-----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, d4pvLLJLS8HpAnIcYpGNKFhTixT06qUnD36K2QIvbgog3yvHWqTM8hTL+/pWPKp3 NTC/iigYW8lJkxf1tsoQGg== 0000074931-94-000009.txt : 19940505 0000074931-94-000009.hdr.sgml : 19940505 ACCESSION NUMBER: 0000074931-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORION CAPITAL CORP CENTRAL INDEX KEY: 0000074931 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 956069054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07801 FILM NUMBER: 94525805 BUSINESS ADDRESS: STREET 1: 30 ROCKFELLER PLZ CITY: NEW YORK STATE: NY ZIP: 10112 BUSINESS PHONE: 2123328080 MAIL ADDRESS: STREET 1: 30 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10112 FORMER COMPANY: FORMER CONFORMED NAME: EQUITY FUNDING CORP OF AMERICA DATE OF NAME CHANGE: 19760518 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP OF AMERICA DATE OF NAME CHANGE: 19670330 FORMER COMPANY: FORMER CONFORMED NAME: TONGOR CORP DATE OF NAME CHANGE: 19661024 10-Q 1 1994 FIRST QUARTER FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1994 ( ) 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 1-7801 ORION CAPITAL CORPORATION -------------------------- (Exact name of registrant as specified in its charter) Delaware 95-6069054 - --------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 30 Rockefeller Plaza New York, New York 10112 - 0156 - ---------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 332-8080 -------------- Former name, former address and former fiscal year if changed since last report. 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 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 ---- ---- 14,320,729 shares of Common Stock, $1.00 par value, of the registrant were outstanding on April 29, 1994. Page 1 of 25 Exhibit Index Appears at Page 23 ORION CAPITAL CORPORATION FORM 10-Q INDEX For the Quarter Ended March 31, 1994 Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheet at March 31, 1994 (Unaudited) and December 31, 1993 .................................. 3 - 4 Consolidated Statement of Earnings for the three-months ended March 31, 1994 and 1993 (Unaudited) .............. 5 Consolidated Statement of Stockholders' Equity for the three-months ended March 31, 1994 and 1993 (Unaudited), and for the year ended December 31, 1993 ............... 6 Consolidated Statement of Cash Flows for the three-months ended March 31, 1994 and 1993 (Unaudited) .............. 7 - 8 Notes to Consolidated Financial Statements (Unaudited) ... 9 - 12 Independent Accountants' Review Report ................... 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 14 - 20 PART II. OTHER INFORMATION .................................. 21 Page 2
PART 1. FINANCIAL INFORMATION ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (000s omitted) March 31, 1994 December 31, (Unaudited) 1993 -------------- ------------ Investments: Fixed maturities at amortized cost (market $399,849 - 1994 and $402,149 - 1993) .................................. $ 394,956 $ 384,402 Fixed maturities at market (amortized cost $525,451 - 1994 and $517,716 - 1993) 527,794 548,336 Common stocks at market (cost $113,963 - 1994 and $111,325 - 1993) .............. 133,201 139,022 Non-redeemable preferred stocks at market (cost $121,150 - 1994 and $98,986 - 1993 ......................... 122,065 103,621 Other long-term investments .............. 51,671 50,682 Short-term investments ................... 91,450 96,473 ---------- ---------- Total investments ..................... 1,321,137 1,322,536 Cash ....................................... 14,532 6,433 Accrued investment income .................. 15,551 17,623 Investments in and advances to affiliates .. 108,212 111,459 Accounts and notes receivable .............. 125,023 111,539 Reinsurance recoverables and prepaid reinsurance .............................. 363,853 393,309 Deferred policy acquisition costs .......... 65,520 57,522 Property and equipment ..................... 23,976 23,596 Excess of cost over fair value of net assets acquired .......................... 30,294 30,587 Deferred federal income taxes .............. 33,103 18,891 Other assets ............................... 24,169 23,959 ---------- ---------- Total assets .......................... $2,125,370 $2,117,454 ========== ========== See Notes to Consolidated Financial Statements (Unaudited) Page 3 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY (000s omitted - except for share data) March 31, 1994 December 31, (Unaudited) 1993 -------------- ------------ Liabilities: Policy liabilities - Losses ...................................... $ 947,084 $ 937,775 Loss adjustment expenses .................... 205,457 202,628 Unearned premiums ........................... 262,438 259,359 Policyholders' dividends .................... 11,908 12,523 ---------- ---------- Total policy liabilities .................. 1,426,887 1,412,285 Federal income taxes payable .................. 17,713 19,294 Other liabilities ............................. 147,511 131,308 Notes payable ................................. 158,375 160,372 ---------- ---------- Total liabilities ......................... 1,750,486 1,723,259 ---------- ---------- Contingencies (Note E) Stockholders' equity: Preferred stock, authorized 5,000,000 shares - issued and outstanding - none Common stock, $1 par value; authorized 30,000,000 shares; issued 15,337,650 shares.. 15,338 15,338 Capital surplus ............................... 148,061 148,167 Net unrealized investment gains, net of federal income taxes of $3,195 - 1994 and $18,718 - 1993 ........................................ 20,736 49,566 Net unrealized foreign exchange translation losses, net of federal income tax benefit of $634 - 1994 and $394 - 1993 ................. (4,110) (3,665) Retained earnings ............................. 209,147 198,491 Treasury stock, at cost (991,399 shares - 1994 and 965,442 shares - 1993) .................. (12,934) (12,182) Deferred compensation on restricted stock ..... (1,354) (1,520) ---------- ---------- Total stockholders' equity ................ 374,884 394,195 ---------- ---------- Total liabilities and stockholders' equity. $2,125,370 $2,117,454 ========== ========== See Notes to Consolidated Financial Statements (Unaudited) Page 4 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) (000s omitted-except for per common share data) Three Months Ended March 31, ---------------------------- 1994 1993 ---- ---- Revenues: Premiums earned ............................. $167,095 $149,272 Net investment income ....................... 20,768 21,677 Realized investment gains ................... 533 4,812 Other income ................................ 302 303 -------- -------- 188,698 176,064 -------- -------- Expenses: Losses incurred ............................. 96,998 90,523 Loss adjustment expenses .................... 24,771 23,274 Amortization of deferred policy acquisition costs ..................................... 40,043 34,042 Other insurance expenses .................... 4,345 4,033 Dividends to policyholders .................. 3,636 3,309 Interest expense ............................ 3,324 2,875 Other expenses .............................. 1,400 2,141 -------- -------- 174,517 160,197 -------- -------- Earnings before equity in earnings of affiliate, federal income taxes and cumulative effect of adoption of new accounting principles ....... 14,181 15,867 Equity in earnings of affiliate ............... 3,032 3,060 -------- -------- Earnings before federal income taxes and cumulative effect of adoption of new accounting principles ....................... 17,213 18,927 Federal income taxes .......................... 3,973 4,599 -------- -------- Earnings before cumulative effect of adoption of new accounting principles ................ 13,240 14,328 Cumulative effect of adoption of new accounting principles ....................... - 11,825 -------- -------- Net earnings ................................ $ 13,240 $ 26,153 ======== ======== Earnings per common share before cumulative effect of adoption of new accounting principles .................................. $ .91 $ .97 Cumulative effect of adoption of new accounting principles ....................... - .81 -------- -------- Net earnings per common share ............... $ .91 $ 1.78 ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 5 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (000s omitted) Three Months Ended March 31, Year Ended (Unaudited) December 31, ------------------- ----------- 1994 1993 1993 ---- ---- ---- Convertible exchangeable preferred stock: Balance, beginning of period .............. $ - $ 28,524 $ 28,524 Conversion of preferred stock ............. - (28,524) (28,524) -------- -------- -------- Balance, end of period .................... $ - $ - $ - ======== ======== ======== Common stock: Balance, beginning of period .............. $ 15,338 $ 11,110 $ 11,110 Conversion of preferred stock ............. - 1,138 1,139 Exercise of stock options and issuance of restricted stock ........................ - 7 24 Stock issued in 5-for-4 stock splits ...... - - 3,065 -------- -------- -------- Balance, end of period .................... $ 15,338 $ 12,255 $ 15,338 ======== ======== ======== Capital surplus: Balance, beginning of period .............. $148,167 $124,754 $124,754 Redemptions and conversions of preferred stock ................................... - 26,387 26,072 Exercise of stock options and issuance (cancellation) of restricted stock ...... (106) 191 406 Stock issued in 5-for-4 stock splits ...... - - (3,065) -------- -------- -------- Balance, end of period .................... $148,061 $151,332 $148,167 ======== ======== ======== Net unrealized investment gains: Balance, beginning of period .............. $ 49,566 $ 18,815 $ 18,815 Cumulative effect of adoption of new accounting principle, net of taxes of $11,157 .............................. - - 20,720 Change in unrealized investment gains, net of taxes ............................ (28,830) 9,790 10,031 -------- -------- -------- Balance, end of period .................... $ 20,736 $ 28,605 $ 49,566 ======== ======== ======== Net unrealized foreign exchange translation losses: Balance, beginning of period .............. $ (3,665) $ (2,918) $ (2,918) Change in unrealized foreign exchange translation losses, net of taxes ........ (445) 87 (747) -------- -------- -------- Balance, end of period .................... $ (4,110) $ (2,831) $ (3,665) ======== ======== ======== Retained earnings: Balance, beginning of period .............. $198,491 $139,947 $139,947 Net earnings .............................. 13,240 26,153 68,813 Dividends declared ........................ (2,584) (2,707) (10,269) -------- -------- -------- Balance, end of period .................... $209,147 $163,393 $198,491 ======== ======== ======== Treasury stock: Balance, beginning of period .............. $(12,182) $ (6,694) $ (6,694) Exercise of stock options and issuance (cancellation) of restricted stock ...... 232 (3) (15) Acquisition of treasury stock ............. (984) (22) (5,473) -------- -------- -------- Balance, end of period .................... $(12,934) $ (6,719) $(12,182) ======== ======== ======== Deferred compensation on restricted stock: Balance, beginning of period .............. $ (1,520) $ (2,251) $ (2,251) Issuance of restricted stock .............. (6) (122) (108) Amortization of deferred compensation on restricted stock ........................ 172 214 839 -------- -------- -------- Balance, end of period .................... $ (1,354) $ (2,159) $ (1,520) ======== ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 6 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (000s omitted) Three Months Ended March 31, ---------------------------- 1994 1993 ---- ---- Cash flows from operating activities: Premiums collected ............................. $ 178,488 $ 152,400 Net investment income collected ................ 22,580 22,308 Losses and loss adjustment expenses paid ....... (103,262) (62,001) Policy acquisition costs paid .................. (48,989) (37,637) Dividends paid to policyholders ................ (4,251) (2,497) Interest paid .................................. (5,753) (5,075) Federal income tax payments .................... (4,001) (37) Other receipts (payments) ...................... 5,092 (16,248) --------- --------- Net cash provided by operating activities .... 39,904 51,213 --------- --------- Cash flows from investing activities: Maturities of fixed maturity investments ....... 49,766 25,740 Sales of fixed maturity investments ............ 43,039 31,199 Sales of equity securities ..................... 24,922 29,188 Investments in fixed maturities ................ (100,827) (62,668) Investments in equity securities ............... (49,025) (27,316) Net sales (purchases) of short-term investments. 7,098 (43,018) Other payments ................................. (1,049) (3,264) --------- --------- Net cash used in investing activities ........ (26,076) (50,139) --------- --------- Cash flows from financing activities: Proceeds from issuance of notes payable ........ - 34,701 Proceeds from exercise of stock options ........ 120 51 Repayment of notes payable ..................... (2,000) (25,000) Dividends paid to stockholders ................. (2,591) (3,100) Purchases of adjustable rate preferred and common stock ................................. (1,244) (181) Other payments ................................. (14) (966) --------- --------- Net cash provided by (used in) financing activities ................................. (5,729) 5,505 --------- --------- Effect of foreign exchange rate changes on cash... - (24) --------- --------- Net increase in cash ......................... 8,099 6,555 Cash balance, beginning of period ................ 6,433 12,764 --------- --------- Cash balance, end of period ...................... $ 14,532 $ 19,319 ========= ========= See Notes to Consolidated Financial Statements (Unaudited) Page 7 ORION CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued) (UNAUDITED) (000s omitted) Three Months Ended March 31, ---------------------------- 1994 1993 ---- ---- Reconciliation of net earnings to net cash provided by operating activities: Net earnings .................................... $ 13,240 $ 26,153 -------- -------- Adjustments: Cumulative effect of adoption of new accounting principles .................................. - (11,825) Depreciation and amortization ................. 1,007 936 Amortization of excess of cost over fair value of net assets acquired ................ 293 292 Deferred federal income taxes ................. 1,551 1,911 Amortization of fixed maturity investments .... 402 (185) Non-cash investment income .................... (1,423) (2,322) Equity in earnings of affiliate ............... (3,032) (3,060) Dividends received from affiliate ............. 905 711 Realized investment gains ..................... (533) (4,812) Foreign exchange translation adjustment ....... 115 37 Other ......................................... (9) 8 Change in assets and liabilities: Decrease in accrued investment income ......... 2,072 2,747 Increase in accounts and notes receivable ..... (13,484) (9,897) Decrease in reinsurance recoverables and prepaid reinsurance ......................... 29,456 35,259 Increase in deferred policy acquisition costs.. (7,998) (2,299) Decrease in other assets ...................... 362 2,411 Increase in losses ............................ 9,309 19,010 Increase in loss adjustment expenses .......... 2,829 1,253 Increase in unearned premiums ................. 3,079 9,369 Increase (decrease) in policyholders' dividends ................................... (615) 812 Increase (decrease) in other liabilities ...... 2,378 (15,296) -------- -------- Total adjustments and changes ............... 26,664 25,060 -------- -------- Net cash provided by operating activities ....... $ 39,904 $ 51,213 ======== ======== See Notes to Consolidated Financial Statements (Unaudited) Page 8
ORION CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Three Months Ended March 31, 1994 Note A - Basis of Financial Statement Presentation The consolidated financial statements and notes thereto are prepared in accordance with generally accepted accounting principles for property and casualty insurance companies. The consolidated financial statements include Orion Capital Corporation and its wholly-owned subsidiaries (collectively the "Company"). The Company's investments in unconsolidated affiliates are accounted for using the equity method. All material intercompany balances and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the Company's results of operations, financial position and cash flows for all periods presented. Although these consolidated financial statements are unaudited, they have been reviewed by the Company's independent accountants, Deloitte & Touche, for conformity with accounting requirements for interim financial reporting. Their report on such review is included herein. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1993 annual report on Form 10-K. Effective January 1, 1993 the Company recorded the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions." Upon adoption of SFAS No. 109, the Company recorded a benefit of $16,881,000 which was principally attributable to its deferred tax benefits that had not been recognized due to limitations under prior accounting standards. SFAS No. 106 requires the accrual of the estimated cost of retiree benefit payments during the years the employees provide services. Upon adoption of SFAS No. 106 the Company's accumulated obligation for providing medical benefits to retirees was $5,056,000, after a related tax benefit of $2,604,000. Included in the cumulative effects of adopting these accounting principles is the Company's portion of Guaranty National's benefit from changes in accounting principles in 1993 of $360,000, net of $185,000 of federal income taxes provided by the Company. Effective December 31, 1993, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which establishes the "available-for-sale" category of investment securities and requires such securities to be recorded at market value, with unrealized gains and losses reported in a separate component of stockholders' equity. As a result of the adoption of this standard on December 31, 1993, the Company increased its investments recorded at market value by $452,102,000, and its unrealized appreciation on investments, a component of stockholders' equity, by $20,720,000, net of deferred income taxes. Page 9 Note B - Investment in Affiliates The Company owns slightly less than fifty percent of the common stock of Guaranty National Corporation ("Guaranty National"), and approximately twenty percent of Intercargo Corporation ("Intercargo"), both publicly-held companies. The acquisition of the Company's interest in Intercargo was completed in December 1993. Beginning in 1994 the Company will record its share of Intercargo's operating results in the following quarter. Summarized financial information of Guaranty National for the three months ended March 31, 1994 and 1993 is as follows: Three Months Ended March 31, --------------------- 1994 1993 ---- ---- (000s omitted) Revenues: Premiums earned ................................. $ 75,331 $ 56,956 Realized investment gains ....................... 1,145 876 Investment and other income ..................... 5,865 5,650 --------- --------- 82,341 63,482 --------- --------- Expenses: Insurance expenses .............................. 73,618 54,156 Interest and other .............................. 858 835 --------- --------- 74,476 54,991 --------- --------- Earnings before federal income taxes and cumulative effect of change in accounting principles ....... 7,865 8,491 Federal income taxes .............................. 1,795 2,284 --------- --------- Earnings before cumulative effect of change in accounting principles ........................... $ 6,070 $ 6,207 ========= ========= The Company's proportionate share: Earnings before cumulative effect of change in accounting principles ......................... $ 3,032 $ 3,060 ========= ========= Cumulative effect of change in accounting principles .................................... $ - $ 545 ========= ========= The Company's investments in and advances to affiliates are as follows: March 31, December 31, 1994 1993 --------- ------------ (000s omitted) Book value ................................ $108,212 $111,459 Market value .............................. 120,565 143,255 Guaranty National shares held ............. 6,059 6,143 - Book value of shares held ............. $ 72,284 $ 75,394 - Market value of shares held ........... 89,369 107,510 Intercargo shares held .................... 1,526 1,526 - Book value of shares held ............. $ 18,732 $ 18,869 - Market value of shares held ........... 14,120 17,936 Page 10 Note C - Reinsurance In the normal course of business, the Company's insurance subsidiaries reinsure certain risks, generally on an excess-of-loss or pro rata basis, with other companies to limit exposure to losses. Reinsurance does not discharge the primary liability of the original insurer. The table below summarizes certain reinsurance information: Three Months Ended March 31, ---------------------------- 1994 1993 ---- ---- (000s omitted) Direct premiums written .................. $165,819 $157,354 Reinsurance assumed ...................... 29,980 31,268 -------- -------- Gross premiums written ................... 195,799 188,622 Reinsurance ceded ........................ (7,652) (28,329) -------- -------- Net premiums written ..................... $188,147 $160,293 ======== ======== Direct premiums earned ................... $160,170 $159,735 Reinsurance assumed ...................... 32,549 19,518 -------- -------- Gross premiums earned .................... 192,719 179,253 Reinsurance ceded ........................ (25,624) (29,981) -------- -------- Net premiums earned ...................... $167,095 $149,272 ======== ======== Loss and loss adjustment expenses recoverable from reinsurers ............ $ 12,798 $ 18,481 ======== ======== Note D - Stockholders' Equity and Earnings Per Common Share During the first quarter of 1994, the Company repurchased 31,000 shares of its common stock at an aggregate cost of $984,000. Common stock and per common share data have been restated, as required, to give effect to the 5-for-4 stock split paid on November 15, 1993 to stockholders of record on October 15, 1993. On December 21, 1992, Orion called for redemption its $2.125 Convertible Exchangeable Preferred Stock (the "$2.125 Preferred Stock") on January 21, 1993. The market price of the shares of common stock that a holder would receive upon conversion of the preferred stock was substantially higher than the redemption price of $25.76 per share. Consequently, most holders converted into common stock prior to the redemption date, resulting in the issuance of 3,579 shares of common stock in December 1992 and 1,423,544 shares of common stock in January 1993. Holders of 21,605 shares of $2.125 Preferred Stock, who did not elect to convert, redeemed their shares for an aggregate of $557,000. Page 11 Primary earnings per common share are computed using the weighted average common and dilutive common equivalent shares outstanding for the three months ended March 31, 1994 and 1993. The weighted average common shares amounted to 14,487,000 and 14,446,000 shares for the quarters ended March 31, 1994 and 1993, respectively. Included in the calculation of 1993 first quarter earnings per common share were $380,000 of dividends on the Company's Adjustable Rate Preferred Stock and $2,000 of dividends on shares of its $2.125 Preferred Stock. Preferred stock dividends were deducted from earnings to compute earnings per common share. Fully-diluted earnings per share is not presented as dilution is less than three percent for both periods. Note E - Contingencies The Company and its subsidiaries are routinely engaged in litigation incidental to their businesses; however, in the judgment of the Company's management, there are no significant legal proceedings pending against the Company or its subsidiaries which, net of loss reserves established therefor and giving effect to reinsurance, are likely to result in judgments for amounts that are material to the financial condition of the Company and its consolidated subsidiaries, taken as a whole. (See also Notes G and H to the 1993 consolidated financial statements). Page 12 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors Orion Capital Corporation New York, New York We have reviewed the accompanying consolidated balance sheet of Orion Capital Corporation and subsidiaries (the "Company") as of March 31, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the three-month periods ended March 31, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements effective January 1, 1993 the Company changed the method of accounting for income taxes and post-retirement benefits. Also effective on December 31, 1993, the Company changed its method of accounting for investments. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Orion Capital Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended; and in our report dated February 22, 1994, we expressed an unqualified opinion on those consolidated financial statements. The consolidated statements of earnings and cash flows for the year ended December 31, 1993 are not presented herein. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1993 and related consolidated statement of stockholders' equity for the year then ended is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE Hartford, Connecticut April 25, 1994 Page 13 ORION CAPITAL CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1994 and 1993 RESULTS OF OPERATIONS Orion Capital Corporation ("Orion") and its wholly-owned subsidiaries (collectively the "Company") operate principally in the property and casualty insurance business which is reported as three segments - Regional Operations, Reinsurance/Special Programs and Guaranty National Companies. Regional Operations markets workers compensation insurance through EBI Companies and Nations' Care, Inc. Reinsurance/Special Programs includes (i) DPIC Companies ("DPIC"), which markets professional liability insurance, (ii) Connecticut Specialty Insurance Group ("Connecticut Specialty"), which underwrites and sells specialty insurance programs, (iii) SecurityRe Companies ("SecurityRe"), which writes reinsurance and (iv) a 20.0% interest in Intercargo Corporation ("Intercargo") which underwrites insurance coverages for international trade. The third segment, Guaranty National Companies, specializes in writing nonstandard commercial and personal automobile insurance. The miscellaneous income and expenses (primarily interest, general and administrative expenses and other consolidating elimination entries) of the parent company are reported as a fourth segment. Earnings (loss) by segment before federal income taxes and the cumulative effect of the adoption of new accounting principles are summarized as follows for the quarterly periods ended March 31, 1994 and 1993. Three Months Ended March 31, ------------------ 1994 1993 ---- ---- (000s omitted) Regional Operations ............................... $ 8,260 $ 6,788 Reinsurance/Special Programs ...................... 9,175 12,847 Guaranty National Corporation ..................... 3,032 3,060 ------- ------- Total ........................................... 20,467 22,695 Other ............................................. (3,254) (3,768) ------- ------- $17,213 $18,927 ======= ======= Page 14 The following table sets forth certain ratios of insurance operating expenses to premiums earned for the Company. Three Months Ended March 31, ------------------ 1994 1993 ---- ---- Loss and loss adjustment expenses ................. 72.9% 76.3% Policy acquisition costs and other insurance expenses ........................................ 26.5 25.5 ----- ----- Total before policyholders' dividends ......... 99.4 101.8 Policyholders' dividends .......................... 2.2 2.2 ----- ----- Total after policyholders' dividends .......... 101.6% 104.0% ===== ===== REVENUES Premiums written and premiums earned - ------------------------------------ Net premiums written increased 17.4% ($27,854,000) to $188,147,000 in the first quarter of 1994 versus $160,293,000 in the first quarter of 1993. The results by segment are as follows: - Regional Operations' premiums written increased 3.6% ($2,622,000) from $73,158,000 in the first quarter of 1993 to $75,780,000 in the first quarter of 1994. Premiums written increased in geographic areas where the Company has had favorable loss experience stemming from its service oriented approach. The increase was partially offset by the impact of legislative reforms in certain states which have led to both lower premium rates and reduced loss expenses, generally resulting in more profitable business. This segment has begun to market alternative workers compensation products and services through its new division, Nations' Care Inc. - Reinsurance/Special Programs' premiums written during the first quarter of 1994 increased 29.0% ($25,232,000) from $87,135,000 in the first quarter of 1993 to $112,367,000 in the 1994 first quarter. Premium volume for Connecticut Specialty decreased 2.6% ($1,246,000) to $47,458,000 in the first quarter of 1994 from $48,704,000 in the 1993 period. Premiums written by DPIC for professional liability insurance, the largest special program, increased 71.7% ($20,931,000) to $50,135,000 in 1994's first quarter from $29,204,000 for the first quarter of 1993. The increase is primarily attributable to the discontinuation on January 1, 1994 of a reinsurance contract related to business in force on that date in order to retain more of DPIC's profitable business. The percentage of treaty and facultative reinsurance premiums assumed to total net premiums written for Reinsurance/Special Programs amounted to 13.1% and 10.6% in the first quarters of 1994 and 1993, respectively. Page 15 Premiums earned increased 11.9% ($17,823,000) to $167,095,000, in the first quarter of 1994 compared to $149,272,000 in the first quarter of 1993. Net investment income - --------------------- Pre-tax net investment income decreased $909,000 to $20,768,000 for the first quarter of 1994 versus $21,677,000 for the first quarter of 1993. The pre-tax yields on the average investment portfolio were 6.6% and 7.5% for the first quarters of 1994 and 1993, respectively, reflecting a change in the Company's mix of investments toward higher amounts of tax-advantaged securities which generally yield less than fully taxable securities, issuers calling their securities in order to refinance at lower rates and generally lower yields on new investments due to current market conditions. The Company's investment portfolio was carried at $1,321,137,000 at March 31, 1994 and $1,322,536,000 at December 31, 1993. Net purchases of investments during 1994 were offset by the recording of the decline in market values of investments during the first quarter. The Company's investment philosophy is to achieve a superior rate of return after taxes and maintain a high degree of safety and liquidity. Fixed maturity investments which the Company has both the positive intent and the ability to hold to maturity are recorded at amortized cost. Investments which may be sold in response to, among other things, changes in interest rates, prepayment risk, income tax strategies or liquidity needs are classified as "available-for-sale" and are carried at market value, with unrealized gains and losses reported in a separate component of stockholders' equity. The carrying value of fixed maturity and short term investments amounted to $1,014,200,000 and $1,029,211,000 at March 31, 1994 and December 31, 1993, respectively, or approximately 76.8% and 77.8% of the investment portfolio. The Company invests primarily in investment grade securities and strives to enhance the average return of its portfolio through limited investment in a diversified group of non-investment grade fixed maturity securities or securities that are not rated. The risk of loss due to default is generally considered greater for non-investment grade securities than for investment grade securities because the former, among other things, are often subordinated to other indebtedness of the issuer and are often issued by highly leveraged companies. At March 31, 1994 and December 31, 1993, the Company's investments in non-investment grade and unrated fixed maturity securities were carried at $130,617,000 and $97,653,000 with market values of $129,964,000 and $97,306,000, respectively. These investments represented a total of 9.8% and 7.3% of cash and investments and 6.1% and 4.6% of total assets at March 31, 1994 and December 31, 1993, respectively. Page 16 Realized investment gains - ------------------------- Net realized investment gains decreased $4,279,000 to $533,000 in the first quarter of 1994 from $4,812,000 in the first quarter of 1993. Realized investment gains in the first quarters of 1994 and 1993 are net of $794,000 and $1,700,000, respectively, of provisions for losses on securities deemed to be other than temporarily impaired. Realized gains (losses) vary from period to period, depending on market conditions relative to the Company's investment holdings, the timing of investment sales generating gains and losses, the occurrence of events which give rise to other than temporary impairment of investments, and other factors. EXPENSES AND OTHER Operating ratios - ---------------- The ratio of loss and loss adjustment expenses to premiums earned (the "loss ratio") was 72.9% in the 1994 first quarter compared to 76.3% in the same period of 1993. The decrease in the loss ratio from the first quarter of 1993 to the first quarter of the current year was attributable to lower loss ratios in both the Regional Operations and Reinsurance/Special Programs segments. Adverse development of prior years' losses amounted to $5,084,000, compared with $7,789,000 in the first quarter of 1993. Management believes that the Company's reserves for loss and loss adjustment expenses make reasonable and sufficient provision for the ultimate net cost of all losses on claims incurred. The loss ratio for the Regional Operations segment was 69.6% in the 1994 first quarter and 75.8% in the 1993 first quarter, reflecting continued improvement in workers compensation insurance, and decreasing levels of losses for runoff, principally from closed offices and commercial package business. The first quarter 1994 and 1993 loss ratios for Reinsurance/Special Programs amounted to 75.2% and 76.6%, respectively. The decrease in the 1994 loss ratio was primarily attributable to improved operating results for DPIC and Security Re. The 1994 and 1993 loss ratios were impacted by 1.0 and .7 percentage points, respectively, by the January 1994 California earthquake and the explosion at the World Trade Center from the Company's participation as a reinsurer. The ratio of deferred policy acquisition costs and other insurance expenses to premiums earned (the "expense ratio") was 26.5% in the first three months of 1994 as compared to 25.5% in 1993. The increase in the 1994 expense ratio results primarily from lower ceding commissions in 1994 related to the DPIC reinsurance program coupled with low assessments in 1993 from assigned risk pools. The ratio of policyholders' dividends to premiums earned (the "dividend ratio") was 2.2% in both 1994 and 1993. The combined ratio was 101.6% in the first quarter of 1994 and 104.0% for the same period of 1993. Page 17 Interest expense - ---------------- Interest expense increased to $3,324,000 in the first quarter of 1994 versus $2,875,000 in 1993. The increase of 15.6% reflects higher average debt outstanding in 1994 as compared to 1993, including debt incurred to redeem the Company's Adjustable Rate Preferred Stock, offset for the most part by lower average interest rates. Equity in earnings of affiliate - ------------------------------- The Company's portion of Guaranty National's net earnings before the cumulative effect of adopting changes in accounting principles was $3,032,000 for the first quarter of 1994 and $3,060,000 for the first quarter of 1993, based on Guaranty National's earnings of $6,070,000 and $6,207,000 for the respective periods. Guaranty National's gross premiums written increased to $88,148,000 for the first three months of 1994 from $75,830,000 for the 1993 period. Guaranty National's overall combined ratio was 97.7% and 95.0% in the first quarters of 1994 and 1993, respectively. Federal income taxes - -------------------- Federal income taxes on pre-tax operating results and the related effective tax rates amounted to $3,973,000 (23.1%) and $4,599,000 (24.3%) in the first quarters of 1994 and 1993, respectively. The Company's effective tax rate is less than the statutory tax rate of 35% primarily because of income derived from tax-advantaged securities. Cumulative effect of adoption of new accounting principles - ---------------------------------------------------------- Effective January 1, 1993 the Company recorded the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions." The cumulative effect of adopting SFAS No. 109, was a benefit of $16,881,000, which was principally attributable to the Company's deferred tax benefits that had not been recognized due to limitations under prior accounting standards. SFAS No. 106 requires the accrual of the estimated cost of retiree benefit payments during the years the employee provides services. Upon adoption of SFAS No. 106 the Company's accumulated obligation for providing medical benefits to retirees was $5,056,000, after a related tax benefit of $2,604,000. Included in the cumulative effects of adopting these accounting principles is the Company's portion of Guaranty National's benefit from changes in accounting principles in 1993 of $360,000, net of $185,000 of federal income taxes provided by the Company. Page 18 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities decreased by $11,309,000, from $51,213,000 in 1993 to $39,904,000 in 1994. The decrease in operating cash provided for the first quarter of 1994 is primarily due to an increase in paid losses and federal income tax payments, offset in part by an increase in premiums collected. Excluding the following one-time items, the decline in year-to-year operating cash flows approximated $400,000. In 1994 operating cash flow included a $10,223,000 receipt from DPIC's discontinuation of a reinsurance contract. Cash flow for 1993 included a receipt of $17,096,000 under a retrospectively rated program written by DPIC, and the benefit of a prior period income tax overpayment of approximately $4,000,000. Cash used in investment activities decreased to $26,076,000 in 1994 from $50,139,000 in 1993. The use of investment cash in both 1994 and 1993 is attributable to purchases of investments which exceeded maturities and sales of investments, reflecting positive operating cash flows. Cash used in financing activities was $5,729,000 for the first quarter of 1994 and cash provided by financing activities during the first quarter of 1993 was $5,505,000. The cash provided in 1993 resulted from an increase in bank borrowings. Orion's uses of cash consist of debt service, dividends to stockholders and overhead expenses. These cash uses are funded from existing available cash, financing transactions and receipt of dividends, reimbursement of overhead expenses and amounts in lieu of federal income taxes from Orion's insurance subsidiaries. Payments of dividends by Orion's insurance subsidiaries must comply with insurance regulatory limitations concerning stockholder dividends and capital adequacy. State insurance regulators have broad discretionary authority with respect to limitations on the payment of dividends by insurance companies. Limitations under current regulations are well in excess of Orion's cash requirements. Orion's insurance subsidiaries maintain liquidity in their investment portfolios substantially in excess of that required to pay claims and expenses. The insurance subsidiaries held cash and short-term investments of $93,665,000 and $92,421,000 at March 31, 1994 and December 31, 1993, respectively. Orion's insurance subsidiaries had consolidated policyholders' surplus of $421,628,000 at March 31, 1994 and $460,986,000 at December 31, 1993, and statutory operating leverage ratios of trailing twelve months net premiums written to policyholders' surplus of 1.6:1 at March 31, 1994 and 1.4:1 at December 31, 1993. The Company entered into a bank loan arrangement (the "Loan Agreement") in March 1993 that provided for initial borrowings of up to $60,000,000, consisting of a $50,000,000 term loan (reduced by $6,500,000 in scheduled commitment reductions through March 31, 1994) and a $10,000,000 line of credit. These borrowings are unsecured and bear interest at or below prime. Borrowings under the Loan Agreement amounted to $48,500,000 at March 31, 1994. The proceeds were used to repay the Company's outstanding bank debt and to redeem the Company's Adjustable Rate Preferred Stock in April 1993. At March 31, 1994 the Company had available $5,000,000 in unused commitments under the line of credit. Page 19 The terms of the Loan Agreement and Orion's Indenture for its 9 1/8% Senior Notes limit the amount of additional borrowings, prepayments on existing indebtedness, liens and guaranties by the Company. Management does not believe that any of these limitations unduly restricts the Company's operations or limits Orion's ability to pay dividends on its stock. At March 31, 1994, the Company was in compliance with the terms of its debt agreements. Management believes that the Company continues to have substantial sources of capital and liquidity from the capital markets and bank borrowings. The Company repurchased 31,000 shares of its common stock at an aggregate cost of $984,000 in the first quarter of 1994. The Company's remaining stock purchase authorization from its Board of Directors amounted to $4,835,000 at March 31, 1994. On September 10, 1993 the Company declared a 5-for-4 split of its common stock payable on November 15, 1993 to shareholders of record on October 15, 1993. Prior period common stock and per common share data presented in the financial statements have been restated to give effect to this stock split. On December 21, 1992, Orion called for redemption its $2.125 Convertible Exchangeable Preferred Stock (the "$2.125 Preferred Stock") on January 21, 1993. The market price of the shares of common stock that a holder would receive upon conversion of the preferred stock was substantially higher than the redemption price of $25.76 per share. Consequently, most holders converted into common stock prior to the redemption date, resulting in the issuance of 3,579 shares of common stock in December 1992 and 1,423,544 shares of common stock in January 1993. Holders of 21,605 shares of $2.125 Preferred Stock, who did not elect to convert, redeemed their shares for an aggregate of $557,000. Page 20 PART II. OTHER INFORMATION Items 1 - 5. - ------------ None. Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------- (a) Exhibits Exhibit 11: Computation of Earnings Per Common Share Exhibit 15: Deloitte & Touche letter re unaudited interim financial information. (b) Reports on Form 8-K. None. Page 21 SIGNATURES 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. ORION CAPITAL CORPORATION Date: May 2, 1994 By: /s/ Alan R. Gruber --------------------------------- Alan R. Gruber Chairman of the Board and Chief Executive Officer Date: May 2, 1994 By: /s/ Daniel L. Barry ---------------------------------- Daniel L. Barry Vice President, Controller and Principal Accounting Officer Page 22 EXHIBIT INDEX Page No. Exhibit 11: Computation of Earnings 24 Per Common Share Exhibit 15: Deloitte & Touche Letter 25 re unaudited interim financial information Page 23 EX-11 2 EARNINGS PER SHARE
EXHIBIT 11 ORION CAPITAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (UNAUDITED) (000s omitted-except for per common share data) Three Months Ended March 31, ---------------------------- 1994 1993 ---- ---- Computation of weighted average number of common and equivalent shares outstanding: PRIMARY - Weighted average number of shares outstanding ............................. 14,354 14,301 Dilutive effect of stock options .......... 133 145 ------- ------- Weighted average number of common and equivalent shares ....................... 14,487 14,446 ======= ======= Net earnings before preferred dividend requirements ............................ $13,240 $26,153 Preferred dividends ....................... - 382 ------- ------- Net earnings attributable to common stockholders ............................ $13,240 $25,771 ======= ======= Net earnings per common share ............. $ .91 $ 1.78 ======= ======= FULLY DILUTED - Weighted average number of shares outstanding ............................. 14,354 14,301 Dilutive effect of stock options .......... 133 158 Conversion of $2.125 preferred stock ...... - 230 ------- ------- Weighted average number of common and equivalent shares ....................... 14,487 14,689 ======= ======= Net earnings before preferred dividend requirements ............................ $13,240 $26,153 Adjustable rate preferred stock dividends.. - 380 ------- ------- Net earnings attributable to common stockholders ............................ $13,240 $25,773 ======= ======= Net earnings per common share ............. $ .91 $ 1.75 ======= =======
Page 24 EX-15 3 AUDITOR'S LETTER EXHIBIT 15 April 25, 1994 Orion Capital Corporation 30 Rockefeller Plaza New York, New York We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Orion Capital Corporation and subsidiaries for the periods ended March 31, 1994 and 1993, as indicated in our report dated April 25, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, is incorporated by reference in Registration Statements No. 2-65348 on Form S-8 and S-16 relating to the Orion Capital Corporation 1976 and 1979 Stock Option Plans, No. 2-80636 on Form S-8 relating to the Orion Capital Corporation 1982 Long-Term Performance Incentive Plan and No. 2-63344 on Form S-8 relating to the Orion Capital Corporation Employees' Stock Savings and Retirement Plan. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE Hartford, Connecticut Page 25 -----END PRIVACY-ENHANCED MESSAGE-----