management and strategic expense reduction and management programs, have contributed significantly to the Company's positive underwriting results over the last several years.
Based on currently available information, management does not presently anticipate that the costs to address the Year 2000 issues will have a material adverse impact on the Company's financial conditions, results of operations or liquidity.
During 1997, FASB issued two statements that were applicable to the Company. Statement No. 130, "Reporting Comprehensive Income," establishes standards for reporting comprehensive income and its components. Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for the way businesses report information about operating segments. The American Institute of Certified Public Accountants ("AICPA") issued a Statement of Position, "Accounting by Insurance and Other Enterprises for Guaranty-Fund and Certain Other Insurance-Related Assessments," which establishes standards of accounting for these items. These new statements and standards are effective for fiscal years beginning after December 31, 1997 and will not have a material impact on the Company's financial statements upon adoption.
Income taxes paid were $11,950,000, $12,900,000 and $21,557,000 for 1997, 1996, and 1995, respectively.
Included in owned land and buildings is $1.5 million of construction in progress at year end 1997. This $10 million project is to be completed by the fall of 1998.
The credit agreement and mortgage loan agreement subject the Company to certain restrictions and covenants related to, among others: the payment of dividends; minimum net worth levels; the sale, lease, transfer or other disposal of properties and assets other than in the ordinary course of business; new indebtedness; the assumption or creation of liens; and maintenance of certain ratios.
The Company was party to both proportional and non-proportional reinsurance agreements in 1997.
The Company provides a Money Purchase Pension Plan for all employees with one or more years of service. Under the Money Purchase Pension Plan, the Company is required to make annual contributions equal to 6% of the eligible compensation of all eligible plan participants.
The Company accounts for its stock option plans in accordance with APB Opinion 25, Accounting for Stock Issued to Employees. Since the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost is recognized under APB Opinion 25. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company is required to provide pro forma information regarding net income and earnings per share as if compensation costs for the Company's stock option plan had been determined using a fair value based estimate. The Company uses the Black-Scholes option-pricing model to determine the fair value of each option at the grant date with the following weighted average assumptions:
The Company is a party to a long-term agreement with a service company which provides data processing services and equipment. Under the agreement the Company is required to pay minimum service charges and resource charges or credits depending on the volume of transactions processed. The minimum service charges are approximately $15.1 million per year and are subject to annual cost of living increases. The agreement expires on December 31, 2001.
The Company and its subsidiaries are routinely engaged in litigation in the normal course of business. In the opinion of management, these proceedings, as well as the litigation described in Part I, Item 3. are not expected to have a material adverse effect on the Company's consolidated financial position, cash flows or operating results. Further liability, if any, of the Company and its subsidiaries for litigation is not determinable at December 31, 1997.