-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JXpbtmRtO9ZlGxQiJHVYeVvsk4g0vtStP+gb6J2udJu//LCGYnjiQEvwW7WE+3TJ mALBWKXrplfgqcenABZoLw== 0000074347-94-000008.txt : 19940815 0000074347-94-000008.hdr.sgml : 19940815 ACCESSION NUMBER: 0000074347-94-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RE CAPITAL CORP /DE/ CENTRAL INDEX KEY: 0000074347 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 133351768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05429 FILM NUMBER: 94543296 BUSINESS ADDRESS: STREET 1: SIX STAMFORD PLAZA STREET 2: P O BOX 10148 CITY: STAMFORD STATE: CT ZIP: 06904-2148 BUSINESS PHONE: 2039776100 MAIL ADDRESS: STREET 1: SIX STAMFORD PLAZA STREET 2: P.O. BOX 10148 CITY: STAMFORD STATE: CT ZIP: 06904-2148 FORMER COMPANY: FORMER CONFORMED NAME: OLLA INDUSTRIES INC DATE OF NAME CHANGE: 19860806 10-Q 1 FORM 10-Q FOR THREE MONTHS ENDED 6/30/94 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ________________________ FORM 10-Q ________________________ [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JUNE 30, 1994 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____to_____ _________________________________ Commission file number: 1-5429 _________________________________ RE CAPITAL CORPORATION Delaware 13-3351768 (State of incorporation) (IRS employer identification no.) Two Stamford Plaza P.O. Box 10148 Stamford, Connecticut 06904 (Address of principal executive offices) Telephone Number: (203) 977-6100 ________________________________________ 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 of 1934 during the preceding 12 months (or for such shorter periods 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 At August 11, 1994, 7,049,795 shares of common stock, $.10 par value of the registrant were outstanding. 2 RE CAPITAL CORPORATION INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets June 30, 1994 and December 31, 1993 3 Condensed Consolidated Statements of Income Three and Six Months Ended June 30, 1994 and 1993 4 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1994 and 1993 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 11 ITEM 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Exhibit 11.0 - Computation of Earnings Per Share 13
- 2 - 3 RE CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, 1994 1993 ASSETS Investments: Fixed maturities, available for sale, $334,029 $334,719 at market value (amortized cost: 1994 - $333,301 and 1993 - $318,868) Short-term 6,980 8,676 Total Investments 341,009 343,395 Cash 984 692 Accrued investment income 6,636 6,280 Premiums receivable 63,766 57,227 Reinsurance balances recoverable 12,205 12,557 Other assets 37,118 38,466 Total Assets $461,718 $458,617 LIABILITIES Claims and claim expenses $203,114 $200,638 Unearned premiums 53,091 46,487 Convertible debentures 69,000 69,000 Other liabilities 12,299 11,719 Total Liabilities 337,504 327,844 SHAREHOLDERS' EQUITY Preferred stock, $.10 par value, authorized: 1,000,000 shares, none issued Common stock, $.10 par value, authorized: 50,000,000 shares, issued: 9,536,454 shares (1994) and 9,536,159 shares (1993) 954 954 Additional paid-in capital 93,197 93,194 Unrealized appreciation on fixed maturities available for sale, net of tax 480 10,461 Retained earnings 59,154 55,890 Unearned compensation - restricted common stock (1,477) (1,632) Treasury stock, at cost; 2,490,284 shares (28,094) (28,094) Total Shareholders' Equity 124,214 130,773 Total Liabilities and Shareholders' Equity $461,718 $458,617
See notes to condensed consolidated financial statements. - 3 - 4 RE CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1994 1993 1994 1993 REVENUES Premiums earned $ 35,020 $ 29,624 $ 64,227 $58,356 Net investment income 5,346 4,510 10,543 8,892 Net realized investment (losses) gains (3) 388 38 389 Total 40,363 34,522 74,808 67,637 EXPENSES Claims and claim expenses 25,626 21,431 46,826 41,846 Other operating expenses 10,623 9,516 21,211 19,632 Interest expense 949 316 1,898 669 Total 37,198 31,263 69,935 62,147 Income before Federal income tax 3,165 3,259 4,873 5,490 Federal income tax expense 311 408 482 631 Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859 PER SHARE DATA PRIMARY EARNINGS PER SHARE: Weighted average shares outstanding 7,048 6,601 7,055 6,532 Primary earnings per share $ .40 $ .43 $ .62 $ .74 FULLY DILUTED EARNINGS PER SHARE: Weighted average shares outstanding 11,063 6,944 11,070 6,927 Fully diluted earnings per share $ .31 $ .43 $ .51 $ .74 Cash dividends declared per share $ .08 $ .07 $ .16 $ .14
See notes to condensed consolidated financial statements. - 4 - 5 RE CAPITAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 1994 1993 OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 15,280 $ 9,326 INVESTING ACTIVITIES Sales of fixed maturities 1,262 7,812 Maturities or calls of fixed maturities 4,250 7,330 Purchases of fixed maturities (21,056) (31,115) Net sales of short-term investments 1,696 6,472 Net additions to property and equipment (86) (70) Net Cash Used in Investing Activities (13,934) (9,571) FINANCING ACTIVITIES Cash dividends to shareholders (1,057) (823) Exercise of common stock options 3 31 Short-term debt borrowings, net - 150 Acquisition of treasury stock - (18) Net Cash Used in Financing Activities (1,054) (660) Increase (Decrease) in Cash 292 (905) Cash at Beginning of Year 692 2,002 Cash at End of Period $ 984 $ 1,097
See notes to condensed consolidated financial statements. - 5 - 6 RE CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1994 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim condensed consolidated financial statements of Re Capital Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Certain balances in the 1993 financial statements have been reclassified to conform to the 1994 presentation. Operating results for any interim period are not necessarily indicative of results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report and Form 10-K for the year ended December 31, 1993. NOTE 2 - EARNINGS PER SHARE OF COMMON STOCK Primary earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period, computed in accordance with the assumptions required by the treasury stock method. Fully diluted earnings per share assumes conversion of dilutive convertible debentures and the assumed exercise of all common stock equivalents. NOTE 3 - INCOME TAXES The Omnibus Budget Reconciliation Act of 1993, which was signed in August 1993, resulted in a graduated corporate tax rate increase from 34% to 35%, for companies with taxable income in excess of $10,000,000. The Company is not presently affected by this change, as its expected taxable income is below this threshold. The Company's effective federal income tax rate is less than the statutory tax rate due primarily to tax-exempt interest income. At June 30, 1994 and December 31, 1993, other assets include net deferred tax assets of $15,540,000 and $9,674,000, respectively. NOTE 4 - REINSURANCE All of the Company's premiums are assumed from other insurance companies. The Company also cedes reinsurance to other companies. Risks are reinsured (retroceded) with other companies to permit the recovery of a portion of the Company's losses. The Company remains liable regardless of whether the reinsuring companies meet their obligations under the reinsurance treaties. - 6 - 7 RE CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1994 (CONTINUED) NOTE 4 - REINSURANCE (CONTINUED) The components of the Company's reinsurance balances recoverable at June 30, 1994 and December 31, 1993 are summarized as follows (in thousands):
JUNE 30, 1994 DECEMBER 31, 1993 Ceded claims and claim expenses $ 8,401 $ 9,039 Prepaid reinsurance premiums 2,495 2,424 Reinsurance recoverable on paid losses 1,309 1,094 $12,205 $12,557
The effect of the Company's retrocessional program on premiums written, premiums earned and claims and claim expenses for the three and six month periods ended June 30, 1994 and 1993 are summarized as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1994 1993 1994 1993 Ceded premiums written $2,254 $2,249 $3,979 $3,636 Ceded premiums earned $1,942 $1,680 $3,907 $3,056 Ceded claims and claim expenses $1,035 $ 744 $1,932 $1,515
NOTE 5 - DIVIDENDS At its meeting held on May 18, 1994, the Board of Directors of the Company declared a quarterly dividend of $.08 per share payable on September 9, 1994 to shareholders of record on August 18, 1994. Subsequently, on July 26, 1994, the Board of Directors of the Company declared a quarterly dividend of $.08 per share payable on December 9, 1994 to shareholders of record on November 18, 1994. - 7 - 8 RE CAPITAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1994 Management's discussion and analysis of financial condition compares certain financial results for the three and six month periods ended June 30, 1994 with the corresponding periods of 1993. The Company is engaged primarily in the underwriting of domestic property and casualty reinsurance through its wholly- owned subsidiary, Re Capital Reinsurance Corporation ("Re Cap"). RESULTS OF OPERATIONS The Company's net income for the quarter ended June 30, 1994 was $2,854,000 versus $2,851,000 for the comparable 1993 period. Primary and fully diluted earnings per share for the three months ended June 30, 1994 were $.40 and $.31, respectively as compared with $.43 on both a primary and fully diluted basis for the quarter ended June 30, 1993. Net income for the six months ended June 30, 1994 was $4,391,000 compared with $4,859,000 for the six months ended June 30, 1993. Primary and fully diluted earnings per share were $.62 and $.51, respectively for the 1994 period and $.74 on both bases for 1993. After-tax net income for the six months ended June 30, 1994 was reduced by $747,000, or $.11 per share on a primary basis ($.06 per share on a fully diluted basis) as a result of losses related to the Northridge earthquake. Net income for the six months ended June 30, 1993 was reduced by $444,000, or $.07 per share on both a primary and fully diluted basis as a result of the World Trade Center bombing. Net premiums written and net premiums earned for the second quarter of 1994 of $34,782,000 and $35,020,000, increased 16.1% and 18.2%, respectively from the second quarter of 1993. Net premiums written and net premiums earned for the first half of 1994 increased 21.1% and 10.1%, respectively to $70,760,000 and $64,227,000 from $58,419,000 and $58,356,000 in the first six months of 1993. The increase in net premiums written in 1994 resulted from a combination of new business written and increased participations on existing treaties. The growth in premiums written was concentrated in the automobile liability and automobile physical damage lines of business. In the first six months of both 1994 and 1993, approximately 83% of the Company's business was written on a pro rata basis and 17% on an excess of loss basis. The statutory combined ratios for the second quarter and six months ended June 30, 1994 were 102.1% and 103.1%, respectively, compared with 103.2% and 104.2% for the 1993 - 8 - 9 RE CAPITAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1994 (CONTINUED) second quarter and six month period, respectively. The components of the combined ratios for these periods are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, 1994 1993 1994 1993 Loss Ratio 73.2% 72.4% 72.9% 71.7% Underwriting expense ratio: Commission & Brokerage 22.7 24.3 24.4 26.0 Other operating expenses 6.2 6.5 5.8 6.5 Total expense ratio 28.9 30.8 30.2 32.5 Combined ratio 102.1% 103.2% 103.1% 104.2%
First quarter losses resulting from the Northridge earthquake increased the Company's combined ratio for the six months ended June 30, 1994 by 1.8 points while the World Trade Center bombing added 1.1 points to the combined ratio for the comparable period of 1993. Net investment income, exclusive of net realized gains (losses), was $5,346,000 for the quarter ended June 30, 1994, an increase of 18.5% from $4,510,000 recorded in the second quarter of 1993. For the six months ended June 30, 1994, net investment income, exclusive of net realized gains, totalled $10,543,000, an increase of 18.6% from the $8,892,000 recorded in the comparable period of 1993. These increases resulted principally from an increase in invested assets as a result of the Company's convertible debenture offering which closed in July 1993. Exclusive of investment income allocable to the proceeds of this offering, the Company's net investment income for the three and six months ended June 30, 1994 increased by 3.0% and 2.9%, respectively, over comparable 1993 amounts. The pre-tax yield on investments declined to 6.5% for the six months ended June 30, 1994 from 6.9% for the comparable period of 1993. Included in the Company's net income for the first six months of 1994 were after-tax realized investment gains of $25,000 compared to after-tax realized gains of $257,000 or $.04 per share in 1993. The 1993 gains were the result of the Company selectively selling certain taxable securities and replacing them with tax-exempt securities in order to increase after-tax yield. - 9 - 10 RE CAPITAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1994 (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations aggregated $15,280,000 for the six months ended June 30, 1994 compared to $9,326,000 for the corresponding period of 1993. Cash flow from operations for the first six months of 1994 was increased as the result of a restructuring of a cedant trust agreement. The Company's shareholders' equity and Re Cap's statutory surplus at June 30, 1994 amounted to $124,214,000 and $160,307,000, compared with $130,773,000 and $155,530,000 at December 31, 1993. The Company's shareholders' equity per share decreased to $17.63 at June 30, 1994 from $18.56 at December 31, 1993. Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In connection therewith, the Company recorded a $10,461,000 ($1.48 per share) increase in shareholders' equity for the unrealized appreciation on its fixed income portfolio, net of tax. During the first six months of 1994, this unrealized appreciation, net of tax, decreased by $9,981,000, or $1.41 per share, to $480,000. The Board of Directors of the Company declared a quarterly dividend of $.08 per share in the second quarter of 1994 compared with $.07 per share in the second quarter of 1993. - 10 - 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1994 annual meeting of shareholders of the Company was held on May 18, 1994. The following individuals were elected to the Board of Directors of the Company at such meeting: George G. D'Amato, Jr., James E. Roberts and Richard R. West as Class II directors with terms expiring at the 1997 annual meeting and Jean R. Perrette as a Class I director with a term expiring at the 1996 annual meeting. The stockholder vote on this matter was as follows: 5,566,213 shares for the election of George G. D'Amato, Jr. with 15,770 shares withholding authority to vote; 5,566,363 shares each for the election of James E. Roberts, Richard R. West and Jean R. Perrette with 15,620 shares withholding authority to vote. The following directors, who have continuing terms, were not up for election at this meeting: Dennis E. Hoffmann and Maurice W. Slayton whose terms of office will continue until the 1995 annual meeting; and Donald E. Chisholm and Harold R. Hiser, Jr. whose terms expire at the 1996 annual meeting. The stockholders also ratified the appointment of Ernst & Young as the Company's independent certified public accountants for 1994. The stockholder vote on this matter was as follows: 5,563,198 shares for ratification, 200 shares against ratification and 18,585 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibit 11.0 - Computation of Earnings Per Share. b. Reports on Form 8-K: None. - 11 - 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURE TITLE DATE /s/ James E. Roberts President and Chief August 11, 1994 James E. Roberts Executive Officer (Principal Executive Officer) /s/ R. Richard Mueller Vice President, Chief August 11, 1994 R. Richard Mueller Financial Officer and Treasurer (Principal Accounting and Financial Officer)
- 12 - 13 RE CAPITAL CORPORATION AND SUBSIDIARIES ITEM 6.a. - EXHIBIT 11.0 - COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1994 1993 1994 1993 PRIMARY Average shares outstanding 6,923 6,490 6,923 6,410 Weighted average shares of common stock equivalents associated with stock options, net 125 111 132 122 Total 7,048 6,601 7,055 6,532 Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859 Per share amount $ .40 $ .43 $ .62 $ .74 FULLY DILUTED Average shares outstanding 6,923 6,490 6,923 6,410 Weighted average shares of common stock equivalents associated with stock options, net 125 113 132 122 Assumed conversion of convertible debentures and note 4,015 341 4,015 395 Total 11,063 6,944 11,070 6,927 Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859 Add convertible debenture and note interest, net of Federal income tax effect 626 101 1,252 233 Adjusted Net Income $ 3,480 $ 2,952 $ 5,643 $ 5,092 Per share amount $ .31 $ .43 $ .51 $ .74
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