-----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, Gv+4OSDuSpj9wqYTMZ1t6TWFJMQ3vL8nJHh+4+LpkTWsIChRYmZjLhEsr4yn+l4x 0klFWlPDg2+6+G9GVHQgqw== 0000912057-96-017145.txt : 19960813 0000912057-96-017145.hdr.sgml : 19960813 ACCESSION NUMBER: 0000912057-96-017145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 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: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03978 FILM NUMBER: 96608428 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 APRIL 1, 1996 TO JUNE 30, 1996 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___ 5,972,668 Number of shares of common stock outstanding as of August 5, 1996 1 of 10 PART 1 FINANCIAL STATEMENTS FINANCIAL INFORMATION UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, March 31, 1996 1996 ----------- ----------- ASSETS Investments Available for sale: Fixed maturities at market (amortized cost: June 30, 1996 $71,069,101; March 31, 1996 $68,085,376) $71,295,182 $68,888,277 Equity securities at market (cost: June 30, 1996 $325,500; March 31, 1996 $995,237) 320,000 998,075 Short-term investments, at cost 4,036,128 3,466,032 ----------- ----------- Total Investments 75,651,310 73,352,384 Cash 366,554 154,346 Accrued investment income 1,296,786 1,261,049 Accounts and notes receivable, net 8,113,365 8,141,243 Reinsurance recoverable: Paid losses and loss adjustment expenses 60,589 212,368 Unpaid losses and loss adjustment expenses 4,072,876 4,324,305 Prepaid reinsurance premiums 1,417,018 1,363,624 Deferred policy acquisition costs 4,430,633 4,333,708 Property and equipment (net of accumulated depreciation) 268,346 278,618 Deferred income taxes 1,764,816 1,523,778 Other assets 1,329,977 871,954 ----------- ----------- Total Assets $98,772,270 $95,817,377 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Unpaid losses and loss adjustment expenses $38,477,046 $37,006,458 Unearned premiums 20,136,176 19,646,502 Advance premiums 1,542,311 1,588,628 Funds held as security for performance 727,899 758,135 Accrued expenses and other liabilities 1,982,267 2,332,398 Income taxes payable 730,997 98,097 Note payable - bank 1,500,001 2,000,001 Dividends payable 418,087 - ----------- ----------- Total Liabilities $65,514,784 $63,430,219 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY Common stock, no par - authorized 10,000,000 shares, issued and outstanding shares 5,972,668 at June 30, 1996, and 5,957,738 at March 31, 1996 2,835,326 2,834,801 Net unrealized investment gains 145,583 531,787 Retained earnings 30,276,577 29,020,570 ----------- ----------- Total Stockholders' Equity 33,257,486 32,387,158 ----------- ----------- Total Liabilities and Stockholders' Equity $98,772,270 $95,817,377 ----------- ----------- ----------- -----------
See notes to consolidated financial statements. 2 of 10 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED
June 30, June 30, 1996 1995 ------------ ------------ REVENUES Insurance Company Revenues Premium earned $ 9,382,132 $ 9,513,175 Less: Premium ceded 1,015,932 2,000,824 ----------- ----------- Net premium earned 8,366,200 7,512,351 Investment income 978,179 893,846 Net realized investment gains 191,174 - Other income 60 713 ----------- ----------- Total Insurance Company Revenues 9,535,613 8,406,910 Other Revenues from Insurance Operations Gross commissions and fees 1,473,105 1,407,633 Investment income 33,316 38,035 Finance charges and late fees earned 293,172 311,865 Other income 3,491 5,149 ----------- ----------- Total Revenues 11,338,697 10,169,592 ----------- ----------- EXPENSES Losses and loss adjustment expenses 4,715,902 4,122,774 Policy acquisition costs 2,249,451 2,085,647 Salaries and employee benefits 920,857 924,321 Commissions to agents/brokers 331,490 325,890 Other operating expenses 726,901 883,111 ----------- ----------- Total Expenses 8,944,601 8,341,743 ----------- ----------- Income Before Income Taxes 2,394,096 1,827,849 Income Tax Provision 720,002 500,543 ----------- ----------- Net Income 1,674,094 1,327,306 Retained earnings at beginning of quarter 29,020,570 23,490,124 Dividend declared (418,087) (417,035) ----------- ----------- Retained Earnings at End of Quarter $30,276,577 $24,400,395 ----------- ----------- ----------- ----------- PER SHARE DATA Weighted Average Shares Outstanding: 6,224,843 6,092,477 Earnings Per Share: $0.27 $0.22
See notes to consolidated financial statements. 3 of 10 UNICO AMERICAN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED
June 30, June 30, 1996 1995 ----------- ----------- Net Income $ 1,674,094 $ 1,327,306 Adjustments to reconcile net income to net cash from operations Depreciation & amortization 27,015 25,659 Bond amortization, net 149,628 156,569 Net realized (gain) on sale of securities (191,174) - Changes in assets and liabilities Premium, notes & investment income receivables (7,859) (263,992) Reinsurance recoverable 403,208 (645,221) Prepaid reinsurance premiums (53,394) 590,071 Deferred policy acquisition costs (96,925) 2,994 Other assets (458,021) (136,376) Reserve for unpaid losses & loss adjustment expenses 1,470,588 1,903,945 Unearned premium reserve 489,674 (514,952) Funds held as security & advanced premiums (76,553) 30,500 Accrued expenses & other liabilities (350,133) 333,728 Income taxes current/deferred 590,816 133,935 ----------- ----------- Net Cash Provided from Operations 3,570,964 2,944,166 ----------- ----------- Investing Activities Purchase of fixed maturity investments (5,031,728) (6,010,939) Proceeds from maturity of fixed maturity investments 1,895,000 4,045,000 Purchase of equity securities - cost (1,589,162) - Proceeds from sale of equity securities 2,450,073 - Net (increase) in short-term investments (566,721) (351,299) Additions to property & equipment (16,743) (9,385) ----------- ----------- Net Cash (Used) by Investing Activities (2,859,281) (2,326,623) ----------- ----------- Financing Activities Proceeds from issuance of common stock 525 - Repayment of note payable - bank (500,000) (165,000) Repayment of note payable - related party - (500,000) ----------- ----------- Net Cash (Used) by Financing Activities (499,475) (665,000) ----------- ----------- Net increase (decrease) in cash 212,208 (47,457) Cash at beginning of period 154,346 173,232 ----------- ----------- Cash at End of Period $366,554 $125,775 ----------- ----------- ----------- ----------- Supplemental cash flow information Cash paid during the period for: Interest $36,353 $102,697 Income taxes $130,000 $44,615
See notes to consolidated financial statements. 4 of 10 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 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. 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. 5 of 10 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE 2 - RESTRICTED FUNDS As required by law, the Company segregates from its operating accounts premiums collected from insureds into separate trust accounts. As of a June 30, 1996, these trust funds represent $2,553,569 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 3 - FUNDS HELD AS SECURITY Funds held as security for performance represent funds received in order to guarantee the contractual obligations entered into with customers. NOTE 4 - STATUTORY CAPITAL AND SURPLUS As of June 30, 1996, 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 June 30, 1996, 651,470 options were outstanding of which 523,997 were currently exercisable. During the quarter ended June 30, 1996, options on 28,530 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 and other 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. 6 of 10 UNICO AMERICAN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 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 June 30, 1996, and June 30, 1995. NOTE 9 The results of operations for the three months ended June 30, 1996, should not be considered as necessarily indicative of the results to be expected for the full year. 7 of 10 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 June 30, 1996, the Company had cash and cash investments of $75,797,283 (at amortized cost) of which $72,071,761 (95%) were investments of Crusader. As of the quarter ended June 30, 1996, the Company had invested $71,069,101 (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 a regional telephone company 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 $71,069,101 (at amortized cost) include $40,972,393 (58%) of tax exempt, pre-refunded state and municipal bonds, $18,425,232 (26%) of U.S. treasury securities, and $11,671,476 (16%) in high quality industrial bonds and certificates of deposit. The tax exempt interest income earned for the three months ended June 30, 1996, and 1995, was $443,257 and $494,455, 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. All Unico investments are high-grade investment quality. On May 17, 1996, the Board of Directors declared a dividend of $0.07 (seven cents) per common share payable on August 14, 1996, to shareholders of record at the close of business on July 31, 1996. The Company's premium finance subsidiary, American Acceptance Corporation ("AAC"), has a bank credit line of $6,000,000 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. 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 $2,553,569 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 Insurance Department. 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. 8 of 10 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 quarter ended June 30, 1996 to the quarter ended June 30, 1995, unless otherwise indicated. The Company's net income for the quarter ended June 30, 1996, increased $346,788 (26%) to $1,674,094 while revenues increased $1,169,105 (11%) to $11,338,697. The increase in net income was primarily the result of a $96,917 (7%) increase in underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs), a $79,614 (9%) increase in investment income, realized investment gains on the sale of equities of $191,174, and a decrease in other operating expenses of $156,210 (18%). PREMIUM EARNED before reinsurance decreased $131,043 (1%) for the current quarter. The decrease in premium earned was primarily attributable to Crusader's decision to intentionally reduce its Other Liability line in an effort to improve the utilization of its surplus. Earned premium in the Other Liability line of business was $153,527, a decrease of $785,119 from the prior year. Crusader's primary line of business is its Commercial Package line, representing approximately 98% of total earned premium for the quarter. This line of business continued to grow with earned premium increasing $706,843 (8%) to $9,198,359 for the quarter. Ceded premium decreased from 21% of premium earned to 11%, primarily as a result of the reduction in Other Liability premium which cedes a higher percentage of premium than Crusader's other lines, and to reduced reinsurance rates primarily resulting from an increase in loss retention from $100,000 to $150,000 on April 1, 1995. LOSSES AND LOSS ADJUSTMENT EXPENSES were 56% of net premium earned for the quarter ended June 30, 1996, compared to 55% of net premium earned for the quarter ended June 30, 1995. 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 $163,804 (8%) for the quarter ended June 30, 1996, due to the related increase in Crusader's net earned premium. INVESTMENT INCOME, excluding realized investment gains, increased $79,614 (9%) to $1,011,495 for the quarter ended June 30, 1996, compared to $931,881. This increase was primarily due to a 14% increase (at amortized cost) in invested assets. OTHER OPERATING EXPENSES decreased $156,210 primarily due to a $66,344 decrease in interest expenses as a result of decreased borrowings. There were no significant changes in other revenue or expense items. There were no material items or significant elements included in the results of operations which arose from or were not necessarily representative of the Company's ongoing business. The effect of inflation on net income of the Company during the quarters ended June 30, 1996, and 1995 was not significant. 9 of 10 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: August 7, 1996 By: /s/ Erwin Cheldin -------------------------------------------- Erwin Cheldin Chairman of the Board, President and Chief Executive Officer, (Principal Executive Officer) Date: August 7, 1996 By: /s/ Lester Alan Aaron -------------------------------------------- Lester Alan Aaron Treasurer, Chief Financial Officer, (Principal Accounting and Principal Financial Officer) 10 of 10 EX-27 2 EXHIBIT 27
7 3-MOS MAR-31-1997 APR-01-1996 JUN-30-1996 71,295,182 0 0 320,000 0 0 75,651,310 366,554 60,589 4,430,633 98,772,270 38,477,046 20,136,176 0 2,270,210 1,500,001 0 0 2,835,326 30,422,160 33,257,486 8,366,200 1,011,495 191,174 1,769,828 4,715,902 2,249,451 1,979,248 2,394,096 720,002 1,674,094 0 0 0 1,674,094 .27 .27 0 0 0 0 0 0 0
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