U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB-A
AMENDMENT NO. 1
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-8873
------
AMERICAN LIBERTY FINANCIAL CORPORATION
----------------------------------------------------------
(Exact name of small business as specified in its charter)
Louisiana 72-0810778
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4962 Florida Boulevard, Suite 302
Baton Rouge, Louisiana 70806-4031
----------------------------------------
(Address of Principal Executive Offices)
(504) 927-9630
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all documents and reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
(reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
As of August 10, 1995, 2,100,467 shares of Common Stock, $0.125 par value,
were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
(Unaudited) (Note)
------------- -----------------
ASSETS
Investments
Fixed maturity bonds, held-to-
maturity (fair value in 1995
$14,731,360 and $12,881,320 in
1994) $14,657,847 $14,172,110
Mortgage-backed securities,
held-to-maturity (fair value
in 1995 $153,491 and $152,355
in 1994) 160,018 167,307
Short-term investments 941,883 764,022
Policy loans 199,737 193,000
----------- -----------
TOTAL INVESTMENTS 15,959,485 15,296,439
Cash 165,792 152,132
Restricted cash-Note B 543,215 529,818
Accrued investment income 315,956 307,164
Deferred policy acquisition costs 6,830,907 6,950,147
Deferred offering costs 69,087 69,087
Property and equipment 593,447 584,560
Accounts and notes receivable 438,215 477,118
Deferred tax asset-Note C 1,839,473 1,831,268
Other assets 123,518 118,034
----------- -----------
TOTAL ASSETS $26,879,095 $26,315,767
=========== ===========
<FN>
Note: The balance sheet at December 31, 1994 has been derived from audited
financial statements at that date.
See notes to condensed consolidated financial statements.
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1995 1994
LIABILITIES (Unaudited) (Note)
------------- -----------------
Policy reserves and contract
liabilities:
Future policy benefits $14,621,433 $14,183,923
Policy claims payable 1,026,485 941,297
----------- -----------
15,647,918 15,125,220
Other policyholders' funds 745,237 812,215
Other liabilities 343,672 360,300
Federal income taxes-Note C
Current 0 0
Deferred 1,825,238 1,870,328
----------- -----------
TOTAL LIABILITIES 18,562,065 18,168,063
----------- -----------
Deferred credit-sales proceeds from
public stock offering of subsidiary 15,351 15,351
----------- -----------
Minority interest in consolidated
subsidiary 15,982 14,954
----------- -----------
STOCKHOLDERS' EQUITY
Capital shares:
Preferred Stock, 8% non-cumulative
convertible and callable, par
value $24.875, 200,000 shares
authorized, issued and outstanding
10,045 shares in 1995 and 10,525
shares in 1994. 249,869 261,809
Common Stock, par value $.125,
2,129,600 shares authorized,
issued and outstanding 2,100,467
shares in 1995 and 2,099,187 shares
in 1994. 262,558 262,398
Other stockholders equity:
Additional paid-in capital 6,029,969 6,018,187
Syndication costs on oil and gas
partnerships (80) (80)
Accumulated earnings 1,743,381 1,575,085
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,285,697 8,117,399
----------- -----------
TOTAL LIABILITIES AND
AND STOCKHOLDERS' EQUITY $26,879,095 $26,315,767
=========== ===========
<FN>
Note: The balance sheet at December 31, 1994 has been derived from audited
financial statements at that date.
See notes to condensed consolidated financial statements.
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Revenues:
Insurance revenues $ 1,915,600 $ 1,945,050 $ 3,782,371 $ 3,860,621
Net investment income 295,465 251,649 580,206 483,816
Other 57,800 44,937 128,347 93,207
----------- ----------- ----------- -----------
TOTAL REVENUE 2,268,865 2,241,636 4,490,924 4,437,644
Benefits and expenses:
Insurance benefits paid
or provided:
Increase in policy reserves 468,018 346,322 260,987 761,584
Policyholders' dividends 19,062 23,919 42,150 45,509
Policyholders' coupons 4,393 8,621 6,867 15,334
Claim and benefit expense 787,286 842,804 1,680,346 1,571,492
----------- ----------- ----------- -----------
1,278,759 1,221,666 1,990,350 2,393,919
Salaries 225,428 183,890 441,096 402,537
Underwriting and insurance
expenses 679,537 573,203 1,227,118 1,181,615
Amortization of deferred policy
acquisition costs 296,093 251,401 666,472 621,629
Equity in (gains) losses of
partnerships (60) (43) (153) (145)
----------- ----------- ----------- -----------
TOTAL BENEFITS AND EXPENSES 2,479,757 2,230,117 4,324,883 4,599,555
----------- ----------- ----------- -----------
NET GAIN (LOSS) BEFORE
INCOME TAXES (210,892) 11,519 166,041 (161,911)
Federal income tax expense-Note C (98,111) 7,338 (3,283) (49,642)
Minority interest in net income
(loss) of consolidated
subsidiary (19) (873) 1,028 (1,529)
----------- ----------- ----------- -----------
NET GAIN (LOSS) $ (112,762)$ 5,054 $ 168,296 $ (110,740)
=========== =========== =========== ===========
Net gain (loss) per share of
common stock-Note D $ (0.05)$ 0.00 $ 0.08 $ (0.05)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
during the period-Note D 2,127,186 2,127,183 2,127,186 2,127,183
=========== =========== =========== ===========
<FN>
See notes to condensed consolidated financial statements.
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
1995 1994
----------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES $ 728,566 $ 861,722
----------- -----------
Financing Activities
Proceeds of stock sale 0 2,772
----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 0 2,772
----------- -----------
Investing Activities
Sales of Investments 1,419,607 388,361
Purchases of investments (2,085,811) (1,201,790)
Purchases of property and equipment (35,305) (3,544)
Sales of property and equipment 0 1,200
----------- -----------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (701,509) (815,773)
----------- -----------
INCREASE IN CASH 27,057 48,721
Cash and restricted cash at beginning
of period 681,950 643,932
----------- -----------
CASH AND RESTRICTED CASH AT END OF PERIOD $ 709,007 $ 692,653
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
AMERICAN LIBERTY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-QSB as
specified in Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended June 30, 1995 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1995. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report of Form 10-KSB for
the year ended December 31, 1994.
NOTE B - RESTRICTED CASH
The restricted cash represents funds in escrow received from a public
offering of stock of the Company's subsidiary First American Investment
Corporation. These funds are represented by cash or cash equivalents and the
use thereof is restricted by agreement approved by the Louisiana Insurance
Department. Restricted cash increased $13,397 in 1995. This increase is
reflective of interest earned on cash received from stock sales.
NOTE C - INCOME TAXES
Deferred tax assets are those items that are expected to reduce income tax
liabilities in the future. For the Company, those items are primarily the
excess of the liability for future policy benefits over reserves determined
for tax purposes, net operating loss carryovers and alternative minimum tax
credit carryforwards. For the Company, deferred tax liabilities are mostly
caused by the balance sheet asset for deferred acquisition costs, treated as
an asset for financial accounting purposes, but currently deducted for tax
purposes. Deferred taxes are provided at the federal tax rate of 34%,
although the tax is actually paid at lower rates because of significant
special life insurance deductions available to the Company. Because of this
and the effects of the alternative minimum tax, in a given year actual income
tax payments by the Company may exceed the income tax expense shown by the
income statement. A valuation account has been established for a portion of
the deferred tax asset which may expire before being used to offset taxable
income.
NOTE D - NET INCOME PER SHARE
Net income per share of common stock is based upon the number of shares of
common stock outstanding during the year plus the assumed conversion of the
preferred stock. The weighted average number of shares assumed to be
outstanding for the six month period ended June 30, 1995 and 1994 was
2,127,186 and 2,127,183.
PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion below should be read in conjunction with the consolidated
financial statements of American Liberty Financial Corporation included in
its Annual Report on Form 10-KSB for the year ended December 31, 1994.
Plan of Operation
-----------------
The Company's principal business is life insurance, which normally provides
a positive cash flow, particularly in years subsequent to the year in which
policies are written. The Company anticipates that ongoing operations will
provide sufficient liquidity and capital resources for the Company during
1995. A review of the condensed consolidated statement of cash flows
indicates that $729,000 cash was provided by operating activities through
June 30, 1995. Writing new life insurance business depletes statutory
surplus funds in the first year, but profits from that business should be
realized in subsequent years. The Company plans on constructing or acquiring
a new funeral home in 1995 and should have sufficient cash on hand to
complete the project. During the first six months of 1995 the Company's
invested assets increased $663,000. The Company continues to invest in
investment grade bonds with varying maturity dates in order to meet the
investment return criteria established by management. Bond investments are
made so that maturities occur over a wide range of years in order to minimize
the risk of yield volatility that can occur over shorter durations of time.
Investment return is critical to a life insurance company as a large segment
of the company's earnings is provided by interest earned in excess of the
amount credited to its insurance products. The Company has no investment in
derivative instruments.
During the third quarter of 1993, the Company changed its philosophy
concerning its life insurance marketing programs. This change involved a
redirection of its marketing efforts away from the brokerage business in an
attempt to improve the Company's persistency results. The Company fully
expected that this change would initially result in a decline in insurance
sales through at least the first six months of 1994. However, by the third
quarter of 1994, it became apparent that the Company was not getting the kind
of market penetration it had expected in life insurance sales as new life
insurance sales lagged behind the previous year. Subsequently, a complete
review of the Company's life insurance products and those of its competition
was undertaken. As a result of this review, the Company has changed some of
its product line and developed new products that have been targeted for the
Company's specific market segment. In addition, a new sales director has
been hired to implement new sales activities in the states of Louisiana and
Mississippi. Marketing of the resulting new life products began in the
second quarter of 1995 and initial sales results are encouraging, but it is
still too early to tell if the Company is going to get the type of marketing
penetration desired. Life insurance revenues continued to decline through
the first six months of 1995, and if the sales program is successful, should
slowly increase during the last six months of 1995. This effort has been
both expensive and time consuming. It takes both time and money to develop
marketing concepts and products and to build a marketing organization.
Results of Operations
---------------------
The Company realized a $168,000 net profit during the first six months of
1995 compared to a $111,000 net loss for the same period in 1994. The net
loss for the three months ended June 30, 1995 was $113,000 compared to net
profit of $5,000 for the same period last year. The following discussion
focuses on the individual components of the operating results.
Insurance revenues decreased $78,000 for the first six months of 1995
compared to the same period last year. Life insurance revenues were down
$134,000 and accident and health revenues increased $56,000. Second quarter
insurance revenues decreased $29,000 compared to the same quarter of last
year. Life insurance revenues decreased $57,000 while accident and health
revenues increased $28,000 in the second quarter. As explained previously,
the Company is in the midst of changing its life insurance products and
marketing system. Insurance revenues are expected to improve during the last
six months of the year as the Company attempts to increase its own marketing
staff.
Net investment income increased $96,000 for the first six months of 1995 and
$44,000 for the second quarter of 1995. There has been a general decline in
investment yields since the first of the year. Managements anticipates that
investments yields may continue to make a series of small downward
adjustments through the balance of 1995. The increase in investment income
is attributable to an increase in the amount of invested assets.
Other revenue, principally revenue from the Company's funeral home operation,
increased $35,000 during the first six months of 1995 and $13,000 in the
second quarter of 1995.
Salaries increased $39,000 during the first half of 1995 and $42,000 for the
second quarter of 1995. These increases are attributable to normal salary
increases and additional salary costs in the marketing area.
Underwriting and insurance expenses increased $45,000 for the six months
ending June 30, 1995 and increased $106,000 for the three month period ending
June 30, 1995. The majority of the increase was caused by additional funds
spent in the new marketing effort as it is expensive to develop new products,
find, contract, train and license new sales personnel.
Amortization of deferred acquisition costs increased $45,000 during the first
half of 1995 and $45,000 during the second quarter of 1995. We believe that
this increase was caused by a small increase in policy terminations.
Policyholder claim and benefit expense was $1,680,000 in the first half of
1995 compared to $1,571,000 in the first half of 1994. This $109,000
increase was comprised of a $98,000 increase in death benefits, a $2,000
increase in accident and health benefits, a $18,000 increase in interest paid
on policy funds, and a $9,000 decrease in surrender benefits.
Policyholder reserves increased $261,000 during the first six months of 1995
compared to $762,000 in 1994. The 1995 reserve increase is comprised of a
$372,000 increase in life reserves and a $111,000 decrease in accident and
health reserves. Life insurance reserves increased $449,000 and accident and
health reserves increased $313,000 in 1994. Management believes that the
$77,000 decrease in life reserve increases between 1994 and 1995 was caused
by an increase in life insurance policy terminations combined with a lack of
new life insurance sales. The magnitude of reduction in increase in accident
and health policy reserves is truly significant as it accounts for the
$168,000 operating gain. During the first quarter of 1995 the Company
initiated a large rate increase on one of its accident and health policy
forms. The policyholders were given the option of either paying the increase
in premium or selecting a different policy coverage that would be dated as of
the current date. A large percentage of the policyholders elected the new
policy coverage rather than pay the higher premium. This resulted in the
benefit reserve being released on their old policy and the reserve on the new
policy was $0 because it was dated current. The effect of this release of
reserve is considered a nonrecurring matter.
In summary, management attributes the $168,000 net profit in the first half
of 1995 to the conversion of certain accident and health contracts. This
conversion resulted in a large amount of accident and health reserve being
released. Management has made material changes in its life insurance
products and the marketing of those life insurance products. This has
resulted in increased insurance expenses during the second quarter of 1995.
It is important to the Company's interests that this new marketing program
succeed. Future information regarding the progress of this program will be
reported to shareholders as the information becomes available.
PART II. OTHER INFORMATION
---------------------------
On December 8, 1994 the Board of Directors unanimously approved a Plan and
Agreement of Merger by and between American Liberty Financial Corporation,
American Liberty Life Insurance Company and Citizens,Inc. and Citizens
Acquisition, Inc. On December 9, 1994, Citizens announced that it had signed
definite written agreements for the acquisition of (i) American Liberty
Financial Corporation, a Baton Rouge, Louisiana based life insurance holding
company and (ii) Insurance Investors & Holding Co., an Illinois based life
insurance holding company. Under the terms of this agreement, American
Liberty Financial Corporation and its subsidiaries would become subsidiaries
of Citizens, Inc. The agreement calls for the shareholders of American
Liberty Financial Corporation to receive 1.10 shares of Citizens, Inc. Class
A Common Stock for each share of Common Stock they own and 2.926 shares of
Citizens, Inc. Class A Common Stock for each share of Preferred Stock they
own. Citizens expects to issue approximately 2.3 million Class A shares in
connection with the transaction, which will be accounted for as a purchase.
The Class A Common stock of Citizens, Inc. is traded on the American Stock
Exchange under the symbol "CIA". Consummation of the Merger Agreement is
subject to approval of the Shareholders of American Liberty Financial
Corporation. The companies will continue to operate in their respective
locations under a combined management team with consolidation of computer
data processing on the Citizens' system. A meeting of the shareholders of
American Liberty Financial Corporation has been scheduled on September 14,
1995 at the Baton Rouge Country Club, Fairway Room, Second Floor, 8551
Jefferson Highway, Baton Rouge, Louisiana to vote on the matter. The record
date for shareholders entitled to vote is July 27, 1995, and it is
anticipated that material regarding the shareholder's meeting will be mailed
to shareholders on or about August 4, 1995.
The Insurance Investors agreement provides that following the acquisition by
Citizens, Investors' shareholders will receive one share of Citizens' Class
A Common Stock for each eight shares of Investors Common Stock owned.
Additionally, Citizens will acquire all shares of Central Investors Life
Insurance Company, a subsidiary of Insurance Investors & Holding, not wholly-
owned by Insurance Investors, based upon an exchange ratio of one share of
Citizens' Class A Common Stock for each four shares of Central Investors
owned. The transaction will involve issuance of approximately 170,000 of
Citizens' Class A shares and will also be accounted for as a purchase. The
agreement is subject to approval by Investors' shareholders. The Illinois
Department of Insurance approved the transaction on March 10, 1995.
The original Plan and Agreement of Merger by and between American Liberty
Financial Corporation, American Liberty Life Insurance Company and Citizens,
Inc. and Citizens Acquisition, Inc. mandated a completion date on or before
May 9, 1995. Harold E. Riley, Chairman of Citizens, Inc. and James I.
Dunham, President of American Liberty Financial Corporation, signed an
agreement extending the completion date to October 31, 1995.
Citizens, Inc. filed a Form C-4 with the Federal Trade Commission and
Citizens was granted an early termination of the waiting period. Citizens,
Inc. filed a Form S-4 with the U.S. Securities and Exchange Commission on May
2, 1995 and they completed their review of the document on July 28, 1995. On
or about February 22, 1995, Citizens, Inc. filed a Form A with the Louisiana
Insurance Department requesting their approval of the merger by and between
American Liberty Financial Corporation, American Liberty Life Insurance
Company and Citizens, Inc. and Citizens Acquisition, Inc. The Louisiana
Insurance Department approved the merger on July 13, 1995.
The following unaudited proforma condensed balance sheet as of June 30, 1995
reflects the purchase of ALFC and II by Citizens as if they occurred on June 30,
1995. The unaudited pro forma condensed consolidated income statement for the
six months ended June 30, 1995 reflects the purchase of ALFC and II as if they
had occurred on January 1, 1995.
Management's estimate of the impact of applying purchase accounting, as if the
two acquisitions had occurred as described above, is presented below. The
unaudited pro forma financial information is not necessarily indicative either
of the results of operations that would have occurred had the acquisition been
consummated at the beginning of 1995 or of future results of operations of the
consolidated entities.
Pro-Forma Condensed Consolidated Financial Information
------------------------------------------------------
(Amounts in Thousands)
Pro-Forma Consolidated Balance Sheet
June 30, 1995
(Unaudited)
Historical Purchase
Citizens Inc Historical Historical Adjustments
and ALFC and Insurance and Pro-forma
Assets Subsidiaries Subsidiaries Investors Eliminations Consolidated
--------------- ------------ ------------ ---------- ------------ ------------
Long term
investments $91,111 $15,018 $2,193 $13 (a) $108,335
Short term
investments 9,495 942 0 0 $10,437
------------ ------------ ---------- ------------ ------------
Total investment 100,606 15,960 2,193 13 118,772
Cash 3,274 709 132 0 4,115
Other receivable 3,107 438 0 0 3,545
Accrued investment
income 1,268 316 33 0 1,617
Deferred policy
acquisition
costs 36,165 6,831 49 (6,880)(b) 36,165
Cost of insurance
acquired 2,188 0 0 5,828 (e) 8,016
Excess of cost
over net assets
acquired 3,252 0 0 8,128 (c) 11,380
Other intangible
assets 0 0 0 1,816 (d) 1,816
Deferred taxes 393 1,839 0 (980)(g) 1,252
Other assets 7,096 786 2 0 7,884
------------ ------------ ---------- ------------ ------------
Total Assets $157,349 $26,879 $2,409 $7,925 $194,562
============ ============ ========== ============ ============
Pro-Forma Condensed Consolidated Financial Information (continued)
------------------------------------------------------
(Amounts in Thousands)
Pro-Forma Consolidated Balance Sheet
June 30, 1995
(Unaudited)
Historical Purchase
Liabilities and Citizens Inc Historical Historical Adjustments
Stockholders' and ALFC and Insurance and Pro-forma
Equity Subsidiaries Subsidiaries Investors Eliminations Consolidated
--------------- ------------ ------------ ---------- ------------ ------------
Future policy
benefit reserve $106,715 $14,621 $718 $560 (f) $122,614
Other policyholder
liabilities 8,483 1,772 363 0 10,618
Other
liabilities 2,785 359 32 0 3,176
Notes payable 794 0 296 0 1,090
Deferred tax
liability 0 1,825 0 (1,825)(h) 0
Minority
interest 0 16 93 (109)(h) 0
Total ------------ ------------ ---------- ------------ ------------
liabilities 118,777 18,593 1,502 (1,374) 137,498
Class A common
stock 21,457 250 819 17,423 (h) 39,949
Class B common
stock 283 0 47 (47)(h) 283
Additional paid-in
capital 0 6,030 576 (6,606)(h) 0
Unrealized loss on
investments (744) 0 (18) 18 (h) (744)
Retained earning 19,757 1,743 (508) (1,235)(h) 19,757
------------ ------------ ---------- ------------ ------------
40,753 8,023 916 9,553 59,245
Treasury stock (2,181) 0 (9) 9 (2,181)
------------ ------------ ---------- ------------ ------------
Total stockholders'
equity 38,572 8,023 907 9,562 57,064
------------ ------------ ---------- ------------ ------------
Total liabilities
and stockholders'
equity $157,349 $26,616 $2,409 $8,188 $194,562
============ ============ ========== ============ ============
Explanation of pro-forma adjustments as of June 30, 1995:
(a) Adjustment necessary to record acquired fixed maturities at market
value.
(b) Deferred policy acquisition costs are reflected in the accompanying
pro-forma financial statements as follows:
Historical Citizens $36,165
Historical ALFC and II 6,880
------
Historical DAC 43,045
Reverse historical ALFC and II (6,880)
------
Net DAC $36,165
======
(c) Establish cost of insurance acquired. Cost of insurance acquired
represents the estimated present value of future profits in the
acquired business. This amount was calculated as the difference
between ALFC's and II's historical future policy benefit reserves
and the estimated gross premium reserve at June 30, 1995. The
gross premium reserve was estimated assuming a level interest yield
of 7%. Life mortality was based on appropriate multiples of the
1965-70 Select and Ultimate and the Ultimate Intercompany Table and
withdrawals based on Linton B and BB tables as deemed appropriate
based on individual life plan experience. Accident and health
morbidity was based on multiples of 1974 Cancer tables,
Stroke/Heart Attack Indemnity Table, 1985 NAIC Cancer Tables and
published claim costs and withdrawals based on Linton C and CC
Tables as deemed appropriate based on individual health plan
experience. Cost of insurance acquired is being amortized in
proportion to the profit over the lives of the respective policies.
Cost of insurance acquired is presented in the accompanying pro-
forma financial statements as follows:
Historical Citizens $2,188
ALFC and II cost of insurance capitalized 5,828
-----
Pro-forma cost of insurance acquired $8,016
=====
(d) Allocation of purchase price to identifiable intangible assets.
Identifiable intangible assets include state licenses and agency
force and are being amortized over 10 years.
(e) Excess of cost over net assets acquired was calculated as follows
(in thousands):
ALFC II TOTAL
---- -- -----
Acquisition of common stock $17,575 $929 $18,504
Estimated fair value of net
assets acquired (9,436) (940) (10,376)
------ --- -----
Excess of cost (purchase price)
over net assets acquired $8,139 $(11) $8,128
===== == =====
(f) Revaluation of policy benefit reserves to reflect Company reserve
assumption with regard to interest rates, lapse rates and
surrenders.
(g) Establish deferred taxes for basis differences between book and tax
value of assets and liabilities at June 30, 1995
(h) Eliminate ALFC and II capital, minority interest, and retained
earnings and record the cost of net assets acquired as increased
capital of the Company due to the issuance of additional Class A
common shares.
Pro-Forma Condensed Consolidated Statement of Operations
--------------------------------------------------------
(Amounts in Thousands)
For the Six Months Ended June 30, 1995
(Unaudited)
Historical Purchase
Citizens Inc Historical Historical Adjustments
and ALFC and Insurance and Pro-forma
Revenues: Subsidiaries Subsidiaries Investors Eliminations Consolidated
--------------- ------------ ------------ ---------- ------------ ------------
Premiums $20,611 $3,782 $14 $0 $24,407
Net investment
income 3,124 580 23 0 3,727
Other (48) 128 0 * 80
------------ ------------ ---------- ------------ ------------
Total revenues 23,687 4,490 37 0 28,214
Benefits and Expenses
Policy benefits 15,286 1,990 32 0 17,308
Commissions 5,251 0 0 5,251
Capitalization of
DAC (5,498) 0 0 (250)(a) (5,748)
Amortization of
DAC 3,871 666 3 (500)(a) 4,040
Amortization of
cost of insurance
acquired 177 0 0 278 (b) 455
Amortization
of other
intangibles 0 0 0 94 (c) 94
Amortization of
excess of cost
over net assets
acquired 93 0 0 220 (d) 313
Other expenses 2,806 1,668 34 0 4,508
------------ ------------ ---------- ------------ ------------
Total benefits
and expenses 21,986 4,324 69 (158) 26,221
------------ ------------ ---------- ------------ ------------
Income before
taxes $1,701 $166 ($32) $158 $1,993
============ ============ ========== ============ ============
Net income per share $0.10
(e)
Explanation of pro-forma statement of operations for the six month period
ended June 30, 1995:
(a) Amortization and capitalization of deferred acquisition costs are
reflected in the accompanying pro-forma statement of operations as
follows: (in thousands)
Capitalization Amortization
-------------- ------------
Historical Citizens $(5,498) $3,871
Historical ALFC and II 0 669
------- -----
Total Historical (5,498) 4,540
------- -----
Reverse Historical ALFC and II 0 (669)
Capitalization of Post-Purchase (250) 169
------- -----
Net Pro-forma adjustment (250) (500)
-------- -----
Net $(5,748) $4,040
======== ======
(b) Amortization of cost of insurance acquired is presented in the
accompanying pro-forma statement of operations as follows: (in
thousands)
Historical Citizens $177
---
Interest accrued at 7% (205)
Amortization of ALFC and II
cost of insurance 483
---
Net pro-forma adjustment 278
Pro-forma amortization $455
===
Estimated amortization of cost of insurance acquired assuming a
purchase date of January 1, 1995 is $482,000, $433,000, $390,000,
$360,000 and $336,000 for each year, respectively, in the five year
period ending December 31, 1999.
(c) Identifiable intangible assets include state licenses and agency
force and are being amortized over 10 years. Such amortization
amounted to $94,000 for the six months ended June 30, 1995.
(d) The excess of cost over net assets acquired is being amortized over
a 20 year period. Such amortization, reflected in the accompanying
pro-forma statement of operations, is $220,000.
(e) Calculated using estimated common shares outstanding of 19,433,080.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized
American Liberty Financial Corporation
--------------------------------------
Registrant
August 17, 1995 /s/ James I. Dunham
-------------------- ----------------------------
Date James I. Dunham
Chairman of the Board
Principal Executive Officer
August 17, 1995 /s/ Robert R. Nunnelley
-------------------- ----------------------------
Date Robert R. Nunnelley FLMI
Treasurer/Controller
Principal Financial Officer