<PAGE>
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
<PAGE>
PART 1
FINANCIAL STATEMENTS FINANCIAL INFORMATION
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2 of 10
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
3 of 10
<PAGE>
UNICO AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
4 of 10
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 71,295,182
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 320,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 75,651,310
<CASH> 366,554
<RECOVER-REINSURE> 60,589
<DEFERRED-ACQUISITION> 4,430,633
<TOTAL-ASSETS> 98,772,270
<POLICY-LOSSES> 38,477,046
<UNEARNED-PREMIUMS> 20,136,176
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,270,210
<NOTES-PAYABLE> 1,500,001
0
0
<COMMON> 2,835,326
<OTHER-SE> 30,422,160
<TOTAL-LIABILITY-AND-EQUITY> 33,257,486
8,366,200
<INVESTMENT-INCOME> 1,011,495
<INVESTMENT-GAINS> 191,174
<OTHER-INCOME> 1,769,828
<BENEFITS> 4,715,902
<UNDERWRITING-AMORTIZATION> 2,249,451
<UNDERWRITING-OTHER> 1,979,248
<INCOME-PRETAX> 2,394,096
<INCOME-TAX> 720,002
<INCOME-CONTINUING> 1,674,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,674,094
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
