-----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, HWW8rzdkyYgiY1m7q3gNK7fVaLgeFecQXSVnbkxbzOasReLXfRs9vHKfmBis6/gw 2BUII6z4zXEU1WnABxHhQQ== /in/edgar/work/0000100716-00-000010/0000100716-00-000010.txt : 20001115 0000100716-00-000010.hdr.sgml : 20001115 ACCESSION NUMBER: 0000100716-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICO AMERICAN CORP CENTRAL INDEX KEY: 0000100716 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 952583928 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-03978 FILM NUMBER: 762811 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 0001.txt FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 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 July 1, 2000 to September 30, 2000 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 5,749,899 Number of shares of common stock outstanding as of November 9, 2000 1 PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS - ----------------------------- UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30 December 31 2000 1999 ---- ---- ASSETS - ------ Investments Available for sale: Fixed maturities, at market value (amortized cost: September 30, 2000 $97,202,470; December 31, 1999 $99,142,275) $96,319,837 $97,594,134 Equity securities at market (cost: September 30, 2000 $164,170; December 31, 1999 $164,170) 46,080 66,000 Short-term investments, at cost 2,929,137 5,968,173 ---------- ----------- Total Investments 99,295,054 103,628,307 Cash 182,777 105,439 Accrued investment income 1,688,298 2,060,471 Premiums and notes receivable, net 5,774,923 5,496,890 Reinsurance recoverable: Paid losses and loss adjustment expenses 671,908 19,850 Unpaid losses and loss adjustment expenses 5,198,935 3,964,324 Prepaid reinsurance premiums 32,417 32,438 Deferred policy acquisition costs 4,509,685 4,338,217 Property and equipment (net of accumulated depreciation) 124,869 148,667 Deferred income taxes 1,240,662 1,541,242 Other assets 426,317 642,911 ----------- ----------- Total Assets $119,145,845 $121,978,756 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ LIABILITIES - ----------- Unpaid losses and loss adjustment expenses $39,591,195 $41,592,489 Unearned premiums 17,141,688 16,583,143 Advance premium and premium deposits 2,374,874 2,571,190 Reinsurance payable 5,734,571 4,644,621 Accrued expenses and other liabilities 2,364,565 1,746,516 ---------- ---------- Total Liabilities $67,206,893 $67,137,959 ---------- ---------- STOCKHOLDERS' EQUITY - --------------------- Common stock, no par - authorized 10,000,000 shares; issued and outstanding shares 5,733,565 at September 30, 2000, and 6,304,953 at December 31, 1999 $ 2,817,591 $ 3,098,389 Accumulated other comprehensive (loss) (660,477) (1,086,565) Retained earnings 49,781,838 52,828,973 ---------- ---------- Total Stockholders' Equity $51,938,952 $54,840,797 ---------- ---------- Total Liabilities and Stockholders' Equity $119,145,845 $121,978,756 =========== ===========
See notes to unaudited consolidated financial statements. 2 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES - -------- Insurance Company Revenues Premium earned $8,226,204 $8,606,924 $24,436,649 $26,256,814 Premium ceded 2,136,835 2,265,845 5,090,947 5,482,002 --------- --------- ---------- ---------- Net premium earned 6,089,369 6,341,079 19,345,702 20,774,812 Investment income 1,451,540 1,439,237 4,294,899 4,257,017 Net realized investment gains - 5,633 - 64,793 Other income 34,286 256 43,934 628 --------- --------- ---------- ---------- Total Insurance Company Revenues 7,575,195 7,786,205 23,684,535 25,097,250 Other Revenues from Insurance Operations Gross commissions and fees 1,383,049 1,462,969 4,267,109 4,235,672 Investment income 78,874 63,434 274,229 202,644 Net realized investment gains 2,508 - 2,508 - Finance charges and late fees earned 209,423 229,492 625,455 690,359 Other income 4,402 1,528 9,021 10,167 --------- --------- ---------- ---------- Total Revenues 9,253,451 9,543,628 28,862,857 30,236,092 --------- --------- ---------- ---------- EXPENSES - -------- Losses and loss adjustment expenses 5,054,246 3,972,201 14,744,673 11,450,352 Policy acquisition costs 2,098,883 2,062,228 6,205,450 6,336,141 Salaries and employee benefits 1,067,731 1,097,561 3,247,594 3,235,432 Commissions to agents/brokers 330,569 327,904 987,364 968,551 Other operating expenses 575,917 610,538 1,914,886 1,889,414 --------- --------- ---------- ---------- Total Expenses 9,127,346 8,070,432 27,099,967 23,879,890 --------- --------- ---------- ---------- Income Before Taxes 126,105 1,473,196 1,762,890 6,356,202 Income Tax Provision (29,325) 415,554 360,379 1,831,670 -------- --------- --------- --------- Net Income $ 155,430 $1,057,642 $1,402,511 $4,524,532 ======= ========= ========= ========= PER SHARE DATA - -------------- Basic Shares Outstanding 5,923,682 6,304,953 6,166,220 6,255,774 Basic Earnings Per Share $0.03 $0.17 $0.23 $0.72 Diluted Shares Outstanding 5,972,337 6,367,661 6,211,027 6,359,146 Diluted Earnings Per Share $0.03 $0.17 $0.23 $0.71
See notes to unaudited consolidated financial statements. 3 UNICO AMERICAN CORPORATION AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2000 1999 2000 1999 ----- ---- ---- ---- Net income $155,430 $1,057,642 $1,402,511 $4,524,532 Other changes in comprehensive income net of tax: Unrealized gains (losses) on securities classified as available-for-sale arising during the period 615,760 (373,582) 426,088 (2,332,372) Less: reclassification adjustment for (losses) included in net income - - - (20,097) ------- -------- --------- --------- Comprehensive Income $771,190 $684,060 $1,828,599 $2,172,063 ======= ======= ========= =========
See notes to unaudited consolidated financial statements. 4 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 1999 ---- ---- Cash Flows from Operating Activities: Net Income $1,402,511 $4,524,532 Adjustments to reconcile net income to net cash from operations: Depreciation and amortization 49,184 66,048 Bond amortization, net 412,056 524,756 Net realized (gain) on sale of securities (2,508) (64,793) Changes in assets and liabilities: Premium, notes and investment income receivable 94,140 62,017 Reinsurance recoverable (1,886,669) (1,427,342) Prepaid reinsurance premiums 21 (13,264) Deferred policy acquisitions costs (171,468) 172,516 Other assets 216,594 181,653 Reserve for unpaid losses and loss adjustment expenses (2,001,294) (2,540,438) Unearned premium reserve 558,545 (790,097) Funds held as security and advanced premiums (196,316) 121,270 Reinsurance payable 1,089,950 1,485,966 Accrued expenses and other liabilities 618,049 (46,217) Income taxes current/deferred 81,080 265,292 ------- --------- Net Cash Provided from Operations 263,875 2,521,899 ------- --------- Investing Activities: Purchase of fixed maturity investments (8,703,237) (11,342,604) Proceeds from maturity of fixed maturity investments 10,201,450 7,839,250 Purchase of equity securities - cost - (3,758,378) Proceeds from sale of equity securities - 4,162,504 Net decrease in short-term investments 3,071,080 1,885,470 Additions to property and equipment (25,386) (27,812) --------- --------- Net Cash Provided (Used) by Investing Activities 4,543,907 (1,241,570) --------- --------- Financing Activities: Proceeds from issuance of common stock - 202,687 Repurchase of common stock (3,784,934) - Dividends paid to shareholders (945,510) (1,576,239) ---------- ---------- Net Cash (Used) by Financing Activities (4,730,444) (1,373,552) --------- ---------- Net increase (decrease) in cash 77,338 (93,223) Cash at beginning of period 105,439 277,544 ------- ------- Cash at End of Period $182,777 $184,321 ======= ======= Supplemental Cash Flow Information Cash paid during the period for: Interest $ - $1,492 Income taxes $210,025 $1,725,000
See notes to unaudited consolidated financial statements. 5 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Nature of Business - ------------------ Unico American Corporation ("Unico") is an insurance holding company. Unico and its subsidiaries (the "Company"), all of which are wholly owned, provides primarily in California, property, casualty, health and life insurance, and related premium financing. Principles of Consolidation - --------------------------- The accompanying unaudited 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 accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. Quarterly financial statements should be read in conjunction with the financial statements and related notes in the Company's 1999 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. NOTE 2 - INCENTIVE STOCK PLANS - ------------------------------ 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 September 30, 2000, there were 101,415 options outstanding and all are currently exercisable. There are no additional options available for future grant under the 1985 plan. The Company's 1999 Omnibus Stock Plan also provides, among other things, for the grant of incentive options to officers and key employees. The plan covers an aggregate of 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 September 30, 2000, there were 132,500 options outstanding under this plan and 50,000 of these options are currently exercisable. NOTE 3 - EARNINGS PER SHARE - --------------------------- The following table represents the reconciliation of the numerators and denominators of the Company's basic earnings per share and diluted earnings per share computations reported on the Consolidated Statements of Operations for the three months ended September 30, 2000 and 1999, and for the nine months ended September 30, 2000 and 1999:
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2000 1999 2000 1999 ---- ---- ---- ---- Basic Earnings Per Share Net income numerator $155,430 $1,057,642 $1,402,511 $4,524,532 ======= ========= ========= ========= Weighted average shares outstanding denominator 5,923,682 6,304,953 6,166,220 6,255,774 ========= ========= ========= ========= Basic Earnings Per Share $0.03 $0.17 $0.23 $0.72
6 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 3 - EARNINGS PER SHARE (continued) - --------------------------------------
Three Months Ended Nine Months Ended September 30 September 30 ----------- ------------ 2000 1999 2000 1999 ---- ---- ---- ---- Diluted Earnings Per Share - -------------------------- Net income numerator $155,430 $1,057,642 $1,402,511 $4,524,532 ======= ========= ========= ========= Weighted average shares outstanding 5,923,682 6,304,953 6,166,220 6,255,774 Effect of diluted securities 48,655 62,708 44,807 103,372 --------- -------- -------- --------- Diluted shares outstanding denominator 5,972,337 6,367,661 6,211,027 6,359,146 ========= ========= ========= ========= Diluted Earnings Per Share $0.03 $0.17 $0.23 $0.71
NOTE 4 - SEGMENT REPORTING - -------------------------- Statement of Financial Accounting Standards No. 131 (SFAS No. 131), Disclosures about Segments of an Enterprise and Related Information, became effective for fiscal years effective after December 15, 1997. SFAS No. 131 establishes standards for the way information about operating segments is reported in financial statements. The Company has adopted SFAS No. 131 and has identified its insurance company operation, Crusader Insurance Company ("Crusader"), as its primary reporting segment. Revenues from this segment comprised 82% of consolidated revenues for the three and nine months ended September 30, 2000, 82% of revenues for the three months and 83% of revenues for the nine months ended September 30, 1999. The Company's remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to consolidated revenues.
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 2000 1999 2000 1999 ---- ---- ---- ---- Revenues - -------- Insurance company operation $7,575,195 $7,786,205 $23,684,535 25,097,250 Other insurance operations 4,198,046 4,230,042 12,635,953 12,750,287 Intersegment elimination (1) (2,519,790) (2,472,619) (7,457,631) (7,611,445) --------- --------- --------- --------- Total other insurance operations 1,678,256 1,757,423 5,178,322 5,138,842 --------- --------- --------- --------- Total Revenues $9,253,451 $9,543,628 $28,862,857 $30,236,092 ========= ========= ========== ========== Income Before Income Taxes - --------------------------- Insurance company operation $(47,421) $1,299,567 $1,334,340 $6,029,732 Other insurance operations 173,526 173,629 428,550 326,470 ------- --------- ---------- --------- Total Income Before Income Taxes $126,105 $1,473,196 $1,762,890 $6,356,202 ======= ========= ========= ========= September 30 December 31 2000 1999 ---- ---- Assets - ------ Insurance company operation $104,723,107 $103,450,995 Intersegment eliminations (2) (397,339) (479,933) ----------- ----------- Total insurance company operation 104,325,768 102,971,062 Other insurance operations 14,820,077 19,007,694 ----------- ----------- Total Assets $119,145,845 $121,978,756 =========== =========== (1) Intersegment revenue eliminations reflect commission paid by Crusader to Unifax Insurance Systems, Inc., ("Unifax") a wholly owned subsidiary of the Company. (2) Intersegment asset eliminations reflect the elimination of Crusader receivables and Unifax payables.
7 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 5 - Repurchase of Common Stock - Effect on Stockholders' Equity - -------------------------------------------------------------------- In April 2000, the Company announced that its Board of Directors had authorized the repurchase in the open market from time to time of up to an aggregate of 315,000 shares of the common stock of the Company. On August 8, 2000, the Board of Directors authorized the repurchase of an additional 315,000 shares and on September 6, 2000, the Board of Directors authorized the repurchase of another 315,000 shares of the common stock of the Company in the open market from time to time. This brings the total shares of the Company's common stock authorized to be repurchased and retired to 945,000 shares. As of September 30, 2000, the Company had purchased and retired an aggregate of 571,400 shares of its common stock at a cost of $3,784,934 of which $280,798 was allocated to capital and $3,504,136 was allocated to retained earnings. 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 reinvestments of profits into property or equipment, the cash flow generated from operations usually results in improved liquidity for the Company. Crusader historically generates a significant amount of cash as a result of its holdings of unearned premium reserves, reserves for loss payments, and its capital and surplus. Crusader's loss 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 September 30, 2000, the Company had cash and investments of $100,478,554 (at amortized cost) of which $95,484,721 (95%) were investments of Crusader. As of the quarter ended September 30, 2000, the Company had invested $97,202,470 (at amortized cost) or 97% of its invested assets in fixed maturity obligations. In accordance with Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company is required to classify its investments in debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading securities. Although all of the Company's investments are classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments. The Company's investments in fixed maturity obligations of $97,202,470 (at amortized cost) include $22,171,977 (23%) of pre-refunded state and municipal tax-exempt bonds, $9,015,691 (9%) of U.S. treasury securities, $65,614,802 (68%) of high-quality industrial and miscellaneous bonds, and $400,000 of certificates of deposit. The tax-exempt interest income earned for the three and nine months ended September 30, 2000, was $289,585 and $930,266, respectively. The tax-exempt interest income earned for the three and nine months ended September 30, 1999, was $345,940 and $1,124,231, respectively. The balance of the Company's investments are in equity securities 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 investment policy limits investments in any one company to $2,000,000. This limitation excludes bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues. The Company's investment guidelines on equity securities limit investments in equity securities to an aggregate maximum of $2,000,000. All of the Company's investments are high-grade investment quality, all state and municipal tax-exempt fixed maturity investments are pre-refunded issues, and all certificates of deposits are FDIC insured. 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS (continued) - ------------------------ In April 2000, the Company announced that its Board of Directors had authorized the repurchase in the open market from time to time of up to an aggregate of 315,000 shares of the common stock of the Company. On August 8, 2000, the Board of Directors authorized the repurchase of an additional 315,000 shares and on September 6, 2000, the Board of Directors authorized the repurchase of another 315,000 shares of the common stock of the Company in the open market from time to time. This brings the total shares of the Company's common stock authorized to be repurchased and retired to 945,000 shares. As of September 30, 2000, the Company had purchased and retired an aggregate of 571,400 shares of its common stock at a cost of $3,784,934. These shares were purchased using cash-on-hand and the proceeds from the maturities of short-term investments. Although material capital expenditures may also be funded through borrowings, the Company believes that its cash and short-term investments at year end, net of trust restriction of $2,896,447, statutory deposits of $2,725,000, and the dividend restriction between Crusader and Unico plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next twelve months without the necessity of borrowing funds. State of Washington Regulatory Proceeding - ----------------------------------------- In August 1999 the Insurance Commissioner of the State of Washington announced that she would seek to impose a $307,000 fine, seek repayment of policy service fees to Washington policyholders including interest at the rate of 12% per annum (estimated to be approximately $780,000 plus interest to November 5, 2000, of $360,000), seek payment of all back premium taxes owed on the subject service fees including appropriate penalties required for delinquent taxes (estimated to be approximately $16,000 plus penalties), and seek to suspend Crusader's Certificate of Authority to do business in the state of Washington for a period of 120 days. The Insurance Commissioner alleged that a service fee of $250 per policy, which was charged by a Washington agent after the Company became admitted in the state of Washington, is premium and subject to rate filing requirements and premium taxes. This service fee was first charged by the Washington agent under his broker's license in 1992, when the Company began its operation in Washington as a non-admitted insurer. The Company believes that the nature of the service fee did not change in 1995 when the Company became admitted in Washington and believes that the service fee continued to be a broker fee and is not subject to rate filing requirements or premium taxes. Crusader commenced pursuit of its legal remedies, starting with a demand for an administrative hearing. That administrative hearing ended on February 7, 2000. On May 5, 2000, the administrative hearing officer, an employee of the Washington Commissioner's Office, rendered her decision against the Company and ordered that all of the sanctions previously stated be imposed. The order states that the $307,000 fine be paid on or before August 5, 2000; that refunds to policyholders be completed by November 5, 2000; that all back premium taxes on the subject service fees be paid on or before May 5, 2001; and that Crusader's Certificate of Authority to do business in the state of Washington be suspended from May 20, 2000, through September 17, 2000. The Company and the Insurance Commissioner agreed to a stay of the administrative hearing officer's decision pending the outcome of the Company's appeal in the superior court for the state of Washington. Premium written in the state of Washington was $215,380 for the three months and $608,195 for the nine months ended September 30, 2000. The Company does not believe it has done anything improper and does not believe that the outcome of this matter will have a materially adverse effect on its financial statements. No accruals have been made in the September 30, 2000, financial statements for the sanctions described above; however, the Company has accrued $30,000 that it estimates is the remaining amount it will incur in the legal and administrative cost of the appeal. City of Los Angeles Business License - ------------------------------------ On September 13, 2000, the City of Los Angeles audited Unico (parent company only) for the years 1997, 1998 and 1999 with respect to its Los Angeles business license gross receipts tax. The audit resulted in an assessment of $97,681, plus interest of $24,196, plus penalty of $39,072, for a total due of $160,949. The assessment was based on the city's position that expenses of Unico's subsidiaries that are paid by Unico (parent company) are subject to the gross receipts business tax when those expenses are reimbursed by the subsidiaries to Unico. The Company disagrees with the audit findings and has appealed the matter. A hearing is expected to take place in December 2000. As of September 30, 2000, the Company has accrued $25,000 that it estimates will cover the cost of the appeal and an estimate of the gross receipts tax, penalty, and interest that may ultimately become due based on the information currently available. 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS (continued) - ------------------------- Year 2000 - --------- Subsequent to December 31, 1999, the Company has not experienced adverse effects as a result of Year 2000 issues from either internal or external sources. However, due to the unusual nature of the problem and lack of historical experience with Year 2000 issues, it is difficult to predict with certainty if there may be other computer or infrastructure problems that may occur and affect the Company and its customers or suppliers. Due to the fact that the Company has not experienced any adverse effects of Year 2000 issues through the date of this report, the Company does not anticipate it will be adversely materially affected by any future Year 2000 events from its internal operations or from others with whom the Company directly or indirectly does business. Although there are no material commitments for capital expenditures as of the date of this report, the Company anticipates that it will spend approximately $150,000 out of working capital on upgrading and replacing its computers over the next twelve months. b) Results of Operations: - -------------------------- All comparisons made in this discussion are comparing the three and nine months ended September 30, 2000, to the three and nine months ended September 30, 1999, unless otherwise indicated. The Company's net income decreased $902,212 (85%) to $155,430 for the three months and $3,122,021 (69%) to $1,402,511 for the nine months ended September 30, 2000, compared to net income of $1,057,642 for the three months and $4,524,532 for the nine months ended September 30, 1999. Total revenues decreased $290,177 (3%) for the three months and $1,373,235 (5%) for the nine months ended September 30, 2000, when compared to the three and nine months ended September 30, 1999. PREMIUM EARNED before reinsurance decreased $380,720 (4%) to $8,226,204 for the three months and decreased $1,820,165 (7%) to $24,436,649 for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. Intense price competition that has effected previous periods appears to have bottomed out in the quarter ended September 30, 2000, as reflected by the slight growth in written premium during the quarter as described below. Although the Company attempts to be competitive on price, it believes that maintaining adequate rates is a better business strategy than increasing premium writings at inadequate rates. PREMIUM CEDED decreased $129,010 (6%) to $2,136,835 for the three months and $391,055 (7%) to $5,090,947, for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. Although earned premium ceded decreased, the ratio of earned premium ceded to earned premium remained approximately 26% for the comparable three month periods and approximately 21% for the comparable nine month periods. Earned premium ceded consists of both premium ceded under the Company's current reinsurance contracts and premium ceded to the Company's provisionally rated reinsurance contract. Premium ceded under the provisionally rated contract, which was canceled on a runoff basis effective December 31, 1997, is subject to adjustment based on the amount of losses ceded, limited by a maximum percentage that can be charged by the reinsurer. The change in premium ceded between the quarter and year-to-date periods is as follows: Three Months Nine Months Ended Ended September 30, 2000 September 30, 2000 ------------------ ------------------ (Decrease) in ceded premium (excluding provisionally rated premium ceded) $(113,073) $(401,082) Increase (decrease) in provisionally rated premium ceded ( 15,937) 10,027 ------- ------- Net decrease in ceded premium $(129,010) $(391,055) ======= ======= PREMIUM WRITTEN before reinsurance increased $173,052 (2%) to $8,446,530 for the three months and decreased $471,523 (2%) to $24,995,194 for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS (continued) - ------------------------- Crusader's written premium by state is as follows:
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ Increase Increase 2000 1999 (Decrease) 2000 1999 (Decrease) ---- ---- -------- ---- ---- -------- California $7,375,848 $7,139,128 $236,720 $21,500,890 $21,931,544 $(430,654) Arizona 253,954 230,150 23,804 935,004 791,597 143,407 Washington 215,380 272,990 (57,610) 608,195 734,330 (126,135) Ohio 205,523 156,710 48,813 510,860 403,759 107,101 Pennsylvania 116,978 92,189 24,789 464,455 502,655 (38,200) Oregon 105,254 193,675 (88,421) 383,677 583,302 (199,625) Montana 116,421 127,943 (11,522) 373,088 345,634 27,454 Texas 19,503 16,408 3,095 128,651 92,143 36,508 Nevada 7,801 9,278 (1,477) 47,925 18,730 29,195 Kentucky 16,503 35,007 (18,504) 24,682 63,023 (38,341) Idaho 13,365 - 13,365 17,767 17,767 --------- ---------- ------- ---------- ---------- ------- Total $8,446,530 $8,273,478 $173,052 $24,995,194 $25,466,717 $(471,523) ========= ========= ======= ========== ========== =======
NET INVESTMENT INCOME, excluding realized investment gains, increased $27,743 (2%) to $1,530,414 for the three months and $109,467 (2%) to $4,569,128 for the nine months ended September 30, 2000, compared to investment income of $1,502,671 for the three months and $4,459,661 for the nine months ended September 30, 1999. Although average fixed maturity (at amortized value) and short-term investments decreased 4%, the mix of the taxable and tax-exempt fixed maturity investments changed. Tax-exempt securities, which generally carry a lower yield than taxable securities, decreased to $22,171,977 (23% of fixed maturities) at September 30, 2000, compared to $28,198,842 (28% of fixed maturities) as of September 30,1999. GROSS COMMISSION AND FEE INCOME decreased $79,920 (5%) to $1,383,049 for the three months and increased $31,437 (1%) to $4,267,109 for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. The decrease for the three and increase for the nine months consisted of the following: Three Months Ended Nine Months Ended September 30, 2000 September 30, 2000 ------------------ ------------------ Workers' compensation program $ 8,002 $(28,689) Other commission and fee income 7,361 32,216 Daily automobile rental insurance program (9,213) 49,008 Service fee income (12,876) (14,433) Health and life insurance program (73,194) (6,665) ------ ----- Increase (decrease) in commission and fee income $(79,920) $31,437 ====== ====== The decrease in gross commission and fee income from the health and life insurance program for the three months ended September 30, 2000, compared to the three months ended September 30, 1999, was primarily due to the recognition of a $95,000 bonus commission in the three month ended September 30, 1999. Excluding the effect of this bonus commission, total commission and fee income would have increased $15,080 (1%) for the three months and $126,437 (3%) for the nine months when compared to the comparable periods of the prior year. LOSSES AND LOSS ADJUSTMENT EXPENSES were 83% of net premium earned for the three and 76% of net premium earned for the nine months ended September 30, 2000, compared to 63% for the three months and 55% for the nine months ended September 30, 1999. This increase was primarily due to an increase in prior year losses (adverse development) of approximately $1,096,000 in the three months and $2,170,000 in the nine months ended September 30, 2000, compared to a reduction in prior period losses (favorable development) of approximately $149,000 in the three months and approximately $2,053,000 in the nine months ended September 30, 1999. Although the methodology used by the Company in determining case and IBNR reserves during the three and nine months ended September 30, 2000, is consistent with prior years, the Company has not reduced its IBNR reserves as it did in previous years due to uncertainty resulting from various settlements and/or verdicts in excess of case reserves which occurred during 1999 and the three and nine months ended September 30, 2000. 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS (continued) - ------------------------- POLICY ACQUISITION COSTS consist of commissions, premium taxes, inspection fees, and certain other underwriting costs that are related to the production of Crusader insurance policies. These costs include both Crusader expenses and allocated expenses of other Unico subsidiaries. Crusader's reinsurers pay 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 were 34% of net premium earned for the three months and 32% for the nine months ended September 30, 2000, compared to 33% of net premium earned for the three months and 30% of net premium earned for the nine months ended September 30, 1999. SALARIES AND EMPLOYEE BENEFITS decreased $29,830 (3%) to $1,067,731 for the three months and increased $12,162 (0%) to $3,247,594 for the nine months ended September 30, 2000, compared to salary and employee benefits of $1,097,561 for the three months and $3,235,432 for the nine months ended September 30, 1999. COMMISSIONS TO AGENTS/BROKERS increased $2,665 (1%) to $330,569 for the three months and increased $18,813 (2%) to $987,364 for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. OTHER OPERATING EXPENSES decreased $34,621 (6%) for the three months and increased $25,472 (1%) for the nine months ended September 30, 2000, compared to the three and nine months ended September 30, 1999. INCOME TAX PROVISION provided a benefit of $29,325, (23%) of income before taxes in the three months and decreased to 20% of income before taxes for the nine months ended September 30, 2000, compared to 28% of income before taxes in the three months and 29% in the nine months ended September 30, 1999. This change was primarily due both to the decrease in taxable income in the current three month period and to tax-exempt interest income which comprised 195% of income before taxes in the three months and 45% in the nine months ended September 30, 2000, compared to 20% in the three months and 15% in the nine months ended September 30, 1999. EARNINGS PER SHARE were effected by the reduction in the weighted average shares outstanding for the three month period from 6,304,953 to 5,923,682 and for the nine month period from 6,255,774 to 6,166,220 primarily as a result of the Company's repurchase of its outstanding common stock which is described under "Liquidity and Capital Resources." The effect of inflation on net income of the Company during the three and nine months ended September 30, 2000, and the three and nine months ended September 30, 1999, was not significant. Forward Looking Statements - -------------------------- Certain statements contained herein, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not historical facts are forward looking. These statements, which may be identified by forward-looking words or phrases such as "anticipate," "appears," "believe," "expect," "intend," "may," "should," and "would" involve risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties could cause actual results to differ materially from these forward-looking statements. Factors which could cause actual results to differ materially include continuation of intense price competition, premium rate adequacy relating to competition or regulation, actual versus estimated claim experience, regulatory changes or developments, unforeseen calamities, general market conditions, the Company's ability to introduce new profitable products, the outcome of the state of Washington proceedings, the outcome of the appeal of the City of Los Angeles business license assessment, and the Company's ability to expand geographically. 12 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- The Company's consolidated balance sheet includes a substantial amount of invested assets whose fair values are subject to various market risk exposures including interest rate risk and equity price risk. The Company's invested assets consist of the following:
September 30 December 31 Increase 2000 1999 (Decrease) ---- ---- -------- Fixed maturity bonds (at amortized value) $96,802,470 $98,942,275 $(2,139,805) Short-term cash investments (at cost) 2,929,137 5,968,173 (3,039,036) Equity securities (at cost) 164,170 164,170 - Certificates of deposit (over 1 year, at cost) 400,000 200,000 200,000 ----------- ----------- --------- Total invested assets $100,295,777 $105,274,618 $(4,978,841) =========== =========== ==========
There have been no material changes in the composition of the Company's invested assets or market risk exposures since the end of the preceding fiscal year end. PART II - OTHER INFORMATION 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: November 10, 2000 By: /s/ Erwin Cheldin ------------- Erwin Cheldin Chairman of the Board, President and Chief Executive Officer, (Principal Executive Officer) Date: November 10, 2000 By: /s/ Lester A. Aaron --------------- Lester A. Aaron Treasurer, Chief Financial Officer, (Principal Accounting and Principal Financial Officer) 13 EX-27 2 0002.txt FDS --
7 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 99,248,974 0 0 46,080 0 0 99,295,054 182,777 5,870,843 4,509,685 119,145,845 39,591,195 17,171,688 2,374,874 0 0 0 0 2,817,591 49,121,361 119,145,845 19,345,702 4,569,128 2,508 4,945,519 14,744,673 6,205,450 6,149,844 1,762,890 360,379 1,402,511 0 0 0 1,402,511 0.23 0.23 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----