The effect of inflation on the net income of the Company during the year ended December 31, 2000, was not significant.
Additional information regarding investments and investment income is described in the Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
The Company had net unrealized investment gains of $121,805 as of December 31, 2000, and net unrealized investment losses of $1,086,565 as of December 31, 1999. These amounts are net of deferred taxes.
Recently Issued Accounting Standards - ------------------------------------ Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" is effective for financial statements beginning after December 15, 1998. SOP 98-1 requires that the cost of internally developed software be capitalized. There were no costs incurred for software purchased or developed in the year ending December 31, 2000, which were required to be capitalized.
(*) During 1999, as part of the Company's ongoing reserve review process and loss trending analysis, the Company determined that its average claim costs were increasing and claims were settling for amounts greater than had been anticipated. To address this trend, the Company reviewed its open claim files to ensure that its case reserves and IBNR were adequate. The review process took approximately one year and resulted in increased reserves. The methodology used by the Company in determining case and IBNR reserves is consistent with prior years.
NOTE 8 - DEFERRED POLICY ACQUISITION COSTS - ------------------------------------------ Deferred policy acquisition costs consist of commissions (net of ceding commission), premium taxes, inspection fees, and certain other underwriting costs which are related to and vary with the production of Crusader Insurance Company policies. These costs are incurred by Crusader and include allocated expenses of other Unico subsidiaries. Policy acquisition costs are deferred and amortized as the related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, including investment income.
NOTE 13 - PROFIT SHARING PLAN - ----------------------------- During the fiscal year ended March 31, 1986, the Company adopted the Unico American Corporation Profit Sharing Plan. Employees who are at least 21 years of age and have been employed by the Company for at least two years are participants in the Plan. Pursuant to the terms of the Plan, the Company annually contributes to the account of each participant an amount equal to a percentage of the participant's eligible compensation as determined by the Board of Directors. Participants are entitled to receive benefits under the plan upon the later of the following: the date 60 days after the end of the plan year in which the participant's retirement occurs or one year and 60 days after the end of the plan year following the participant's termination with the Company. However, the participant's interest must be distributed in its entirety no later than April 1 of the calendar year following the calendar year in which the participant attains age 70 1/2 or otherwise in accordance with the Treasury Regulations promulgated under the Internal Revenue Code of 1954 as amended.
with the method of SFAS No. 123, the Company's 2000 net income would have been reduced by $81,771 and 1999 net income would have been reduced $135,453. Net income for 1998 was not affected by the calculation. In addition, 2000 earnings per share (basic and diluted) would have been reduced by $0.01 and 1999 earnings per share (basic and diluted) would have been reduced by $0.02. Calculations of the fair value under the method prescribed by SFAS No. 123 were made using the Black-Scholes option-price model with the following weighted average assumptions used for the 1999 grant: dividend yield 2.46%, expected volatility of 43%, expected lives of 10 years, and risk-free interest rates of 6.09%. No options were granted during 2000.