-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IN8HcgTIiFmy+62YyrCNaeH6xV2uso1pKPPg5rWAVEEu9Rry8dXYb3ZWHGCnYUC2 +WGrM+S3ZQN1cKqZHLqqTg== 0000100716-97-000008.txt : 19970520 0000100716-97-000008.hdr.sgml : 19970520 ACCESSION NUMBER: 0000100716-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICO AMERICAN CORP CENTRAL INDEX KEY: 0000100716 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952583928 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03978 FILM NUMBER: 97606267 BUSINESS ADDRESS: STREET 1: 23251 MULHOLLAND DR CITY: WOODLAND HILLS STATE: CA ZIP: 91364 BUSINESS PHONE: 8185919800 MAIL ADDRESS: STREET 1: 23251 MULHOLLAND DRIVE CITY: WOODLAND HILLS STATE: CA ZIP: 91364 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL COVERAGE CORP DATE OF NAME CHANGE: 19730823 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period from January 1, 1997 to March 31, 1997 Commission File No. 0-3978 UNICO AMERICAN CORPORATION (Exact name of registrant as specified in its charter) Nevada 95-2583928 (State or other jurisdiction of (I.R.S. Employee incorporation or organization) Identification No.) 23251 Mulholland Drive, Woodland Hills, California 91364 (Address of Principal Executive Offices) (Zip Code) (818) 591-9800 Registrant's telephone number Securities registered pursuant to Section 12(b)of the Act: None (Title of each class) Securities registered pursuant to section 12(g)of the Act: Common Stock, No Par Value (Title of Class) No Change (Former name,former address and former fiscal year,if changed since last report) 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 6,120,081 Number of shares of common stock outstanding as of May 9, 1997 1 of 9 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 ---------- ----------- ASSETS Investments Available for sale: Fixed maturities, at market value (amortized cost: March 31, 1997 $79,631,910, December 31, 1996 $75,984,966 $ 79,558,418 $ 77,109,214 Equity securities at market (cost: March 31, 1997 $999,460; December 31, 1996 $0) 856,200 - Short-term investments, at cost 4,042,389 4,861,745 ----------- ----------- Total Investments 84,457,007 81,970,959 Cash 506,434 82,637 Accrued investment income 1,414,983 1,443,551 Accounts and notes receivable, net 7,687,955 8,898,839 Reinsurance recoverable: Paid losses and loss adjustment expenses 919,350 452,943 Unpaid losses and loss adjustment expenses 1,513,537 2,629,019 Prepaid reinsurance premiums 1,302,229 1,647,806 Deferred policy acquisition costs 5,093,193 4,953,085 Property and equipment (net of accumulated depreciation) 231,699 229,972 Deferred income taxes 1,923,189 1,503,655 Other assets 597,107 638,856 ----------- ----------- Total Assets $105,646,683 $104,451,322 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Unpaid losses and loss adjustment expenses $39,830,411 $39,740,865 Unearned premiums 21,705,006 22,120,241 Advance premiums 1,413,497 1,358,671 Funds held as security for performance 739,497 730,426 Accrued expenses and other liabilities 2,635,734 2,395,699 Income taxes payable 586,674 - Note payable-bank 500,001 750,001 Dividends payable 428,405 - ---------- ---------- Total Liabilities $67,839,225 $67,095,903 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, no par - authorized 10,000,000 shares issued and outstanding shares 6,120,081 at March 31, 1997 and 6,028,781 at December 31, 1996 2,836,772 2,836,422 Net unrealized investment gains (losses) (143,056) 742,004 Retained earnings 35,113,742 33,776,993 ---------- ---------- Total Stockholders' Equity 37,807,458 37,355,419 ---------- ---------- Total Liabilities and Stockholders' Equity $105,646,683 $104,451,322 =========== ===========
See notes to consolidated financial statements. 2 of 9 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1997 1996 ---------- ---------- REVENUES Insurance Company Revenues Premium earned $10,097,163 $ 9,294,192 Premium ceded 955,623 1,080,365 ----------- ---------- Net premium earned 9,141,540 8,213,827 Investment income 1,154,516 957,956 Net realized investment gains 919 19,542 Other income 115 30 ---------- --------- Total Insurance Company Revenues 10,297,090 9,191,355 Other Revenues from Insurance Operations Gross commissions and fees 1,418,736 1,468,340 Investment income 34,954 42,530 Finance charges and late fees earned 290,068 293,625 Other income 2,801 (235) ---------- ---------- Total Revenues 12,043,649 10,995,615 ---------- ---------- EXPENSES Losses & loss adjustment expenses 4,974,473 4,399,361 Policy acquisition costs 2,639,930 2,215,129 Salaries and employee benefits 924,413 912,681 Commissions to agents/brokers 274,976 306,584 Other operating expenses 733,627 764,770 ----------- ----------- Total Expenses 9,547,419 8,598,525 ---------- ---------- Income Before Income Taxes 2,496,230 2,397,090 Income Tax Provision 731,076 722,273 --------- --------- Net Income $ 1,765,154 $ 1,674,817 Retained Earnings December 31, 33,776,993 27,345,753 Dividend declared (428,405) - ----------- ---------- Retained Earnings March 31, $35,113,742 $29,020,570 ========== ========== PER SHARE DATA Weighted Average Shares Outstanding 6,330,790 6,210,632 Earnings Per Share $0.28 $0.27
See notes to consolidated financial statements 3 of 9 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996 --------- ---------- Net Income $1,765,154 $1,674,817 Adjustments to reconcile net income to net cash from operations Depreciation & amortization 20,308 54,599 Bond amortization, net 111,766 156,442 Net realized (gain) on sale of securities (919) (19,542) Changes in assets and liabilities Premium, notes & investment income receivable 1,239,452 325,735 Reinsurance recoverable 649,075 546,243 Prepaid reinsurance premiums 345,577 100,880 Deferred policy acquisitions costs (140,108) (113,622) Other assets 41,750 (74,354) Reserve for unpaid losses & loss adjustment expenses 89,546 309,576 Unearned premium reserve (415,235) 284,410 Funds held as security & advanced premiums 63,897 10,833 Accrued expenses & other liabilities 240,035 27,604 Income taxes current/deferred 623,080 (43,995) --------- --------- Net Cash Provided from Operations 4,633,378 3,239,626 ---------- --------- Investing Activities Purchase of fixed maturity investments (5,768,290) (3,888,377) Proceeds from maturity of fixed maturity investments 2,000,000 1,818,514 Purchase of equity securities - cost (1,019,500) (1,293,561) Proceeds from sale of equity securities 20,959 317,865 Net increase in short-term investments 828,935 878,406 Additions to property & equipment (22,035) (24,078) ---------- ---------- Net Cash (Used) by Investing Activities (3,959,931) (2,191,231) --------- --------- Financing Activities Proceeds from issuance of common stock 350 - Repayment of note payable - bank (250,000) (895,000) ------- ------- Net Cash (Used) by Financing Activities (249,650) (895,000) ------- ------- Net increase in cash 423,797 153,395 Cash at beginning of period 82,637 951 -------- ---------- Cash at End of Period $506,434 $154,346 ======= ======= Supplemental cash flow information Cash paid during the period for: Interest $12,314 $47,063 Income taxes - $775,000
See notes to consolidated financial statements. 4 of 9 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Unico American Corporation is an insurance holding company. Unico American and its subsidiaries, all of which are wholly owned (the "Company"), provide, primarily in California, property, casualty, health and life insurance, and related premium financing. Change of Fiscal Year On December 16, 1996, the Board of Directors approved a change in the Company's fiscal year end from March 31 to December 31 effective December 31, 1996. Principles of Consolidation The consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Basis of Presentation The consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) which differ in some respects from those followed in reports to insurance regulatory authorities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While every effort is made to ensure the integrity of such estimates, actual results could differ from those estimates. Investments Although all of the Company's fixed maturity investments are classified as available-for-sale and are stated at market value, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments. Investments in equity securities are carried at market value. The unrealized gains or losses from fixed maturities and equity securities are reported as a separate component of stockholders' equity, net of any deferred tax effect. Short-term investments are carried at cost which approximates market value. When a decline in the value of a fixed maturity or equity security is considered other than temporary, a loss is recognized in the consolidated statement of operations. Realized gains and losses are included in the consolidated statements of operations based upon the specific identification method. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using accelerated depreciation methods over the estimated useful lives of the related assets. Income Taxes The provision for income taxes is computed on the basis of income as reported for financial reporting purposes under generally accepted accounting principles. Deferred income taxes arise principally from certain assets and liabilities which are recognized for income tax purposes in different periods than for financial statements. NOTE 2 - FUNDS HELD AS SECURITY Funds held as security for performance represent funds received in order to guarantee the contractual obligations entered into with customers. 5 of 9 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 NOTE 3 - RESTRICTED FUNDS As required by law, the Company segregates from its operating accounts premiums collected from insureds into separate trust accounts. As of a March 31, 1997, these trust funds represent $2,137,672 of the Company's cash and short-term investments. In addition, $725,000 of the Company's investments represent statutory deposits of Crusader which are assigned to and held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for Crusader to write certain lines of business in California and for its admission in states other than California. NOTE 4 - STATUTORY CAPITAL AND SURPLUS As of March 31, 1997, Crusader's statutory capital and surplus were deemed sufficient to support its present insurance premium writings. NOTE 5 - INCENTIVE STOCK OPTION PLAN The Company's 1985 stock option plan provided for the grant of "incentive stock options" to officers and key employees. The plan covers an aggregate of 1,500,000 shares of the Company's common stock (subject to adjustment in the case of stock splits, reverse stock splits, stock dividends, etc.). As of March 31, 1997, 424,599 options were outstanding of which 325,697 were currently exercisable. During the quarter ended March 31, 1997, options on 136,100 shares of common stock were exercised. There are no additional options available for future grant under the 1985 plan. NOTE 6 - CLAIMS AND LITIGATION The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings in which it may be named as either plaintiff or defendant. The Company is required to resort to legal proceedings from time-to-time in order to enforce collection of premiums, commissions or fees for the services rendered to customers or to their agents. These routine items of litigation do not materially affect the Company and are handled on a routine basis by the Company through its general counsel. Likewise, the Company is sometimes named as a cross-defendant in litigation which is principally directed against that insurer who has issued a policy of insurance directly or indirectly through the Company. Incidental actions are sometimes brought by customers or other agents which relate to disputes concerning the issuance or non-issuance of individual policies. These items are also handled on a routine basis by the Company's general counsel, and they do not materially affect the operations of the Company. Management is confident that the ultimate outcome of pending litigation should not have an adverse effect on the Company's consolidated operation or financial position. NOTE 7 - LEASE COMMITMENTS AND CONTINGENCIES The Company presently occupies a 46,000 square foot building located at 23251 Mulholland Drive, Woodland Hills, California, under a master lease expiring March 31, 2007. The lease provides for an annual gross rental of $1,025,952. Erwin Cheldin, the Company's president, chairman and principal stockholder, is the owner of the building. The terms of the lease at inception and at the time the lease extension was executed were at least as favorable to the Company as could have been obtained from unaffiliated third parties. The Company utilizes for its own operation 100% of the space it leases. NOTE 8 In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which consist of normal recurring adjustments, to present fairly the results of operations for the three months ended March 31, 1997, and March 31, 1996. NOTE 9 The results of operations for the three months ended March 31, 1997, should not be considered as necessarily indicative of the results to be expected for the full year. 6 of 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources: Due to the nature of the Company's business (insurance and insurance services) and whereas Company growth does not normally require material reinvestment of profits into property or equipment, the cash flow generated from operations usually results in improved liquidity for the Company. Crusader's losses and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. As of March 31, 1997, the Company had cash and cash investments of $85,180,193 (at amortized cost) of which $81,734,760 (96%) were investments of Crusader. As of the quarter ended March 31, 1997, the Company had invested $79,631,910 (at amortized cost) or 94% of its invested assets in fixed maturity obligations. Although all of the Company's fixed maturity investments are classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high quality investments. The balance of the Company's investments were in equity securities of regional utility companies and high-quality short-term investments that include a U.S. treasury bill, bank money market accounts, certificates of deposit, commercial paper and a short-term treasury money market fund. The Company's investments in fixed maturity obligations of $79,631,910 (at amortized cost) include $39,474,855 (49%) of pre-refunded state and municipal tax exempt bonds, $20,453,922 (26%) of U.S. treasury securities, $19,703,133 (25%) in high quality industrial bonds and certificates of deposit. The tax exempt interest income earned for the three months ended March 31, 1997 and 1996 was $454,616 and $410,488 respectively. The Company's investment policy limits investments in any one company to no more than $1,000,000. This limitation excludes bond premiums paid in excess of par value and U.S. Government or U.S. Government guaranteed issues. The Company's fixed maturity obligations have maturities no greater than eight years. All of the Company's investments are high-grade investment quality. On March 4, 1997, the Board of Directors declared a ($0.07) per share cash dividend payable on August 15, 1997, to shareholders of record at the close of business on August 1, 1997. The Company's premium finance subsidiary, American Acceptance Corporation ("AAC"), has a bank credit line of $4,000,000 with a variable rate of interest based on fluctuations in the London Inter Bank Offered Rate ("LIBOR"). This credit line is only used to provide AAC with the additional funds it requires to finance insurance premiums. AAC has been paying down its bank note payable from its internal cash flow as well as from intercompany loans from Unico. The bank note payable has been reduced from $750,001 as of December 31, 1996 to $500,001 as of March 31, 1997. Although material capital expenditures may also be funded through borrowings, the Company believes that cash generated from operations, plus cash and short-term investments at the quarter end, net of trust restriction of $2,137,672 and statutory deposits of $725,000, should be sufficient to meet its operating requirements during the next twelve months without the necessity of borrowing additional funds. Crusader is restricted in the amount of dividends it may pay to its parent, Unico, without prior regulatory approval by the California Department of Insurance. Crusader anticipates that it will not be required to obtain prior regulatory approval for any dividend which it may pay to Unico in the next twelve months. There are no material commitments for capital expenditures as of the date of this report. 7 of 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) (b) Results of Operations: All comparisons made in this discussion are comparing the three months ended March 31, 1997, to the three months ended March 31, 1996, unless otherwise indicated. The Company's net income for the quarter ended March 31, 1997, increased $90,337 (5%) to $1,765,154. Revenues increased $1,048,034 (10%) to $12,043,649. Premium earned before reinsurance increased $802,971 (9%) for the quarter ended March 31, 1997 of which $328,425 (41%) was from California and $474,546 (59%) was from states outside of California. Ceded premium decreased from 12% of premium earned to 9% for the current quarter primarily due to reduced reinsurance cost related to an increase in loss retention from $100,000 to $150,000 on April 1, 1995, and to other rate decreases due to the Company's favorable loss experience with its reinsurers and competition in the reinsurance marketplace. Losses and loss adjustment expenses were 54% of net premium earned for both quarters ended March 31, 1997 and 1996. Crusader has continued to experience favorable development of prior period losses. Policy acquisition costs consist of commissions, premium taxes, inspection fees, and certain other underwriting costs which are directly or indirectly related to the production of Crusader insurance policies. These costs include both Crusader expenses and allocated expenses of other Unico subsidiaries. Crusader's reinsurer pays Crusader a ceding commission which is primarily a reimbursement of the acquisition cost related to the ceded premium. Policy acquisition costs, net of ceding commission, are deferred and amortized as the related premiums are earned. These costs increased by $424,801 (19%) for the quarter ended March 31, 1997. The increase in costs was primarily due to the increase in Crusader's net earned premium. Investment income, excluding realized investment gains, increased $188,984 (19%) to $1,189,470 for the quarter ended March 31, 1997, compared to $1,000,486. This increase was primarily due to a 15% increase (at amortized cost) in invested assets. Commissions to agents/brokers decreased $31,608 (10%) in the quarter ended March 31, 1997 primarily due to related revenue decreases in the health, life and automobile programs. Other operating expenses decreased $31,143 (4%) during the quarter ended March 31, 1997. There were no significant changes in other revenue or expense items. The effect of inflation on net income of the Company during the three months ended March 31, 1997, and 1996 was not significant. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 8 of 9 PART II - OTHER INFORMATION ITEM 2 - CHANGES IN SECURITIES (c) During the quarter ended March 31, 1997, the Company issued an aggregate of 136,100 shares of its common stock upon exercise of employee stock options granted under the Unico American Corporation Employee Incentive Stock Option Plan. These shares were issued to an aggregate of two employees of the Company. Of these shares, an aggregate of 136,000 shares were issued in exchange for an aggregate of 44,800 shares of common stock and an aggregate of 100 shares were issued in exchange for an aggregate of $350.00 in cash. These shares were acquired for investment and without a view to the public distribution or resale thereof, and the issuance thereof was exempt from the registration requirements under the Securities Act of 1933, as amended, under Section 4 (2) thereof as transactions not involving a public offering. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto authorized. UNICO AMERICAN CORPORATION Date: May 12, 1997 By: /s/ Erwin Cheldin --------------------- Erwin Cheldin Chairman of the Board, President and Chief Executive Officer, (Principal Executive Officer) Date: May 12, 1997 By: /s/ Lester A. Aaron ----------------------- Lester A. Aaron Treasurer, Chief Financial Officer, (Principal Accounting and Principal Financial Officer) 9 of 9 EX-27 2 FDS --
7 1 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 83,600,807 0 0 856,200 0 0 84,457,007 506,434 919,350 5,093,193 105,646,683 39,830,411 21,705,006 2,152,994 0 500,001 0 0 2,836,772 34,970,686 105,646,683 9,141,540 1,189,470 919 1,711,720 4,974,473 2,639,930 1,933,016 2,496,230 731,076 1,765,154 0 0 0 1,765,154 .28 .28 0 0 0 0 0 0 0
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