-----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, AeNfPhgLvqjhrkgPc249PPczsE9H5rpRzpq530jvzvrDOLXpWYjNVdxWMVluLWuO 0mIS8lCBYyOjsEG7P4dyug== 0000780118-97-000012.txt : 19971117 0000780118-97-000012.hdr.sgml : 19971117 ACCESSION NUMBER: 0000780118-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMWEST INSURANCE GROUP INC CENTRAL INDEX KEY: 0000780118 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 952672141 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09580 FILM NUMBER: 97720565 BUSINESS ADDRESS: STREET 1: 6320 CANOGA AVE STE 300 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187041111 MAIL ADDRESS: STREET 1: 6320 CANOGA AVENUE SUITE 300 STREET 2: PO BOX 4500 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 EX-27 1 FDS --
7 1,000 US DOLLARS 3-MOS DEC-31-1996 JUL-01-1997 SEP-30-1997 1 0 0 101,994 15,659 0 0 123,880 3,193 8,935 20,563 193,141 41,934 41,062 0 0 14,500 0 0 34 56,184 193,141 23,736 1,594 1,044 17 10,229 11,610 3,244 723 38 685 0 0 0 685 0.20 0.20 42,009 24,228 1,305 8,948 16,660 41,934 0
10-Q 2 FORM 10-Q QUARTERLY FILING FOR AIG 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 September 30, 1997 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: 1-9580 AMWEST INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 95-2672141 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5230 Las Virgenes Rd. Calabasas, California 91302 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 871-2000 --------------- 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 . As of November 12, 1997, 3,435,121 shares of common stock, $.01 par value, were outstanding. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES INDEX Part I. FINANCIAL INFORMATION: Item 1 Consolidated Statements of Operations for the three and six months ended June 30, 1997 and 1996 3 Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 4 Consolidated Statements of Cash Flows for the three and six months ended June 30, 1997 and 1996 6 Notes to Interim Consolidated Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. OTHER INFORMATION: Item 1 Legal Proceedings 13 Item 2 Changes in Securities 13 Item 3 Defaults Upon Senior Securities 13 Item 4 Submission of Matters to a Vote of Security Ho1ders 13 Item 5 Other Information 13 Item 6 Exhibits and Reports on Form 8-K 13 PART I - FINANCIAL INFORMATION Item 1 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share data)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Underwriting revenues: Net premiums written $ 27,443 $ 22,461 $ 74,130 $ 65,905 Net change in unearned premiums (3,707) (222) (7,167) (296) ---------------- ---------------- ---------------- ---------------- Net premiums earned 23,736 22,239 66,963 65,609 ---------------- ---------------- ---------------- ---------------- Underwriting expenses: Losses and loss adjustment expenses 11,280 12,579 27,297 35,852 Reinsurance recoveries (1,051) (3,474) (2,018) (4,846) ---------------- ---------------- ---------------- ---------------- Net losses and loss adjustment expenses 10,229 9,105 25,279 31,006 Policy acquisition costs 11,610 10,389 32,583 28,945 General operating costs 3,244 2,600 9,416 9,715 ---------------- ---------------- ---------------- ---------------- Total underwriting expenses 25,083 22,094 67,278 69,666 ---------------- ---------------- ---------------- ---------------- Underwriting income (loss) (1,347) 145 (315) (4,057) Interest expense (585) (522) (1,464) (1,714) Merger expense - - - (710) Lease termination expense - - - (1,300) Net investment income 1,594 1,581 4,880 5,067 Net realized investment gains 1,044 326 2,029 1,867 Commissions and fees 17 - 22 223 ---------------- ---------------- ---------------- ---------------- Income (loss) before income taxes 723 1,530 5,152 (624) Provision (benefit) for income taxes: Current 311 505 713 526 Deferred (273) (165) 655 (1,115) ---------------- ---------------- ---------------- ---------------- Total provision (benefit) for income taxes 38 340 1,368 (589) ---------------- ---------------- ---------------- ---------------- Net income (loss) $ 685 $ 1,190 $ 3,784 $ (35) ================ ================ ================ ================ Earnings (loss) per common share: Net income (loss) $ 0.20 $ 0.36 $ 1.11 $ (0.01) ================ ================ ================ ================ Weighted average shares outstanding 3,478 3,347 3,410 3,348
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS
September 30, December 31, 1997 1996 --------------------- --------------------- (unaudited) Investments: Fixedmaturities, available-for-sale (amortized cost of $99,928 and $101,799 at September 30, 1997 and December 31, 1996, respectively) $ 101,994 $ 102,494 Common equity securities, available-for-sale (cost of $7,135 and $7,217 at September 30, 1997 and December 31, 1996, respectively) 11,365 9,779 Preferred equity securities, available-for-sale (cost of $3,795 and $3,971 at September 30, 1997 and December 31, 1996, respectively) 4,294 4,253 Other invested assets (cost of $3,858 and $2,667 at September 30, 1997 and December 31, 1996, respectively) 4,493 2,849 Short-term investments 1,734 890 --------------------- --------------------- Total investments 123,880 120,265 Cash and cash equivalents 3,193 6,434 Accrued investment income 1,444 1,399 Agents balances and premiums receivable (less allowance for doubtful accounts of $467 at September 30, 1997 and $446 at December 31, 1996) 15,140 10,882 Reinsurance recoverable: Paid loss and loss adjustment expenses 2,092 2,749 Unpaid loss and loss adjustment expenses 6,843 6,443 Ceded unearned premiums 1,806 1,849 Deferred policy acquisition costs 20,563 16,101 Furniture, equipment and improvements, net 5,289 4,747 Income taxes recoverable 1,627 2,802 Other assets 11,264 7,747 --------------------- --------------------- Total assets $ 193,141 $ 181,418 ===================== =====================
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31, 1997 1996 --------------------- --------------------- (unaudited) Liabilities: Unpaid losses and loss adjustment expenses $ 41,934 $ 42,009 Unearned premiums 41,062 33,939 Funds held as collateral 25,073 29,928 Bank indebtedness 14,500 12,500 Amounts due to reinsurers 605 345 Deferred Federal income taxes 3,707 1,842 Other liabilities 10,042 10,923 --------------------- --------------------- Total liabilities 136,923 131,486 Stockholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized; issued and outstanding: none - - Common stock, $.01 par value, 10,000,000 shares authorized, issued and outstanding: 3,421,350 at September 30, 1997 and 3,326,002 at December 31, 1996 34 33 Additional paid-in capital 17,993 16,827 Net unrealized appreciation of investments carried at market, net of income taxes 4,904 2,456 Retained earnings 33,287 30,616 --------------------- --------------------- Total stockholders' equity 56,218 49,932 --------------------- --------------------- Total liabilities and stockholders' equity $ 193,141 $ 181,418 ===================== =====================
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Cash flows from operating activities: Net income (loss) $ 685 $ 1,190 $ 3,784 $ (35) Adjustments to reconcile net income to cash provided by operating activities: Change in agents' balances and premiums receivable and unearned premiums 4,274 684 2,865 (3,252) Change in accrued investment income (110) (14) (45) 121 Change in unpaid losses and loss adjustment expenses 2,330 (249) (75) 4,059 Change in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses and ceded unearned premiums (783) (1,490) 300 (3,951) Change in amounts due to/from reinsurers 317 (559) 260 (1,070) Change in other assets and other liabilities 1,177 2,846 (4,398) 6,590 Change in income taxes, net (82) 372 1,779 (1,536) Change in deferred policy acquisition costs (1,725) 286 (4,462) (623) Net realized gain on sale of investments (1,049) (326) (2,034) (1,983) Net realized loss on sale of fixed assets 53 1 48 2 Provision for depreciation and amortization 336 262 997 917 ----------------- --------------- --------------- ----------------- Net cash provided (used) by operating activities 5,423 3,003 (981) (761) Cash flows from investing activities: Cash received from investments sold prior to maturity 11,813 14,237 35,578 48,242 Cash received from investments matured or called 2,014 2,323 6,611 3,623 Cash paid for investments acquired (15,390) (12,311) (39,969) (39,585) Amortization of discount on bonds (60) 45 (88) 128 Capital expenditures, net (287) (460) (1,587) (1,765) ----------------- --------------- --------------- ----------------- Net cash provided (used) by investing activities (1,910) 3,834 545 10,643
AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Dollars in thousands)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Cash flows from financing activities: Proceeds from issuance of long term debt - - 2,000 - Proceeds from issuance of common stock 776 - 1,166 265 Change in funds held as collateral (1,075) (422) (4,855) (6,396) Dividends paid (376) (367) (1,116) (1,096) ----------------- --------------- --------------- ----------------- Net cash used by financing activities (675) (789) (2,805) (7,227) ----------------- --------------- --------------- ----------------- Net increase (decrease) in cash and cash equivalents 2,838 6,048 (3,241) 2,655 Cash and cash equivalents at beginning of period 355 1,839 6,434 5,232 ----------------- --------------- --------------- ----------------- Cash and cash equivalents at end of period $ 3,193 $ 7,887 $ 3,193 $ 7,887 ================= =============== =============== ================= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 585 $ 522 $ 1,464 $ 1,714 Income taxes (29) (292) 227 1,020
See accompanying notes to interim consolidated financial statements. AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Notes to Interim Consolidated Financial Statements (unaudited) (1) Basis of Presentation The interim consolidated financial statements presented herein are unaudited and, in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (1) Acquisitions On August 7, 1997, the Company acquired all of the outstanding shares of Western States Bond Agency, Inc., a Denver, Colorado based insurance agency specializing in surety bonds. In connection with the acquisition, the Company issued 35,000 shares of its common stock. The shares issued are part of the Company's 250,000 share shelf registration statement (the"Registration Statement") declared effective by the SEC on June 13, 1997. On November 4, 1997, the Company acquired all of the outstanding shares of Surety Bond Writers, Inc., an Overland Park, Kansas insurance agency specializing in surety bonds. In connection with the acquisition, the Company issued 12,281 shares of its common stock. These shares are also a part of the Registration Statement. Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Premiums written increased 22% and 8% from $24,719,000 and $73,676,000 for the three months and nine months ended September 30, 1996, respectively, as compared to $30,083,000 and $79,868,000 for the three months and nine months ended September 30, 1997, respectively. The Company believes that the growth in surety premiums written is reflective of the impact the regionalization of its contract surety underwriting operation has had on better serving its customers by having more underwriters and authority in the field. Additionally, written surety premium also benefited by approximately $750,000 due to the acquisition of Western States Bond Agency in 1997. The Company also experienced strong growth in commercial surety and probate operations. Premiums for the property and casualty division also increased by 26% for the three months ended September 30, 1997, primarily due to the Company's Homeowners Programs in Hawaii and California, as well as growth in the Arizona Private Passenger Automobile Program. Net premiums earned increased 7% and 2% from $22,239,000 and $65,609,000 for the three months and nine months ended September 30, 1996, respectively, as compared to $23,736,000 and $66,963,000 for the three months and nine months ended September 30, 1997, respectively. The Company generally earns premiums ratably over the assigned bond terms for the surety operations and the policy term for the specialty property and casualty operations. Net losses and loss adjustment expenses increased 12% and decreased 19% from $9,105,000 and $31,006,000 for the three months and nine months ended September 30, 1996, respectively, to $10,229,000 and $25,279,000 for the three months and nine months ended September 30, 1997, respectively. The loss ratio for the surety operations increased from 25% for the three months ended September 30, 1996 to 30% for the three months ended September 30, 1997. This increase in the loss ratio is primarily due to a loss of approximately $800,000 on an immigration bond program written through an agent in the State of Texas. As is the case with bail bonds, the agent is liable for all losses incurred on this program. However, it currently does not appear that the agent is likely to fully reimburse the Company for expected losses under this program. Losses of this magnitude are unusual for the court division. (The last occurrence of this magnitude was in 1987.) The loss ratio for the property and casualty operations also increased from 70% for the three months ended September 30, 1996 to 87% for the three months ended September 30, 1997, primarily due to a recent unfavorable development of bodily injury claims for the 1995 accident year for the commercial trucking line. Policy acquisition costs increased as a percentage of net premiums earned from 47%, or $10,389,000, and 44%, or $28,945,000, for the three months and nine months ended September 30, 1996, respectively, to 49%, or $11,610,000, and 49%, or $32,583,000, for the three months and nine months ended September 30, 1997, respectively. Such increase is primarily attributable to a decline in contingent commissions earned by the Company due to changes in its reinsurance treaties. General operating costs increased from $2,600,000 for the months ended September 30, 1995 to $3,244,000 for the comparable 1997 period. The increase in general operating costs is primarily reflective of reduced bonus accruals in the comparable 1996 period, as well as costs incurred by the Company in the quarter ended September 30, 1997 relating to the development of a new surety bonding system. The Company had underwriting income of $145,000 and an underwriting loss of $4,057,000 for the three months and nine months ended September 30, 1996, respectively, compared with underwriting losses of $1,347,000 and $315,000 for the three months and nine months ended September 30, 1997, respectively. The combined ratio increased from 99% for the three months ended September 30, 1996 to 106% for the three months ended September 30, 1997 and decreased from 106% for the nine months ended September 30, 1996 to 100% for the nine months ended September 30 1997, due to the factors discussed above. Interest expense increased 12% and decreased 15% from $522,000 and $1,714,000 for the three months and nine months ended September 30, 1996, respectively, to $585,000 and $1,464,000 for the three months and nine months ended September 30, 1997, respectively. The increase in the three month amount is attributable to an increase in the outstanding balance of bank indebtedness from $12,500,000 to $14,500,000 in June of 1997 as well as an increase in the interest rate on the bank indebtedness from an average 7.3% for the three months ended September 30, 1996 to an average rate of 7.9% for the three months ended September 30, 1997. This increase was partially offset by a reduction in funds held as collateral from $26,148,000 to $25,073,000 on which the Company pays interest at a rate of approximately 3.5%. Net investment income increased 1% and decreased 4% from $1,581,000 and $5,067,000 for the three months and nine months ended September 30, 1996, respectively, to $1,594,000 and $4,880,000 for the three months and nine months ended September 30, 1997, respectively. The increase for the three months ended September 30,1997 is primarily due to an increase in the amount of average invested assets from $119,453,000 at September 30, 1996 to $121,402,000 at September 30, 1997. Net realized investment gains increased from $326,000 and $1,867,000 for the three months and nine months ended September 30, 1996, respectively, to $1,044,000 and $2,029,000 for the three months and nine months ended September 30, 1997, respectively. The investments sold during the three months ended September 30, 1997 were primarily equity securities and certain fixed income investments including convertible bonds and municipal bond securities. Income before income taxes increased from income of $1,530,000 and a loss of $624,000 for the three months and nine months ended September 30, 1996, respectively, to income of $723,000 and $5,152,000 for the three months and nine months ended September 30, 1997, respectively, due to the factors outlined above. The effective tax rate was 22% and a benefit of 94% for the three months and nine months ended September 30, 1996, respectively, as compared to an effective tax rate of 5% and 27% for the three months and nine months ended September 30, 1997, respectively. The primary reason for the variance from the corporate income tax rate of 34% for the quarter ended September 30, 1997 is tax advantaged income received on a portion of the Company's investment portfolio, as well as benefits attributable to disqualifying incentive stock option dispositions in the quarter ended September 30, 1997. Net income increased from net income of $1,190,000 and net loss of $35,000 for the three months and nine months ended September 30, 1996, respectively, to net income of $685,000 and $3,784,000 for the three months and nine months ended September 30, 1997, respectively, due to the factors outlined above. Liquidity and Capital Resources As of September 30, 1997, the Company held total cash and cash equivalents and invested assets of $127,073,000. This amount includes an aggregate of $25,073,000 in funds held as collateral which is shown as a liability on the Company's consolidated balance sheets. As of September 30, 1997, the Company's invested assets consisted of $101,994,000 in fixed maturities, $11,365,000 in common equity securities, $4,294,000 in preferred equity securities, $4,493,000 in other invested assets and $1,734,000 in short-term investments, including certificates of deposit with original maturities less than one year. Because the Company depends primarily on dividends from its insurance subsidiaries for its net cash flow requirements, absent other sources of cash flow, the Company cannot pay dividends materially in excess of the amount of dividends that could be paid by the insurance subsidiaries to the Company. The respective domicilary state of each of the insurance subsidiaries regulates, through the Office of the Insurance Commissioner, the amount of dividends which can be paid by a domestic insurance company utilizing various formula methodology. On August 6, 1993, the Company entered into a revolving credit agreement with Union Bank for $12,500,000. The loan was amended on April 24, 1995 and again on July 10, 1996 to increase the amount available under the revolving line of credit from $12,500,000 to $15,000,000. The loan has a variable rate based upon fluctuations in the London Interbank Offered Rate (LIBOR) with amortizing credit line reduction each September 30, ultimately maturing on September 30, 2001. On June 30, 1997, the Company increased its outstanding balance by $2,000,000 to $14,500,000. On September 30, 1997, the agreement was amended to update certain covenant calculations and to modify the payment schedule. The next payment is scheduled for September 30, 1998. The interest rate at September 30, 1997 was 7.9%. The credit agreement contains certain financial covenants with respect to capital expenditures, business acquisitions, liquidity ratio, leverage ratio, tangible net worth, net profit and dividend payments. The Company terminated a portion of its lease with Trillium/Woodland Hills on June 30, 1997. The Company is still responsible for rental p ayments associated with approximately 18,000 square feet through July 31, 1998. The Company is also a party to a lease with Ahmanson Commercial Development Company for its corporate headquarters. The lease commenced on May 27, 1997. This lease has a term of 15 years and contains provisions for scheduled lease charges. The Company's minimum lease commitment for the remainder of 1997 is approximately $298,000. The Company also has the option to purchase this new building and land three years into the lease period at a predetermined rate for the building, with the value of land based on then existing market rates. Other than the Company's obligations with respect to funds held as collateral, the Company's obligation to pay claims as they arise, the Company's commitments to pay principal and interest on the bank debt and lease expenses as noted above, the Company has no significant cash commitments. The Company believes that its cash flows from operations and other present sources of capital are sufficient to sustain its needs for at least the remainder of 1997. The Company generated $3,003,000 and used $761,000 in cash from operating activities for the three months and nine months ended September 30, 1996 as compared to generating $5,423,000 and using $981,000 for the three months and nine months ended September 30, 1997. The Company generated $3,834,000 and $10,643,000 in cash from investing activities for the three months and nine months ended September 30, 1996 as compared to using $1,910,000 and generating $545,000 for the three months and nine months ended September 30, 1997. The Company used $789,000 and $7,227,000 in cash from financing activities for the three months and nine months ended September 30, 1996 as compared to using $675,000 and $2,805,000 for the three months and nine months ended September 30, 1997. Certain statements contained in this Form 10-Q regard matters which are not historical facts and are forward looking statements. Because such forward looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to: a decline in demand for surety bonds or specialty property and casualty insurance, the ineffectiveness of certain management and reorganization changes made, a deterioration in results of any of the Company's product lines, adverse loss development and associated expense incurred by the Company due to the severity or frequency of claims filed with respect to the Company's insurance products, or a general economic decline. The Company undertakes no obligation to release publicly the results of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The table on the next page shows, for the periods indicated, the gross premiums written, net premiums earned, net losses and loss adjustment expenses and loss ratios for the Company's specialty property and casualty operations and surety operations. The surety operations are detailed by the Company's three major types of bonds: TABLE 1 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES SUMMARY OF PREMIUMS AND LOSSES BY PRODUCT LINE (Dollars in thousands)
Three months ended Nine months ended Year ended September 30, September 30, December 31, Type of Bond 1997 1996 1997 1996 1996 1995 ------------ ---- ---- ---- ---- ---- ---- Contract Gross premiums written $ 16,205 $ 13,341 $ 40,883 $ 38,764 $ 49,782 $ 54,039 Net premiums earned 11,785 11,544 33,553 34,826 46,158 49,736 Net losses and loss adjustment expenses 3,397 3,403 10,956 15,453 24,430 20,044 Loss ratio 29% 29% 33% 44% 53% 40% Court Gross premiums written $ 2,940 $ 2,705 $ 8,036 $ 7,877 $ 11,197 $ 7,669 Net premiums earned 2,932 2,640 7,926 7,766 10,897 7,816 Net losses and loss adjustment expenses 1,356 258 1,363 992 835 323 Loss ratio 46% 10% 17% 13% 8% 4% Commercial Surety Gross premiums written $ 4,064 $ 2,973 $ 11,778 $ 7,598 $ 11,191 $ 8,374 Net premiums earned 3,443 2,136 9,001 6,727 8,407 9,746 Net losses and loss adjustment expenses 604 469 1,719 1,356 2,553 1,767 Loss ratio 18% 22% 19% 20% 30% 18% Total Surety Gross premiums written $ 23,209 $ 19,019 $ 60,697 $ 54,239 $ 72,170 $ 70,082 Net premiums earned 18,159 16,320 50,479 49,318 65,462 67,298 Net losses and loss adjustment expenses 5,357 4,130 14,038 17,801 27,818 22,134 Loss ratio 30% 25% 28% 36% 42% 33% Property & Casualty Gross premiums written $ 6,874 $ 5,700 $ 19,171 $ 19,437 $ 25,172 $ 24,101 Net premiums earned 5,577 5,919 16,484 16,291 22,421 17,872 Net losses and loss adjustment expenses 4,871 4,975 11,240 13,205 18,830 13,131 Loss ratio 87% 84% 68% 81% 84% 73% Total Company Gross premiums written $ 30,083 $ 24,719 $ 79,868 $ 73,676 $ 97,342 $ 94,183 Net premiums earned 23,736 22,240 66,963 65,609 87,883 85,170 Net losses and loss adjustment expenses 10,229 9,105 25,279 31,006 46,648 35,265 Loss ratio 43% 41% 38% 47% 53% 41%
PART II - OTHER INFORMATION AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES Items 1-5: LEGAL PROCEEDINGS, CHANGE IN SECURITIES, DEFAULTS UPON SENIOR SECURITIES, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, OTHER INFORMATION None Item 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Exhibit Index on page 16. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended September 30, 1997. 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. AMWEST INSURANCE GROUP, INC. Date: November 14, 1997 by: /s/ JOHN E. SAVAGE --------------------------- John E. Savage President, Co-Chief Executive Officer and Chief Operating Officer (Principal Executive Officer) by: /s/ STEVEN R. KAY --------------------------- Steven R. Kay Senior Vice-President, Chief Financial Officer, Treasurer and Director (Principal Financial and Principal Accounting Officer) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description Location 2 Plan of acquisition, reorganization, arrangement, liquidation or succession ............................ None 4 Instruments defining the rights of securityholders, including indentures ................................. Not required 11 Statement re computation of per share earnings ....... Page 17 15 Letter re unaudited interim financial information .... None 18 Letter re change in accounting principles ............ None 19 Previously unfiled documents ......................... None 20 Report furnished to security holders ................. None 23 Published report regarding matters submitted to vote of security holders .................................. None 24 Consents of experts and counsel ...................... None 25 Power of attorney .................................... None 28 Additional exhibits .................................. None EX-11 3 STMT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Primary (2) Fully diluted (3) earnings per share earnings per share 1997 1996 1997 1996 Average shares outstanding for the nine month period ending September 30, 3,366,445 3,313,520 3,366,445 3,313,520 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $6.14 - $14.875 (464,310 and 449,430 options at September 30, 1997 and 1996, respectively) (1) 43,601 34,232 51,467 34,232 ----------------- ------------------ ------------------ ----------------- Total incremental shares resulting from conversion of common stock equivalents at September 30, 43,601 34,232 51,467 34,232 ----------------- ------------------ ------------------ ----------------- Total shares and incremental shares resulting from conversion of common stock equivalents at September 30, 3,410,046 3,347,752 3,417,912 3,347,752 ================= ================== ================== ================= Percentage of incremental shares resulting from conversion of common stock equivalents at September 30, 1.28% 1.02% 1.51% 1.02% ================= ================== ================== =================
EXHIBIT 11 (continued) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Primary (2) Fully diluted (3) earnings per share earnings per share 1997 1996 1997 1996 Average shares outstanding for the three month period ending September 30, 3,401,399 3,321,957 3,401,399 3,321,957 Incremental shares resulting from conversion of common stock equivalents: Options to purchase shares of common stock at an exercise price of $6.14 - $14.875 (464,310 and 449,430 options at September 30, 1997 and 1996, respectively) (1) 77,053 25,020 77,053 25,020 ----------------- ------------------ ------------------ ----------------- Total incremental shares resulting from conversion of common stock equivalents at September 30, 77,053 25,020 77,053 25,020 ----------------- ------------------ ------------------ ----------------- Total shares and incremental shares resulting from conversion of common stock equivalents at September 30, 3,478,452 3,346,977 3,478,452 3,346,977 ================= ================== ================== ================= Percentage of incremental shares resulting from conversion of common stock equivalents at September 30, 2.22% 0.75% 2.22% 0.75% ================= ================== ================== =================
EXHIBIT 11, (continued) AMWEST INSURANCE GROUP, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (1) Outstanding options and warrants to purchase common stock. Options to purchase shares of common stock as of September 30, 1997 and 1996, respectively: September 30, 1997 September 30, 1996 Grant price: $6.14 3,025 3,025 Grant price: $6.82 - 1,650 Grant price: $8.375 - 32,250 Grant price: $9.00 5,050 5,550 Grant price: $9.10 4,785 5,005 Grant price: $9.213 - 8,500 Grant price: $9.875 10,250 10,500 Grant price: $9.90 - 1,650 Grant price: $10.375 3,000 3,000 Grant price: $10.50 4,550 4,850 Grant price: $10.625 11,500 12,750 Grant price: $10.75 16,250 27,000 Grant price: $11.125 11,000 12,000 Grant price: $11.55 - 1,650 Grant price: $11.825 10,000 10,000 Grant price: $12.125 75,500 - Grant price: $12.50 17,500 17,500 Grant price: $12.75 4,000 4,000 Grant price: $13.375 93,300 100,200 Grant price: $13.875 60,450 67,200 Grant price: $14.02 1,650 1,650 Grant price: $14.125 17,500 - Grant price: $14.25 107,500 112,000 Grant price: $14.875 7,500 7,500 ------------- -------------- 464,310 449,430 ============= ============== (2) Calculation of incremental shares resulting from conversion of common stock equivalents, using the Treasury Stock Method for calculating primary earnings per share, is based on the average of the closing prices, for the three months and nine months ended September 30, 1997 and 1996, as reported on the American Stock Exchange. (3) Calculation of incremental shares resulting from conversion of common stock equivalents, using the Treasury Stock Method for calculating fully diluted earnings per share, is based on the greater of the average ending ask price or the closing ask price on September 30, 1997 and 1996, as reported on the American Stock Exchange. EX-10 4 BANK DEBT WAIVER AND AMENDMENT NO. 1 Waiver and Amendment No. 1 This Waiver and Amendment No. 1 dated as of September 30, 1997 (the "Waiver and Amendment") to the Restated Revolving Credit Agreement dated as of July 10, 1996 (the "Credit Agreement") between Amwest Insurance Group, Inc. (the "Borrower") and Union Bank of California, N.A. (the "Bank") is entered into between Borrower and Bank. WHEREAS, the Borrower desires, and the Bank is willing upon the terms and conditions hereinafter set forth, to (a) waive (i) compliance with Section 5.12 Net Profit of the Credit Agreement for the period of January 1, 1996 through December 31, 1996,and (ii) compliance with Section 5.13 Policyholders' Surplus for the quarterly accounting period ended September 30, 1996, the fiscal year ended December 31, 1996, and the quarterly accounting period ended March 31, 1997, and (b) amend the Credit Agreement to (i) clarify the definition of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin", (ii) delete the definition of "Interest Rate Leverage Ratio", (iii) reset Section 5.13 Policyholders' Surplus, (iv) modify Section 2.12 Mandatory Commitment Reductions, (v) correct references to the Compliance Certificate in Section 5.2(c) and Section 5.2(f), and (vi) add calculation detail to Exhibit 4 Compliance Certificate. In consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto hereby agree, on the terms and subject to the conditions set forth herein, as follows: Section 1. Definitions. (a) Delete the definition of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin" in its entirety, and replace with the following: Amwest Insurance Group, Inc. Waiver and Amendment No. I dated as of September 30, 1997 Page 2 - ------------------------------------------------------------------------------- "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin" means the percentage per annum set forth in the table below opposite the Leverage Ratio for the most recently ended four fiscal quarters for which Financial Statements have been delivered to Bank pursuant to Sections 5.2(a) or 5.2(b). The Applicable Base Rate Margin and Applicable Eurodollar Rate Margin shall be increased or decreased, as appropriate, based on the Leverage Ratio as of the end of each fiscal quarter, each such increase or decrease to become effective on the date 61 days after the end of such fiscal quarter (or, if such fiscal quarter is the last fiscal quarter of a fiscal year, 121 days after the last day of such fiscal quarter).
Interest Rate Applicable Leverage Ratio Applicable Base Lending Applicable Eurodollar Rate Margin Lending Margin 0.30 less than x 0.50% 2.00% 0.25 less than x less than 0.30 0.25% 1.75% 0.20 less than x less than 0.25 0.00% 1.50% 0.15 less than x less than 0.20 0.00% 1.25% x less than 0.15 0.00% 1.00%
(b) Delete the definition of "Interest Rate Leverage Ratio" in its entirety. Section 2. Waiver of Section 5.12 of the Credit Agreement. The Bank hereby waives compliance with Section 5.12 Net Profit of the Credit Agreement provided that the foregoing waiver shall be effective only during the fiscal year ended December 31, 1996. The Borrower explicitly acknowledges that, except as set forth in the preceding sentence, Section 5.12 Net Profit of the Credit Agreement is in full force and effect. Section 3. Waiver of Section 5.13 of the Credit Agreement. The Bank hereby waives compliance with Section 5.13 Policyholders' Surplus of the Credit Agreement provided that the foregoing waiver shall be effective only during the quarterly accounting period ended September 30, 1996, the fiscal year ended December 31, 1996, and the quarterly accounting period ended March 31, 1997. The Borrower explicitly acknowledges that, except as set forth in the preceding sentence, Section 5.13 Policyholders' Surplus of the Credit Agreement is in full force and effect. Amwest Insurance Group, Inc. Waiver and Amendment No. I dated as of September 30, 1997 Page 3 - ------------------------------------------------------------------------------- Section 4. Amendment to Section 5.13 of the Credit Agreement. Delete "90% of the Capital Surplus as reported as of March 31, 1996" from the third line of Section 5.13 Policyholders' Surplus and replace it with "$30,000,000". Section 5. Amendment to Section 2.12 of the Credit Agreement. Delete the table contained in Section 2.12 Mandatory Commitment Reductions in its entirety and replace it with the following table: Revolving Commitment Reduction Date Commitment Reduction September 30, 1996 $ 2,500,000 September 30, 1997 0 September 30, 1998 3,000,000 September 30, 1999 3,500,000 September 30, 2000 4,000,000 September 30, 2001 4,500,000 (The Revolving Commitment shall be reduced to Zero Dollars ($0) on September 30, 2001.) Section 6. Amendment to Section 5.2(c) of the Credit Agreement. Delete "Exhibit 5" from the third line of Section 5.2(c) and replace it with "Exhibit 4". Section 7. Amendment to Section 5.2(f) of the Credit Agreement. Delete "Exhibit 5" from the third line of Section 5.2(f) and replace it with "Exhibit 4". Section 8. Amendment to Exhibit 4 of the Credit Agreement. (a) After the word "Agreement" in the second line of the second paragraph of Section I Compliance with Financial Covenants, insert the words "(the details of which are explained in the attached covenant calculations)". (b) In reference to Section 5.2 (f) Financial Statements and Reports, Exhibit I hereto sets forth the templates providing sufficient detail for calculation and reporting of the quantitative financial covenants contemplated by Sections 5.9, 5.11, and 5.14. Section 9. Representations and Warranties. The Borrower represents and warrants to the Borrower that: (a) Before and after giving effect to this Waiver and Amendment, the representations and warranties set forth in Article III of the Credit Agreement are true Amwest Insurance Group, Inc. Waiver and Amendment No. I dated as of September 30, 1997 Page 4 - ------------------------------------------------------------------------------ and correct in all material respects with the same effect as if made on the date hereof, except to the extent such representations and warranties expressly relate to an earlier date. (b) Before (other than in connection with (i) Section 5.12 Net Profit of the Credit Agreement with respect to the period described in Section 2 of this Waiver and Amendment, and (ii) Section 5.13 Policyholders' Surplus of the Credit Agreement with respect to the periods described in Section 3 of this Waiver and Amendment) and after giving effect to this Waiver and Amendment, no Event of Default or Default has occurred and is continuing. Section 10. Condition to Effectiveness. This Waiver and Amendment shall become effective as of the date first written above when the Bank shall have received the counterpart of this Waiver and Amendment that bears the signature of the Borrower. Section 11. Credit Agreement. Except as specifically stated herein, the provisions of the Credit Agreement are and shall remain in full force and effect Section 12. Applicable Law. This Waiver and Amendment shall be governed by, and construed in accordance with, the laws of the State of California. Section 13. Counterparts. This Waiver and Amendment may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract. Section 14. Expenses. The Borrower agrees to reimburse the Bank for its out-of-pocket expenses in connection with this Waiver and Amendment. Amwest Insurance Group, Inc. Waiver and Amendment No. I dated as of September 30, 1997 Page 5 - ------------------------------------------------------------------------------ In witness whereof, the parties hereto have caused this Waiver and Amendment to be duly executed by their respective authorized officers as of the day and year first written above. AMWEST INSURANCE GROUP, INC. by: Name: Steven Kay Title: Senior Vice President Chief Financial Officer UNION BANK OF CALIFORNIA, N.A. by: Name: James R. Fothergill Title: Vice President Exhibit I Section 5.9 Fixed-Charge Coverage Ratio Calculation ($000) Through the fiscal quarter ending Required to be not less than 1.10 to 1.00 - ------------------------------------------------------------------------------- 1. Numerator: (a) Cash, cash equivalents, and investments (at market value) of Borrower on a non-consolidated GAAP basis: $ (b) Reasonably estimated cash interest expense related to the Capital Surplus Note over the subsequent four (4)quarters: $ (c) Reasonably estimated cash principal payments related to the Capital Surplus Note over the subsequent four (4)quarters: $ (d) Reasonably estimated maximum ordinary dividends allowable for Amwest for the four (4) consecutive fiscal quarters ending on such day: $ (e) Reasonably estimated maximum ordinary dividends allowable for Condor for the four (4) consecutive fiscal quarters ending on such day: $ (f) Cash received from stock options exercised for the four(4) previous consecutive fiscal quarters ending on such day: $ (g) Unused amounts available to be drawn under this Credit Facility: $ (h) Sum of 1 (a) through 1 (g): $ 2. Denominator: (a) Reasonably estimated aggregate cash payments of principal on all Debt of the Borrower and subsidiaries on a consolidated basis for the following four (4) fiscal quarters: $ (b) Reasonably estimated aggregate cash payments of interest on all Debt of the Borrower and subsidiaries on a consolidated basis for the following four (4) fiscal quarters: $ (c) Reasonably estimated aggregate cash common stock dividends to be paid over the next four (4) consecutive fiscal quarters: $ (d) Reasonably estimated aggregate cash expenditures to repurchase or redeem common shares over the next four (4) fiscal quarters: $ (e) Reasonably estimated total cash capital expenditures (inclusive of permitted acquisition payments made) over the next four (4) fiscal quarters: $ (f) Sum of 2(a) through 2(e): $ 3. Fixed-Charge Coverage Ratio: l(h) divided by 2(f): Exhibit I Section 5.11 Tangible Net Worth Calculation ($000) Through the fiscal quarter ending Required to be not less than 90% of Tangible Net Worth Reported at 3/31/96 plus 50% of net income for each year thereafter plus proceeds of Initial Public Offering 1. Covenant Calculation (a) Stockholders' equity of Borrower and its Subsidiaries as determined in accordance with GAAP consistently applied: $ (b) Effect of FASB 115: $ (c) Debt subordinated to Bank: $ (d) Licenses: $ (e) Trademarks: $ (f) Trade names: $ (g) Goodwill: $ (h) Organization expenses: $ (i) Other intangible assets excluding deferred policy acquisition costs: $ (j) Sum of l(d) through 1 (i): $ (k) Tangible Net Worth: 1(a) minus 1(b) plus 1(c) minus 1(j): $ 2. Covenant Requirement: (a) 90% of Tangible Net Worth as reported at 3/31/96: $ (b) 50% of Borrower's net income each fiscal year thereafter: $ (c) Proceeds of any initial public offering: $ (d) Covenant Requirement: Sum of 2(a) through 2(b): $ Section 5.14 Operating Leverage Ratio Calculation ($000) Through the fiscal quarter ending Required to be not more than 3.00 to 1.00 1. Net Premiums Written for the four (4) consecutive fiscal quarters ending on such day: $ 2. Capital Surplus as of such day: $ 3. Operating Leverage Ratio: 1 divided by 2: -----END PRIVACY-ENHANCED MESSAGE-----