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, 2000 to March 31, 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
6,304,965
Number of shares of common stock outstanding as of May 12, 2000
1
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31 December 31
2000 1999
---- ----
ASSETS
- ------
Investments
Available for sale:
Fixed maturities, at market value (amortized cost: March 31,
2000 $98,199,836; December 31, 1999 $99,142,275) $96,345,929 $ 97,594,134
Equity securities at market (cost: March 31, 2000
$164,170; December 31, 1999 $164,170) 55,500 66,000
Short-term investments, at cost 5,691,832 5,968,173
----------- -----------
Total Investments 102,093,261 103,628,307
Cash 232,962 105,439
Accrued investment income 1,633,599 2,060,471
Premiums and notes receivable, net 5,809,661 5,496,890
Reinsurance recoverable:
Paid losses and loss adjustment expenses 467,596 19,850
Unpaid losses and loss adjustment expenses 5,613,313 3,964,324
Prepaid reinsurance premiums 29,682 32,438
Deferred policy acquisition costs 4,403,214 4,338,217
Property and equipment (net of accumulated depreciation) 139,557 148,667
Deferred income taxes 1,593,642 1,541,242
Other assets 503,065 642,911
----------- -----------
Total Assets $122,519,552 $121,978,756
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses $42,180,237 $41,592,489
Unearned premiums 16,737,805 16,583,143
Advance premium and premium deposits 2,563,717 2,571,190
Accrued expenses and other liabilities 5,770,723 6,391,137
Dividends payable 945,745 -
---------- ----------
Total Liabilities $68,198,227 $67,137,959
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par - authorized 10,000,000 shares; issued and outstanding
shares 6,304,965 at March 31, 2000, and 6,304,953 at December 31, 1999 $3,098,389 $3,098,389
Accumulated other comprehensive loss (1,295,301) (1,086,565)
Retained earnings 52,518,237 52,828,973
---------- ----------
Total Stockholders' Equity $54,321,325 $54,840,797
---------- ----------
Total Liabilities and Stockholders' Equity $122,519,552 $121,978,756
=========== ===========
See notes to unaudited consolidated financial statements.
2
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31
---------------------------
2000 1999
---- ----
REVENUES
- --------
Insurance Company Revenues
Premium earned $8,116,552 $8,908,324
Premium ceded 1,339,506 1,416,796
--------- ---------
Net premium earned 6,777,046 7,491,528
Net investment income 1,431,490 1,416,410
Net realized investment (losses) - (625)
Other income 5,035 -
--------- ---------
Total Insurance Company Revenues 8,213,571 8,907,313
Other Revenues from Insurance Operations
Gross commissions and fees 1,414,352 1,392,421
Investment income 92,667 64,849
Finance charges and late fees earned 207,134 232,890
Other income 1,562 3,124
--------- ----------
Total Revenues 9,929,286 10,600,597
--------- ----------
EXPENSES
- --------
Losses and loss adjustment expenses 4,950,539 3,379,802
Policy acquisition costs 2,103,351 2,217,491
Salaries and employee benefits 1,081,561 1,115,822
Commissions to agents/brokers 333,128 318,002
Other operating expenses 632,392 659,852
--------- ---------
Total Expenses 9,100,971 7,690,969
--------- ---------
Income Before Taxes 828,315 2,909,628
Income Tax Provision 193,306 877,866
------- ---------
Net Income $635,009 $2,031,762
======= =========
PER SHARE DATA
- --------------
Basic Shares Outstanding 6,304,965 6,224,125
Basic Earnings Per Share $0.10 $0.33
Diluted Shares Outstanding 6,348,793 6,353,779
Diluted Earnings Per Share $0.10 $0.32
See notes to unaudited consolidated financial statements
3
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31
---------------------------
2000 1999
---- ----
Net income $635,009 $2,031,762
Other changes in comprehensive income net of tax:
Unrealized (losses) on securities classified as available-for-sale
arising during the period (208,736) (991,696)
Less: reclassification adjustment for gains included in net income - 86,335
------- ---------
Comprehensive Income $426,273 $1,126,401
======= =========
See notes to unaudited consolidated financial statements
4
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31
2000 1999
---- ----
Cash Flows from Operating Activities
Net income $635,009 $2,031,762
Adjustments to reconcile net income to net cash from operations
Depreciation and amortization 15,647 18,696
Bond amortization, net 150,779 188,439
Net realized loss on sale of securities - 625
Changes in assets and liabilities
Premium, notes and investment income receivable 114,101 (38,983)
Reinsurance recoverable (2,096,735) (1,232,353)
Prepaid reinsurance premiums 2,756 2,063
Deferred policy acquisitions costs (64,997) 62,110
Other assets 139,846 10,904
Reserve for unpaid losses and loss adjustment expenses 587,748 (58,296)
Unearned premium reserve 154,662 (182,429)
Advance premium and premium deposits (7,473) 155,104
Accrued expenses and other liabilities (620,414) 741,279
Income taxes current/deferred 55,130 691,980
------- ---------
Net Cash Provided (Used) from Operations (933,941) 2,390,901
------- ---------
Investing Activities
Purchase of fixed maturity investments (1,954,140) (4,021,750)
Proceeds from maturity of fixed maturity investments 2,735,600 1,510,000
Purchase of equity securities - cost - (3,176,206)
Proceeds from sale of equity securities - 2,896,835
Net increase in short-term investments 286,541 471,801
Additions to property and equipment (6,537) (3,139)
--------- ---------
Net Cash Provided (Used) by Investing Activities 1,061,464 (2,322,459)
--------- ---------
Financing Activities
Proceeds from issuance of common stock - 24
--
Net Cash Provided by Financing Activities - 24
--
Net Increase in Cash 127,523 68,466
Cash at beginning of period 105,439 277,544
------- -------
Cash at End of Period $232,962 $346,010
======= =======
Supplemental Cash Flow Information Cash paid during the period for:
Interest $ - $1,338
Income taxes $25 $175,000
See notes to unaudited consolidated financial statements
5
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 months ended March 31, 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 March 31, 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
March 31, 2000, there were 135,000 options outstanding under this plan. None of
the 135,000 options outstanding under the 1999 stock option plan 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 March 31, 2000 and 1999:
6
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Three Months Ended March 31
---------------------------
2000 1999
---- ----
Basic Earnings Per Share
- ------------------------
Net income numerator $635,009 $2,031,762
Weighted average shares outstanding denominator 6,304,965 6,224,125
Per share amount $0.10 $0.33
Diluted Earnings Per Share
- --------------------------
Net income numerator $635,009 $2,031,762
Weighted average shares outstanding 6,304,965 6,224,125
Effect of diluted securities 43,828 129,654
--------- ---------
Diluted shares outstanding denominator 6,348,793 6,353,779
--------- ---------
Per share amount $0.10 $0.32
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 beginning 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 comprise 83% of
consolidated revenues. 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 March 31
---------------------------
2000 1999
---- ----
Revenues
- --------
Insurance company operation $8,213,571 $8,907,313
Other insurance operations 4,183,349 4,301,613
Intersegment elimination (1) (2,467,634) (2,608,329)
--------- ---------
Total other insurance operations 1,715,715 1,693,284
--------- ---------
Total Revenues $9,929,286 $10,600,597
========= ==========
Income (Loss) Before Income Taxes
- ---------------------------------
Insurance company operation $750,517 $2,952,107
Other insurance operations 77,798 (42,479)
------- ---------
Total Income Before Income Taxes $828,315 $2,909,628
======= =========
Assets
- ------
Insurance company operation $101,776,571 $105,239,708
Intersegment eliminations (2) (162,406) (210,274)
----------- -----------
Total insurance company operation 101,614,165 105,029,434
Other insurance operations 20,905,387 18,739,840
----------- -----------
Total Assets $122,519,552 $123,769,274
=========== ===========
(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
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 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 March 31,
2000, the Company had cash and cash investments of $104,288,800 (at amortized
cost) of which $95,385,768 (91%) were investments of Crusader.
As of the quarter ended March 31, 2000, the Company had invested $98,199,836 (at
amortized cost) or 94% 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 $98,199,836 (at
amortized cost) include $26,229,224 (27%) of pre-refunded state and municipal
tax-exempt bonds, $10,041,191 (10%) of U.S. treasury securities, $61,729,421
(63%) of high-quality industrial and miscellaneous bonds, and $200,000 of
certificates of deposit. The tax-exempt interest income earned for the three
months ended March 31, 2000 and 1999 was $332,395 and $407,965, 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.
On March 1, 2000, the Board of Directors declared a fifteen-cent ($0.15) per
share cash dividend payable on May 19, 2000, to shareholders of record at the
close of business on April 28, 2000.
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. It is expected that any
purchases will be funded from cash-on-hand and 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 $2,982,256, 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 alleges 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
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ----------------------------------------------------------------------
OF OPERATIONS (continued)
- ------------------------
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. Premium written in the state of
Washington in the quarter ended March 31, 2000, was $216,419. The Company
continues to pursue its legal avenues of recourse, the next steps being to seek
a stay of the enforcement of the administrative hearing officer's decision and
to seek an appeal in the superior court for the state of Washington. 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 March 31, 2000, financial
statements for the sanctions described above.
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 which 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.
There are no material commitments for capital expenditures as of the date of
this report.
(b) Results of Operations:
- --------------------------
All comparisons made in this discussion are comparing the quarter ended March
31, 2000, to the quarter ended March 31, 1999, unless otherwise indicated.
The Company's net income for the quarter ended March 31, 2000, decreased
$1,396,753 (69%) to $635,009 compared to $2,031,762 for the quarter ended March
31, 1999. Revenues for the quarter ended March 31, 2000, decreased $671,311 (6%)
to $9,929,286, compared to $10,600,597 for the quarter ended March 31, 1999.
Premium earned before reinsurance decreased $791,772 (9%) to $8,116,552 for the
quarter ended March 31, 2000, compared to $8,908,324 for the quarter ended March
31, 1999. Intense price competition continues to adversely affect the premium
written and earned in nearly all states that the Company does business. Although
the Company attempts to be competitive on price, it believes that maintaining
adequate rates and a favorable loss ratio is a better business strategy than
increasing premium writings at inadequate rates. The Company cannot determine
how long this "soft market" condition will continue.
Premium ceded decreased $77,290 (5%) to $1,339,506 for the quarter ended March
31, 2000, compared to the quarter ended March 31, 1999. Although earned premium
ceded decreased, the ratio of earned premium ceded to earned premium remained
approximately 16%. 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 quarters is as follows:
Decrease in ceded premium ceded under current reinsurance contracts $152,704
Increase in provisionally rated premium ceded 75,414
------
Net decrease in premium ceded $77,290
======
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS (continued)
- -------------------------
Premium written before reinsurance decreased $454,684 (5%) to $8,271,213 for the
quarter ended March 31, 2000, compared to the three months ended March 31, 1999.
The decrease in written premium in California accounted for $355,243 (78%) of
this decrease. Crusader's written premium by state is as follows:
Three Months Ended March 31
--------------------------- Increase
State 2000 1999 (Decrease)
----- ---- ---- ----------
California $7,051,421 $7,406,664 $(355,243)
Arizona 360,498 270,517 89,981
Pennsylvania 217,153 282,302 (65,149)
Washington 216,419 263,878 (47,459)
Oregon 149,629 220,824 (71,195)
Ohio 116,146 120,570 (4,424)
Montana 81,222 87,032 (5,810)
Texas 49,065 58,846 (9,781)
Nevada 22,573 1,141 21,432
Kentucky 7,087 14,123 (7,036)
--------- ---------- --------
Total $8,271,213 $8,725,897 $(454,684)
========= ========= ========
Investment income, excluding realized investment losses, increased $42,898 (3%)
to $1,524,157 for the quarter ended March 31, 2000, compared to $1,481,259 for
the quarter ended March 31, 1999. Although average fixed maturity (at amortized
value) and short-term investments increased less than one percent, 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 $26,229,224 (27% of fixed maturities) at March 31, 2000, compared
to $33,486,161 (34% of fixed maturities) as of March 31,1999.
Commission and fee income increased $21,931 (2%) to $1,414,352 for the three
months ended March 31, 2000, compared to the three months ended March 31, 1999.
This increase consisted of the following:
Health and life insurance program $45,564
Other commission and fee income 7,046
Service fee income 4,379
Daily automobile rental insurance progr (4,575)
Workers' compensation program (30,483)
-------
Net increase in commission and fee income $21,931
======
Losses and loss adjustment expenses were $4,950,539 or 73% of net premium earned
for the quarter ended March 31, 2000, compared to $3,379,802 or 45% of net
premium earned for the quarter ended March 31, 1999. This increase was primarily
due to an increase in reserves for losses of prior years of approximately
$503,000 (adverse development) in the quarter ended March 31, 2000, compared to
a reduction of approximately $1,482,000 in reserves for losses of prior years
(favorable development) in the quarter ended March 31, 1999 - a total change of
$1,985,000.
Although the methodology used by the Company in determining case and IBNR
reserves during the quarter ended March 31, 2000, is consistent with prior
years, the Company is not reflecting favorable development as it did in previous
years due to uncertainty resulting from various settlements and/or verdicts in
excess of reserves which occurred during 1999 and the quarter ended March 31,
2000.
Policy acquisition costs consist of commissions, premium taxes, inspection fees,
and certain other underwriting costs, which are directly 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 31% of net premium earned for the quarter ended March
31, 2000, compared to 30% for the quarter ended March 31, 1999.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS (continued)
- -------------------------
Salaries and employee benefits decreased $34,261 (3%) to $1,081,561 for the
quarter ended March 31, 2000, compared to $1,115,822 for the quarter ended March
31, 1999.
Commissions to agents/brokers increased $15,126 (5%) to $333,128 in the quarter
ended March 31, 2000, compared to the quarter ended March 31, 1999.
Other operating expenses decreased $27,460 (4%) during the quarter ended March
31, 2000, compared to the quarter ended March 31, 1999.
Income tax provision decreased to 23% of income before taxes in the quarter
ended March 31, 2000, compared to 30% in the quarter ended March 31, 1999. This
change was primarily due to tax-exempt interest income which comprised 40% of
income before taxes in the quarter ended March 31, 2000, compared to 14% in the
quarter ended March 31, 1999.
The effect of inflation on net income of the Company during the three months
ended March 31, 2000, and 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," "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 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, and the Company's
ability to expand geographically.
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:
March 31 December 31
2000 1999
---------- -----------
Fixed maturity bonds (at amortized value) $97,999,836 $98,942,275
Short-term cash investments (at cost) 5,691,832 5,968,173
Equity securities (at cost) 164,170 164,170
Certificates of deposit (over 1 year, at cost) 200,000 200,000
----------- -----------
Total invested assets $104,055,838 $105,274,618
=========== ===========
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.
11
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
- ------------------------------
(c) None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 10.1 - Employment Agreement between the Company and Roger Platten
dated November 27, 1996.
Exhibit 10.2 - Employment Agreement between the Company and Cary Cheldin
dated November 27, 1996
Exhibit 10.3 - Amendment to Employment Agreement between the Compamy and
Cary Cheldin dated January 10, 2000.
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, 2000 By: /s/ ERWIN CHELDIN
------------------
Erwin Cheldin
Chairman of the Board, President and Chief
Executive Officer, (Principal Executive Officer)
Date: May 12, 2000 By: /s/ LESTER A. AARON
--------------------
Lester A. Aaron
Treasurer, Chief Financial Officer, (Principal
Accounting and Principal Financial Officer)
12