On March 21, 1996, the building was sold by ALIC for a price of $3.5 million. The Company will remain in the building and occupy approximately 16,000 square feet of home office space under a five-year lease at an annual rental of approximately $256,000. In late 1995 the Company began renting approximately 6,000 square feet of office space in Stafford, Texas, to house its executive offices. The annual rental on the five-year lease approximates $70,000.
The loss before income taxes and other items for 1993 was $5,626,000. The 1993 loss is primarily attributable to adverse loss development related to Galaxy's lines of business and several discontinued lines of medical and property and casualty business. The net underwriting losses and overhead in 1993 for these product lines were approximately; $3.1 million for Galaxy, $1.7 million for discontinued medical lines and $1.0 million for discontinued property and casualty lines. In addition, the Company wrote off the remaining goodwill ($1.6 million) associated with the original acquisition of Galaxy. Partially offsetting these losses were gains of $1.7 million and $300,000 related to two of the Company's core product lines, credit insurance and extended service contracts, respectively.
The primary causes for the fluctuation in operating income (loss) before income taxes discussed above are easily identified by comparing policy benefits (claims, loss and loss adjustment expenses) to premiums earned. Except for general and administrative expenses, the remaining items are at expected levels based upon premium levels and product mix. See Table I on page 14.
On December 29, 1995, the Company issued new senior notes (the "Senior Notes")
The Company has reviewed FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which becomes effective in 1996. The Company has also reviewed FASB Statement No. 123, "Accounting for Stock-Based Compensation" which becomes effective in
AUTO LOAN INDEMNITY: The Company was one of multiple defendants in a lawsuit which was settled in early 1994 in state court in Orange County, California, involving the loan loss indemnity product marketed from 1986 through 1988. The Company had previously settled with numerous other plaintiffs by a return of applicable premium. The Company's accrued reserves for this litigation were adequate to cover final settlement costs in 1994.
The change in net unrealized gains (losses) on fixed maturity and equity securities is summarized as follows: Year Ended December 31, 1995 1994 1993
During 1994 and 1993, ACCEL paid interest on these debentures of $63,000 and $151,000, respectively, and made mandatory sinking fund payments of $900,000 and $800,000 during 1994 and 1993, respectively.
Concurrent with this termination, the Company entered into a reinsurance agreement with a different unaffiliated reinsurer (which is also the buyer of the Senior Notes discussed in Note D) to reinsure a substantial portion of the in-force credit life and accident and health insurance business, including the amounts recaptured. This agreement is structured in such a way that as future profits emerge on this block of business, a substantial portion of the Company's share of the profits will be used over the next four to five years to pay fees and interest to the reinsurer and redeem the new Senior Notes of $16,500,000. In connection with this agreement, approximately $40,000,000 of assets were transferred to the reinsurer on December 29, 1995, as agreed to by all parties. The unearned premium reserves and liability for insurance claims subject to cession under this treaty approximates $48,616,000 and $9,919,000, respectively, as of January 1, 1996.
Premiums written and earned in 1995, 1994 and 1993 are summarized as follows:
The tax effects of temporary differences that give rise to significant components of the net deferred tax liability at December 31, 1995 and 1994 are summarized as follows:
The Company has determined the valuation allowance related to the deferred tax assets based on its analysis of future deductible amounts. This analysis included a schedule of the deductibility of nonlife items against life company taxable income pursuant to Section 801 of the Internal Revenue Code and a determination of the realization of losses generated by available for sale securities.
Galaxy unpaid losses and LAE at date of write off (see Note K) - 14,325 -
future grants. During May, 1995, two new Key Employees were granted stock options under ACCEL's Restated Plan. Under the terms of their arrangement with ACCEL, both were granted stock options for ACCEL's common stock in lieu of salary for their first year of service. Options for 150,000 shares were granted at an option price per share of $2.125, the fair value of ACCEL's common stock on the date of grant. The options vest immediately and become exercisable one year following the date of grant; however, they would become exercisable immediately upon either a) a change of control of ACCEL, or b) an involuntary termination. The options would be forfeited if employment with ACCEL was voluntarily terminated prior to May 23, 1996. The options lapse five years from the effective date of grant.
---- ---- ---- Options granted 9,000 8,000 8,000 Average option price per share $ 2.236 $ 4.50 $ 3.50 Options lapsed - - -
ITEM 14 (A) (L) AND (2)--INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY INDEPENDENT AUDITORS' REPORT