SEC Company Response from UTG INC (UTGN) (CIK 0000832480) (UTGN) — Oct 14, 2020
UTG INC (UTGN) (CIK 0000832480)
Date: Oct. 14, 2020 · CIK: 0000832480 · Accession: 0000832480-20-000022
AI Filing Summary & Sentiment
File numbers found in text: 000-16867
Referenced dates: September 30, 2020
Letter
Securities and Exchange Commission Division of Corporation Finance – Office of Finance Filed March 20, 2020 Form 10-Q for the Quarter Ended June 30, 2020 Filed August 11, 2020 File No. 000-16867
Dear Ms. Miller and Mr. Brunhofer:
We are in receipt of your letter dated September 30, 2020 on our Form 10-K filing for the year ended December 31, 2019 and Form 10-Q for the quarter ended June 30, 2020 and have the following responses.
Form 10-K for the Fiscal Year Ended December 31, 2019
Note 2. Investments
1.
We note your response to prior comment 2, including your proposed disclosure in Exhibit B for investment real estate. Please address the following:
•
Tell us how you considered the guidance in ASC 360-10-35-44 upon your change in classification from held-for-sale to held-for-investment.
Response: ASC 360-10-35-44 provides guidance for Changes to a Plan of Sale. The Company has had no change in its plan or intent to sell the real estate held. The Company changed its classification to held for investment as a result of its inability to meet the completion of sale within one year as required by ASC 360-10-45-9. ASC 360-10-45-11 provides for events or circumstances beyond an entity’s control and allows the Company to extend the period required to complete the sale of a long-lived asset beyond one year. The Company has reviewed the events and circumstances that allow for an extension and do not believe we meet the events or circumstances that allow for the extension.
While the properties are generally available for sale, and are being actively marketed at a price that is reasonable in relation to their fair value, we have not been successful in turning the properties in the time period outlined in the guidance, therefore, a change to held for investment may be more appropriate at this time.
At the time of reclassification, no individual property had a fair value below the carrying amount of the asset.
•
Notwithstanding your net real estate sales of $3,418,671 for the six months ended June 30, 2020, it appears that you reclassified a significant amount of raw land to land with minerals and royalty interests. If this is true, revise your proposed disclosure in Exhibit B to clarify why you made such a reclassification. If this is not true, tell us why these balances changed; and
Response: See Exhibit A.
The Company noted errors in the version of the real estate table that was included in the September 3, 2020 response letter (Exhibit B). An updated version of the table has been included as Exhibit A to this letter and provides a correct allocation of real estate by type.
•
Tell us why the fair value of your investment in real estate was $85,158,671 at both December 31, 2019 and June 30, 2020 when you sold $3,418,671 of these investments during this six-month period.
Response: See Exhibit B.
The December 31, 2019 real estate fair value has been updated to the correct value in the table presented in exhibit B of this response letter. We have determined in our original response the fair value of real estate at December 31, 2019 was incorrectly stated.
Provide us with your revised disclosures as appropriate.
Note 3. Fair Value Measurements
2.
We note your response to prior comment 4, including in your proposed disclosure in Exhibit C that includes common stock categorized as Level 3 within the fair value hierarchy for investments valued at net asset value. Please tell how these investments comply with ASC 820-10-15-4 and 15-5, remove these investments from your Level 3 disclosures as required by ASC 820-10-35-54B, as appropriate, and provide the disclosures required by ASC 820-10-50-6A. Provide us with your proposed disclosures.
Response: See Exhibit C.
The table presented in Exhibit C to this letter separates assets reported at their Net Asset Value.
3.
We note your response to prior comment 6 and that approximately $9 million or 77% of unrealized losses of $11,738,163 for the six months ending June 30, 2020 related to one equity security classified as a level 1. We also note that excluding Level 3 equity security sales of $10,450,468, that remaining common stock sales for Levels 1 and 2 were $5,736,337 for the six months ending June 30, 2020 based on activity disclosed on page 16 of your June 30, 2020 Form 10-Q depicting no realized gains or losses, your realized gains of $8,615,617 related to Level 1 and 2 investments. Considering the significant unrealized losses related to one security and the significant gain on equity securities sold, please address the following:
•
Given that your proposed revised disclosure in Exhibit C of your response indicates that the $139,588 loss recognized during the first six months of 2020 includes both realized and unrealized gains/losses, tell us how much of the $8,615,617 total realized gains on equity securities relates to Level 3 investments at fair value and your investments carried at net asset value;
Response: The following table provides the allocation of the realized gains for common stock by fair value level at June 30, 2020:
Common Stocks
Realized Gains
Level 1
$ 3,215,874
Level 2
-
Level 3
5,399,743
Total
$ 8,615,617
•
Tell us the circumstances that resulted in a realized gain of $8,615,617 and how you calculated those gains, including the nature of the underlying investments;
Response: The realized gains were the result of selling one Level 1 common stock related to the oil/gas industry and three Level 3 common stocks.
•
Tell us why it is appropriate to disclose realized investment gains or losses for your investments in equity securities when ASC 321-10-40-1 indicates that the sale of an equity security does not necessarily give rise to a gain or loss given that all changes in an equity security’s fair value are reported in earnings as they occur;
Response: In the Company’s income statement presentation we separate realized gains and market value changes in equity securities. The two together are reported as our net investment gains and losses within the income statement. We believe this presentation helps the reader understand what is generating the amounts (actual sales versus market fluctuations).
•
Tell us how your proposed disclosure provides the information required by ASC 321-10-50-4 of:
o
Net gains and losses recognized during the period on equity securities; less
o
Net gains and losses recognized during the period on equity securities sold during the period; resulting in
o
Net unrealized gains and losses recognized during the period on equity securities still held at the end of the period;
Response: See Exhibit D.
•
Tell us and disclose in future filings, vulnerabilities due to concentrations of your investments, including individual holdings relative to the total carrying value of your equity securities. Refer to ASC 275-10-50.
Response: See Exhibit E.
We added a paragraph below the table to further disclose the requested information.
Provide us with your proposed disclosure. In your response, separately provide us a rollforward of your equity securities investments from December 31, 2019 through June 30, 2020 that separately depicts those in Level 1, Level 2, Level 3 and carried at net asset value. In the rollforward separately present:
•
The balances at December 31, 2019;
•
Investments purchases (the total of which tying to the amount presented in your cash flow statement);
•
Investment sales (the amount of which tying to the amount presented in your cash flow statement);
•
Realized gains/losses;
•
Unrealized gains/losses;
•
Any transfers between Levels in the fair value hierarchy or carried at net asset value; and
•
The balances at June 30, 2020.
Response: See Exhibit F.
Please contact me should you have any questions regarding the above. I can be reached via e-mail at ted.miller@utgins.com.
Sincerely,
/s/ Theodore C. Miller
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CORRESP
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filename1.htm
205 North Depot Street
Stanford, KY 40484
www.utgins.com
October 14, 2020
Ms. Michelle Miller
Mr. Mark Brunhofer
Securities and Exchange Commission
Division of Corporation Finance – Office of Finance
100 F Street, N.E.
Washington, D.C. 20549
RE: UTG, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2019
Filed March 20, 2020
Form 10-Q for the Quarter Ended June 30, 2020
Filed August 11, 2020
File No. 000-16867
Dear Ms. Miller and Mr. Brunhofer:
We are in receipt of your letter dated September 30, 2020 on our Form 10-K filing for the year ended December 31, 2019 and Form 10-Q for the quarter ended
June 30, 2020 and have the following responses.
Form 10-K for the Fiscal Year Ended December 31, 2019
Note 2. Investments
1.
We note your response to prior comment 2, including your proposed disclosure in Exhibit B for investment real estate. Please address the
following:
•
Tell us how you considered the guidance in ASC 360-10-35-44 upon your change in classification from held-for-sale to held-for-investment.
Response: ASC 360-10-35-44
provides guidance for Changes to a Plan of Sale. The Company has had no change in its plan or intent to sell the real estate held. The Company changed its classification to held for investment as a result of its inability to meet the completion of
sale within one year as required by ASC 360-10-45-9. ASC 360-10-45-11 provides for events or circumstances beyond an entity’s control and allows the Company to extend the period required to complete the sale of a long-lived asset beyond one year. The
Company has reviewed the events and circumstances that allow for an extension and do not believe we meet the events or circumstances that allow for the extension.
While the properties are generally available for sale, and are being actively marketed at a price that is reasonable in relation to
their fair value, we have not been successful in turning the properties in the time period outlined in the guidance, therefore, a change to held for investment may be more appropriate at this time.
At the time of reclassification, no individual property had a fair value below the carrying amount of the asset.
•
Notwithstanding your net real estate sales of $3,418,671 for the six months ended June 30, 2020, it appears that you reclassified a significant
amount of raw land to land with minerals and royalty interests. If this is true, revise your proposed disclosure in Exhibit B to clarify why you made such a reclassification. If this is not true, tell us why these balances changed; and
Response: See Exhibit A.
The Company noted errors in the version of the real estate table that was included in the September 3, 2020 response letter (Exhibit B).
An updated version of the table has been included as Exhibit A to this letter and provides a correct allocation of real estate by type.
•
Tell us why the fair value of your investment in real estate was $85,158,671 at both December 31, 2019 and June 30, 2020 when you sold $3,418,671
of these investments during this six-month period.
Response: See Exhibit B.
The December 31, 2019 real estate fair value has been updated to the correct value in the table presented in exhibit B of this response
letter. We have determined in our original response the fair value of real estate at December 31, 2019 was incorrectly stated.
Provide us with your revised disclosures as appropriate.
Note 3. Fair Value Measurements
2.
We note your response to prior comment 4, including in your proposed disclosure in Exhibit C that includes common stock categorized as Level 3
within the fair value hierarchy for investments valued at net asset value. Please tell how these investments comply with ASC 820-10-15-4 and 15-5, remove these investments from your Level 3 disclosures as required by ASC 820-10-35-54B, as
appropriate, and provide the disclosures required by ASC 820-10-50-6A. Provide us with your proposed disclosures.
Response: See Exhibit C.
The table presented in Exhibit C to this letter separates assets reported at their Net Asset Value.
3.
We note your response to prior comment 6 and that approximately $9 million or 77% of unrealized losses of $11,738,163 for the six months ending
June 30, 2020 related to one equity security classified as a level 1. We also note that excluding Level 3 equity security sales of $10,450,468, that remaining common stock sales for Levels 1 and 2 were $5,736,337 for the six months ending
June 30, 2020 based on activity disclosed on page 16 of your June 30, 2020 Form 10-Q depicting no realized gains or losses, your realized gains of $8,615,617 related to Level 1 and 2 investments. Considering the significant unrealized
losses related to one security and the significant gain on equity securities sold, please address the following:
•
Given that your proposed revised disclosure in Exhibit C of your response indicates that the $139,588 loss recognized during the first six months
of 2020 includes both realized and unrealized gains/losses, tell us how much of the $8,615,617 total realized gains on equity securities relates to Level 3 investments at fair value and your investments carried at net asset value;
Response: The following table
provides the allocation of the realized gains for common stock by fair value level at June 30, 2020:
Common Stocks
Realized Gains
Level 1
$ 3,215,874
Level 2
-
Level 3
5,399,743
Total
$ 8,615,617
•
Tell us the circumstances that resulted in a realized gain of $8,615,617 and how you calculated those gains, including the nature of the
underlying investments;
Response: The realized gains were
the result of selling one Level 1 common stock related to the oil/gas industry and three Level 3 common stocks.
•
Tell us why it is appropriate to disclose realized investment gains or losses for your investments in equity securities when ASC 321-10-40-1
indicates that the sale of an equity security does not necessarily give rise to a gain or loss given that all changes in an equity security’s fair value are reported in earnings as they occur;
Response: In the Company’s income
statement presentation we separate realized gains and market value changes in equity securities. The two together are reported as our net investment gains and losses within the income statement. We believe this presentation helps the reader
understand what is generating the amounts (actual sales versus market fluctuations).
•
Tell us how your proposed disclosure provides the information required by ASC 321-10-50-4 of:
o
Net gains and losses recognized during the period on equity securities; less
o
Net gains and losses recognized during the period on equity securities sold during the period; resulting in
o
Net unrealized gains and losses recognized during the period on equity securities still held at the end of the period;
Response: See Exhibit D.
•
Tell us and disclose in future filings, vulnerabilities due to concentrations of your investments, including individual holdings relative to the
total carrying value of your equity securities. Refer to ASC 275-10-50.
Response: See Exhibit E.
We added a paragraph below the table to further disclose the requested information.
Provide us with your proposed disclosure. In your response, separately provide us a rollforward of your equity securities investments from December 31,
2019 through June 30, 2020 that separately depicts those in Level 1, Level 2, Level 3 and carried at net asset value. In the rollforward separately present:
•
The balances at December 31, 2019;
•
Investments purchases (the total of which tying to the amount presented in your cash flow statement);
•
Investment sales (the amount of which tying to the amount presented in your cash flow statement);
•
Realized gains/losses;
•
Unrealized gains/losses;
•
Any transfers between Levels in the fair value hierarchy or carried at net asset value; and
•
The balances at June 30, 2020.
Response: See Exhibit F.
Please contact me should you have any questions regarding the above. I can be reached via e-mail at ted.miller@utgins.com.
Sincerely,
/s/ Theodore C. Miller
Theodore C. Miller
Sr. Vice President
Exhibit A
Investment Real Estate
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis for financial reporting
purposes using estimated useful lives of 3 to 30 years. The Company periodically reviews its real estate held-for-investment for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not
be recoverable. During the six month period ended June 30, 2020, no impairments were recognized on the investment real estate.
Note 4 of the Condensed Consolidated Financial Statements provides further information regarding the fair value of financial instruments that are not
measured at fair value. The investment real estate owned by the Company is included in this portion of the Note 4 disclosure.
The following table provides an allocation of the Company’s investment real estate by type:
Type of Investment Real Estate
June 30, 2020
December 31, 2019
Raw Land
$
14,852,549
$
16,089,540
Commercial
3,667,063
4,908,028
Residential
2,241,025
2,251,772
Land, minerals and royalty interests
19,965,326
21,094,896
Total
$
40,725,963
$
44,344,236
Exhibit B
Fair Value Information About Financial Instruments Not Measured at Fair Value
The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not measured at fair value and indicates
the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
June 30, 2020
Carrying Amount
Estimated Fair Value
Level 1
Level 2
Level 3
Common stock, at cost
$
5,860,000
5,860,000
-
-
5,860,000
Preferred stock, at cost
8,557,247
8,557,247
-
-
8,557,247
Mortgage loans on real estate
13,097,827
12,934,172
-
-
12,934,172
Investment real estate
40,725,963
85,158,424
-
-
85,158,424
Notes receivable
19,654,162
23,313,608
-
-
23,313,608
Policy loans
8,709,100
8,709,100
-
-
8,709,100
December 31, 2019
Carrying Amount
Estimated Fair Value
Level 1
Level 2
Level 3
Common stock, at cost
$
7,875,145
7,875,145
-
-
7,875,145
Preferred stock, at cost
3,044,102
3,044,102
-
-
3,044,102
Mortgage loans on real estate
8,223,286
7,531,094
-
-
7,531,094
Investment real estate
44,344,236
88,483,424
-
-
88,483,424
Notes receivable
19,487,458
19,332,472
-
-
19,332,472
Policy loans
8,803,876
8,803,876
-
-
8,803,876
Exhibit C
Net
June 30, 2020
Level 1
Level 2
Level 3
Asset Value
Total
Financial assets:
Fixed maturities available for sale:
U.S. Government and government agencies and authorities
$ 46,407,935
$ -
$ -
$ 46,407,935
U.S. special revenues and assessments
-
15,886,213
-
15,886,213
Corporate securities
-
114,291,551
-
114,291,551
Total fixed maturities
46,407,935
130,177,764
-
176,585,699
Equity securities:
Common stocks
23,092,530
16,041,865
2,744,792
24,261,921
66,141,108
Total equity securities
23,092,530
16,041,865
2,744,792
24,261,921
66,141,108
Total assets at fair value
$ 69,500,465
$ 146,219,629
$ 2,744,792
$24,261,921
$ 242,726,807
Net
December 31, 2019
Level 1
Level 2
Level 3
Asset Value
Total
Financial assets:
Fixed maturities available for sale:
U.S. Government and government agencies and authorities
$ 36,128,743
$ -
$ -
$ 36,128,743
U.S. special revenues and assessments
-
15,203,363