquisition of 181,316 shares under this program.
For the year ended December 31, 2004 ---------------- ----- ------------------ ---- ----------------- Income(Loss) Shares Per-Share (Numerator) (Denominator) Amount ---------------- ------------------ ----------------- Basic EPS Income available to common shareholders $ (275,619) 3,986,731 $ (.07) =================
Premiums and policy fees, net $ 4,276,861 $ 4,388,284 $ 3,725,823 $ 3,440,609 Net investment income 3,396,613 3,383,548 3,294,038 3,440,603 Total revenues 7,882,176 7,994,915 7,211,394 7,088,714 Policy benefits including dividends 4,835,106 4,609,999 5,110,590 4,930,553 Commissions and amortization of DAC and COI 688,618 578,688 501,283 532,722 Operating expenses 1,530,433 1,649,134 1,441,502 1,255,387 Operating income 755,809 1,095,700 86,789 311,445 Net income (loss) 477,034 722,679 327,499 (188,417) Basic earnings (loss) per share 0.14 0.21 0.08 (0.05) Diluted earnings (loss) per share 0.12 0.18 0.08 (0.05)