MGU Fee Income. The Company earned $15,427,000 of fee income from its MGUs for fiscal 2003. Of this amount $2,619,000 relates to MGU profit sharing revenues.
Loss on Equity Investment. The Company recognized a loss on disposition of equity investments of $733,000 for the year ended September 30, 2002, consisting of $253,000 related to the 1,000,000 SkyNet Global Limited common stock shares and $480,000 related to the 400,000 SkyNet Global Limited preference stock shares. For the year ended September 30, 2001, the Company recognized a charge of $17,195,000, consisting of a $768,000 write down of a note receivable and related interest associated with the sale of Big Sky Network Canada, Limited common shares to China Broadband Corporation, and $16,427,000 of write-downs and realized losses related to various short-term and long-term equity investments.
Selling, General and Administrative. Selling, general and administrative expenses increased $3,451,000, to $4,865,000 for the quarter ended December 31, 2002, compared to $1,414,000 for the quarter ended December 31, 2001. The increase is primarily due to estimated final expenses resulting from staff reductions associated with the December 28, 2000 corporate restructuring plan, the closing of the corporate headquarters in San Francisco and expenses related to corporate legal settlements and arbitration awards.
Restructuring Expense. The Company recognized a restructuring expense of $538,000 for the quarter ended December 31, 2002, related to the plan to close its corporate headquarters in San Francisco, California.
Net cash provided by financing activities for the fiscal year ended December 31, 2003 was $132,000, resulting from the exercise of common stock options.
The results of companies in the insurance and reinsurance industry historically have been subject to significant fluctuations and uncertainties. Factors that affect the industry in general could also cause results to fluctuate. The industry's and the Company's financial condition and results of operations may be affected significantly by:
Restrictions on the ability of Independence American's to pay dividends to the Company;
Individuals who obtain health coverage through self-insured plans cannot currently sue their employer in state court for punitive or compensatory damages, but can seek legal recourse in federal court where an employer can be ordered to cover a wrongfully-denied benefit. In the continuing debate over health care reform, certain federal and state legislation has been proposed which could have the effect of making plan sponsors, administrators, or certain other parties liable for punitive damages in state court. While the Company cannot predict whether any of these proposals will be adopted or what, if any, impact enactment of any of these would have on its reinsurance of medical stop-loss, the number of employers offering health benefits or choosing self-insured plans could be reduced, plans could increase the portion paid by employees (thereby reducing participation), pricing and coverage options could be affected, and the Company could be faced with greater liability exposure.
Cash and cash equivalents consist of cash and highly liquid securities with maturities of three months or less from date of purchase. Restricted cash primarily consists of funds advanced from several insurers and reinsurers. These funds are restricted and are to be used to facilitate expeditious payment of approved claims. The funds are replenished by the insurers and reinsurers as claims are paid by the MGUs.
On January 12, 1999, the Company issued $12,000,000 of its 9% Senior Subordinated Convertible Notes (the "Notes") due January 1, 2001, to a group of institutional investors. In connection with these Notes, the Company issued to these investors warrants to purchase an aggregate of 300,000 shares of the Company's common stock. These warrants had an exercise price of $51.00 per share and expired in 2003.
The Company's tax year end is September 30, and, for the first nine months of 2003, AMIC had a recovery for federal income taxes arising from losses in the fourth quarter of 2002. These losses were fully applied, and the Company began to utilize its NOLs in the fourth quarter of 2003. As long as AMIC utilizes these NOLs, it will not pay any income taxes, except for federal alternative minimum taxes and state income taxes. In the first nine months of 2003, AMIC did not have any provision for federal income taxes on its income statement due to losses arising in the fourth quarter of 2002. Beginning in the fourth quarter of 2003, the Company had a provision for federal income taxes of $969,000 on its income statement, and the utilization of its NOLs reduced the deferred tax asset on its balance sheet.