UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A-1
(Mark
One)
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2007
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or
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[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from _____________ to
______________
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Commission
File Number 0-16867
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UTG,
INC.
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(Exact
name of registrant as specified in its charter)
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Delaware
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20-2907892
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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5250
South Sixth Street, Springfield, IL
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62703
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(Address
of principal executive offices)
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(Zip
code)
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Registrant's
telephone number, including area code: (217) 241-6300
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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None
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None
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Securities
registered pursuant to Section 12(g) of the Act:
Title of each
class
Common
Stock, stated value $.001 per share
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10- K. [ ]
Indicate
by check mark whether the registrant is large accelerated filer, a
non-accelerated filer, or a small company, as defined by Rule 12b-2 of the
Exchange Act.
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Large
Accelerated Filer
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[ ]
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Accelerated
Filer
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[ ]
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Non
Accelerated Filer
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[ ]
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Smaller
Reporting Company
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[X]
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Indicate
by check mark whether the registrant is a shell company, as defined by Rule
12b-2 of the act.
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Yes
[ ]
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No
[X]
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As of
June 30, 2007, shares of the Registrant’s common stock held by non-affiliates
(based upon the price of the last sale of $8.25 per share), had an aggregate
market value of approximately $9,326,411.
At March
1, 2008 the Registrant had 3,847,550 outstanding shares of Common Stock, stated
value $.001 per share.
Documents
incorporated by reference: None
UTG, INC.
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FORM
10-K/A-1
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YEAR
ENDED DECEMBER 31, 2007
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This
document is intended to amend certain information contained in the original Form
10K filing as of December 31, 2007 of the Company. The items amended
are outlined below.
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TABLE
OF CONTENTS
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PART
II
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ITEM
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Financial
Condition (a) Assets
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Independent
Auditors Consent
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ITEM
8. Financial Statements and Supplementary Data
Note
1. Organization and Summary of Significant Accounting Policies
A. Organization
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ITEM
8. Financial Statements and Supplementary Data
Note
3. Income Taxes
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PART
IV
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ITEM
15. Exhibits, Financial Statements Schedules and Reports on
Form 8-K
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Exhibit
31.1
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Exhibit
31.2
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CONSENT
OF BROWN SMITH WALLACE LLC
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
As
independent registered public accountants, we hereby consent to the
incorporation of our report dated March 25, 2008, except with respect to the
matters discussed in Note 1 and Note 3, as to which the date is September 22,
2008, on the consolidated financial statements of UTG, Inc. (a Delaware
corporation) and subsidiaries as of December 31, 2007 and 2006, and for
each of the three years ended December 31, 2007, 2006, and 2005, included
in this Annual Report on Form 10-K/A-1.
/s/ Brown
Smith Wallace, LLC
St.
Louis, Missouri
September
22, 2008
This amendment is intended
to replace in its entirety section (a) Assets under Financial Condition of Item
7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial
Condition
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(a)
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Assets
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Investments
are the largest asset group of the Company. The Company's insurance
subsidiaries are regulated by insurance statutes and regulations as to the type
of investments they are permitted to make, and the amount of funds that may be
used for any one type of investment. In light of these statutes and
regulations, and the Company's business and investment strategy, the Company
generally seeks to invest in United States government and government agency
securities and other high quality low risk investments. Some
insurance companies have suffered significant losses in their investment
portfolios in the last few years; however, because of the Company’s conservative
investment philosophy the Company has avoided such significant
losses.
At
December 31, 2007, the carrying value of fixed maturity securities in
default as to principal or interest was immaterial in the context of
consolidated assets, shareholders' equity or results of
operations. The Company has identified securities it may sell and
classified them as "investments held for sale". Investments held for
sale are carried at market, with changes in market value charged directly to
shareholders' equity. To provide additional flexibility and liquidity, the
Company has categorized almost all fixed maturity investments acquired in recent
periods as available for sale.
At
December 31, 2007, the Company held fixed maturity securities with a carrying
value of $1,548,049 that were guaranteed by four different third
parties. The Standard and Poor’s credit ratings ranged from AAA to
AA- with and without the guarantees. The Company had no significant
concentration in a guarantor either directly or indirectly as of December 31,
2007.
The
following table summarizes the Company's fixed maturities distribution at
December 31, 2007 and 2006 by ratings category as issued by Standard and
Poor's, a leading ratings analyst.
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Fixed Maturities
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Rating
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%
of Portfolio
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2007
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2006
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Investment
Grade
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AAA
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72%
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70%
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AA
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8%
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4%
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A
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13%
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18%
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BBB
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7%
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6%
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Below
investment grade
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0%
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2%
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100%
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100%
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Mortgage
loan investments represent 10% and 7% of total assets of the Company at year-end
2007 and 2006, respectively. The Company’s mortgage loan investments
result from opportunities available through FSNB, an affiliate of Mr. Jesse T.
Correll. Mr. Correll is the CEO and Chairman of the Board of
Directors of UTG, and directly and indirectly through affiliates, its largest
shareholder. FSNB has been able to provide the Company with
additional expertise and experience in underwriting commercial and residential
mortgage loans, which provide more attractive yields than the traditional bond
market. During 2007, 2006 and 2005 the Company issued
approximately $19,765,000, $5,359,000 and $24,576,000 respectively, in new
mortgage loans. These new loans were originated through FSNB and
funded by the Company through participation agreements with
FSNB. FSNB services all of the Company’s mortgage loans including the
loans covered by these participation agreements. The Company pays
FSNB a .25% servicing fee on these loans and a one-time fee at loan origination
of .50% of the original loan amount to cover costs incurred by FSNB relating to
the processing and establishment of the loan. UG paid $85,612,
$93,288 and $76,970 in servicing fees and $54,281, $23,214 and $112,109 in
origination fees to FSNB during 2007, 2006 and 2005,
respectively. The Company anticipates these opportunities to continue
to be available and will pursue those investments that provide attractive
yields.
Sub-prime
mortgage lending has received significant attention in recent
months. Default rates have risen sharply on these loans causing a
negative impact in the economy in general. While the Company does not
have a material direct exposure to sub-prime mortgage loans, the Company could
still be negatively impacted indirectly through fixed maturity holdings and
stock holdings in financial institutions that do have sub-prime loan
exposures. Declines in values relating to such entities will
negatively impact the Company through unrealized investment losses, should any
of these entities declare bankruptcy, the Company would then report a realized
loss on its investment. Management monitors events relating to this
topic. We believe while we may have indirect exposures, the risk of
significant loss is very low for the Company.
Total
investment real estate holdings represent approximately 8% and 9% of the total
assets of the Company, net of accumulated depreciation, at year-end 2007 and
2006 respectively. The Company has made several investments in real
estate in recent years. Expected returns on these investments exceed
those available in fixed income securities. However, these returns
may not always be as steady or predictable.
Cash and
cash equivalents increased approximately $9,274,000 comparing 2007 to
2006. The increase can be attributed to the sale of real estate held
by Boone Parklands, LLC in December of 2007 resulting in proceeds of
approximately $15,750,000. The Company realized a gain of
approximately $3,800,000 on the sale. This investment was acquired in
April 2007.
Equity
securities increased approximately $16,373,000 during 2007. The
increase is attributable to UG and AC purchasing financial institution and oil
and gas investments that Management believes will provide the Company with
favorable long term returns.
Policy
loans remained consistent for the periods presented. Industry
experience for policy loans indicates that few policy loans are ever repaid by
the policyholder other than through termination of the policy. Policy
loans are systematically reviewed to ensure that no individual policy loan
exceeds the underlying cash value of the policy.
Deferred
policy acquisition costs decreased 15% in 2007 compared to
2006. Deferred policy acquisition costs, which vary with, and are
primarily related to producing new business, are referred to as
DAC. DAC consists primarily of commissions and certain costs of
policy issuance and underwriting, net of fees charged to the policy in excess of
ultimate fees charged. To the extent these costs are recoverable from
future profits, the Company defers these costs and amortizes them with interest
in relation to the present value of expected gross profits from the contracts,
discounted using the interest rate credited by the policy. The
Company had $0 in policy acquisition costs deferred, $9,000 in interest
accretion and $188,360 in amortization in 2007, and had $0 in policy acquisition
costs deferred, $7,000 in interest accretion and $232,476 in amortization in
2006.
Cost of
insurance acquired decreased $4,471,138 in 2007 compared to
2006. When an insurance company is acquired, the Company assigns a
portion of its cost to the right to receive future cash flows from insurance
contracts existing at the date of the acquisition. The cost of
policies purchased represents the actuarially determined present value of the
projected future cash flows from the acquired policies. Cost of
insurance acquired is amortized with interest in relation to expected future
profits, including direct charge-offs for any excess of the unamortized asset
over the projected future profits. In 2007 and 2006, amortization
decreased the asset by $4,282,715 and $2,850,725, respectively. No
impairments of this asset were recorded for the periods presented.
This amendment is intended
to replace in its entirety section A. Organization of Note 1.
Organization and Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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1.
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ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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A.
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ORGANIZATION
- At December 31, 2007, the significant majority-owned subsidiaries
of UTG, Inc were as depicted on the following organizational
chart.
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This amendment is intended
to replace in its entirety Note 3. Income Taxes of the Notes to Consolidated
Financial Statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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3.
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INCOME
TAXES
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Until
1984, insurance companies were taxed under the provisions of the Life Insurance
Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal
Responsibility Act of 1982. These laws were superseded by the Deficit
Reduction Act of 1984. All of these laws are based primarily upon
statutory results with certain special deductions and other items available only
to life insurance companies. Under the provision of the pre-1984 life
insurance company income tax regulations, a portion of “gain from operations” of
a life insurance company was not subject to current taxation but was
accumulated, for tax purposes, in a special tax memorandum account designated as
“policyholders’ surplus account”. Federal income taxes will become
payable on this account at the then current tax rate when and if distributions
to shareholders, other than stock dividends and other limited exceptions, are
made in excess of the accumulated previously taxed income maintained in the
“shareholders surplus account”. As part of the American Jobs
Creation Act of 2004, Congress authorized a limited opportunity for life
insurance companies to recognize the balance in the “policyholders’ surplus
account” and not pay any federal income tax. This window of
opportunity expired December 31, 2006. During 2006, each of the
insurance subsidiaries took advantage of this opportunity. As of
December 31, 2006, none of the insurance subsidiaries had a balance remaining in
the “policyholders’ surplus account”.
The
valuation allowance against deferred taxes is a sensitive accounting
estimate. The Company follows Statement of Financial Accounting
Standards (SFAS) No. 109, “Accounting for Income Taxes,” which prescribes the
liability method of accounting for deferred income taxes. Under the
liability method, companies establish a deferred tax liability or asset for the
future tax effects of temporary differences between book and tax basis of assets
and liabilities.
At
December 31, 2007 and 2006, respectively, the Company had gross deferred tax
assets of $2,818,386 and $3,703,704 net of valuation allowances of $404,872 and
$0, and gross deferred tax liabilities of $19,320,421 and
$20,183,772, resulting from temporary differences primarily related to the
life insurance subsidiaries. The valuation allowance in the current
period was from ACAP and its consolidated subsidiaries that for tax purposes
generated a net operating loss during 2007 of $1,156,777. The Company
established a deferred tax asset of $404,872 relating to this operating
loss carryforward and has established an offsetting allowance of
$404,872. The allowance was established as a result of uncertainty in
the Company’s ability to utilize the loss carryforward which is dependent on
generating sufficient taxable income prior to expiration of the loss carry
forward. The Company has not experienced any reductions of deferred
tax assets due to the lapse of applicable statute of limitations. The 2007 net
operating loss expires in 2027.
The
Company does not have any unrecognized tax benefits resulting from tax positions
taken that is believed by management to be potentially challenged and disallowed
by taxing authorities.
The
Company classifies interest and penalties on underpayment of income taxes as
income tax expense. No interest or penalties were included in the
reported income taxes for the years presented. Tax years 2004 to
current remain subject to examination. The Company has no agreements
of extension of the review period currently in effect. The Company is
not aware of any potential or proposed changes to any of its tax
filings.
The
companies of the group file separate federal income tax returns except for Acap
Corporation, AC, TI and Imperial Plan, which file a consolidated life/non-life
federal income tax return.
Life
insurance company taxation is based primarily upon statutory results with
certain special deductions and other items available only to life insurance
companies. Income tax expense consists of the following
components:
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2007
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2006
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2005
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Current
tax expense
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$
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1,076,824
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$
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398,268
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$
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21,368
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Deferred tax
expense
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(693,627)
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1,551,339
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137,040
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$
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383,197
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$
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1,949,607
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$
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158,408
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ACAP and
its consolidated subsidiaries for tax purposes generated a net operating loss
during 2007 of $1,156,777. The Company has established a deferred tax
asset of $404,872 relating to this operating loss carryforward and has
established an offsetting allowance of $404,872.
The
following table shows the reconciliation of net income to taxable income of
UTG:
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2007
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2006
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2005
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Net
income
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$
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2,142,619
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$
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3,869,720
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$
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1,260,223
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Depreciation
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54,564
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0
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0
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Management/consulting
fees
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(99,486)
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0
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0
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Federal
income tax provision
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221,820
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181,070
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(24,254)
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Gain of
subsidiaries
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(1,870,426)
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(3,616,283)
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(1,155,680)
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Taxable
income
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$
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449,091
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$
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434,507
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$
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80,289
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The
expense for income differed from the amounts computed by applying the applicable
United States statutory rate of 35% before income taxes as a result of the
following differences:
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2007
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2006
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2005
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Tax
computed at statutory rate
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$
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1,425,922
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$
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2,809,538
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$
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664,865
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Changes
in taxes due to:
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Utilization of
AMT credit carryforward
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0
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(163,039)
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0
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Utilization of
capital loss carryforward
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0
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0
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(327,467)
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Dividend
received deduction
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(246,255)
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(224,386)
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(188,988)
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Depreciation
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0
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163,130
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0
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Current
year losses with no tax benefit
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404,872
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0
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0
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Minority
interest
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(541,886)
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(772,774)
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(168,344)
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Utilization of
net operating loss carryforward
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0
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396,899
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0
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Small
company deduction
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(604,105)
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(293,804)
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211,474
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Other
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(55,351)
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34,043
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(33,132)
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Income tax expense
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$
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383,197
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$
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1,949,607
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$
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158,408
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The
following table summarizes the major components that comprise the deferred tax
liability as reflected in the balance sheets:
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2007
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2006
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Investments
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$
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5,638,562
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$
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4,988,293
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Cost of
insurance acquired
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9,917,957
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11,482,856
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Deferred policy
acquisition costs
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353,335
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416,111
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Management/consulting
fees
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(225,895)
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(260,715)
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Future
policy benefits
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1,098,084
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984,029
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Gain on
sale of subsidiary
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2,312,483
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2,312,483
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Allowance for
uncollectibles
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(61,711)
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(80,500)
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Other
liabilities
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(637,692)
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(934,503)
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Federal
tax DAC
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(1,893,088)
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(2,427,986)
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Deferred tax
liability
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$
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16,502,035
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$
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16,480,068
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This amendment is intended
to replace in its entirety Exhibits 31.1 and 31.2.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INDEX
TO EXHIBITS
Exhibit
Number
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31.1
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Certificate
of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
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31.2
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Certificate
of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
UTG, Inc.
(Registrant)
/s/ James P.
Rousey September
22, 2008
James P.
Rousey, President and Director
/s/ Theodore C.
Miller
September 22, 2008
Theodore
C. Miller, Corporate Secretary
and Chief Financial
Officer