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CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Balance Sheets (continued) December 31, =================================================================== 1993 1992 ___________________________________________________________________ (expressed in thousands) LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 14,233 9,709 Notes payable to banks 69,200 32,415 Accounts payable 49,506 34,605 Accrued expenses and other current liabilities Taxes 9,327 10,343 Interest 6,476 6,412 Other 21,152 17,012 Advance billings and customer deposits 9,312 10,169 ___________________________________________________________________ Total current liabilities 179,206 120,665 ___________________________________________________________________ LONG-TERM DEBT 460,933 391,944 ___________________________________________________________________ DEFERRED CREDITS AND OTHER LIABILITIES Deferred income taxes 60,122 39,064 Deferred investment tax credits 10,431 11,833 Other 94,930 91,532 ___________________________________________________________________ Total deferred credits and other liabilities 165,483 142,429 ___________________________________________________________________ STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 100,000,000 shares, issued and outstanding 51,294,705 and 48,896,876 shares 51,295 48,897 Paid-in capital 262,294 191,522 Retained earnings 208,945 155,676 Employee Stock Ownership Plan commitment (9,220) (11,100) Preferred stock - non-redeemable 454 454 ___________________________________________________________________ Total stockholders' equity 513,768 385,449 ___________________________________________________________________ TOTAL LIABILITIES AND EQUITY $1,319,390 1,040,487 =================================================================== See accompanying notes to consolidated financial statements. |
CENTURY TELEPHONE ENTERPRISES, INC. Consolidated Statements of Cash Flows Year ended December 31, ==================================================================== 1993 1992 1991 ____________________________________________________________________ (expressed in thousands) OPERATING ACTIVITIES Net income $69,004 44,305 37,419 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 86,175 70,762 57,306 Cumulative effect of changes in accounting principles - 15,668 - Equity in income of cellular partnerships (7,592) (2,087) (984) Deferred income taxes 6,781 (1,427) (335) Gain on sales of assets (1,661) (3,985) - Changes in current assets and current liabilities: Increase in accounts receivable (7,026) (2,307) (6,440) Increase in accounts payable 11,024 11,694 4,581 Decrease in other current assets and other current liabilities, net 659 10,549 32 Other, net 9,390 3,152 1,305 ____________________________________________________________________ Net cash provided by operating activities 166,754 146,324 92,884 ____________________________________________________________________ INVESTING ACTIVITIES Acquisitions, net of cash acquired (54,916) (134,999) (4,600) Payments for property, plant and equipment (204,229) (140,057) (95,722) Investments in unconsolidated cellular partnerships (3,605) (2,161) (9,098) Proceeds from sales of assets - 5,049 - Purchase of life insurance investment (7,670) (6,160) (6,080) Other, net 3,948 7,166 (7,752) ____________________________________________________________________ Net cash used in investing activities (266,472) (271,162)(123,252) ____________________________________________________________________ FINANCING ACTIVITIES Proceeds from issuance of long-term debt 82,347 157,087 56,432 Payments of long-term debt (9,764) (44,552) (48,685) Notes payable, net 36,785 17,415 6,000 Proceeds from issuance of common stock 3,529 8,776 6,388 Cash dividends paid (15,735) (14,119) (13,388) Other, net 2,562 (1,636) 2,668 ____________________________________________________________________ Net cash provided by financing activities 99,724 122,971 9,415 ____________________________________________________________________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6 (1,867) (20,953) ____________________________________________________________________ CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,771 11,638 32,591 ____________________________________________________________________ CASH AND CASH EQUIVALENTS AT END OF YEAR $9,777 9,771 11,638 ==================================================================== See accompanying notes to consolidated financial statements. |
(2) LONG-TERM DEBT December 31, 1993 1992 ================================================================== (expressed in thousands) Century 6.0% convertible debentures, due 2007 $115,000 115,000 9.8% senior notes - 4,813 9.4% senior notes, due in installments through 2004 69,600 71,200 10.8% notes, due in installments through 2006 1,245 1,529 Notes payable to banks (at money market rates - 3.9%) 81,500 30,000 8.4% Employee Stock Ownership Plan commitment, due in installments through 2000 9,220 11,100 __________________________________________________________________ Total Century 276,565 233,642 __________________________________________________________________ Subsidiaries First mortgage debt 5.9% notes, payable to agencies of the United States government and cooperative lending associations, due in installments through 2026 158,998 126,670 7.2% bonds, due in installments through 2002 11,699 14,505 Other debt 9.0% notes, due in installments through 2020 8,633 8,334 7.6% capital lease obligations, due in installments through 1997 4,271 3,502 Notes payable to bank (at money market rates - 4.1%), due 1995 15,000 15,000 __________________________________________________________________ Total subsidiaries 198,601 168,011 __________________________________________________________________ Total long-term debt 475,166 401,653 __________________________________________________________________ Less current maturities 14,233 9,709 __________________________________________________________________ Long-term debt, excluding current maturities $460,933 391,944 ================================================================== Except for the 6% convertible debentures, each interest rate shown in the preceding table is a weighted average interest rate as of December 31, 1993. |
Total income tax expense (benefit) for the years ended December 31, 1993 and 1992 was allocated as follows: 1993 1992 ================================================================= (expressed in thousands) Income before cumulative effect of changes in accounting principles $ 37,252 32,599 Cumulative effect of changes in accounting principles - (8,272) ________________________________________________________________ Net tax expense in the consolidated statement of income 37,252 24,327 Stockholders' equity, primarily for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (800) (2,885) _________________________________________________________________ $ 36,452 21,442 ================================================================= Income tax expense attributable to income before cumulative effect of changes in accounting principles is composed of the following: Year ended December 31, 1993 1992 1991 ================================================================= (expressed in thousands) Federal Current $ 26,409 29,100 16,227 Deferred 6,133 (1,742) (335) State Current 4,062 4,926 4,178 Deferred 648 315 - _________________________________________________________________ $ 37,252 32,599 20,070 ================================================================= The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993 and 1992 were as follows: December 31, 1993 1992 ================================================================= (expressed in thousands) Deferred tax assets: Postretirement benefit cost $ 10,809 10,194 Deferred compensation 2,522 2,246 Regulatory liability 12,011 14,705 Deferred investment tax credits 3,465 3,685 Other employee benefits 3,842 2,228 Other 630 4,817 _________________________________________________________________ Total gross deferred tax assets 33,279 37,875 Less valuation allowance - - _________________________________________________________________ Net deferred tax assets 33,279 37,875 _________________________________________________________________ Deferred tax liabilities: Property, plant and equipment, primarily due to depreciation differences (84,159) (73,598) Deferred intercompany profits (3,236) (2,929) Other (6,006) (412) _________________________________________________________________ Total gross deferred tax liabilities (93,401) (76,939) _________________________________________________________________ Net deferred tax liability $ (60,122) (39,064) ================================================================= A $20,910,000 deferred tax asset and a valuation allowance of a like amount reported at December 31, 1992 have been netted during 1993 based on a refined purchase price allocation. |
The sources of these timing differences and the tax effects of each were as follows: Year ended December 31, 1991 ================================================================= (expressed in thousands) Excess tax depreciation over book depreciation $ 1,636 Employee benefits (949) Removal costs 552 Amortization of investment tax credits (2,225) Amortization of excess deferred federal income taxes (1,147) Other 1,798 _________________________________________________________________ $ (335) ================================================================= The following is a reconciliation from the statutory federal income tax rate to the Company's effective income tax rate: Year ended December 31, 1993 1992 1991 ================================================================= (expressed as a percentage of pre-tax income) Statutory federal income tax rate 35.0% 34.0 34.0 State income taxes, net of federal income tax benefit 2.9 3.7 4.8 Amortization of nondeductible excess cost of net assets acquired 1.2 2.0 1.7 Amortization of investment tax credits (2.0) (2.3) (3.9) Amortization of excess deferred federal income taxes (1.8) (2.6) (2.0) Other, net (.2) .4 .3 _________________________________________________________________ Effective income tax rate 35.1% 35.2 34.9 ================================================================= Income taxes paid by the Company were $37,092,000, $30,518,000 and $19,962,000 during 1993, 1992 and 1991, respectively. |
Stock option transactions during 1991, 1992 and 1993 were as follows: Number of Options _________________ 1990 1988 Program Program ================================================================= Balance as of December 31, 1990 836,904 1,391,007 Exercised (average option price per share: $8.85) - (239,283) _________________________________________________________________ Balance as of December 31, 1991 836,904 1,151,724 Exercised (average option price per share: $8.97) - (516,398) Granted (option price per share: $27.67) 960,639 - _________________________________________________________________ Balance as of December 31, 1992 1,797,543 635,326 Exercised (average option price per share: $20.42 and $9.32, respectively) (2,658) (48,462) _________________________________________________________________ Balance as of December 31, 1993 1,794,885 586,864 ================================================================= At December 31, 1993, 1,499,104 and 586,864 shares were issuable under exercisable options granted under the 1990 Program and the 1988 Program, respectively. |
Year ended December 31, 1993 1992 1991 ================================================================= (expressed in thousands) Telephone Operations Revenues Local service $ 88,704 78,108 58,653 Network access, long distance and other 259,781 219,402 177,143 _________________________________________________________________ 348,485 297,510 235,796 _________________________________________________________________ Expenses Cost of sales and operating expenses 168,408 139,911 111,275 Depreciation and amortization 65,175 53,927 44,482 _________________________________________________________________ 233,583 193,838 155,757 _________________________________________________________________ Operating income $ 114,902 103,672 80,039 ================================================================= Capital expenditures $ 131,180 108,974 73,913 Identifiable assets $1,027,390 843,356 616,992 ================================================================= Mobile Communications Operations Revenues Cellular $ 80,513 57,683 41,515 Paging 4,199 4,409 5,216 _________________________________________________________________ 84,712 62,092 46,731 _________________________________________________________________ Expenses Cost of sales and operating expenses 63,447 47,165 43,925 Depreciation and amortization 11,359 8,971 7,758 _________________________________________________________________ 74,806 56,136 51,683 _________________________________________________________________ Operating income (loss) $ 9,906 5,956 (4,952) _________________________________________________________________ Capital expenditures $ 56,092 10,904 12,702 Identifiable assets $240,634 148,485 116,293 ================================================================= The effect of the change in accounting principle related to accounting for postretirement benefits reduced 1992 operating income of the telephone operations and mobile communications operations by $1,773,000 and $250,000, respectively. |
Officer March 16, 1994 Senior Vice President, /s/ Harvey P. Perry Secretary, General Harvey P. Perry Counsel and Director March 16, 1994 /s/ Jim D. Reppond President - Telephone Jim D. Reppond Group and Director March 16, 1994 Signatures (Continued) /s/ W. Bruce Hanks President - Telecommunications W. Bruce Hanks Services and Director March 16, 1994 /s/ Murray H. Greer Controller (Principal Murray H. Greer Accounting Officer) March 16, 1994 /s/ William R. Boles, Jr. Director William R. Boles, Jr. March 16, 1994 /s/ Ernest Butler, Jr. Director Ernest Butler, Jr. March 16, 1994 /s/ Calvin Czeschin Director Calvin Czeschin March 16, 1994 /s/ James B. Gardner Director James B. Gardner March 16, 1994 /s/ R. L. Hargrove, Jr. Director R. L. Hargrove, Jr. March 16, 1994 /s/ Johnny Hebert Director Johnny Hebert March 16, 1994 /s/ F. Earl Hogan Director F. Earl Hogan March 16, 1994 Signatures (Continued) /s/ Tom S. Lovett Director Tom S. Lovett March 16, 1994 /s/ C. G. Melville Director C. G. Melville March 16, 1994 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) STATEMENTS OF INCOME SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) BALANCE SHEETS December 31, _____________________________________________________________________ 1993 1992 _____________________________________________________________________ (expressed in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,547 2,570 Receivables from subsidiaries 53,638 46,967 Other receivables 7,330 1,168 Prepayments and other 857 343 _____________________________________________________________________ Total current assets 67,372 51,048 _____________________________________________________________________ PROPERTY, PLANT AND EQUIPMENT Property and equipment 1,192 1,119 Accumulated depreciation (772) (681) _____________________________________________________________________ Net property, plant and equipment 420 438 _____________________________________________________________________ INVESTMENTS AND OTHER ASSETS Investments in subsidiaries (at equity) 771,062 579,579 Receivables from subsidiaries 130,568 124,215 Other investments, at cost 22,368 3,117 Deferred charges 3,788 3,920 _____________________________________________________________________ Total investments and other assets 927,786 710,831 _____________________________________________________________________ TOTAL ASSETS $995,578 762,317 ===================================================================== SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) BALANCE SHEETS (continued) December 31, ____________________________________________________________________ 1993 1992 ____________________________________________________________________ (expressed in thousands) LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 4,450 4,027 Notes payable to banks 69,000 32,000 Payables to subsidiaries 93,540 91,469 Accrued interest 5,431 5,098 Other accrued liabilities 3,656 3,500 ____________________________________________________________________ Total current liabilities 176,077 136,094 ____________________________________________________________________ LONG-TERM DEBT 272,115 229,615 ____________________________________________________________________ PAYABLES TO SUBSIDIARIES 25,696 3,919 ____________________________________________________________________ DEFERRED CREDITS AND OTHER LIABILITIES 7,922 7,240 ____________________________________________________________________ STOCKHOLDERS' EQUITY Common stock, $1.00 par value, authorized 100,000,000 shares, issued and outstanding 51,294,705 and 48,896,876 shares 51,295 48,897 Paid-in capital 262,294 191,522 Retained earnings 208,945 155,676 Employee Stock Ownership Plan commitment (9,220) (11,100) Preferred stock - non-redeemable 454 454 ____________________________________________________________________ Total stockholders' equity 513,768 385,449 ____________________________________________________________________ TOTAL LIABILITIES AND EQUITY $995,578 762,317 ==================================================================== SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) STATEMENTS OF CASH FLOWS SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) CENTURY TELEPHONE ENTERPRISES, INC. (Parent Company) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (A) LONG-TERM DEBT The approximate annual debt maturities (including sinking fund requirements) for the five years subsequent to December 31, 1993 are as follows: 1994 - $ 4,450,000 1995 - $ 55,481,000 1996 - $ 37,566,000 1997 - $ 7,014,000 1998 - $ 9,817,000 (B) GUARANTEES As of December 31, 1993, Century has guaranteed a promissory note for a subsidiary of $2,889,000, as well as the applicable interest and premium. |
Although we believe that Cohu qualifies as an “essential business” in the jurisdictions in which we operate, our business has been, and is continuing to be, adversely impacted by evolving and extended public health requirements around the world; government-mandated facility shutdowns; import/export, shipping and logistics disruptions and delays; other supply chain and distribution constraints or delays; rapid changes to business, political or regulatory conditions affecting the semiconductor equipment industry and the overall global economy; availability of employees and lost employee productivity; risks associated with, at times, temporarily housing employees in our Malaysia and Philippines factories; remote working IT and increased cybersecurity risks; increased internal control risks over financial reporting as key finance staff work remotely; delayed product development programs; customers’ canceling, pushing out orders or refusal to accept product deliveries; delayed collection of receivables; other actions of our customers, suppliers and competitors which may be sudden and inconsistent with our expectations; higher shipping and logistics costs; higher component costs; manufacturing capacity limitations; additional credit rating agency downgrades could occur which would increase our cost of raising capital; and potential additional impairment of goodwill or other intangible assets or inventory write-downs due to lower product demand may become necessary. |
For example, while our corporate headquarters are located in California, additional key engineering, sales, and administrative personnel are located in China, Germany, Japan, Malaysia, Philippines, Singapore, Switzerland, Taiwan and elsewhere in the U.S., and our manufacturing operations are primarily located in Germany, Japan, Malaysia, Philippines and the U.S. Certain aspects inherent in transacting business internationally could negatively impact our operating results, including: ● costs and difficulties in staffing and managing international operations; ● legislative or regulatory requirements and potential changes in or interpretations of requirements in the United States and in the countries in which we manufacture or sell our products; ● trade restrictions, including treaty changes, sanctions and the suspension of export licenses; ● compliance with and changes in import/export tariffs and regulations; ● complex labor laws and privacy regulations; ● difficulties in adequately supervising employees widely distributed around the world (including due to implementing remote work arrangements in response to the COVID-19 pandemic); ● difficulties in enforcing contractual and intellectual property rights; ● longer payment cycles; ● health epidemics, such as the COVID-19 pandemic; ● local and global political and economic conditions, including ongoing uncertainty surrounding the COVID-19 pandemic and its implications; ● natural disasters and geopolitical instability; ● varied environmental laws and regulations at each of our principal locations; ● complex tax laws and potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of “double taxation;” and ● fluctuations in foreign currency exchange rates against the U.S. Dollar, which can affect demand for our products and increase our costs. |
Our Credit Agreement contains various representations and negative covenants that limit, subject to certain exceptions and baskets, our ability and/or our subsidiaries’ ability to, among other things: ● incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; ● issue redeemable stock and preferred stock; ● pay cash dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock; ● enter into rate, commodity, equity or currency swap, hedging or other similar transactions; ● make loans, investments or acquisitions; ● enter into agreements that restrict distributions from our subsidiaries; ● create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to guarantee our debt, limit our or any of our subsidiaries’ ability to create liens, or that require the grant of a lien to secure an obligation if a lien is granted to secure another obligation; ● sell assets and capital stock of our subsidiaries; ● enter into certain transactions with affiliates; ● sell, transfer, license, lease or dispose of our or our subsidiaries’ assets; and ● dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us and our subsidiaries, taken as a whole, to, another person. |
Acquisitions and investments involve numerous risks, including, but not limited to: ● acquisitions may underperform and we may not achieve any forecasted growth, benefits or synergies; ● difficulties entering potentially new markets or manufacturing in new geographies where Cohu has no or limited direct prior experience; ● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses; ● increasing the scope, geographic diversity and complexity of our business; ● the cost and risk of having to potentially develop new and unfamiliar sales channels for acquired businesses; ● diversion of management’s attention from other operational matters; ● product manufacturing disruptions and delays as we potentially consolidate certain manufacturing sites; ● difficulties and significant costs in integrating the systems and processes of two companies with complex operations including multiple manufacturing sites; ● the potential loss of key employees, customers or suppliers of Cohu or acquired businesses; ● lack of synergy, or the inability to realize expected synergies, resulting from the acquisition; ● potential unknown liabilities associated with the acquired businesses; ● failure to commercialize purchased technology; ● the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results in future periods; and ● challenges caused by distance, language and cultural differences. |
Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits, the valuation allowance on deferred tax assets and accounting for the impact of the change to U.S. tax law as described herein, which impact our tax provision; ● the assessment of recoverability of long-lived and indefinite-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. (1) Financial Statements The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 46: Form 10-K Description Page Number Consolidated Balance Sheets at December 26, 2020 and December 28, 2019 Consolidated Statements of Operations for each of the three years in the period ended December 26, 2020 Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 26, 2020 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 26, 2020 Consolidated Statements of Cash Flows for each of the three years in the period ended December 26, 2020 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (2) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the notes thereto. |
San Diego, California February 26, 2021 10.9 Non-employee director fee deferral election form incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.10 Form of deferred stock agreement for shares granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.11 Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.12 Intel Corporation Purchase Agreement Capital Equipment, Goods and Services, dated April 30, 2012, by and between Delta Design, Inc. and Intel Corporation incorporated herein by reference to Exhibit 99.1 from the Cohu, Inc. Current Report on Form 8-K/A (file no. |
Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2016 10.16 Severance Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * 10.17 Severance Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * 10.18 Severance Agreement, dated September 8, 2020, between the Company and Thomas D. Kampfer incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * 10.19 Severance Agreement, dated September 8, 2020, between the Company and Luis A. Müller incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * 10.20 Change in Control Agreement, dated September 8, 2020, between the Company and Christopher G. Bohrson incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * 10.21 Change in Control Agreement, dated September 8, 2020, between the Company and Jeffrey D. Jones incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 4, 2020 * Item 16. |
Additional integration challenges and risks include: ● difficulties entering new markets or manufacturing in new geographies where Cohu has no or limited direct prior experience; ● such a new market for Cohu, the automated test equipment market, is intensely competitive with entrenched large competitors who are much larger than Cohu; ● successfully managing relationships with Cohu and Xcerra’s combined supplier and customer base; ● coordinating and integrating independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs; ● coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development; ● difficulties and significant costs in integrating the systems and processes of two companies with complex operations including multiple manufacturing sites; ● difficulties and potential loss of sales in transitioning customers from certain Xcerra products that are being discontinued and to Cohu products; ● product manufacturing disruptions and delays as we consolidate certain manufacturing sites; ● difficulties and errors that may occur in integrating disparate accounting staffs, processes and systems; ● the increased scale and complexity of Cohu’s operations resulting from the Merger; ● Cohu’s ability to achieve the targeted cost synergies within the expected time frame, and significant costs of integration and restructuring; ● retaining key employees of Cohu and Xcerra; ● obligations that Cohu will have to counterparties of Xcerra that arise as a result of the change in control of Xcerra; ● legal impediments, delays and significant costs to reduce headcounts in various geographies; ● the impact of litigation and potential liabilities we may be inheriting from Xcerra; and ● diversion of management’s attention to integration matters. |
Our Credit Agreement contains various representations and negative covenants that limit, subject to certain exceptions and baskets, our ability and/or our subsidiaries’ ability to, among other things: ● incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; ● issue redeemable stock and preferred stock; ● pay cash dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock; ● enter into rate, commodity, equity or currency swap, hedging or other similar transactions; ● make loans, investments or acquisitions; ● enter into agreements that restrict distributions from our subsidiaries; ● create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to guarantee our debt, limit our or any of our subsidiaries’ ability to create liens, or that require the grant of a lien to secure an obligation if a lien is granted to secure another obligation; ● sell assets and capital stock of our subsidiaries; ● enter into certain transactions with affiliates; ● sell, transfer, license, lease or dispose of our or our subsidiaries’ assets; and ● dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us and our subsidiaries, taken as a whole, to, another person. |
Cohu stockholders may not receive the same or any dividends in the future for various reasons, including the following: ● as a result of the Merger and the issuance of shares of Cohu Common Stock in connection with the Merger, the total amount of cash required for Cohu to pay dividends at its current rate has increased; ● Cohu’s credit agreement restricts payments of dividends under certain circumstances; ● Cohu may not have enough cash to pay such dividends due to Cohu’s operational cash requirements, capital spending plans, cash flow or financial position; ● rising interest rates, which increase Cohu’s debt service obligations; ● Cohu may desire to retain cash to maintain or improve its credit ratings; ● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses; ● given weak market conditions that began in late 2018 and continued throughout 2019, and the associated business uncertainty, we may determine to take action to preserve cash; ● Cohu may reduce or eliminate its dividend in order to pay down debt; ● decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Cohu Board, which reserves the right to change Cohu’s dividend practices at any time with no prior notice; and ● the amount of dividends that Cohu’s subsidiaries may distribute to Cohu may be subject to restrictions imposed by state or foreign law, restrictions that may be imposed by state or foreign regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur. |
Certain aspects inherent in transacting business internationally could negatively impact our operating results, including: ● costs and difficulties in staffing and managing international operations; ● legislative or regulatory requirements and potential changes in or interpretations of requirements in the United States and in the countries in which we manufacture or sell our products; ● trade restrictions, including treaty changes, sanctions and the suspension of export licenses; ● compliance with and changes in import/export tariffs and regulations; ● complex labor laws and privacy regulations; ● difficulties in enforcing contractual and intellectual property rights; ● longer payment cycles; ● health epidemics; ● local political and economic conditions; ● natural disasters, health epidemics and geopolitical instability; ● complex tax laws and potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of “double taxation;” and ● fluctuations in foreign currency exchange rates against the U.S. Dollar, which can affect demand for our products and increase our costs. |
Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits, the valuation allowance on deferred tax assets and accounting for the impact of the recent change to U.S. tax law as described herein, which impact our tax provision; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. (1) Financial Statements The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 41: Form 10-K Description Page Number Consolidated Balance Sheets at December 28, 2019 and December 29, 2018 Consolidated Statements of Operations for each of the three years in the period ended December 28, 2019 Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 28, 2019 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 28, 2019 Consolidated Statements of Cash Flows for each of the three years in the period ended December 28, 2019 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (2) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the notes thereto. |
Additional integration challenges include: ● difficulties entering new markets or manufacturing in new geographies where Cohu has no or limited direct prior experience; ● such a new market for Cohu, the automated test equipment market, is intensely competitive with entrenched large competitors who are much larger than Cohu; ● successfully managing relationships with Cohu and Xcerra’s combined supplier and customer base; ● coordinating and integrating independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs; ● coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development; ● difficulties and significant costs in integrating the systems and processes of two companies with complex operations including multiple manufacturing sites; ● difficulties and errors that may occur in integrating disparate accounting staffs, processes and systems; ● the increased scale and complexity of Cohu’s operations resulting from the Merger; ● Cohu’s ability to achieve the targeted cost synergies within the expected time frame, and significant costs of integration and restructuring; ● retaining key employees of Cohu and Xcerra; ● obligations that Cohu will have to counterparties of Xcerra that arise as a result of the change in control of Xcerra; ● legal impediments, delays and significant costs to reduce headcounts in various geographies; ● the impact of litigation and potential liabilities we may be inheriting from Xcerra; and ● diversion of management’s attention to integration matters. |
Our Credit Agreement contains various negative covenants that limit, subject to certain exceptions and baskets, our ability and/or our subsidiaries’ ability to, among other things: ● incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons; ● issue redeemable stock and preferred stock; ● pay dividends or make distributions on capital stock, repurchase, redeem or make payments on capital stock; ● make loans, investments or acquisitions; ● enter into agreements that restrict distributions from our subsidiaries; ● create or permit restrictions on the ability of our subsidiaries to pay dividends or make other distributions to us or to guarantee our debt, limit our or any of our subsidiaries’ ability to create liens, or that require the grant of a lien to secure an obligation if a lien is granted to secure another obligation; ● sell assets and capital stock of our subsidiaries; ● enter into certain transactions with affiliates; ● sell, transfer, license, lease or dispose of our or our subsidiaries’ assets; and ● dissolve, liquidate, consolidate or merge with or into, or sell substantially all the assets of us and our subsidiaries, taken as a whole, to, another person. |
Cohu stockholders may not receive the same dividends in the future for various reasons, including the following: ● as a result of the Merger and the issuance of shares of Cohu Common Stock in connection with the Merger, the total amount of cash required for Cohu to pay dividends at its current rate will increase; ● Cohu’s credit agreement restricts payments of dividends under certain circumstances; ● Cohu may not have enough cash to pay such dividends due to Cohu’s cash requirements, capital spending plans, cash flow or financial position; ● decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Cohu Board, which reserves the right to change Cohu’s dividend practices at any time; ● rising interest rates, which increase Cohu’s debt service obligations; ● Cohu may desire to retain cash to maintain or improve its credit ratings; and ● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses; ● the amount of dividends that Cohu’s subsidiaries may distribute to Cohu may be subject to restrictions imposed by state or foreign law, restrictions that may be imposed by state or foreign regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur. |
Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits , the valuation allowance on deferred tax assets and accounting for the impact of the recent change to U.S. tax law as described herein, which impact our tax provision; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. (1) Financial Statements The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 40: Form 10-K Description Page Number Consolidated Balance Sheets at December 29, 2018 and December 30, 2017 Consolidated Statements of Operations for each of the three years in the period ended December 29, 2018 Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 29, 2018 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 29, 2018 Consolidated Statements of Cash Flows for each of the three years in the period ended December 29, 2018 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (2) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the notes thereto. |
Acquisitions and investments involve numerous risks, including, but not limited to: ● difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired businesses; ● increasing the scope, geographic diversity and complexity of our business; ● the cost and risk of having to potentially develop new and unfamiliar sales channels for acquired businesses; ● diversion of management’s attention from other operational matters; ● the potential loss of key employees, customers or suppliers of Cohu or acquired businesses; ● lack of synergy, or the inability to realize expected synergies, resulting from the acquisition; ● potential unknown liabilities associated with the acquired businesses; ● failure to commercialize purchased technology; ● the impairment of acquired intangible assets and goodwill that could result in significant charges to operating results in future periods; and ● challenges caused by distance, language and cultural differences We may decide to finance future acquisitions and investments through a combination of borrowings, proceeds from equity or debt offerings and the use of cash, cash equivalents and short-term investments. |
Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits , the valuation allowance on deferred tax assets and accounting for the impact of the recent change to U.S. tax law as described herein, which impact our tax provision; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
(a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. (1) Financial Statements The following consolidated financial statements of Cohu, Inc., including the report thereon of Ernst & Young LLP, are included in this Annual Report on Form 10-K beginning on page 32: Form 10-K Description Page Number Consolidated Balance Sheets at December 30, 2017 and December 31, 2016 Consolidated Statements of Income for each of the three years in the period ended December 30, 2017 Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended December 30, 2017 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 30, 2017 Consolidated Statements of Cash Flows for each of the three years in the period ended December 30, 2017 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (2) Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the notes thereto. |
Our critical accounting estimates that we believe are the most important to investors’ understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Description 2.1 Share Purchase Agreement dated November 15, 2016 by and among Cohu, Inc. (and certain of its subsidiaries), Kita Manufacturing Co., LTD. and the Shareholders of Kita Manufacturing Co., LTD. incorporated herein by reference to Exhibit 2.1 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 10, 2017 3.1 Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference to Exhibit 3.1(a) from the Cohu, Inc. Form 10-Q filed with the Securities and Exchange Commission on July 19, 1999 3.1(a) Certificate of Amendment of Amended and Restated Certificate of Incorporation of Cohu, Inc. incorporated herein by reference from the Cohu, Inc. Form S-8 filed June 30, 2000, Exhibit 4.1(a) 3.2 Amended and Restated Bylaws of Cohu, Inc. incorporated herein by reference to Exhibit 3.2 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 12, 1996 10.1 Amended Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2015* 10.2 Amended Cohu, Inc. 1997 Employee Stock Purchase Plan, incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on May 13, 2015* 10.3 Cohu, Inc. |
Deferred Compensation Plan (as amended and restated) incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008* 10.4 Form of employee restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.5 Form of non-employee director restricted stock unit agreement for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.6 Form of non-employee director restricted stock unit deferral election form for use with restricted stock units granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.7 Non-employee director fee deferral election form incorporated herein by reference to Exhibit 10.4 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.8 Form of deferred stock agreement for shares granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.5 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.9 Form of stock option agreement for use with stock options granted pursuant to the Cohu, Inc. 2005 Equity Incentive Plan incorporated herein by reference to Exhibit 10.6 from the Cohu, Inc. Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2015* 10.10 Intel Corporation Purchase Agreement Capital Equipment, Goods and Services, dated April 30, 2012, by and between Delta Design, Inc. and Intel Corporation incorporated herein by reference to Exhibit 99.1 from the Cohu, Inc. Current Report on Form 8-K/A filed August 1, 2012 10.11 Form of Indemnity Agreement, incorporated by reference to Exhibit 10.1 from the Cohu, Inc. Current Report on Form 8-K filed July 28, 2008* 10.12 Cohu, Inc. Retiree Health Benefits Agreement (as amended) incorporated herein by reference to Exhibit 10.2 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008* 10.13 Cohu, Inc. Change in Control Agreement incorporated herein by reference to Exhibit 10.3 from the Cohu, Inc. Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2008* 10.14 Lease agreement dated December 4, 2015 by and between CT Crosthwaite I, LLC and Cohu, Inc. incorporated herein by reference to Exhibit 10.14 from the Cohu, Inc. |
Our critical accounting estimates that we believe are the most important to investors understanding of our financial results and condition and require complex management judgment include: ● revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; ● estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; ● the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; ● the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and ● the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our most critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our most critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our most critical accounting estimates that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results of operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for bad debts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities, unrecognized tax benefits and the valuation allowance on deferred tax assets, which impact our tax provision; • the assessment of recoverability of long-lived assets including goodwill and other intangible assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our most critical accounting estimates, that are more fully described in our Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K for the fiscal year ended December 27, 2008, that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results from operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for doubtful accounts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities and unrecognized tax benefits, which impact our tax provision; • the assessment of recoverability of long-lived assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Our most critical accounting estimates, that are more fully described in our Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K for the fiscal year ended December 29, 2007, that we believe are the most important to an investor’s understanding of our financial results and condition and require complex management judgment include: • revenue recognition, including the deferral of revenue on sales to customers, which impacts our results from operations; • estimation of valuation allowances and accrued liabilities, specifically product warranty, inventory reserves and allowance for doubtful accounts, which impact gross margin or operating expenses; • the recognition and measurement of current and deferred income tax assets and liabilities and unrecognized tax benefits, which impact our tax provision; • the assessment of recoverability of long-lived assets, which primarily impacts gross margin or operating expenses if we are required to record impairments of assets or accelerate their depreciation; and • the valuation and recognition of share-based compensation, which impacts gross margin, research and development expense, and selling, general and administrative expense. |
Following the change in control, several material events occurred that impacted us: •On August 5, 2020, Geoffrey M. Kolander, our President and Chief Executive Officer and a member of the Board, resigned, triggering the change in control severance provision in his employment agreement with the Company; •On the same date, Gerald W. Shields, our Vice Chairman of the Board, was appointed as the Interim Chief Executive Officer and President of the Company, to serve in such position while the Board conducted a search to find a permanent replacement for Mr. Kolander; •On August 13, 2020, the Foundation delivered an Action by Written Consent of the Foundation to the Company, purporting to remove the Company’s directors elected by the Class B Shares ("Class B directors") and add five director nominees to the Company’s Board; •The Board disputed the Foundation's action, on the basis that the Foundation did not follow the required procedures for director appointments mandated by the Company's Corporate Governance Guidelines and Nominating and Corporate Governance Committee charter; •As described in Item 3. |
Legal Proceedings, on September 2, 2020, the Foundation filed suit against the Company and its eight directors in the District Court for Arapahoe County, Colorado (the “Colorado Litigation”, •and on September 28, 2020, the Foundation and the Company entered into a mutually agreed Status Quo Stipulation, whereby the Board and its committees agreed not to direct or permit anyone on their or the Company’s behalf to take any significant action that is outside the ordinary course of business without the consent of the Foundation; •The two sole charitable beneficiaries of the Foundation, Baylor University and Southwestern Baptist Theological Seminary (the “Foundation Beneficiaries”), subsequently filed a lawsuit against the Foundation and its Chief Executive Officer / President, Michael C. Hughes (who was also one of the purported nominees submitted to the Company by the Foundation), claiming, among other things, that the Foundation’s board of trustees breached their fiduciary duties to the Foundation and misused Foundation monies for personal benefit, including the litigation against the Company in an attempt to seat themselves on the Company’s board (the “Texas Third-Party Litigation”); •The Texas Attorney General intervened on behalf of the Foundation Beneficiaries in the Texas Third-Party Litigation; and •On December 7, 2020, the Company filed counterclaims and third-party claims in the Colorado Litigation against the Foundation and two of its officers or trustees, Charles W. Hott and Michael C. Hughes alleging that Mr. Hughes and Mr. Hott, as trustees or officers of the Foundation, among other things: (i) defrauded state insurance regulators in order to seize control of the Company, (ii) breached their fiduciary duties to all of the Company’s shareholders, and (iii) violated the Colorado Consumer Protection Act (collectively, the “Counterclaims"). |
Material Actions were outlined in the Stipulation and included, among other things: (i) creating or disbanding any committee of the Board or changing the composition of any such committee; (ii) forming any subsidiary or entering into any partnership or joint venture; (iii) issuing any equity securities of the Company or any of its subsidiaries, other than as required pursuant to the Company’s Stock Investment Plan and pursuant to the vesting, settlement or exercise of equity-linked awards outstanding as of September 2, 2020; (iv) acquiring, encumbering, pledging, disposing of or otherwise transferring any assets, December 31, 2020 | 10-K 32 CITIZENS, INC. properties or rights of the Company or its controlled affiliates with a value in excess of ten percent of total assets in each case or twenty percent of assets in the aggregate (excluding any assets of the Company’s insurance subsidiaries backing reserves); (v) entering into any agreements involving a material change in the business operations of the Company; (vi) granting, providing or accelerating compensation payments or arrangements to any current or former employee, director, officer or other service provider, subject to certain exceptions; (vii) incurring, assuming, guaranteeing or otherwise becoming responsible for any debt in excess of ten percent of total liabilities (excluding contingent liabilities owed to any policyholders of insurance subsidiaries of the Company); (viii) authorizing, declaring or issuing any dividends or “poison pill” rights to the Company’s stockholders, officers, or directors; (ix) amending, modifying or repealing Board committee charters or the Company’s core governing documents; and (x) entering into any transactions involving a change in control of the Company. |
Davis, Jr., Gerald W. Shields, and Frank A. Keating II), four directors appointed by the Company's Class B common stockholders (E. Dean Gage, Robert B. Sloan, Terry S. Maness, and Constance K. Weaver (the "Class B directors:)), and one vacancy eligible to be filled by the holders of Class B common stock; and (b) restore the Company’s Amended and Restated Bylaws to the form in which they existed on August 12, 2020; •The Foundation was obligated to cooperate with the Company in such restoration of the Board and take all steps necessary or requested by the Company, including withdrawal of the Foundation Nominees who were previously submitted to the Company’s Nominating and Corporate Governance Committee for review and consideration and approval of the restoration of the four Class B directors named above; •While in possession of the Class B Shares, the Foundation was obligated to comply with certain director qualification standards and a nomination process when nominating individuals to serve on the Board, including: (a) not permitting the Foundation’s trustees or officers to serve as directors, officers, employees or agents of the Company; (b) engaging with the Company’s Nominating and Corporate Governance Committee when developing a Class B director slate or filling vacancies in the Class B directorship and (c) communicating and coordinating with the Committee in developing a slate of Class B directors; and •The Foundation would sell, and the Company would purchase, 100% of the Company’s Class B Shares from the Foundation. |
Certain requirements of the Insurance Act include: the filing of annual statutory financial returns; the filing of annual U.S. GAAP financial statements; the filing of an annual capital and solvency return; the delivery of a declaration of compliance; compliance with minimum enhanced capital requirements; compliance with the BMA’s Insurance Code of Conduct; compliance with minimum solvency margins; limitations on dividends and distributions that CICA Ltd. may make to Citizens, Inc., its parent company; preparation of an annual Financial Condition Report providing details of measures governing the business operations, corporate governance framework, solvency and financial performance; preparation of an assessment of an insurer's own risk and solvency requirements, referred to as a Commercial Insurer’s Solvency Self-Assessment; the establishment and maintenance of a head and principal office in Bermuda (with certain officers, a principal representative and a director to reside in Bermuda); appointment of an independent auditor; appointment of an actuary approved by the BMA; and compliance with restrictions on certain changes in control of regulated insurers. |
Certain requirements of the Insurance Act include: the filing of annual statutory financial returns; the filing of annual U.S. GAAP financial statements; the filing of annual capital and solvency return; the delivery of a declaration of compliance; compliance with minimum enhanced capital requirements; compliance with the BMA’s Insurance Code of Conduct; compliance with minimum solvency margins; limitations on dividends and distributions that CICA Ltd. may make to Citizens, Inc., its parent company; preparation of an annual Financial Condition Report providing details of measures governing the business operations, corporate governance framework, solvency and financial performance; preparation of an assessment of an insurer's own risk and solvency requirements, referred to as a Commercial Insurer’s Solvency Self Assessment; the establishment and maintenance of a head and principal office in Bermuda (with certain officers, a principal representative and a director to reside in Bermuda); appointment of an independent auditor; appointment of an actuary approved by the BMA; and compliance with restrictions on certain changes in control of regulated insurers. |
During 2018, management, with oversight from our principal executive officer and principal financial officer, identified and initiated the following actions that were performed by the Company to remediate the material weaknesses: • For financially relevant information technology systems, reevaluated the design and implementation of controls related to user access, privileged access, and change management processes; • Performed testing of system-generated reports that are used in the operation of business process and management review controls to provide a baseline to support reliance on change management controls going forward; • Educated process owners on designing and implementing controls over the accuracy and completeness of information captured and processed within end user computing environments such as spreadsheets; • Reevaluated the design of business process and management review controls with a focus on the precision of those controls; • Reviewed and enhanced the design of our outsourced service provider controls used to monitor processes that are performed by third party service providers. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2018, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Status of Remediation of the Material Weaknesses in Internal Control over Financial Reporting During 2017, management initiated the following remediation efforts to address the identified material weaknesses described above and to enhance our competency within certain areas of the financial control environment, though these efforts cannot be considered fully remediated until the applicable remedial controls are designed and operate for a sufficient period of time and management has concluded, through its evaluation, that the following personnel enhancements to the control environment are in place as of December 31, 2017: • Hired experienced executives in key management roles to strengthen the Company's expertise in and execution of its actuarial, accounting and operation functions, including a Chief Actuary, Chief Accounting Officer, and Director of Audit Quality Control and refocused personnel to strengthen management review controls over third party provided data; • Formed an internal control task force consisting of our Chief Financial Officer, Chief Operating Officer, and Director of Audit Quality Control to actively direct, manage and implement our control improvements and material weakness remediation plans; • Enhanced our internal control program and remediation efforts by co-sourcing our internal audit function to an experienced, nationally recognized audit firm. |
Management intends to take the following actions to further remediate deficiencies during 2018, including enhancing their ability to demonstrate the criteria and principles established in COSO 2013: • For information technology, design and implement controls related to user access, privileged access and change management processes that can operate effectively; • Perform baseline testing of system generated reports that are used in the operation of business process and management review controls; • Implement an End User Control (“EUC”) Policy, which include (i) an inventory and risk assessment of all financially relevant spreadsheets, and (ii) implementing EUC controls over the accuracy and completeness of those spreadsheets; • Reevaluate the design of business process and management review controls to determine the appropriate precision of those controls; CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES • Review and enhance the design of outsourced service provider controls used to monitor processes that are outsourced to third parties, including the precision of any monitoring, business process, information technology and management review controls; • Enhance and deliver COSO 2013 internal control awareness training for all employees; • Conduct a comprehensive risk and operational risk assessment on industry and financial risks that are relevant for the Company, our products and our geographies; and • Reevaluate the criteria established in COSO 2013 to make further enhancements to entity-level controls in order to demonstrate that our internal controls framework addresses relevant principles and components of COSO 2013. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2017, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2016, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2015, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2014, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Geoffrey M. Kolander, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2013, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2012, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2011, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2010, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Dated: March 11, 2011 /s/ Harold E. Riley /s/ Rick D. Riley Harold E. Riley, Chairman of the Board and Chief Executive Officer Rick D. Riley, Vice Chairman, President and Chief Corporate Officer /s/ E. Dean Gage /s/ Robert B. Sloan, Jr. Dr. E. Dean Gage, Director Dr. Robert B. Sloan, Jr., Director /s/ Terry S. Maness /s/ Grant G. Teaff Dr. Terry S. Maness, Director Grant G. Teaff, Director /s/ Dottie S. Riley /s/ Timothy T. Timmerman Dottie S. Riley, Director Timothy T. Timmerman, Director /s/ Steven F. Shelton Steven F. Shelton, Director EXHIBITS Exhibit Number The following exhibits are filed herewith: 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) 10.8 Self-Administered Automatic Reinsurance Agreement - CICA Life Insurance Company of America and Scor Global Life U.S. Re Insurance Company (k) 10.9 Self-Administered Automatic Reinsurance Agreement - CICA Life Insurance Company of America and Mapfre Re Compania de Reaseguros, S.A. (l) Statement re: Computation of per share earnings (see financial statements) Subsidiaries of the Registrant* Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP* Power of Attorney (m) 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* 99.1 New Release reporting fourth quarter results issued on March 10, 2011 (furnished herewith). |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2009, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Dated: March 12, 2010 /s/ Harold E. Riley /s/ Rick D. Riley Harold E. Riley, Chairman of the Board and Chief Executive Officer Rick D. Riley, Vice Chairman, Chief Corporate Officer and President /s/ Richard C. Scott /s/ Robert B. Sloan, Jr. Dr. Richard C. Scott, Director Robert B. Sloan, Jr., Director /s/ E. Dean Gage /s/ Steven F. Shelton Dr. E. Dean Gage, Director Steven F. Shelton, Director /s/ Timothy T. Timmerman /s/ Grant G. Teaff Timothy T. Timmerman, Director Grant G. Teaff, Director /s/ Dottie S. Riley Dottie S. Riley, Director EXHIBITS Exhibit Number The following exhibits are filed herewith: 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) 10.8 Self-Administered Automatic Reinsurance Agreement - CICA Life Insurance Company of America and Scor Global Life U.S. Re Insurance Company (k) 10.9 Self-Administered Automatic Reinsurance Agreement - CICA Life Insurance Company of America and Mapfre Re Compania de Reaseguros, S.A. (l) Statement re: Computation of per share earnings (see financial statements) Subsidiaries of the Registrant* Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP* Power of Attorney (m) 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* |
Premiums and claims and surrenders assumed and ceded for all lines of business for these years are summarized as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2008, 2007 and 2006 The table below shows the combined total of all of our insurance subsidiaries’ capital and surplus and net income (loss) for life insurance operations and property insurance operations, although these amounts are not all available as dividends to Citizens, Inc., because only CICA is directly owned by Citizens, Inc. All other subsidiaries are owned by CICA, except ONLIC, which is owned by Citizens, Inc. Generally, the net assets of the insurance subsidiaries available for transfer to their immediate parent are limited to the lesser of the subsidiary net gain from operations during the preceding year or 10% of the subsidiary net statutory surplus as of the end of the preceding year as determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2008, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Such changes included: • Hired a new Vice President of Accounting, with significant statutory accounting and U.S. GAAP experience; CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES • Hired a new Chief Actuary with a background in U.S. GAAP financial reporting; • 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); • Created the position of Vice President of Financial Reporting, 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; • Implemented additional layers of review at greater levels of precision over our financial statement close process; and • Strengthened our preparation and review of annual accounting and year-end disclose analysis. |
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Stockholders’ Equity and Comprehensive Income Years ended December 31, 2007, 2006 and 2005 (In thousands) (Continued) CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Stockholders’ Equity and Comprehensive Income, Continued Years ended December 31, 2007, 2006 and 2005 (In thousands) A summary of the number of shares of common stock of Class A, Class B and treasury stock issued is as follows: See accompanying notes to consolidated financial statements CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005 (In thousands) (Continued) CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Years ended December 31, 2007, 2006 and 2005 (In thousands) Supplemental disclosures of non-cash investing and financing activities: The Company recognized accretion of deferrals and discounts on its Convertible Preferred Stock amounting to $1,337,000, $1,337,000 and $1,418,000 in 2007, 2006 and 2005, respectively. |
The accounts affected and their net effect included in the beginning SAB 108 adjustment are as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 2) Investments CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 For investments of available-for-sale fixed maturities and equity securities that have unrealized losses as of December 31, 2007, the cost, gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 The largest of group fixed maturities available-for-sale in a gross unrealized loss position for more than 12 months are primarily corporate and mortgage-backed securities acquired in the acquisition of Security Plan in 2004, and under purchase GAAP accounting, have a higher cost basis than historical cost. |
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 Major categories of premiums are summarized as follows: Geographic Information The following table sets forth the Company’s total yearly earned premium from geographic area for the years indicated: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 (10) Income Taxes A reconciliation of Federal income tax expense computed by applying the Federal income tax rate of 35% in 2007 and 34% in 2006 and 2005 to income before Federal income tax expense is as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2007, 2006 and 2005 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented below: A summary of the changes in the components of deferred federal income taxes is as follows: The Company and its subsidiaries had net operating losses at December 31, 2007 available to offset future taxable income of approximately $19.3 million for Federal income tax, expiring at various times through 2027. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Geoffrey M. Kolander or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2007, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Dated: March 14, 2008 /s/ Harold E. Riley /s/ Rick D. Riley Harold E. Riley, Chairman of the Board and Chief Executive Officer Rick D. Riley, Vice Chairman, Chief Corporate Officer and President /s/ Richard C. Scott /s/ Robert B. Sloan, Jr. Dr. Richard C. Scott, Director Robert B. Sloan, Jr., Director /s/ E. Dean Gage /s/ Steven F. Shelton Dr. E. Dean Gage, Director Steven F. Shelton, Director /s/ Timothy T. Timmerman /s/ Grant G. Teaff Timothy T. Timmerman, Director Grant G. Teaff, Director /s/ Geoffrey M. Kolander Geoffrey M. Kolander, Director EXHIBITS Exhibit Number The following exhibits are filed herewith: 3.1 Restated and Amended Articles of Incorporation (a) 3.2 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. |
(g) 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) Statement re: Computation of per share earnings (see financial statements) Subsidiaries of Registrant (k) 23(a) Consent of Independent Registered Public Accounting Firm - KPMG LLP* 23(b) Consent of Independent Registered Public Accounting Firm - Ernst & Young LLP* Power of Attorney * 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. |
To that end, the laws of the various states establish insurance departments with broad powers with respect to such things as: • licensing companies to transact business; • authorizing lines of business; • mandating capital and surplus requirements; • imposing dividend limitations; CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES • regulating changes in control; • licensing agents and distributors of insurance products; • placing limitations on the minimum size 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; • regulating the content of disclosures to debtors in the credit insurance area; • mandating assessments or other surcharges for guaranty funds; • regulating market conduct and sales practices of insurers and their marketers; and • restricting contact with consumers, such as the recently created national “do not call” list, and imposing consumer protection measures. |
The accounts affected and their net effect included in the beginning SAB 108 adjustment are as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 December 31, 2005 (In thousands) CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 For investments of available-for-sale fixed maturities and equity securities that have unrealized losses as of December 31, 2006, the cost, gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows: The fixed maturities available-for-sale in a gross unrealized loss situation for more than 12 months are primarily investments in callable instruments issued by U.S. Government agencies and the current loss position primarily relates to changes in the current interest rate environment. |
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 Major categories of premiums are summarized as follows: Geographic Information The following table sets forth the Company’s total yearly earned premium by geographic area for the years indicated: (12) Income Taxes CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 A reconciliation of Federal income tax expense computed by applying the Federal income tax rate of 34% to income before Federal income tax expense is as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2006, 2005 and 2004 The Company and its subsidiaries had net operating losses at December 31, 2006 available to offset future taxable income of approximately $19.9 million for Federal income tax expiring at various times through 2026. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Mark A. Oliver or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2006, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
To that end, the laws of the various states establish insurance departments with broad powers with respect to such things as: • licensing companies to transact business; • authorizing lines of business; • mandating capital and surplus requirements; • imposing dividend limitations; • regulating changes in control; • licensing agents and distributors of insurance products; • placing limitations on the minimum size 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; • regulating the content of disclosures to debtors in the credit insurance area; • mandating assessments or other surcharges for guaranty funds; • regulating market conduct and sales practices of insurers and their marketers; and • restricting contact with consumers, such as the recently created national “do not call” list, and imposing consumer protection measures. |
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2005, 2004 and 2003 (1) Summary of Significant Accounting Policies (a) Nature of Business The 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 USA Life Insurance Company (CUSA), Citizens National Life Insurance Company (CNLIC), First Alliance Insurance Company(FAIC), KYWIDE Insurance Management, Inc. (KYWIDE), Mid-American Alliance Corporation (MAAC), Mid American Century Life Insurance Company (MACLIC), Security Alliance Insurance Company (SAIC), Security Plan Life Insurance Company (SPLIC), Security Plan Fire Insurance Company, (SPFIC), Mid-American Associates, Agency, Inc. (MAAAI), and Mid-American Alliance Insurance Agency, Inc. (MAAIA). |
(2) Investments The cost, gross unrealized gains and losses and fair value of investments of fixed maturities and equity securities available-for-sale, as of December 31, 2005 and 2004, are as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 For investments of fixed maturities and equity securities available-for-sale that have unrealized losses as of December 31, 2005, the cost, gross unrealized losses that have been in a continuous unrealized loss position for less than 12 months, gross unrealized losses that have been in a continuous unrealized loss position for 12 months or longer and fair value are as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 The fixed maturities available-for-sale in a gross unrealized loss situation for more than 12 months are primarily investments in callable instruments issued by U.S. government agencies and current loss position primarily relates to the interest rate environment. |
The following summary, representing revenues and pre-tax income from continuing operations and identifiable assets for the Company’s reportable segments as of and for the years ended December 31, 2005, 2004 and 2003, is as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 Major categories of premiums are summarized as follows: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 The following table sets forth the Company’s total yearly percentage of direct premiums by geographic area for the years indicated: (12) Income Taxes A reconciliation of Federal income tax expense computed by applying the Federal income tax rate of 34% to income before Federal income tax expense is as follows: Income tax expense (benefit) for the years ended December 31, 2005, 2004 and 2003 consists of: CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued December 31, 2005, 2004 and 2003 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented below. |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Mark A. Oliver or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2005, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Dated: March 16, 2006 /s/ Mark A. Oliver /s/ Harold E. Riley Mark A. Oliver, Director Harold E. Riley, Chairman of the Board and Director /s/ Richard C. Scott /s/ Timothy T. Timmerman Dr. Richard C. Scott, Director Timothy T. Timmerman, Director /s/ Rick D. Riley /s/ Steven F. Shelton Rick D. Riley, Director Steven F. Shelton, Director /s/ E. Dean Gage /s/ Grant G. Teaff Dr. E. Dean Gage, Director Grant G. Teaff, Director EXHIBITS Exhibit Number The following exhibits are filed herewith: 2.1 Stock Purchase Agreement between Citizens Insurance Company of American and Mayflower National Life Insurance Company dated June 17, 2004 (a) 3.1 Restated and Amended Articles of Incorporation (b) 3.2 Bylaws (c) 4.1 Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (d) 10.1 Self-Administered Automatic Reinsurance Agreement - Citizens Insurance Company of America and Riunione Adriatica di Sicurta, S.p.A. (e) 10.2 Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life Insurance Company and Citizens Insurance Company of America, as amended (f) 10.3 Plan and Agreement of Exchange between Citizens, Inc. and Combined Underwriters Life Insurance Company (g) 10.4 Plan and Agreement of Exchange between Citizens, Inc. and Lifeline Underwriters Life Insurance Company (h) 10.5 Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc. and First Alliance Corporation (i) 10.6 Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc. and Mid-American Alliance Corporation. |
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, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) a concentration of business from persons residing in third world countries; (vii) uncertainties in assimilating acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2004, 2003 and 2002 (1) Summary of Significant Accounting Policies (a) Nature of Business The consolidated financial statements include the accounts and operations of Citizens, Inc. (Citizens), incorporated in the state of Colorado on November 8, 1977 and its wholly-owned subsidiaries, Citizens Insurance Company of America (CICA), Computing Technology, Inc. (CTI), Funeral Homes of America, Inc. (FHA), Insurance Investors, Inc. (III), Citizens USA Life Insurance Company (CUSA), Citizens National Life Insurance Company (CNLIC), First Alliance Insurance Company (FAIC), KYWIDE Insurance Management, Inc. (KYWIDE), Mid-American Alliance Corporation (Mid-American), Mid American Century Life Insurance Company (MACLIC), Security Alliance Insurance Company (SAIC), Security Plan Life Insurance Company (SPLIC), Security Plan Fire Insurance Company, (SPFIC), Mid-American Associates, Agency, Inc. (MAAAI), Mid-American Alliance Insurance Agency, Inc. (MAAIA) and Industrial Benefits, Inc. (IBI). |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Rick D. Riley and Mark A. Oliver or any one of them, as his or her attorney-in-fact and agent, with full power of substitution, for him or her in any and all capacities, hereby giving and granting to said attorney-in-fact and agent full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorney-in-fact and agent may or shall lawfully do, or cause to be done, in connection with the proposed filing by Citizens, Inc., with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, of an annual report on Form 10-K for the fiscal year ended December 31, 2004, including but not limited to, such full power and authority to do the following: (i) execute and file such annual report; (ii) execute and file any amendment or amendments thereto; (iii) receive and respond to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or amendments thereto; and (iv) execute and deliver any and all certificates, instruments or other documents related to the matters enumerated above, as the attorney-in-fact in his sole discretion deems appropriate. |
Dated: March 30, 2005 /s/ Mark A. Oliver /s/ Harold E. Riley Mark A. Oliver, Director Harold E. Riley, Chairman of the Board and Director /s/ Richard C. Scott /s/ Timothy T. Timmerman Dr. Richard C. Scott, Director Timothy T. Timmerman, Director /s/ Rick D. Riley /s/ Steve Shelton Rick D. Riley, Director Steve Shelton, Director /s/ E. Dean Gage /s/ Grant G. Teaff Dr. E. Dean Gage, Director Grant G. Teaff, Director EXHIBITS Exhibit Number The following exhibits are filed herewith: 2.1 Stock Purchase Agreement between Citizens Insurance Company of American and Mayflower National Life Insurance Company dated June 17, 2004 (a) 3.1 Restated and Amended Articles of Incorporation (b) 3.2 Bylaws (c) 4.1 Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (d) 10.1 Self-Administered Automatic Reinsurance Agreement - Citizens Insurance Company of America and Riunione Adriatica di Sicurta, S.p.A. (e) 10.2 Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life Insurance Company and Citizens Insurance Company of America, as amended (f) 10.3 Plan and Agreement of Exchange between Citizens, Inc. and Combined Underwriters Life Insurance Company (g) 10.4 Plan and Agreement of Exchange between Citizens, Inc. and Lifeline Underwriters Life Insurance Company (h) 10.5 Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc. and First Alliance Corporation (i) 10.6 Plan and Agreement of Merger by and among Citizens, Inc., Citizens Acquisition, Inc. and Mid-American Alliance Corporation. |
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, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
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, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
Each individual whose signature appears below hereby designates and appoints Harold E. Riley and Mark A. Oliver, and each of them, as such person's true and lawful attorney's-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and resubstitution, for each person and in such person's name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report on Form 10-K as either Attorney-in-Fact deems appropriate and to file therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and think requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or either of them, in their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of foreign and U.S. economies in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws; (iii) inflation, interest rates, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
Each individual whose signature appears below hereby designates and appoints Harold E. Riley and Mark A. Oliver, and each of them, as such person's true and lawful attorney's-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and resubstitution, for each person and in such person's name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report on Form 10-K as either Attorney-in-Fact deems appropriate and to file therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and think requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or either of them, in their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of foreign and U.S. economies in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws; (iii) inflation, interest rates, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
Each individual whose signature appears below hereby designates and appoints Harold E. Riley and Mark A. Oliver, and each of them, as such person's true and lawful attorney's-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and resubstitution, for each person and in such person's name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report on Form 10-K as either Attorney-in-Fact deems appropriate and to file therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and think requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or either of them, in their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of foreign and U.S. economies in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies and laws; (iii) inflation, interest rates, market and monetary fluctuations and volatility; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by existing and potential customers; (v) changes in consumer spending, borrowing and saving habits; (vi) concentrations of business from persons residing in third world countries; (vii) acquisitions; (viii) the persistency of existing and future insurance policies sold by the Company and its subsidiaries; (ix) the dependence of the Company on its Chairman of the Board; (x) the 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; and (xv) the success of the Company at managing the risks involved in the foregoing. |
Each individual whose signature appears below hereby designates and appoints Harold E. Riley and Mark A. Oliver, and each of them, as such person's true and lawful attorney's-in-fact and agents (the "Attorneys-in-Fact") with full power of substitution and resubstitution, for each person and in such person's name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, which amendments may make such changes in this Annual Report on Form 10-K as either Attorney-in-Fact deems appropriate and to file therewith, with the Securities and Exchange Commission, granting unto such Attorneys-in-Fact and each of them, full power and authority to do and perform each and every act and think requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such Attorneys-in-Fact or either of them, in their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
As a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises including: ● completion of feasibility studies to verify potential reserves and commercial viability, including the ability to find sufficient gold mineral reserves to support a commercial mining operation; ● the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining and processing facilities; ● the availability and costs of drill equipment, exploration personnel, skilled labor and mining and processing equipment, if required; ● the availability and cost of appropriate smelting and/or refining arrangements, if required; ● compliance with environmental and other governmental approval and permit requirements; ● the availability of funds to finance exploration activities, as warranted; ● potential opposition from non-governmental organizations, environmental groups, local groups or local inhabitants which may delay or prevent exploration activities; ● potential increases in exploration, construction and operating costs due to changes in the cost of fuel, power, materials and supplies; and ● potential shortages of mineral processing, construction and other facilities related supplies. |
If adopted, such legislation, if it includes concepts that have been part of previous legislative proposals, could, among other things, (i) limit on the number of millsites that a claimant may use, (ii) impose time limits on the effectiveness of plans of operation that may not coincide with mine life, (iii) impose more stringent environmental compliance and reclamation requirements on activities on unpatented mining claims and millsites, (iv) establish a mechanism that would allow states, localities and Native American tribes to petition for the withdrawal of identified tracts of federal land from the operation of the General Mining Law, (v) allow for administrative determinations that mining would not be allowed in situations where undue degradation of the federal lands in question could not be prevented, (vi) impose royalties on gold and other mineral production from unpatented mining claims or impose fees on production from patented mining claims, and (vii) impose a fee on the amount of material displaced at a mine. |
The charters for the three committees are available on our website at www.usgoldcorp.gold by following the link to “Investor Relations” and then to “Corporate Governance.” Audit Committee The Audit Committee, among other things, is responsible for: ● appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor; ● reviewing the internal audit function, including its independence, plans, and budget; ● approving, in advance, audit and any permissible non-audit services performed by our independent auditor; ● reviewing our internal controls with the independent auditor, the internal auditor, and management; ● reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; ● overseeing our financial compliance system; and ● overseeing our major risk exposures regarding our accounting and financial reporting policies, the activities of our internal audit function, and information technology. |
Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee, among other things, is responsible for: ● reviewing and assessing the development of the executive officers, and considering and making recommendations to the Board regarding promotion and succession issues; ● evaluating and reporting to the Board on the performance and effectiveness of the directors, committees, and the Board as a whole; ● working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise, and experience, including diversity considerations, for the full Board and each committee; ● annually presenting to the Board a list of individuals recommended to be nominated for election to the Board; ● reviewing, evaluating, and recommending changes to our Corporate Governance Principles and committee Charters; ● recommending to the Board individuals to be elected to fill vacancies and newly created directorships; ● overseeing our compliance program, including the Code of Ethics; and ● overseeing and evaluating how our corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect our major risk exposures. |
As a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises including: ● completion of feasibility studies to verify potential reserves and commercial viability, including the ability to find sufficient gold mineral reserves to support a commercial mining operation; ● the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining and processing facilities; ● the availability and costs of drill equipment, exploration personnel, skilled labor and mining and processing equipment, if required; ● the availability and cost of appropriate smelting and/or refining arrangements, if required; ● compliance with environmental and other governmental approval and permit requirements; ● the availability of funds to finance exploration activities, as warranted; ● potential opposition from non-governmental organizations, environmental groups, local groups or local inhabitants which may delay or prevent exploration activities; ● potential increases in exploration, construction and operating costs due to changes in the cost of fuel, power, materials and supplies; and ● potential shortages of mineral processing, construction and other facilities related supplies. |