-----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, Nd6KejEfKiYqdnikegZ2DRR3djogTfajok78411gftN5PB3jXPEKRYC8SiNRNHbk LQjcezc/YOM21ntXFbkh/g== 0000893220-00-000636.txt : 20000515 0000893220-00-000636.hdr.sgml : 20000515 ACCESSION NUMBER: 0000893220-00-000636 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHILADELPHIA CONSOLIDATED HOLDING CORP CENTRAL INDEX KEY: 0000909109 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 232202671 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22280 FILM NUMBER: 627459 BUSINESS ADDRESS: STREET 1: ONE BALA PLAZA STREET 2: SUITE 100 CITY: WYNNEWOOD STATE: PA ZIP: 19004 BUSINESS PHONE: 6106428400 MAIL ADDRESS: STREET 1: ONE BALA PLAZA STREET 2: SUITE 100 CITY: BALA CYNWYD STATE: PA ZIP: 19004 FORMER COMPANY: FORMER CONFORMED NAME: MAGUIRE HOLDING CORP DATE OF NAME CHANGE: 19930714 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2000 COMMISSION FILE NUMBER 0-22280 PHILADELPHIA CONSOLIDATED HOLDING CORP. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-2202671 (State of Incorporation) (IRS Employer Identification No.) ONE BALA PLAZA, SUITE 100 BALA CYNWYD, PENNSYLVANIA 19004 (610) 617-7900 ------------------------------------------- (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) 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 / / Indicate the number of shares outstanding of each of the issuer's classes of common stock as of May 8, 2000. Preferred Stock, $.01 par value, no shares outstanding Common Stock, no par value, 12,116,666 shares outstanding 2 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES INDEX FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Part I - Financial Information Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 3 Consolidated Statements of Operations and Comprehensive Income - For the three months ended March 31, 2000 and 1999 4 Consolidated Statements of Changes in Shareholders' Equity - For the three months ended March 31, 2000 and year ended December 31, 1999 5 Consolidated Statements of Cash Flows - For the three months ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-11 Part II - Other Information 12 Signatures 13 Exhibits 14
2 3 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
As of March 31, December 31, 2000 1999 ---- ---- (Unaudited) ASSETS INVESTMENTS: FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $340,633 AND $331,774) ............ $ 330,042 $ 321,018 EQUITY SECURITIES AT MARKET (COST $46,969 AND $41,231) 82,331 72,768 --------- --------- TOTAL INVESTMENTS ............................... 412,373 393,786 CASH AND CASH EQUIVALENTS .............................. 25,428 26,230 ACCRUED INVESTMENT INCOME .............................. 4,616 5,027 PREMIUMS RECEIVABLE .................................... 46,904 49,176 PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES ........................... 59,773 54,920 DEFERRED ACQUISITION COSTS ............................. 27,949 26,054 PROPERTY AND EQUIPMENT ................................. 9,639 9,277 GOODWILL LESS ACCUMULATED AMORTIZATION OF $2,992 AND $2,620 .............................. 28,429 28,801 OTHER ASSETS ........................................... 7,133 5,780 --------- --------- TOTAL ASSETS .................................... $ 622,244 $ 599,051 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY POLICY LIABILITIES AND ACCRUALS: UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES ............. $ 198,409 $ 188,063 UNEARNED PREMIUMS .................................... 118,297 111,606 --------- --------- TOTAL POLICY LIABILITIES AND ACCRUALS ........... 316,706 299,669 PREMIUMS PAYABLE ....................................... 23,418 22,223 OTHER LIABILITIES ...................................... 15,643 14,762 DEFERRED INCOME TAXES .................................. 3,217 2,052 --------- --------- TOTAL LIABILITIES ............................... 358,984 338,706 --------- --------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF COMPANY ......................... 98,905 98,905 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING COMMON STOCK, NO PAR VALUE, 50,000,000 SHARES AUTHORIZED, 13,381,924 SHARES ISSUED .............. 68,825 68,859 NOTES RECEIVABLE FROM SHAREHOLDERS ................... (2,102) (2,506) ACCUMULATED OTHER COMPREHENSIVE INCOME ............... 16,101 13,507 RETAINED EARNINGS .................................... 99,431 93,766 LESS COST OF COMMON STOCK HELD IN TREASURY, 1,175,813 AND 791,016 SHARES ...................... (17,900) (12,186) --------- --------- TOTAL SHAREHOLDERS' EQUITY ...................... 164,355 161,440 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $ 622,244 $ 599,051 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (Unaudited)
For the Three Months Ended March 31, 2000 1999 ---- ---- REVENUE: NET WRITTEN PREMIUMS ...................... $ 58,128 $ 42,805 CHANGE IN NET UNEARNED PREMIUM RESERVE (INCREASE) .............. (9,501) (6,041) ------------ ------------ NET EARNED PREMIUMS ....................... 48,627 36,764 NET INVESTMENT INCOME ..................... 6,264 4,854 NET REALIZED INVESTMENT GAIN (LOSS) ....... 93 (490) OTHER INCOME .............................. 2,725 ------------ ------------ TOTAL REVENUE ........................... 57,709 41,128 ------------ ------------ LOSSES AND EXPENSES: LOSS AND LOSS ADJUSTMENT EXPENSES ......... 40,246 22,515 NET REINSURANCE RECOVERIES ................ (12,006) (2,253) ------------ ------------ NET LOSS AND LOSS ADJUSTMENT EXPENSES ..... 28,240 20,262 ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES ................................ 16,719 11,777 OTHER OPERATING EXPENSES .................. 2,810 519 ------------ ------------ TOTAL LOSSES AND EXPENSES ............... 47,769 32,558 ------------ ------------ MINORITY INTEREST: DISTRIBUTIONS ON COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST ..................... 1,811 1,811 ------------ ------------ INCOME BEFORE INCOME TAXES ................... 8,129 6,759 ------------ ------------ INCOME TAX EXPENSE (BENEFIT): CURRENT ................................... 2,665 2,045 DEFERRED .................................. (201) (223) ------------ ------------ TOTAL INCOME TAX EXPENSE ................ 2,464 1,822 ------------ ------------ NET INCOME .............................. $ 5,665 $ 4,937 ============ ============ OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: HOLDING GAIN (LOSS) ARISING DURING PERIOD . $ 2,654 $ (763) RECLASSIFICATION ADJUSTMENT ............... (60) 319 ------------ ------------ OTHER COMPREHENSIVE INCOME (LOSS) ......... 2,594 (444) ------------ ------------ COMPREHENSIVE INCOME ......................... $ 8,259 $ 4,493 ------------ ------------ PER AVERAGE SHARE DATA: BASIC EARNINGS PER SHARE .................. $ 0.46 $ 0.40 ============ ============ DILUTED EARNINGS PER SHARE ................ $ 0.38 $ 0.33 ============ ============ WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING ............................... 12,327,797 12,209,391 WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING ............................... 2,496,325 2,823,711 ------------ ------------ WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING ................... 14,824,122 15,033,102 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
For the Three For the Year Ended Months Ended March December 31, 31, 2000 1999 -------- ---- (Unaudited) COMMON STOCK: BALANCE AT BEGINNING OF YEAR.................................. $ 68,859 $ 44,796 ISSUANCE OF SHARES PURSUANT TO ACQUISITION AGREEMENT................................................... 25,000 ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN......................................... (420) EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF TAX BENEFIT................................................. (27) (517) SHARES FORFEITED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN......................................... (7) -------- -------- BALANCE AT END OF PERIOD.................................. 68,825 68,859 -------- -------- NOTES RECEIVABLE FROM SHAREHOLDERS: BALANCE AT BEGINNING OF PERIOD................................ (2,506) (1,680) NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN......................................... (1,445) SHARES FORFEITED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN......................................... 226 COLLECTION OF NOTES RECEIVABLE................................ 178 619 -------- -------- BALANCE AT END OF PERIOD.................................. (2,102) (2,506) -------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME: BALANCE AT BEGINNING OF PERIOD................................ 13,507 22,417 OTHER COMPREHENSIVE INCOME, NET OF TAXES...................... 2,594 (8,910) -------- -------- BALANCE AT END OF PERIOD.................................. 16,101 13,507 -------- -------- RETAINED EARNINGS: BALANCE AT BEGINNING OF PERIOD................................ 93,766 74,923 NET INCOME.................................................... 5,665 18,843 -------- -------- BALANCE AT END OF PERIOD.................................. 99,431 93,766 -------- -------- COMMON STOCK HELD IN TREASURY: BALANCE AT BEGINNING OF PERIOD................................ (12,186) (2,973) COMMON SHARES REPURCHASED..................................... (5,549) (12,081) ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN............................................... 1,893 ISSUANCE OF SHARES PURSUANT TO DIRECTOR STOCK PURCHASE PLAN............................................... 6 EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF TAX BENEFIT................................................. 48 975 SHARES FORFEITED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN............................................... (219) -------- -------- BALANCE AT END OF PERIOD.................................. (17,900) (12,186) -------- -------- TOTAL SHAREHOLDERS' EQUITY................................ $164,355 $161,440 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
For the Three Months Ended March 31, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME ...................................... $ 5,665 $ 4,937 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET REALIZED INVESTMENT (GAIN) LOSS ........... (93) 490 DEPRECIATION AND AMORTIZATION EXPENSE ......... 959 575 DEFERRED INCOME TAX BENEFIT ................... (201) (223) CHANGE IN PREMIUMS RECEIVABLE ................. 2,272 (1,353) CHANGE IN OTHER RECEIVABLES ................... (4,442) (2,066) CHANGE IN DEFERRED ACQUISITION COSTS .......... (1,895) (2,031) CHANGE IN OTHER ASSETS ........................ 583 (613) CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES .................................... 10,346 5,770 CHANGE IN UNEARNED PREMIUMS ................... 6,691 7,931 CHANGE IN OTHER LIABILITIES ................... 2,076 (71) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES . 21,961 13,346 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES AVAILABLE FOR SALE ............... 23,504 28,953 PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES AVAILABLE FOR SALE ............... 7,245 3,325 PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES .................................. 8,606 2,120 COST OF FIXED MATURITIES SECURITIES AVAILABLE FOR SALE ACQUIRED ............................... (42,073) (42,002) COST OF EQUITY SECURITIES ACQUIRED .............. (13,829) (6,877) PURCHASE OF PROPERTY AND EQUIPMENT .............. (872) (994) -------- -------- NET CASH USED BY INVESTING ACTIVITIES ....... (17,419) (15,475) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF TAX BENEFIT ................................ 21 228 ISSUANCE OF SHARES PURSUANT TO DIRECTOR STOCK PURCHASE PLAN ........................... 6 COLLECTION OF NOTES RECEIVABLE .................. 178 170 COST OF COMMON STOCK REPURCHASED ................ (5,549) -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .............................. (5,344) 398 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS .......... (802) (1,731) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ... 26,230 31,573 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ......... $ 25,428 $ 29,842 ======== ======== CASH PAID DURING THE PERIOD FOR: INCOME TAXES .................................... $ $ NON-CASH TRANSACTIONS: ISSUANCE OF SHARES (FORFEITURES) PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE ............................... $ (226) $ (33)
The accompanying notes are an integral part of the consolidated financial statements. 6 7 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements as of and for the three months ended March 31, 2000 and 1999 are unaudited, but in the opinion of management, have been prepared on the same basis as the annual audited consolidated financial statements and reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the information set forth therein. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the operating results to be expected for the full year or any other period. Certain prior year amounts have been reclassified for comparative purposes. These financial statements should be read in conjunction with the financial statements and notes as of and for the year ended December 31, 1999 included in the Company's Annual Report on Form 10-K. 2. Acquisitions On July 16, 1999, Philadelphia Consolidated Holding Corp. (the "Company") closed on its acquisition of Liberty American Insurance Group, Inc. ("Liberty") for a purchase price of $45.0 million, and a contingent additional amount of up to $5.0 million based upon the future earnings for the acquired business. Of the purchase price, $20.0 million was paid in cash and the balance in 1,037,772 shares of common stock of the Company. Any contingent additional amount will be paid in cash. The acquisition is being accounted for using the purchase method of accounting. 3. Goodwill Goodwill resulting from the acquisition of Liberty amounted to $29.2 million. This amount represents the excess of acquisition costs over the fair value of net assets acquired. Goodwill is being amortized on a straight-line basis over 20 years. 4. Earnings Per Share Earnings per common share has been calculated by dividing net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period. 5. Income Taxes The effective tax rate differs from the 35% marginal tax rate principally as a result of interest exempt from tax, the dividend received deduction and other differences in the recognition of revenues and expenses for tax and financial reporting purposes. 6. Comprehensive Income Components of comprehensive income, as detailed in the Consolidated Statements of Operations and Comprehensive Income, are net of tax. The related tax effect of Holding Gains (Losses) arising during the quarter was $1.4 million and ($0.4) million for the three months ended March 31, 2000 and 1999, respectively. The related tax effect of Reclassification Adjustments was $0.2 million in 1999. 7. Segment Information The Company has divided its operations into four reportable segments: The Commercial Lines Underwriting Group which has underwriting responsibility for the Commercial Automobile and Commercial multi-peril package insurance products; The Specialty Lines Underwriting Group which has underwriting responsibility for the professional liability insurance products; The Specialty Property Underwriting Group which has underwriting responsibility for the large property and Inland Marine insurance products; and The Personal Lines Group which designs, markets and underwrites personal property and casualty insurance products for the 7 8 Mobile Homeowners and Homeowners markets. The reportable segments operate solely within the United States. The segments follow the same accounting policies used for the Company's consolidated financial statements. Management evaluates a segment's performance based upon underwriting results. Following is a tabulation of business segment information for the three months ended March 31, 2000 and 1999. Corporate information is included to reconcile segment data to the consolidated financial statements (in thousands):
Commercial Specialty Personal Specialty Lines Lines Lines Property Corporate Total --------------------------------------------------------------------------------- March 31, 2000: Gross Written Premiums $40,304 $16,231 $ 16,145 $4,466 $ 77,146 --------------------------------------------------------------------------------- Net Written Premiums $26,838 $18,066 $ 11,169 $2,055 $ 58,128 --------------------------------------------------------------------------------- Revenue: Net Earned Premiums $28,536 $11,721 $ 6,278 $2,092 $ 48,627 Net Investment Income 1,195 5,069 6,264 Net Realized Investment Gain (Loss) (35) 128 93 Other Income 3,689 (964) 2,725 --------------------------------------------------------------------------------- Total Revenue 28,536 11,721 11,127 2,092 4,233 57,709 --------------------------------------------------------------------------------- Losses and Expenses: Net Loss and Loss Adjustment Expenses 16,207 7,358 3,249 1,426 28,240 Acquisition Costs and Other Underwriting Expenses 1,746 14,973 16,719 Other Operating Expenses 2,285 525 2,810 --------------------------------------------------------------------------------- Total Losses and Expenses 16,207 7,358 7,280 1,426 15,498 47,769 --------------------------------------------------------------------------------- Minority Interest: Distributions on Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust 1,811 1,811 --------------------------------------------------------------------------------- Income Before Income Taxes 12,329 4,363 3,847 666 (13,076) 8,129 Total Income Tax Expense 2,464 2,464 --------------------------------------------------------------------------------- Net Income $12,329 $ 4,363 $ 3,847 $ 666 $(15,540) $ 5,665 ================================================================================= Total Assets $135,703 $486,541 $622,244 ================================================================================= March 31, 1999: Gross Written Premiums $40,575 $10,914 $ 2,009 $4,592 $ 58,090 --------------------------------------------------------------------------------- Net Written Premiums $27,974 $ 9,091 $ 1,735 $4,005 $ 42,805 --------------------------------------------------------------------------------- Revenue: Net Earned Premiums $27,737 $ 7,282 $ 929 $ 816 $ 36,764 Net Investment Income 4,854 4,854 Net Realized Investment Loss (490) (490) --------------------------------------------------------------------------------- Total Revenue 27,737 7,282 929 816 4,364 41,128 --------------------------------------------------------------------------------- Losses and Expenses: Net Loss and Loss Adjustment Expenses 15,159 4,121 478 504 20,262 Acquisition Costs and Other Underwriting Expenses 11,777 11,777 Other Operating Expenses 519 519 --------------------------------------------------------------------------------- Total Losses and Expenses 15,159 4,121 478 504 12,296 32,558 --------------------------------------------------------------------------------- Minority Interest: Distributions on Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust 1,811 1,811 --------------------------------------------------------------------------------- Income Before Income Taxes 12,578 3,161 451 312 (9,743) 6,759 Total Income Tax Expense 1,822 1,822 --------------------------------------------------------------------------------- Net Income $12,578 $ 3,161 $ 451 $ 312 $(11,565) $ 4,937 ================================================================================= Total Assets $490,013 $490,013 =================================================================================
8 9 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL Although the Company's financial performance is dependent upon its own specific business characteristics, certain risk factors can affect the profitability of the Company. These include: - - Industry factors - Historically the financial performance of the commercial and personal property and casualty insurance industry has tended to fluctuate in cyclical patterns of soft markets followed by hard markets. In the current environment, insurance industry pricing in general continues to be soft; however, the Company's strategy is to focus on underwriting profits and accordingly the Company's marketing organization is being directed into those niche businesses that exhibit the greatest potential for underwriting profits. - - Competition - The Company competes in the commercial and personal property and casualty business with other domestic and international insurers having greater financial and other resources than the Company. - - Regulation - The Company's insurance subsidiaries are subject to a substantial degree of regulatory oversight, which generally is designed to protect the interests of policyholders, as opposed to shareholders. - - Inflation - Commercial and personal property and casualty insurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflation may effect such amounts is known. - - Investment Risk - Substantial future increases in interest rates could result in a decline in the market value of the Company's investment portfolio and resulting losses and/or reduction in shareholders' equity. - - Catastrophe Exposure - The Company's insurance subsidiaries issue insurance policies which provide coverage for commercial and personal property and casualty risks. It is possible that a catastrophic event could greatly increase claims under these insurance policies. RESULTS OF OPERATIONS (THREE MONTHS ENDED MARCH 31, 2000 VS MARCH 31, 1999) Premiums: Gross written premiums grew $19.0 million (32.7%) to $77.1 million for the three months ended March 31, 2000 from $58.1 million for the same period of 1999; gross earned premiums grew $20.5 million (40.7%) to $70.9 million for the three months ended March 31, 2000 from $50.4 million for the same period of 1999; net written premiums increased $15.3 million (35.7%) to $58.1 million for the three months ended March 31, 2000 from $42.8 million for the same period of 1999; and net earned premiums grew $11.8 million (32.1%) to $48.6 million in 2000 from $36.8 million in 1999. The overall growth in premiums are attributable to a number of factors: - - Expansion of marketing efforts relating to specialty lines products through the Company's field organization and preferred agents. The respective gross written and net written premium increases for specialty lines products for the three months ended March 31, 2000 vs. 1999 amount to $5.3 million and $9.0 million. - - The acquisition of Liberty, resulting in an increase of $14.1 million and $9.3 million in gross and net mobile homeowners, preferred homeowners and National Flood Insurance Program written premiums, respectively. Overall premium growth has been offset in part by the Company's decision not to renew certain commercial automobile policies in the commercial lines segment and certain policies in the specialty property segment due to inadequate pricing levels being experienced as a result of market conditions and/or loss experience emerging at higher than expected levels. As a result, the aggregate total gross written and net written premiums for the commercial lines and specialty property and inland marine products decreased by $0.3 million and $1.1 million for commercial lines products, and $0.1 million and $1.9 million for specialty property and inland marine products. 9 10 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Net Investment Income: Net investment income approximated $6.3 million for the three months ended March 31, 2000 and $4.9 million for the same period of 1999. Total investments grew to $412.4 million at March 31, 2000 from $372.5 million at March 31, 1999. The growth in investment income is due to investing net cash flows provided from operating activities, the reinvesting of the proceeds from 1999 common stock sales in fixed maturity securities, and the investable assets acquired in the Company's acquisition. Other Income: Other income approximated $2.7 million for the three months ended March 31, 2000 and $0.0 for the same period of 1999. This increase is primarily attributed to commissions earned on personal lines brokered business. Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $7.9 million (38.9%) to $28.2 million in the first quarter of 2000 from $20.3 million in the first quarter of 1999 and the loss ratio increased to 58.1% in 2000 from 55.1% in 1999. The increase in net loss and loss adjustment expenses was due principally to the 32.1% growth in net earned premiums and in part to growth in product lines with higher relative loss experience. Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $4.9 million (41.5%) to $16.7 million for the three months ended March 31, 2000 from $11.8 million for the same period of 1999. This increase was due primarily to the 32.1% growth in net earned premiums and in part to the relatively higher acquisition costs as a result of the changes in the Company's product and associated distribution channel mix (see results of operations - "Premiums"). Other Operating Expenses: Other operating expenses increased $2.3 million to $2.8 million in the first quarter of 2000 from $0.5 million for the same period of 1999. The increase in other operating expenses was primarily due to the following: operating expenses of the Company's brokered personal lines business ($1.9 million); and goodwill amortization ($0.4 million), both arising from the acquisition of Liberty. Income Tax Expense: The Company's effective tax rate for the three months ended March 31, 2000 and 1999 was 30.3% and 27.0%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities offset in part by non-deductible goodwill amortization. The increase in the effective tax rate is principally due to a greater investment of cash flows in taxable securities relative to tax-exempt securities. LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 2000 the Company's investments experienced unrealized investment appreciation of $2.6 million, net of the related deferred tax expense of $1.4 million. At March 31, 2000, the Company had total investments with a carrying value of $412.4 million, of which 80.0% consisted of investments in investment grade fixed maturity securities, including U.S. treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate debt securities, collateralized mortgage securities and asset backed securities. The collateralized mortgage securities and asset backed securities consist of short tranche securities possessing favorable pre-payment risk profiles. The remaining 20.0% of the Company's total investments consisted primarily of publicly traded common stock securities. The Company purchased 377,100 shares of its common stock during the first quarter of 2000 for $5.5 million under its stock buyback authorization. The Company produced net cash from operations of $22.0 million and $13.3 million, respectively, for the three months ended March 31, 2000 and 1999. The first quarter of 2000 included net cash from operations of $6.8 million from the acquisition of Liberty. Management believes that the Company has adequate ability to pay all claims and meet all other cash needs. 10 11 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued) Risk-based capital is designed to measure the acceptable amount of capital an insurer should have based on the inherent specific risks of each insurer. Insurers failing to meet this benchmark capital level may be subject to scrutiny by the insurer's domiciliary insurance department and ultimately rehabilitation or liquidation. Based on the standards currently adopted, the Company's insurance subsidiaries' capital and surplus is in excess of the prescribed risk-based capital requirements. YEAR 2000 ISSUES Many existing computer programs use only two digits, instead of four, to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create incorrect results on or after the Year 2000. The "Year 2000" issue affects computer and information technology systems, as well as non-information technology systems which include embedded technology such as micro-processors and micro-controllers (or micro-chips) that have date sensitive programs that may not properly recognize the year 2000 or beyond. The Company issues professional liability coverage, including directors and officers liability, and commercial multi-peril insurance policies. Coverage under certain of these policies may cover losses suffered by insureds as a result of the Year 2000 issues. Professional liability policies are written on a "claim made and reported" basis. Since early 1997 approximately 50% of these policies have included a Year 2000 exclusion endorsement. The Company includes a Year 2000 exclusion endorsement on virtually all new or renewing professional liability policies providing coverage effective January 1, 1999 and thereafter. On occasion, for qualifying accounts, the Company's underwriters may remove the exclusion after receipt and review of a satisfactory supplemental application (which includes a warranty statement) and other underwriting information. With respect to commercial multi-peril policies, the Company believes that it should not be held liable for claims arising from the Year 2000 issue under comprehensive general liability policies. However, the Company cannot determine whether or to what extent courts may find liability for such claims. Additionally, expenses could be incurred to contest Year 2000 issue coverage claims, even if the Company prevails in its position. As a result, it cannot presently be determined what, if any, insurance exposure ultimately exists for Year 2000 issue claims. However, no Year 2000 issue claims have been reported to the Company as of May 3, 2000. There can be no assurance that such Year 2000 issues will not materially adversely affect the Company. FORWARD-LOOKING INFORMATION Certain information included in this report and other statements or materials published or to be published by the Company are not historical facts but are forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new and existing products, expectations for market segment and growth, the impact of Year 2000 issues, and similar matters. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, results of the Company's business, and the other matters referred to above include, but are not limited to: (i) changes in the business environment in which the Company operates, including inflation and interest rates; (ii) changes in taxes, governmental laws, and regulations; (iii) competitive product and pricing activity; (iv) difficulties of managing growth profitably; (v) catastrophe losses; and (vi) the impact of Year 2000 issues, including the matters referred to above. 11 12 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other information Not applicable. Item 6. Exhibits and Reports on Form 8-K
a. Exhibits Exhibit No. Description 11.0 Computation of Earnings Per Share b. The Company filed the following reports on Form 8-K during the quarterly period ended March 31, 2000:
Date of Report Item Reported -------------- ------------- March 17, 2000 Press Release dated February 11, 2000
12 13 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. PHILADELPHIA CONSOLIDATED HOLDING CORP. Registrant Date May 8, 2000 /s/ James J. Maguire ------------------------ ------------------------------------------- James J. Maguire Chairman of the Board of Directors, and Chief Executive Officer (Principal Executive Officer) Date May 8, 2000 /s/ Craig P. Keller ------------------------ ------------------------------------------- Craig P. Keller Senior Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Dollars and Share Data in Thousands, except Per Share Data) (Unaudited)
As of and For the Three Months Ended March 31, 2000 1999 ---- ---- Weighted-Average Common Shares Outstanding 12,328 12,209 Weighted-Average Share Equivalents Outstanding 2,496 2,824 -------- -------- Weighted-Average Shares and Share Equivalents Outstanding 14,824 15,033 ======== ======== Net Income $ 5,665 $ 4,937 ======== ======== Basic Earnings per Share $ 0.46 $ 0.40 ======== ======== Diluted Earnings per Share $ 0.38 $ 0.33 ======== ========
EX-27 3 FDS
7 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 330,042 0 0 82,331 0 0 412,373 25,428 9,651 27,949 622,244 198,409 118,297 0 0 0 0 0 68,825 95,530 622,244 48,627 6,264 93 2,725 28,240 16,719 2,810 8,129 2,464 5,665 0 0 0 5,665 0.46 0.38 161,353 28,240 0 3,961 18,188 167,444 0 UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES DIFFER FROM THE AMOUNTS REPORTED IN THE CONSOLIDATED FINANCIAL STATEMENTS BECAUSE OF THE INCLUSION HEREIN OF REINSURANCE RECEIVABLES OF $30,965 AND $26,710 AT MARCH 31, 2000 AND DECEMBER 31, 1999, RESPECTIVELY.
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