American Eagle maintains its home office in Dallas, Texas, where the Company leases approximately 50,000 square feet of space in a 17 story office building at an annual rental of approximately $760,000. The lease expires on June 16, 2001. The Company maintains a branch office in Sacramento, California, leasing an aggregate of approximately 11,000 square feet of office space at an annual rental of approximately $252,000. The lease expires on January 31, 1998. The Company maintains a branch office in Baltimore, Maryland, leasing approximately 1,210 square feet of office space at an annual rental of approximately $18,150 each year. The lease expires on December 31, 1997.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto of American Eagle Group, Inc. and its subsidiaries (the "Company").
As used in this discussion, gross premiums produced means the gross premiums written by American Eagle Insurance Company ("AEIC"), the Company's significant subsidiary, and by other companies for which the Company has authority to issue policies that are marketed, underwritten and serviced by the Company.
The following table depicts the total amount of gross premiums produced by the Company, the portion of the gross premiums produced that were gross premiums written for other companies, and the amount of premiums which AEIC has assumed from such other companies. Gross premiums written is the portion of the gross premiums produced for AEIC together with the premiums AEIC assumes from such other companies. AEIC cedes a portion of its gross premiums written to reinsurers for reinsurance protection. The ceded premiums reduce the amount of gross premiums written, resulting in the net premiums written by AEIC. The gross premiums produced for other companies may generate commission income for the Company but do not provide an opportunity to generate an underwriting profit unless AEIC assumes premiums and related risk from the other companies. The net premiums written by AEIC provide an opportunity to generate underwriting profit but can result in underwriting losses.
to an additional 196,200 shares of Series D Preferred Stock if the Company elected to issue additional Series D Preferred Stock for the first five years in lieu of paying the quarterly cash dividends due on the Series D Preferred Stock, and the issuance of up to 10,403,810 shares of Common Stock upon conversion of the Series D Preferred Stock. The agreement also required the Company to record a $15 million reserve addition in its financial results for the fourth quarter of 1996. Based upon additional data, analyses and evaluations, including analysis from its independent actuary, the Company increased the level of the reserve addition to approximately $30.0 million. After the announcement of the withdrawal from the transportation program for local and intermediate-haul truckers at the beginning of the fourth quarter of 1996, the Company ended the quarter with higher transportation loss levels than in prior quarters, while premium levels declined faster than originally anticipated. Losses from the auto dealer program, which was discontinued in 1995, also continued at higher-than-anticipated levels. The year-end actuarial analysis, taking these patterns into account, resulted in significant reserve additions for incurred-but-not-reported ("IBNR") losses and related reinsurance costs for these lines of business. The remainder of the reserve additions are predominantly increases in reserves for IBNR losses and related reinsurance costs for the aviation lines of business. Of the total $30.0 million reserve addition, approximately $19.1 million resulted from increases in IBNR losses, and the remainder resulted from increased levels of ceded reinsurance premiums.
Gross premiums produced decreased 16.7% to $151.2 million in 1996 from $181.6 million in 1995. Of this decrease, 7.8% was produced by the P&C Division, 10.7% was produced by the Aviation Division,
Gross premiums produced for other companies is comprised of premiums written for other companies which are assumed by the Company and those premiums written for other companies for higher coverage limits which are retained by the other companies. Such amounts increased 34.6% to $21.0 million in 1996 from $15.6 million in 1995 as a result of writing more business on policies of companies rated at least "A-" by A.M. Best Company because of the decline in the rating of the Company.
Ceded premiums decreased 9.2% to $46.6 million in 1996 from $51.3 million in 1995. The ceded premiums in the Aviation Division decreased 30.6% to $29.0 million in 1996 from $41.8 million in 1995 as a result of improved ceded loss experience. The ceded premiums in the P&C Division increased 79.2% to $16.3 million in 1996 from $9.1 million in 1995 as a result of deteriorating loss experience. The ceded premiums in the Marine Division increased, generally, consistently with the increase in gross premiums produced.
Agency operations is that portion of business not focused on premium-generating insurance company underwriting operations. The operations consisted of the generation of commission income offset by operating expense. Agency operations, net, were approximately $0.4 million in 1996 and 1995.
Losses and loss adjustment expenses, net of reinsurance, were 100.2% of earned premiums, net of reinsurance in 1996 as compared to 88.8% in 1995. The ratio of losses and loss adjustment expenses to earned premiums, net of reinsurance, is referred to as the loss ratio. The Aviation Division loss ratio decreased to 75.6% in 1996 from 92.2% in 1995. The Aviation Division losses include approximately $12.9 million of the $30.0 million reserve addition previously discussed herein. Losses in the Aviation Division recorded in 1996 applicable to prior years were $7.5 million, with most of the amounts related to the 1995 year. The P&C Division loss ratio increased to 169.4% in 1996 from 82.6% in 1995. These losses include approximately $16.6 of the $30.0 million reserve addition previously described. Losses recorded in 1996 applicable to prior years for the P&C Division were approximately $10.8 million and related primarily to the commercial automobile liability coverages of the transportation program. The Marine Division loss ratio decreased to 74.8% in 1996 from 80.0% in 1995. The improvement in the Aviation Division loss ratio in 1996 compared to 1995, is primarily attributable to the underwriting enhancements made in late 1995 and early 1996 for the commercial aviation book of business. The P&C Division loss ratio increased in 1996 due to the continued adverse results of the auto dealer program, which was discontinued in the fourth quarter of 1995, and the adverse results in 1996 for the transportation program, which was discontinued in the fourth quarter of 1996.
Policy acquisition and other underwriting expenses were 44.6% of earned premiums, net of reinsurance, in 1996 and 36.4% of earned premiums, net of reinsurance, in 1995. The ratio of policy acquisition and other underwriting expenses, computed on a GAAP basis, to earned premiums, net of reinsurance, is referred to as the expense ratio. The increase in the expense ratio in 1996 compared to 1995 was due to an increase in net commission expense and a reduction in new premium production. In a period of declining premium production, as occurred between 1996 and 1995, not only are expenses incurred in the current period not deferred to future periods because the book of business is decreasing, but expenses deferred in prior periods when the book was growing are expensed in the current period.
A measure of the Company's underwriting performance is its combined ratio, which is the total of its loss ratio and expense ratio. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. The Company's combined ratio increased to 144.8% in 1996 from 125.2% in 1995 as a result of the factors discussed above.
The Aviation Division discontinued writing coverages for the flying club segment and certain classes in the instruction and rental and the charter segments. The discontinued segment and classes, together, represented less than 10% of the Aviation Division's total 1995 book of business, but had significant adverse impact on the overall underwriting results of the Division. In 1995, the P&C Division discontinued its auto dealer program, which represented the smallest of the three P&C Division segments. This segment had gross premiums produced of $9.9 million in 1995, or 19.7% of total P&C Division gross premiums produced.
Due to the significance of the special charge on the Company's 1995 financial results, the following discussion will present 1995 results including and excluding the effect of the special charge, where applicable.
Gross premiums produced increased 8.6% to $181.6 million in 1995 from $167.2 million in 1994. Of this increase, 4.1% was produced by the P&C Division, 2.5% was produced by the Aviation Division, and 2.0% was produced by the Marine Division. The Aviation Division's gross premiums produced increased 3.4% to $128.1 million in 1995 from $123.9 million in 1994. This growth was due to an increase in policies in force, rate increases and continued increases in the value of private aircraft. Gross premiums produced by the P&C Division increased 15.7% to $50.1 million in 1995 from $43.3 million in 1994. This growth relates to increased policies in force and expansion into additional states. The Marine Division, which began operations in 1995, produced gross premiums of $3.3 million.
Gross premiums written increased 8.2% to $172.2 million in 1995 from $159.1 million in 1994 primarily as a result of the factors noted in the three preceding paragraphs.
Ceded premiums decreased 18.8% to $51.3 million in 1995 from $63.1 million in 1994. As part of the 1994 and 1995 aviation treaty renewals, a change was made whereby the Company received less ceding commission and cedes less premiums. The result of this change is to leave unaltered the agreed-upon net cost of reinsurance, but it increases the expense ratio due to the reduction in ceding commission income, and decreases the loss ratio due to having more retained premium. The full financial impact of this change occurred in 1995. Also, the P&C Division treaties were renewed at lower costs.
Net premiums written increased 26.0% to $121.0 million in 1995 from $96.0 million in 1994 as a result of the increase in gross premiums written and the Company retaining more of the gross premiums written.
Investment income, net of related expenses, increased 33.9% to $5.5 million in 1995 from $4.1 million in 1994, while average invested assets increased 22.3% to $100.3 million in 1995 from $82.0 million in 1994. A portion of the increase in average invested assets was a result of having the proceeds for the initial public offering for a full year in 1995. These proceeds increased the Company's investment portfolio by approximately $20.1 million in May 1994. The yield for the year increased to 5.5% from 5.0% as a result of investing the proceeds of the initial public offering for a full year in 1995, and significantly reducing the level of equity securities in September of 1994. At the end of 1995, there were no equity investments.
Agency operations is that portion of business not focused on premium-generating insurance company underwriting operations. The operations consisted of the generation of commission income offset by operating expense. Agency operations, net, declined from $0.9 million in 1994 to a $0.4 million in 1995 primarily as a result of the charge-off of certain uncollectible balances.
Income tax provision (benefit) was a tax benefit of 35.8% of the loss before income tax benefit in 1995 compared to income tax provision of 31.9% in 1994. The income tax benefit in 1995 resulted from the Company's ability to carryback losses to prior years and recover previously paid taxes.
Net income (loss) was a net loss of $13.1 million in 1995 as compared to net income of $7.1 million in 1994.
As a holding company, AEIC is the principal asset of the Company. The Company's cash flow depends primarily on dividends and tax allocation payments from AEIC. The Company also retained approximately $2.9 million of the net proceeds of the sale of the Series D Preferred Stock on December 31, 1996 for general corporate purposes.
The ability of AEIC to pay dividends to its parent is subject to certain regulatory restrictions. During 1996, AEIC paid no dividends to the Company. Based on regulatory restrictions presently in effect, the maximum amount available for payment of dividends to the Company by AEIC without the prior approval of regulatory authorities is $2.0 million if at the time of payment AEIC has earned surplus at least equal to the amount of the dividend. At December 31, 1996, AEIC had earned surplus of $0.0 as a result of receiving permission from the Department of Insurance of the State of Texas to reset earned surplus to zero at December 31, 1996. However, no dividend can be paid prior to January 1, 1998. The Company believes that it has adequate cash to meet its needs for the next twelve months.
At December 31, 1996 and 1995, the carrying value of the Company's total investments, including cash and cash equivalents, was $89.1 million and $106.8 million, respectively. The decrease in total investments in 1996 was primarily a result of the negative cash flow from insurance operations.
To the Stockholders and Board of Directors of American Eagle Group, Inc.:
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Eagle Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (In Thousands Except Per Share Data)
American Eagle Group, Inc. (the "Company") is an insurance holding company that, through its subsidiaries, markets and underwrites specialized property and casualty insurance coverages in selected niche markets. The Company has organized its business into three divisions: Aviation, Property & Casualty ("P&C") and Marine. The Aviation Division is one of the largest providers of general aviation insurance in the United States based on net premiums written. The Company's general aviation business consists primarily of nonairline commercial aviation coverages, airport coverages and pleasure and business aviation coverages. The P&C Division markets and underwrites commercial insurance programs for selected artisan contractors ("Artisan") and local and intermediate-haul truckers ("Transportation"). Transportation was discontinued in December 1996. The Marine Division markets and underwrites an insurance program for private yachts navigating the inland and coastal waters of the United States.
In December 1996, the Company issued 350,000 shares of Series D Cumulative Convertible Redeemable Preferred Stock ("Series D Preferred Stock") which resulted in $33,164 of proceeds, net of issuance costs of $1,836. Of the net proceeds, $13,250 was used to repay the Company's note payable to a bank, $17,000 was contributed to the capital and surplus of American Eagle Insurance Company ("AEIC"), the Company's significant subsidiary, and the remainder was used for general corporate purposes.
For the years ended December 31, 1996 and 1995, the Company reported net losses of $44.4 million and $13.1 million, respectively. The net losses were primarily the result of reserve additions (including incurred-but-not-reported losses) and reinsurance costs. As a result of the effect of the 1996 net loss on statutory policyholders' surplus on AEIC, in March 1997, A.M. Best lowered its rating of AEIC to "D." This reduction could have a material impact on AEIC's ability to generate premium income. The loss in policyholders' surplus also restricts the amount of premium income that AEIC can write. The Company expects that the rating revision will increase the amount of business that the Company assumes from other companies that provide "A" rated policies, and it will substantially reduce the amount of business the Company directly writes for its own account in the future.
The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have a readily determinable fair value and for all investments in fixed income securities. Such investments are classified in three categories and accounted for as follows:
o Held to maturity - Investments in fixed income securities that the Company has the positive intent and ability to hold to maturity and are carried at amortized cost.
o Available for sale - Investments in fixed income and equity securities not classified as either held-to- maturity securities or trading securities. These securities are purchased with the original intent to hold for extended periods but may be available to be sold to maximize the Company's investment yields and liquidity requirements in response to market conditions or modifications in the Company's investment policy. Available- for-sale securities are carried at fair value and changes in unrealized gains and losses, net of deferred taxes, are recorded as a direct increase or decrease to stockholders' equity.
o Trading securities - Investments in fixed-income and equity securities that are bought and held principally for the purpose and objective of selling them in the near term and generating profits on short-term differences in price. Trading securities are carried at fair value and changes in unrealized gains and losses are included in earnings. The Company does not engage in securities trading activities.
Gains or losses on maturities or sales of investments are determined using the specific identification method. If a decline in fair value of an equity or fixed income security is other than temporary, the security is written down to estimated fair value with the write-down recognized as a reduction of net investment income. No such reductions were required in 1996, 1995 or 1994.
At December 31, 1996, fixed income and short-term investments with a book value of $5,864 were on deposit with or pledged to state regulatory authorities to meet statutory requirements, and short-term investments of approximately $1,965 have been pledged under letter of credit arrangements to secure future payments of losses. In addition, at December 31, 1996, short-term investments of $8,940 were held on deposit under the Company's reinsurance contracts.
Property and equipment, net of accumulated depreciation, of $3,849 and $3,265 at December 31, 1996 and 1995, respectively, were recorded as a component of Other Assets. Accumulated depreciation totaled approximately $3,610 and $3,247 at December 31, 1996 and 1995, respectively.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on management estimates, no impairment exists at December 31, 1996.
Future adjustments to the amounts recorded at December 31, 1996, resulting from the continued review process as well as differences between estimates and ultimate payments or recoveries, will be reflected in the Company's statements of income in future periods when such adjustments become known. Such adjustments could be material to the Company's financial position and results of operation.
In the normal course of business, the Company reduces the loss that may arise from catastrophes or other events that cause unfavorable underwriting results through reinsurance arrangements. Losses recoverable from reinsurers are estimated in a manner consistent with the associated claim.
Reinsurance premiums (including reinstatement premiums), commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Expense allowances received in connection with reinsurance ceded have been accounted for as a reduction of the related policy acquisition costs.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of fair value for stock-based compensation granted to employees. The statement allows companies to adopt the provisions of the statement, or to disclose the effects of the statement, and is effective beginning in 1996. The Company has elected to continue accounting for stock- based compensation under APB Opinion No. 25 and will elect to follow the disclosure-only provisions of SFAS No. 123. (See Note 8.)
Interest expense paid during 1996, 1995 and 1994 was approximately $1,132, $987 and $800, respectively. Income taxes paid during 1996, 1995 and 1994 were approximately $0, $1,284 and $3,465, respectively.
The 1994 and 1995 consolidated financial statements differ from the presentation previously reported as a result of certain reclassifications between captions in the balance sheets and the statements of income to conform to the 1996 presentation. These reclassifications had no effect on the Company's stockholders' equity, net income or cash flows.
Reinsurance does not relieve the Company from its liabilities under the original policies to the extent that the reinsuring companies fail to meet their obligations under reinsurance contracts. Management evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Management believes that the allowances at December 31, 1996, are adequate to cover known and anticipated losses. At December 31, 1996 and 1995, the Company's consolidated balance sheets reflected the following reinsurance recoverable balances and the related allowances for doubtful accounts:
Net investment income for the years ended December 31, 1996, 1995 and 1994, comprised primarily of interest and dividends, was derived from the following sources:
Realized pretax gains (losses) on the sales of investments for the years ended December 31, 1996, 1995 and 1994, are as follows:
(1) Original cost of fixed income securities adjusted for amortization of premiums and accretion of discounts.
Note payable at December 31, 1996 and 1995, was as follows:
The income tax provision (benefit) for the years ended December 31, 1996, 1995 and 1994, consisted of the following:
Certain income and expense items are recognized for financial reporting purposes and for income tax purposes in different periods. Deferred taxes are provided in the consolidated financial statements to account for these "temporary" differences. The primary sources of the Company's temporary differences are attributable to the discounting of reserves for losses and loss adjustment expenses for income tax purposes, recognition of unearned policy premium income, differences in depreciation methods, provisions for uncollectible accounts and differences in the amortization period for deferred acquisition costs. Except for the effects of the reversal of such net deductible temporary differences, the Company is not currently aware of any factors which would cause any significant differences between taxable income and pre-tax book income in future years. However, there can be no assurances that there will be no significant differences in the future between consolidated taxable income and consolidated pre-tax book income if circumstances change (such as, for example, changes in tax laws or the Company's financial condition or performance).
At December 31, 1996, the Company had a net operating loss carryforward for financial reporting purposes of approximately $45.0 million. In connection with the issuance of the Series D Preferred Stock, (see Note 8), the Company underwent a change in ownership for purposes of Section 382 of the Internal Revenue Code of 1986. As a result, the utilization of the Company's net operating loss carryforward will be limited to approximately $1.9 million per year through 2011.
o Under SAP, policy acquisition costs, such as commissions, premium taxes, fees, and other costs of underwriting policies are charged to current operations as incurred, whereas, the related written premium is included in earnings on a pro-rata basis over the period covered by the policy;
o Under SAP, certain assets, designated as "Nonadmitted Assets" (such as prepaid expenses) are charged against surplus;
o Under SAP, certain reserves are established in amounts which differ from amounts which would be provided in conformity with GAAP.
The unaudited statutory capital and surplus of AEIC as of December 31, 1996 and 1995, was $20,351 and $50,465, respectively. Unaudited statutory net income (loss) of AEIC for the years ended December 31, 1996, 1995 and 1994 was $(45,629), $(15,735) and $2,943, respectively.
The insurance subsidiaries must maintain a minimum amount of statutory capital and surplus to satisfy regulatory requirements. At December 31, 1996, AEIC had unaudited statutory capital and surplus of $20,351 with a minimum requirement of $16,533 and AMIC had unaudited statutory capital and surplus of $4,031 with a minimum requirement of $250. As a result of the Company's 1996 net loss and resulting decline in statutory capital, the Company has been requested by the Insurance Department of the State of Texas to submit a capital plan outlining the actions the Company plans to take to improve overall statutory capital levels.
The insurance subsidiaries are subject to various regulatory restrictions which limit the maximum amount of annual dividends allowed to be paid. Generally, dividends may only be paid from earned surplus arising from the business, and then the maximum dividend that may be paid without prior regulatory approval is limited to the greater of (i) 10% of statutory surplus or (ii) the lesser of 100% of net investment income, or net income, for the prior year. Dividends exceeding these limitations can be made subject to approval by the domiciliary insurance regulatory authorities. Based on regulatory restrictions presently in effect, the maximum amount available for payment as dividends to the Company by AEIC without the prior approval of regulatory authorities is $2.0 million, if at the time of payment AEIC has earned surplus at least equal to the amount of dividend. At December 31, 1996, AEIC earned surplus (deficit) was reset to zero. AEIC received permission from the Department of Insurance of the State of Texas to reset earned surplus to zero at December 31, 1996 by transferring from the paid-in capital account the amount necessary to bring the earned surplus account to zero. However, no dividend can be paid prior to January 1, 1998.
In June 1990, the Company issued 162,857 shares of Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") in exchange for the cancellation of the outstanding principal balance of the Company's acquisition notes payable. Cash dividends of 6% are payable in quarterly installments. The preferred shares are redeemable by the Company at any time at a price of $10 per share plus accrued and unpaid dividends, and are mandatorily redeemable at $10 per share plus accrued and unpaid dividends as follows: 30,000 shares - December 31, 1997 and all remaining shares on December 31, 1998. Pursuant to the mandatory redemption provisions, 20,000 shares were redeemed on January 15, 1997.
In December 1996, the Company issued 350,000 shares of Series D Preferred Stock for a purchase price of $100 per share. The Series D Preferred Stock has a liquidation value of $100 per share and ranks junior to the Series B Preferred Stock with respect to payment of dividends and payments or distributions upon liquidation.
The Series D Preferred Stock is convertible into Common Stock at any time at the option of the holder at a conversion price of $5.25 per share (subject to antidilution provisions). The Company has reserved 10,403,810 shares of Common Stock for the conversion.
The Series D Preferred Stock may be redeemed for cash by the Company at any time. If, however, redemption occurs on or before December 31, 2003, the Company will pay the redemption price and issue warrants to purchase the number of shares of Common Stock of the Company into which the redeemed Series D Preferred Stock could have been converted. Such warrants would have an exercise price of $5.25 per share (subject to antidilution provisions) and would expire on December 31, 2003. The Company is required to redeem 10% of the outstanding shares of Series D Preferred Stock on the first business day of
January of each year beginning 2008, with all remaining shares required to be redeemed on the first business day of January 2017. The redemption price is $100 per share plus accrued and unpaid dividends.
In May 1994, the Company issued 3,563,750 shares of Common Stock through an initial public offering, which resulted in $32,037 of proceeds, net of issuance costs of $3,601, to the Company. Of the net proceeds, $10,156 was used to redeem all of the Company's Series C Cumulative Preferred Stock, including accrued dividends, $20,100 was contributed to the capital and surplus of AEIC, and the remainder was used for general corporate purposes.
The Company has six stock option plans for officers, directors, and key employees of the Company: the 1991 Non-Qualified Stock Option Plan, the three Amended and Restated P&C Stock Option Plans, the 1994 Stock Incentive Plan, and the 1994 Director Stock Option Plan. Under the plans, vesting periods are established at the time of grant but typically range up to three years, and exercise prices are at fair market value at the time of grant. In connection with the issuance of the Series D Preferred Stock, certain stock options outstanding were cancelled and new options granted at fair market value with new vesting periods and expiration dates. Stock option expiration dates may vary from 10 years to 15 years from the date of grant. Option prices per share at December 31, 1996 ranged from $4.525 to $11.52, with a weighted average of $5.89. There were no significant differences between the historical results of operations and net income (loss) per common share and the pro-forma amounts required under SFAS No. 123.
employment within five years after the date of closing of the initial public offering for any reason other than retirement, death, or disability. As a result of the issuance of the Series D Preferred Stock, in accordance with the plan, the restrictions were eliminated, and the shares were distributed to the plan participants.
Effective December 1, 1993, the Company's Employee Savings Plan was amended and restated as the Employee Profit Sharing and Savings Plan (the "Savings Plan"). Employees who have completed six months of service are eligible to participate in the Savings Plan. Participants may make contributions to the Savings Plan through payroll deductions of up to 15% of their base compensation on a tax-deferred basis and up to 10% of their base compensation on an after-tax basis. The Company matches 50% of each participant's tax deferred contributions to the Savings Plan up to 6% of the participant's compensation. Participants are 100% vested in their contributions and the Company's matching contributions. Contributions made by the Company to participant accounts totaled $228, $210 and $209 for the years ended December 31, 1996, 1995 and 1994, respectively.
o Financial instrument liabilities with variable rates have an estimated fair value equal to the recorded book balance.
Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values. The Company's remaining assets and liabilities which are not considered financial instruments have not been valued differently than has been customary with historical cost accounting.
In the ordinary course of business, the Company and its subsidiaries have been named defendants in various lawsuits seeking both actual and punitive damages. Although the ultimate outcome of these matters is uncertain, management, based on consultation with outside legal counsel, is of the opinion that their resolution will not have a material adverse effect on the Company's financial position or results of operations.
Total rent expense for the years ended December 31, 1996, 1995 and 1994, was approximately $1,097, $1,035 and $852, respectively.
The table below sets forth the Company's operating results by quarter for 1996 and 1995.