-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IFQa2is/kXGuWvqRFkPvB6TVImy9sMTrI6AXKRwVQvVye/BcYznyZbxC4JayuEoc Wzwl2HsBD6s8SDNfa6s28w== 0001030798-98-000098.txt : 19981116 0001030798-98-000098.hdr.sgml : 19981116 ACCESSION NUMBER: 0001030798-98-000098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONEVILLE INSURANCE CO CENTRAL INDEX KEY: 0001036506 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 721341156 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-24739 FILM NUMBER: 98748543 BUSINESS ADDRESS: STREET 1: 633 NORTH STATE ST STE 200 CITY: JACKSON STATE: MS ZIP: 39202-7817 BUSINESS PHONE: 6013527817 MAIL ADDRESS: STREET 1: STONEVILLE INSURANCE CO STREET 2: 633 NORTH STATE ST STE 200 CITY: JACKSON STATE: MS ZIP: 39202-7817 10-Q 1 STONEVILLE INSURANCE COMPANY FORM 10-Q FOR 9/30/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-24739 STONEVILLE INSURANCE COMPANY ----------------------------------------------------------------- (exact name of Registrant as specified in its charter) MISSISSIPPI 72-1341156 - ----------------------------------------------- -------------------- (State or other jurisdiction (I.R.S. Identification Number) of incorporation of organization) 633 North State Street, Suite 200, Jackson, Mississippi 39202-7817 - -------------------------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (601-352-7817) ---------------------- Securities registered pursuant to section 12(g) of the Act: None ------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act if 1934 during the preceding 12 months (or for such shorted period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ( X ) NO () Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class Outstanding at August 12, 1998 Common stock, $1.00 par value 503,384 Shares PART I: FINANCIAL INFORMATION Item 1 - Stoneville Insurance Company Financial Statements Balance Sheets September 30, 1998 and December 31, 1997 Statements of Income and Comprehensive Income Three Months and Nine Months Ended September 30, 1998 and 1997 Statements of Changes in Stockholders' Equity Period Ended December 31, 1997 Nine Months Ended September 30, 1998 Statements of Cash Flows Nine Months Ended September 30, 1998 and 1997 Notes to Financial Statements
STONEVILLE INSURANCE COMPANY Balance Sheets September 30, 1998 and December 31, 1997 September 30, December 31, 1998 1997 -------------- ------------- Assets Investments: Trading securities (at fair value) Equity securities $0 $247 Securities available-for-sale (at fair value) Fixed maturities (amortized cost - $1,495,002 and $1,295,572) 1,539,679 1,320,855 -------------- ------------- Total Investments 1,539,679 1,321,102 Cash and cash equivalents 996,360 425,493 Funds held by ceding companies 652,801 0 Fees receivable 238,030 0 Accrued interest receivable 27,694 29,819 Capital equipment leases at cost less accumulated depreciation of $21,756 and $12,087 87,121 7,292 Prepaid expenses 29,517 25,300 Deferred tax assets 213,396 322,438 Other assets 1,525 575 -------------- ------------- Total Assets $3,786,123 $2,132,019 ============== ============= Liabilities Reserve for losses and loss adjustment expenses $939,688 $0 Unearned premium 629,872 0 Unearned fees 169,021 Accounts payable and accrued liabilities 96,486 117,226 Capital lease obligations 8,689 1,256 -------------- ------------- Total Liabilities 1,843,756 118,482 -------------- ------------- Shareholders' Equity Common stock ($1 par value; 650,000 shares authorized; 503,384 shares issued) 503,384 503,384 Retained earnings 1,394,306 1,484,870 Accumulated other comprehensive income Unrealized gains from investments in securities 44,677 25,283 -------------- ------------- Total Shareholders' Equity 1,942,367 2,013,537 -------------- ------------- Total Liabilities and Shareholders' Equity $3,786,123 $2,132,019 ============== ============= See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY Statements of Income and Comprehensive Income Three Months and Nine Months Ended September 30, 1998 and 1997 Three Months Ended Nine Months Ended September 30, September 30, ------------------------- --------------------------- 1998 1997* 1998 1997* ------------------------- --------------------------- Revenue Premium assumed $210,672 $0 $350,544 $0 Premiums ceded 0 0 0 0 ------------------------- --------------------------- Net premiums earned 210,672 0 350,544 0 Investment income 26,621 47,694 65,466 138,550 Other 131,017 (9,958) 203,229 (19,073) ------------------------- --------------------------- Total Revenue 368,310 37,736 619,239 119,477 ------------------------- --------------------------- Expenses Loss and loss adjustment expenses 39,032 0 118,072 0 Policy acquisition fees 14,747 0 24,538 0 Program administration fees 31,723 52,704 0 Regulatory fees 18,312 5,751 37,997 17,253 General expenses 256,991 109,603 534,393 293,363 ------------------------- --------------------------- Total Expenses 360,805 115,354 767,704 310,616 ------------------------- --------------------------- Net Income Before Income Tax Provision 7,505 (77,618) (148,465) (191,139) Provision (benefit) for income taxes 2,927 (26,045) (57,901) (66,534) ------------------------- --------------------------- Net Income (Loss) $4,578 ($51,573) (90,564) ($124,605) Other Comprehensive Income Unrealized gain (loss) on investments in securities net of income tax affect 21,522 12,914 19,394 15,453 ------------------------- --------------------------- Comprehensive Income (Loss) $26,100 ($38,659) ($71,170) ($109,152) ========================= =========================== Per Share Data Net Income (Loss) $0.01 ($.10) ($0.17) ($0.25) ========== ========= ============ ========= *1997 represents the combined information of two previously separate entities. See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY Statements of Changes in Shareholders' Equity For Periods Indicated Accumulated Common Stock Other Total ------------------- Comprehensive Retained Shareholders' Shares Amount Income Earnings Equity ----------------------------------------------------------------- Balance at December 31, 1996 0 $0 ($9,236) $2,462,693 $2,453,457 1997* Net income (loss) (474,439) (474,439) Issuance of stock upon conversion from a Trust 503,384 503,384 (503,384) 0 to a stock company Net increase in unrealized appreciation of securities available for sale net of tax 34,519 34,519 ----------------------------------------------------------------- Balance at December 31, 1997 503,384 $503,384 $25,283 $1,484,870 $2,013,537 1998 Net income (loss) (90,564) (90,564) Net increase (decrease) in unrealized appreciation of securities available for sale net of tax 19,394 19,394 ----------------------------------------------------------------- Balance at September 30, 1998 503,384 $503,384 $44,677 $1,394,306 $1,942,367 ================================================================= *1997 represents the combined information of two previously separate entities. See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY Statements of Cash Flows Nine Months Ended September 30, 1998 and 1997 1998 1997* ------------- ------------- Cash Flows From Operating Activities Premiums collected $1,223,237 $0 Losses and loss adjustment expenses paid (172,159) (1,124,467) Refunds and premium adjustments paid 0 (63,172) Administrative expenses paid (571,316) (304,595) Income taxes net refund received 166,943 97,071 Investment income received 74,617 154,024 Other income received 123,720 0 Net decrease in trading securities 0 1,676,780 Interest paid (401) 0 ------------- ------------- Net Cash Provided by Operating Activities 844,641 435,641 ------------- ------------- Cash Flows From Investing Activities Proceeds from sales of available-for-sale securities 45,097 2,067 Purchase of available-for-sale securities (251,692) (587,775) Proceeds from maturities of held-to-maturity securities 0 422,220 Transfer of held-to-maturity security to cash equivalent 0 286,242 Capital expenditures (65,037) 0 ------------- ------------- Net Cash Provided by (used in) Investing Activities (271,632) 122,754 ------------- ------------- Cash Flows From Financing Activities Principal payments under capital lease obligations (2,142) (1,845) ------------- ------------- Net Cash (used in) Financing Activities 2,142 (1,845) ------------- ------------- Net Increase in Cash and Cash Equivalents 570,867 556,550 Cash and Cash Equivalents at Beginning of Period 425,493 1,379,935 ------------- ------------- Cash and Cash Equivalents at End of Period $996,360 $1,936,485 ============= ============= Continued *1997 represents the combined information of two previously separate entities. See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY Statements of Cash Flows (Continued) Nine Months Ended September 30, 1998 and 1997 Reconciliation of net income to net cash provided 1998 1997* by Operating Activities ------------- ------------- Net Income ($90,564) ($124,605) Adjustments to reconcile net income to net cash provided by operating activities: Realized loss or (gain) on sale of assets 0 19,073 Depreciation 9,669 3,614 Decrease in trading securities 0 1,676,780 Decrease (increase) in funds held by ceding company (652,801) 0 Decrease (increase) in prepaid expenses (4,217) 11,815 Decrease (increase) in accrued interest receivable 2,125 0 (Increase) decrease in notes and other receivables (238,030) 14,575 (Increase) decrease in other assets (950) (1,700) Amortization of bond premium 7,414 Increase (decrease) in unpaid loss and loss adjustment expenses 939,688 (1,124,467) (Decrease) increase in accounts payable and accrued liabilities (35,628) (69,981) Increase (decrease) in unearned fees 169,021 Increase (decrease) in unearned premiuns 629,872 (Decrease) increase in deferred taxes 109,042 30,537 ------------- ------------- Net cash provided by operating activities $844,641 $435,641 ============= ============= Non-cash financing and investing activities Issuance of stock for Trust units $503,384 ============= Captial Leases incurred $9,574 ============= *1997 represents the combined information of two previously separate entities. See accompanying notes to financial statements.
Stoneville Insurance Compaoy Notes to Financial Statements Quarters Ended September 30, 1998 and 1997 1. Basis of Presentation These interim financial statements have been prepared on the basis of accounting principles used in the annual financial statements ended December 31, 1997, and must be read in conjunction with the 1997 statements. In the opinion of management, the accompanying interim unaudited financial statements contain all adjustments necessary for a fair statement of financial position and results of operations of the Company for the interim periods. 2. Plan of Reorganization and Conversion A Plan and Agreement of Reorganization and Conversion was entered into on September 11, 1997 by and between Delta Agricultural and Industrial Trust and Stoneville Insurance Company whereby the Trust transferred all of its existing assets and liabilities to Stoneville on December 31, 1997 in exchange for stock in Stoneville. The Trust was then liquidated and dissolved with the stock of Stoneville distributed to its former members in accordance with the terms outlined in the Plan. 3. Operations of the Company The Company was formed to become the successor to the Delta Agricultural and Industrial Trust, a Mississippi self-funded workers compensation trust. The Company entered the workers compensation market in the first quarter of 1998 as a reinsurer. Although The Company did not write workers compensation insurance on a direct basis during the first three quarters of 1998, it has begun doing so in the fourth quarter. 4. Assets Pledged Of the $1,539,679 in securities available-for-sale, $200,000 is pledged as collateral for a letter of credit issued to an insurer that the Company reinsures on a quota share basis. A claim can be made against the letter of credit if the ceding insurer is unable to pay claims from premiums collected by it. Additionally, $885,949 in cash is pledged as collateral for a letter of credit issued to an insurer that the Company reinsures. The letter of credit secures the payment of claims being administered by the Company. 5. Reserve for Losses and Loss Adjustment Expenses The reserve for losses and loss adjustment expenses ("LAE") is based upon case reserve reports received from ceding insurance companies and the company's own estimates. Loss and LAE reserves also include estimates of incurred but not reported losses based on past experience modified for current trends and estimates of expenses for investigating and settling claims. It is the Company's policy to discount workers' compensation claims on reported and unreported losses to present value using an interest rate of 4.5%. Such discount resulted in a reduction in gross loss reserves of $20,808 as of September 30, 1998. The reserve for losses and LAE is attributable to reinsurance arrangements in which the Company participates only as a reinsurer. Management believes that the reserve for loss and LAE as of September 30, 1998 is adequate to cover the ultimate gross cost of losses and LAE incurred through September 30, 1998. The reserve is based on estimates of losses and LAE incurred and, therefore, the amount ultimately paid may be more or less than such estimates. Included in the reserve for loss and loss adjustment expenses is $789,686 of reserves associated with a reinsurance agreement that is being accounted for using the deposit method. Under this method, no premium income is recorded. Income or expenses are recorded only as claims are settled. During the quarter ended September 30, 1998, the Company recognized $90,000 of income from settlement activity by reducing claims expense and the reserve for loss and loss adjustment expenses. Since claims under this reinsurance arrangement are expected to be settled in a short period of time, their reserves have not been discounted. 6. Operations of Previously Separate Companies As indicated in the financial statements, the information presented for the nine months and three months ended September 30, 1997 represents the combined information from two previously separate entities. Presented below are the operating results of each entity and the intercompany adjustments made as a result of the combination for the nine months ended September 30, 1997. Delta Stoneville Agricultural Insurance & Industrial Company Trust Combined Total Revenues $ 0 $ 120,376 $ 120,376 Net Income ( 1,481) (123,124) (124,605) Intercompany Interest Expense Eliminated 899 Intercompany Interest Income Eliminated 899 7. Other Income Other Income for the nine months ended September 30, 1998 includes $188,233 in fees earned by the Company for management of certain insurance programs for a ceding carrier. For the nine months ended September 30, 1997, other income represented a loss on the sale of trading securities. 8. Earnings (Loss) Per Share Earnings (loss) per common share is based on net income (loss) and the weighted average number of shares outstanding during each interim period. The number of shares used in computing earnings per share is 503,384 for the quarter ended September 30, 1998. No shares were issued until December 31, 1997. Consequently, earnings per share for 1997 was calculated using 503,384 shares, the aggregate shares issued as a part of the plan of conversion and reorganization. Item 2: Management's Discvssion and Analysis of Financial Condition and Results of Operations Financial Condition - September 30, 1998 Compared to December 31, 1997 Total shareholders' equity decreased by $71,170 or 3.5% from $2,013,537 at December 31, 1997 to $1,942,367 at September 30, 1998. This decrease was caused by a net loss from operations of $90,564 for the first nine months of 1998 and a increase in unrealized gain on securities available-for-sale of $19,394. Total assets increased by $1,654,104 or 77.6% at September 30, 1998 compared to December 31, 1997. Cash and investments increased a total of $789,444 during the nine months ended September 30, 1998 due primarily to the funding of a reinsurance agreement whereby the Company agreed to assume all of the insurance liabilities of the business written by Delta Agricultural and Industrial Trust. These insurance liabilities had previously been assumed by another commercial carrier as part of an assumption reinsurance agreement with the Trust. The commercial carrier remains the ultimate guarantor of the payment of these insurance liabilities with the Company's involvement limited to that of a reinsurer. The cash and liabilities received by the Company as a result of this reinsurance agreement totaled $1,051,845. Claims totaling $165,896 were paid in conjunction with this agreement during the period ending September 30, 1998. The Company also made significant disbursements in the development of its risk control and claims management services division during the nine months ended September 30, 1998. Funds held by ceding companies increased by $652,801 during the period due to a significant amount of insurance written during the three months ended September 30, 1998. Additionally, because the Company provides risk control and claims management services to the ceding company on this business, fees due from the ceding company also increased by $238,030 during the period. Total liabilities increased by $1,725,274 or 1,456% at September 30, 1998 compared to December 31, 1997. This increase was due primarily to the insurance liabilities assumed as a part of the reinsurance agreement discussed above. The cash received as a part of this arrangement collateralizes a letter of credit to the ceding carrier guaranteeing the payment of these liabilities. The Company also increased its reserve for losses and loss adjustment expenses for its share of insurance liabilities associated with a quota share reinsurance arrangement. As a result of these two reinsurance arrangements, total reserve for loss and loss adjustment expenses increased to $939,688 at September 30, 1998 compared to $0 at December 31, 1997. Unearned premium from the quota share reinsurance arrangement increased $629,872 as a result of a significant amount of insurance business written during the period. Unearned risk control and claims management fees also increased by $169,021 as a result of the business written. Results of Operations - Quarter and Nine Months Ended September 30, 1998 Compared to Quarter and Nine Months Ended September 30, 1997 The Company experienced net income of $4,578 during the third quarter of 1998 compared to a net loss of $51,573 during the third quarter of 1997. During the first quarter of 1998 the Company entered into a quota share reinsurance arrangement with another insurance carrier in which the Company shares in 25% of the income and is obligated to pay 25% of the expenses associated with the business written within this program. As a result of this arrangement, the Company's portion of earned premium during the third quarter of 1998 was $210,672 compared to $0 in 1997. Losses and loss adjustment expenses related to this program were $129,032 during the third quarter of 1998 compared to $0 in the same period in 1997. Other expenses associated with this program totaled $64,782 during the third quarter of 1998 compared to $0 in the third quarter of 1997. The Company's share of net income before tax associated with this program during the third quarter of 1998 was $16,858 compared to $0 in the third quarter of 1997. During the third quarter of 1998, the Company entered into a reinsurance agreement with another carrier whereby the Company reinsured the ceding carrier for 100% of the liabilities that were assumed by the ceding carrier from Delta Agricultural and Industrial Trust at December 31, 1997. The Company recognizes income or loss from this arrangement as claims are settled by increasing or decreasing loss and loss adjustment expenses on the statement of income. During the quarter ended September 30, 1998, the Company decreased its loss and loss adjustment expenses by $90,000 for the income that was attributable to settlements during the period compared to $0 for the same period in 1997. The Company experienced a net loss of $90,564 during the nine months ended September 30,1998 compared to a net loss of 124,605 during the same period in 1997. As a result of the quota share reinsurance arrangement, the Company had earned premium for the nine months ended September 30, 1998 of $350,544 compared to $0 in 1997. Losses and loss adjustment expenses related to this program totaled $208,072 for the first nine months of 1998 compared to $0 in 1997. Other expenses related to this program totaled $115,239 for the first nine months of 1998 compared to $0 in 1997. Net income before tax from this program was $27,233 for the first nine months of 1998 compared to $0 in 1997. As a result of the reinsurance agreement entered into during the third quarter of 1998, the company recognized a reduction in loss and loss adjustment expenses from settled claims during the nine months ended September 30, 1998 in the amount of $90,000 compared to $0 in the same period in 1997. Investment income of the Company decreased from $47,694 in the third quarter of 1997 to $26,621 in the third quarter of 1998. This decrease was a result of having less cash to invest for three primary reasons: the funding of an Assumption Reinsurance Agreement in December, 1997 in which the Company paid a premium of $1,586,463 to be relieved of all of its insurance liabilities; net operating losses during the first half of 1998; and the payment of significant claims under a reinsurance agreement funded in July, 1998. Although the Company received $1,051,845 from a ceding carrier in conjunction with this reinsurance arrangement, the net cash available for investment, after payment of claims, was significantly less in the third quarter of 1998 compared to 1997. As a result of having less cash available to invest as described above, investment income of the Company for the nine months ended September 30, 1998 decreased to $65,466 from $138,550 for the first nine months of 1997. The Company realized capital losses in the third quarter of 1997 totaling $9,958. No capital gains or losses were realized during the third quarter of 1998. The Company realized capital losses of $19,073 for the nine months ended September 30, 1997 compared to $0 in capital gains and losses for the nine months ended September 30, 1998. The Company recognized "other income" of $131,017 in third quarter of 1998 related primarily to services provided to the ceding carrier in reinsurance arrangements compared to $0 for the same quarter of 1997. Other income related primarily to these services for the nine months ended September 30, 1998 totaled $203,229 compared to $0 for the same period in 1997. During the first nine months of 1998, the Company acted as a reinsurer only and did no direct writing. Effective October 1, 1998, the Company began writing direct workers's compensation insurance to employers with annual premiums generally less than $4,000. The Company will cede 50% of this program to a reinsurer under a quota share reinsurance arrangement. General expenses increased from $109,603 in the third quarter of 1997 to $256,991 in the same period in 1998. This increase is due primarily to the development of a claims and risk control department within the Company that began providing claims and risk control services in July, 1998. For the nine months ended September 30, 1998, general expenses were $534,393 compared to $293,363 for the same period in 1997. This increase is due primarily to the costs involved in re-entering the commercial insurance market in the first quarter of 1998 including the costs associated with the execution of certain reinsurance agreements and the development of a claims and risk control department within the Company. The Company recorded an income tax provision for the quarter ended September 30, 1998 of $2,927 compared to a tax benefit for the same quarter in 1997 of $26,045. The tax benefit for the nine months ended September 30, 1998 was $57,901 compared to $66,534 for the nine months ended September 30, 1997. The tax provision for the third quarter of 1998 was a result of having a net operating profit the quarter compared to a net loss for the same period in 1997. The increased tax benefit for the nine months ended September 30, 1998 was a result of larger operating losses experienced by the Company during this period compared to 1997. PART II: OTHER INFORMATION Item 1 - Legal Proceedings There have been no material changes to the legal proceedings described in the Company's Registration Statement on Form 10-K (File Number 333-24739). Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27: Financial data schedule (b) No reports on Form 8-K were filed during the quarter ended September 30, 1998. STONEVILLE INSURANCE COMPANY Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STONEVILLE INSURANCE COMPANY (Registrant) DATE: November 13, 1998 /s/ Harry Vickery -------------------------------------- President and Chief Accounting Officer EX-27 2 STONEVILLE INSURANCE COMPANY FDS 9/30/98
7 9-MOS DEC-31-1997 SEP-30-1998 1,539,679 0 0 0 0 0 1,539,679 996,360 0 0 3,786,123 939,688 629,872 0 0 8,689 0 0 503,384 1,438,983 3,786,123 350,544 65,466 0 203,229 118,072 24,538 0 (148,465) (57,901) (90,564) 0 0 0 (90,564) (.17) (.17) 0 0 0 0 0 0 0
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