Through its various subsidiaries, the Company owns and utilizes in its operations offices in Salt Lake City, Utah used for corporate and banking and lending activities (totaling approximately 80,200 sq. ft.). Subsidiaries of the Company own a facility (totaling approximately 158,500 sq. ft.) primarily used for manufacturing located in Georgia and facilities and land in California and Oregon (totaling approximately 107,100 square feet and 390 acres, respectively) used for winery operations.
Primarily during 2000, the Company invested an aggregate of $89,000,000 in the common stock of FNF, a publicly traded title insurance holding company. The Company sold its investment in FNF common stock for $179,900,000, resulting in a pre-tax gain of $90,900,000 in 2000.
Except for the Euro denominated debt of Fidei, which is non-recourse to the Company, the Parent maintains the principal borrowings for the Company and its non-banking subsidiaries and has provided working capital to certain of its subsidiaries. These borrowings have primarily been made from banks through the Company's credit agreement facility and through public financings.
In June 2000, the Company replaced its $100,000,000 unsecured bank credit facility with a new unsecured bank credit facility of $152,500,000, which bears interest based on the Eurocurrency Rate or the prime rate and matures in June 2003. As of December 31, 2000, no amounts were outstanding under this bank credit facility.
yield securities, special situation investments and distressed securities and provides trading services to its customers and clients. Generally, the Company may not redeem its interest in JPOF II during 2001. For the year ended December 31, 2000, the Company recorded $17,300,000 of pre-tax income from this investment under the equity method of accounting.
In October 2000, the Company agreed to invest $75,000,000 in a new issue of convertible preference shares of WMIG, which is expected to represent approximately 4% of WMIG on an as converted basis. This investment is subject to the closing of an acquisition by WMIG of CGU Corporation, the U.S. property and casualty operations of CGNU plc, which, although subject to certain contingencies, currently is expected to occur during 2001.
At December 31, 2000, a maximum of $20,900,000 was available to the Parent as dividends from its regulated subsidiaries without regulatory approval. Additional amounts may be available to the Parent in the form of loans or cash advances from regulated subsidiaries, although no amounts were outstanding at December 31, 2000 or borrowed to date in 2001. There are no restrictions on distributions from non-regulated subsidiaries. The Parent also receives tax sharing payments from subsidiaries included in its consolidated income tax return, including certain regulated subsidiaries. Because of the tax loss carryforwards available to the Parent and certain subsidiaries, together with current interest deductions and corporate expenses, the amount paid by the Parent for income taxes has been substantially less than tax sharing payments received from its subsidiaries. Payments from regulated subsidiaries for dividends, tax sharing payments and other services totaled $8,300,000 for the year ended December 31, 2000.
In connection with the commitment, the Company entered into a ten-year management agreement with FINOVA pursuant to which the Company agreed to provide general management services, including services with respect to the formulation of a restructuring plan. For these services, the Company will receive an annual fee of $8,000,000, the first of which was paid when the agreement was signed.
The Company provides collateralized automobile loans to individuals with poor credit histories. The Company's investment in automobile loans was $410,300,000 and $277,100,000 at December 31, 2000 and 1999, respectively. These loans are primarily funded by deposits generated by the Company's deposit-taking facilities and by brokers. Deposits raised in 2000 totaled $228,000,000 and had an average maturity of 12 months and a weighted average interest rate of 6.6%.
For the year ended December 31, 2000, the Company's insurance segment contributed 20% of total revenues from continuing operations and, at December 31, 2000, constituted 20% of total assets. Historically, the Company's property and casualty insurance operations have provided commercial and personal lines of insurance in the New York metropolitan area.
During the fourth quarter of 2000, the Empire Group announced that it would no longer accept any new private passenger automobile policies from any agents. Existing policies of private passenger automobile insurance will be either sold, non-renewed or cancelled in accordance with New York insurance law. If this book of business is not sold, it is expected that the Empire Group will continue to issue renewal policies over the next several years as required by applicable insurance law. The Empire Group also announced that all statutory automobile policies (public livery vehicles) would be non-renewed effective March 1, 2001, due to poor underwriting results.
On March 1, 2001, the Empire Group announced that, effective immediately, it would no longer issue any new (as compared to renewal) insurance policies and that it has filed plans of orderly withdrawal with the New York Insurance Department as required. Existing commercial lines policies will be non-renewed or canceled in accordance with New York insurance law or replaced by Tower. The Empire Group will continue to be responsible for the remaining term of its existing policies and all claims incurred prior to the expiration of these policies. For commercial lines, the Empire Group will thereafter have no renewal obligations for those policies. Under New York insurance law, the Empire Group is obligated to offer renewals of homeowners, dwelling fire, personal insurance coverage and personal umbrella for a three-year policy period; however, the Tower Agreement provides that Tower must offer replacements for these policies.
The closing of the transaction is subject to the approval of the New York Insurance Department.
The Empire Group is currently exploring its options for the future. Assuming the Tower Agreement is consummated, the Empire Group will only have renewal obligations for remaining personal lines insurance (primarily automobile) not replaced by Tower, the remaining policy term of all existing policies and a claim run-off operation. The Empire Group may commence new property and casualty insurance operations if a new business model with an acceptable expense structure can be developed, enter into a joint venture with another property and casualty insurance operation, explore entering the claim services business or commence a liquidation. There may be other options that the Company will explore, but no assurance can be given at this time as to what the ultimate plan will be.
The Empire Group's combined ratios increased in 2000 primarily due to unfavorable loss reserve development from prior accident years, increased loss adjustment expenses for newly outsourced claims and adverse development in loss adjustment expenses. In addition, these ratios increased due to reduced service fees, higher 2000 accident year loss ratios, higher severance costs and overhead costs which, although lower, have not declined commensurate with the reduced premium volume. The Empire Group's combined ratios increased in 1999 primarily due to the reduction in premium volume at a rate greater than the reduction in net underwriting and other costs. In addition, in 1999, the expense ratios were adversely affected by the reduction in service fees, increased expenditures related to the installation of new information systems, providing Internet access to agents and severance costs. Included in the Empire Group's results for 2000, 1999 and 1998 were $53,000,000, $18,300,000 and $42,300,000, respectively, for increases in estimated losses and loss adjustment expenses for prior accident years.
During 1999, the Empire Group experienced unfavorable development due to an increase in severity of 1998 accident year losses in the assigned risk automobile and voluntary private passenger automobile lines, and 1996 accident year losses in certain classes of the commercial automobile line. As a result, the Empire Group increased its reserves by $7,500,000 for assigned risk automobile, $5,000,000 for voluntary private passenger automobile and $4,500,000 for commercial automobile lines.
During 1998, the Empire Group reviewed the adequacy of the reserves carried for its open claims' files, focusing on workers' compensation, commercial auto and other commercial liability lines of business. As part of the review, substantially all open workers' compensation claim files were reviewed for every accident year up to and including 1998. Additionally, during 1998, the Empire Group reorganized the commercial auto claims department. As part of this realignment, more complex claims files were reviewed by the most experienced claims examiners and assumptions regarding average claims severity and probable ultimate losses were revised. Accordingly, reserves were strengthened by $13,000,000 for workers' compensation, $14,000,000 for commercial automobile and $14,000,000 for other commercial liability lines of business.
For 1999, although finance revenues increased due to greater average loans outstanding, pre-tax results declined primarily due to an increase in the provision for loan losses for the larger volume of loans outstanding. In addition, 1998 results reflected the pre-tax gain of $6,500,000 from the sale of substantially all of the Company's executive and professional loan portfolio. The increase in average loans outstanding was primarily due to the purchase of a subprime automobile portfolio in December 1998, the Tranex acquisition in 1999 and increased new loan originations.
For 2000, revenues for the plastics division modestly increased to $65,000,000 as compared to $64,000,000 for 1999. Gross profit and pre-tax income for the plastics division declined slightly in 2000 primarily due to higher raw material costs. In 1999, revenues of the plastics division increased 13% over 1998. In addition, despite rising raw material prices, the gross profit increased 16% to $24,900,000.
Investment and other income declined in 2000 as compared to 1999 primarily due to gains recognized in 1999 from the sale of Caja, The Sperry and Hutchinson Company, Inc., PIB and an equity interest in an associated company aggregating $177,700,000. Investment and other income also decreased in 2000 due to a reduction in investment income ($11,500,000), resulting primarily from the payment of the Dividend and debt repurchases in 1999 and decreased rent income (due to a smaller base of remaining real estate properties) and decreased gains from sales of real estate properties related to Fidei ($18,500,000). This decrease was partially offset by increased gains from sales and foreclosures of various domestic real estate properties ($50,800,000), the prepayment penalty related to the Conseco notes ($7,500,000) and revenues relating to MK Gold ($12,300,000), which the Company began consolidating in the fourth quarter of 1999. During 2000, Fidei sold 38 real estate properties; 53 properties remain at December 31, 2000, all of which are currently being marketed for sale.
Investment and other income in 1999 included the aforementioned gains on sale of Caja ($120,800,000), The Sperry and Hutchinson Company, Inc. ($18,700,000) and PIB ($29,500,000), and the gain on sale of an equity interest in an associated company ($8,700,000). Investment and other income also increased in 1999 due to increased rent income and gains from sales of real estate properties, of which $49,800,000 related to Fidei. Such increases were partially offset by a reduction in investment income resulting primarily from payment of the $811,900,000 dividend in 1999 and debt repurchases in 1999, a reduction in investments held by the Empire Group and the gain in 1998 on the sale of the executive and professional loan portfolio.
Payment of the Dividend required the Company to make an offer to purchase all of its 8-1/4% Notes and its 7-7/8% Notes at a purchase price of 101% of principal, plus accrued and unpaid interest thereon. Pursuant to such offers, in 1999, the Company repurchased $80,900,000 principal amount of the 8-1/4% Notes and $113,300,000 principal amount of the 7-7/8% Notes for $198,000,000, including accrued interest. The Company recorded an extraordinary loss, net of income tax benefit, of $2,600,000 on this early extinguishment of debt.
Net securities gains (losses) for 2000 include pre-tax security gains related to the Company's investments in FNF ($90,900,000) and JTP ($24,800,000), as described above. During 1998, due to declines in values that were deemed other than temporary, the Company recorded a pre-tax writedown of $75,000,000 related to its investments in Russian and Polish debt and equity securities. Such writedowns are reflected in the caption "Net securities gains (losses)." At
December 31, 2000, the remaining book value of the Company's investments in these securities was $1,200,000.
Interest expense for 2000 reflects increased customer banking deposits and higher interest rates thereon, partially offset by a reduction in interest expense related to debt repurchases in 1999. The increase in interest expense in 1999 as compared to 1998 primarily relates to Fidei's outstanding debt, partially offset by the Company's debt repurchases in 1999.
Statements included in this Report may contain forward-looking statements. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may relate, but are not limited, to projections of revenues, income or loss, capital expenditures, fluctuations in insurance reserves, plans for growth and future operations, competition and regulation as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this Report, the words "estimates", "expects", "anticipates", "believes", "plans", "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings, including general economic and market conditions, changes in foreign and domestic laws, regulations and taxes, changes in competition and pricing environments, regional or general changes in asset valuation, the occurrence of significant natural disasters, the inability to reinsure certain risks economically, the adequacy of loss reserves, prevailing interest rate levels, weather related conditions that may affect the Company's operations, consummation of the Tower Agreement, adverse selection through renewals of the Empire Group's policies, the Company's ability to develop an alternate business model for the Empire Group, adverse environmental developments in Spain that
Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) below.