On December 31, 2002, the Company entered into a sale-leaseback transaction for $15.8 million of equipment and leasehold improvements and $44.2 million of software. The leaseback transaction has been accounted for as a capital lease. For a summary of the Company's lease obligations, see discussion under Item 7 of this report and Notes 7 and 12 of the Notes to Consolidated Financial Statements.
- ------------ 1 Amount shown for 2002 is a capital lease obligation (see Note 7 of the Notes to Consolidated Financial Statements). 2 Amount shown for 2002 would be $343,661 were it not for the sale-leaseback transaction described in Note 7 of the Notes to Consolidated Financial Statements. 3 Amount shown for 2002 would be 2.8:1 were it not for the sale-leaseback transaction referred to above. 4 Results from these markets are not expected to be material in 2004.
Transactions with Related Parties. Since 1995, we have entered into several transactions with AIG subsidiaries, including various reinsurance agreements, which are discussed under "Item 1. Business." At December 31, 2003, reinsurance recoverables, net of payables, from AIG subsidiaries were $5.8 million, compared to $18.4 million at December 31, 2002. Other transactions with AIG subsidiaries, which are immaterial, have resulted from competitive bidding processes for certain corporate insurance coverages and certain software and data processing services. In October 2003, as a result of a competitive bidding process, we entered into an agreement with an AIG subsidiary to provide investment management services to us; the agreement was subject to approval by the California Department of Insurance, which granted such approval in October 2003. Apart from the foregoing, we have no material transactions with related parties.
We sponsor defined benefit pension plans that may obligate us to make contributions to the plans from time to time. We do not expect to be required to contribute to our qualified defined benefit plan in 2004, and contributions required for 2005, if any, and future years will depend on a number of unpredictable factors including the market performance of the plan's assets and future changes in interest rates that affect the actuarial measurement of the plan's obligations.
We have no material purchase obligations or other on- or off-balance sheet long- term liabilities or obligations at December 31, 2003 (see further discussion in Note 2 of Notes to Consolidated Financial Statements).
development differed by 5 percent from those assumptions utilized in the year-end 2003 personal auto lines loss reserve review, there would be approximately a $21.0 million redundancy or deficiency in the overall personal auto lines reserve position.
Management has discussed our critical accounting policies and estimates, together with any changes therein, with the Audit Committee of our Board of Directors.
- ----------- 1 Impact Community Capital LLC, is a limited partnership that was established under California's COIN program (California Organized Investment Network), a voluntary association of California insurers providing funding for low cost housing projects.
Stock-based compensation. Under the provisions of Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation, we have elected to continue using the intrinsic-value method of accounting for stock-based awards granted to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, we have not recognized in income any compensation expense for the fair value of stock options awarded to employees. Companies electing to continue to follow the intrinsic-value method must make pro forma disclosures, as if the fair value based method of accounting had been applied. A summary of the expense that would have been recorded, together with the underlying assumptions, had we recognized for the fair value of stock-based awards is included in Notes 2 and 14 of the Notes to Consolidated Financial Statements.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation.
PLAN ASSETS The Company's pension plan weighted-average asset allocations at December 31, 2003 and 2002, by asset category are as follows:
The Company does not currently expect to be required to contribute to its qualified plan in 2004.
Dana Poss v. 21st Century Insurance Company was filed on June 13, 2003, in Los - ------------------------------------------- Angeles Superior Court. The Complaint requests injunctive and restitutionary relief under Business and Professions Code ("B&P") Sec.17200 for alleged unfair business practices in violation of California Insurance Code ("CIC") Sec.1861.02(c) relating to company rating practices. The Company is vigorously defending the action.
fees. 20th Century contends that the court should not award damages to Aguilera as a result of his own inequitable conduct. A jury trial on the remaining issues is set for June 1, 2004.
Shares of common stock issued pursuant to the exercise of employee stock options and restricted stock grants were 4,000 in 2003, 69,657 in 2002 and 39,893 in 2001. No shares were repurchased in 2003 or 2002.
- ----------- 1 The ratio cannot be calculated, as the denominator is zero.
The following table summarizes actual results of the Company and pro forma results as if 21st of Arizona had been consolidated with the Company for the year ended December 31, 2001.