-----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, QwVRZT/4iJ51FwvliYxkVT/vDFjj6YupBQ5dlsVxYcKWOyxmrpqiJ1rOXKoD7jUq NUtKW7ou0tYMYHGq+q/hZw== 0000893220-98-001368.txt : 19980817 0000893220-98-001368.hdr.sgml : 19980817 ACCESSION NUMBER: 0000893220-98-001368 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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: 98689081 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 PHILA. CONSOLIDATED HOLDING CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1998 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 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 August 7, 1998. Preferred Stock, $.01 par value, no shares outstanding Common Stock, no par value, 12,315,966 shares outstanding 2 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES INDEX FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 Part I - Financial Information Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations - For the three and six months ended June 30, 1998 and 1997 4 Consolidated Statements of Comprehensive Income - For the three and six months ended June 30, 1998 and 1997 5 Consolidated Statements of Changes in Shareholders' Equity - For the six months ended June 30, 1998 and year ended December 31, 1997 6 Consolidated Statements of Cash Flows - For the six months ended June 30, 1998 and 1997 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Results of Operations and Financial Condition 9-11 Part II - Other Information 12-13 Signatures 14 Exhibits 15
2 3 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
As of ----------------------- June 30, December 31, 1998 1997 --------- --------- (Unaudited) ASSETS INVESTMENTS: FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $228,833 AND $165,052) .................. $ 234,076 $ 170,678 EQUITY SECURITIES AT MARKET (COST $42,098 AND $29,501) ............................................ 65,357 46,988 --------- --------- TOTAL INVESTMENTS ..................................... 299,433 217,666 CASH AND CASH EQUIVALENTS ................................. 61,969 11,933 ACCRUED INVESTMENT INCOME ................................. 3,579 2,786 PREMIUMS RECEIVABLE ....................................... 21,146 15,269 PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES.............................................. 20,489 18,573 DEFERRED ACQUISITION COSTS ................................ 12,803 10,970 PROPERTY AND EQUIPMENT .................................... 6,049 5,797 OTHER ASSETS .............................................. 5,430 5,132 --------- --------- TOTAL ASSETS .................................... $ 430,898 $ 288,126 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY POLICY LIABILITIES AND ACCRUALS: UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES .................. $ 134,856 $ 122,430 UNEARNED PREMIUMS ......................................... 49,497 42,116 --------- --------- TOTAL POLICY LIABILITIES AND ACCRUALS ................. 184,353 164,546 PAYABLE FOR SECURITY PURCHASES ............................ 9,043 -- OTHER LIABILITIES ......................................... 7,102 7,948 DEFERRED INCOME TAXES ..................................... 6,018 4,348 --------- --------- TOTAL LIABILITIES ..................................... 206,516 176,842 --------- --------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST .................. 98,992 -- --------- --------- 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, 12,306,020 AND 12,242,431 SHARES ISSUED AND OUTSTANDING................. 44,178 42,788 NOTES RECEIVABLE FROM SHAREHOLDERS ........................ (1,568) (1,422) UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION), NET OF DEFERRED INCOME TAXES ............. 18,526 15,023 RETAINED EARNINGS ......................................... 64,254 54,895 --------- --------- TOTAL SHAREHOLDERS' EQUITY ............................ 125,390 111,284 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 430,898 $ 288,126 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------- ------------------------------ 1998 1997 1998 1997 -------------- ------------- ------------- ------------- REVENUE: NET WRITTEN PREMIUMS.............................. $32,724 $26,378 $62,678 $53,597 CHANGE IN NET UNEARNED PREMIUMS (INCREASE)..................................... (3,062) (1,215) (6,101) (6,046) ------- ------- ------- ------- NET EARNED PREMIUMS............................... 29,662 25,163 56,577 47,551 NET INVESTMENT INCOME............................. 3,730 2,404 6,430 4,615 NET REALIZED INVESTMENT GAIN (LOSS)............... 96 (59) 99 (31) OTHER INCOME...................................... 57 57 114 114 ------ ------ ------ ------ TOTAL REVENUE................................... 33,545 27,565 63,220 52,249 ------ ------ ------ ------ LOSSES AND EXPENSES: LOSS AND LOSS ADJUSTMENT EXPENSES................. 17,563 16,018 33,627 29,403 NET REINSURANCE RECOVERIES........................ (1,614) (2,186) (2,820) (3,090) ------- ------- ------- ------- NET LOSS AND LOSS ADJUSTMENT EXPENSES............. 15,949 13,832 30,807 26,313 ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES........................ 9,187 7,858 17,406 14,804 OTHER OPERATING EXPENSES.......................... 652 656 1,185 1,179 ------ ------ ----- ----- TOTAL LOSSES AND EXPENSES....................... 25,788 22,346 49,398 42,296 ------ ------ ------ ------ MINORITY INTEREST: DISTRIBUTIONS ON COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST..................................... 1,217 - 1,217 - ----- ----- ------ ----- INCOME BEFORE INCOME TAXES........................... 6,540 5,219 12,605 9,953 ----- ----- ------ ----- INCOME TAX EXPENSE (BENEFIT): CURRENT........................................... 1,743 1,164 3,463 2,726 DEFERRED.......................................... (44) 63 (217) (387) ----- ----- ------ ----- TOTAL INCOME TAX EXPENSE........................ 1,699 1,227 3,246 2,339 ----- ----- ----- ----- NET INCOME...................................... $4,841 $3,992 $9,359 $7,614 ====== ====== ====== ====== PER AVERAGE SHARE DATA: BASIC EARNINGS PER SHARE(1)....................... $0.39 $0.33 $0.76 $0.63 ========== =========== ========== ========== DILUTED EARNINGS PER SHARE(1)..................... $0.32 $0.27 $0.62 $0.51 ========== =========== ========== ========== WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING(1).................................... 12,297,633 12,175,688 12,280,403 12,154,570 WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING(1).................................... 2,839,746 2,674,216 2,826,063 2,631,366 --------- --------- --------- --------- WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING(1)........................ 15,137,379 14,849,904 15,106,466 14,785,936 ========== ========== ========== ==========
(1) 1997 share information restated to reflect a two-for-one split of the Company's common stock distributed in November 1997. The accompanying notes are an integral part of the consolidated financial statements. 4 5 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, -------------- -------------- 1998 1997 1998 1997 -------- -------- -------- -------- NET INCOME ................................. $ 4,841 $ 3,992 $ 9,359 $ 7,614 -------- -------- -------- -------- OTHER COMPREHENSIVE INCOME, NET OF TAX: HOLDING GAIN (LOSS) ARISING DURING PERIOD, NET OF TAX ............................... (174) (4,713) 3,567 2,936 RECLASSIFICATION ADJUSTMENT, NET OF TAX .. (62) -- (64) -- -------- -------- -------- -------- OTHER COMPREHENSIVE INCOME ................. (236) (4,713) 3,503 2,936 -------- -------- -------- -------- COMPREHENSIVE INCOME ....................... $ 4,605 ($ 721) $ 12,862 $ 10,550 ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
For the Six Months For the Year Ended Ended June 30, December 31, 1998 1997 ------------------ ----------------- (Unaudited) COMMON SHARES: BALANCE AT BEGINNING OF PERIOD(1) ........................ 12,242,431 12,079,612 ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN ............... 31,489 78,569 PURSUANT TO EMPLOYEE STOCK OPTION PLAN ................. 32,100 84,250 ------------ ------------ BALANCE AT END OF PERIOD ............................. 12,306,020 12,242,431 ============ ============ COMMON STOCK: BALANCE AT BEGINNING OF PERIOD ........................... $ 42,788 $ 41,167 PURCHASE CONTRACTS OF COMMON STOCK ....................... 558 -- ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN .................................... 486 898 EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF TAX BENEFIT ............................................ 346 723 ------------ ------------ BALANCE AT END OF PERIOD ............................. 44,178 42,788 ------------ ------------ NOTES RECEIVABLE FROM SHAREHOLDERS: BALANCE AT BEGINNING OF PERIOD ........................... (1,422) (924) NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN ........................... (473) (873) COLLECTION OF NOTES RECEIVABLE ........................... 327 375 ------------ ------------ BALANCE AT END OF PERIOD ............................. (1,568) (1,422) ------------ ------------ UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION), NET OF DEFERRED INCOME TAXES: BALANCE AT BEGINNING OF PERIOD ......................... 15,023 7,374 CHANGE IN UNREALIZED INVESTMENT APPRECIATION (DEPRECIATION), NET OF DEFERRED INCOME TAXES ......... 3,503 7,649 ------------ ------------ BALANCE AT END OF PERIOD ............................. 18,526 15,023 ------------ ------------ RETAINED EARNINGS: BALANCE AT BEGINNING OF PERIOD ........................... 54,895 38,025 NET INCOME ............................................... 9,359 16,870 ------------ ------------ BALANCE AT END OF PERIOD ............................. 64,254 54,895 ------------ ------------ TOTAL SHAREHOLDERS' EQUITY ........................... $ 125,390 $ 111,284 ============ ============
(1) 1997 share information restated to reflect a two for one split of the Company's common stock distributed in November 1997. The accompanying notes are an integral part of the consolidated financial statements. 6 7 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
For the Six Months Ended June 30, --------------------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME ..................................... $ 9,359 $ 7,614 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: NET REALIZED INVESTMENT (GAIN) LOSS .......... (99) 31 DEPRECIATION AND AMORTIZATION EXPENSE ........ 621 612 DEFERRED INCOME TAX BENEFIT .................. (217) (387) CHANGE IN PREMIUMS RECEIVABLE ................ (5,877) (4,934) CHANGE IN OTHER RECEIVABLES .................. (2,709) 1,198 CHANGE IN DEFERRED ACQUISITION COSTS ......... (1,833) (616) CHANGE IN OTHER ASSETS ....................... (92) 52 CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES ..................................... 12,426 11,949 CHANGE IN UNEARNED PREMIUMS .................. 7,381 3,435 CHANGE IN OTHER LIABILITIES .................. (520) (1,695) CHANGE IN INCOME TAXES PAYABLE ............... (115) (405) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.. 18,325 16,854 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES AVAILABLE FOR SALE .............. 10,712 1,461 PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES AVAILABLE FOR SALE .............. 6,670 2,220 PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES ................................. 2,733 2,524 COST OF FIXED MATURITIES AVAILABLE FOR SALE ACQUIRED .............................. (72,234) (19,068) COST OF EQUITY SECURITIES ACQUIRED ............. (15,499) (6,456) PURCHASE OF PROPERTY AND EQUIPMENT ............. (907) (1,027) --------- --------- NET CASH USED BY INVESTING ACTIVITIES ...... (68,525) (20,346) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: PROCEEDS FROM OFFERING OF COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST .......................... 99,550 -- EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF TAX BENEFIT ............................... 346 412 COLLECTION OF NOTES RECEIVABLE ................. 327 122 PROCEEDS FROM SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN ................. 13 -- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES.. 100,236 534 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 50,036 (2,958) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .. 11,933 11,483 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $ 61,969 $ 8,525 ========= ========= CASH PAID DURING THE PERIOD FOR: INCOME TAXES ................................... $ 3,275 $ 2,992 NON-CASH TRANSACTIONS: ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE ............................. $ 473 $ 540
The accompanying notes are an integral part of the consolidated financial statements. 7 8 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 six months ended June 30, 1998 and 1997 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 six months ended June 30, 1998 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, 1997 included in the Company's Annual Report on Form 10-K. 2. 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. 3. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The deferred tax expense (benefit) for Holding Gain (Loss) arising for the three and six months ended June 30, 1998 and 1997 amounted to ($94,000) and ($2,538,000), respectively, and $1,921,000 and $1,581,000, respectively. The income tax expense for the Reclassification Adjustment for the three and six months ended June 30, 1998 amounted to $34,000 and $35,000, respectively. 4. 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. 5. Minority Interest in Consolidated Subsidiaries: Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust The Company closed on its FELINE PRIDES(SM) and Trust Preferred Securities offering on May 4, 1998. FELINE PRIDES(SM) are units consisting of a contract under which the holder is obligated to purchase common stock from the Company approximately three years following the May 4, 1998 closing date and beneficial ownership of either (1) interest bearing preferred securities issued by a business trust subsidiary of the Company or (2) U.S. Treasury securities. Proceeds to the Company, from the sales of 10,350,000 FELINE PRIDES(SM) and 1,000,000 7.00% Trust Originated Preferred Securities were $99.6 million. These amounts include 1,350,000 Income Prides, a component of the FELINE PRIDES(SM), purchased pursuant to the exercise of the underwriters' over allotment option. 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 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 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 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. RESULTS OF OPERATIONS (SIX MONTHS ENDED JUNE 30, 1998 VS JUNE 30, 1997) Premiums: Gross written premiums grew $11.7 million (15.8%) to $85.8 million for the six months ended June 30, 1998 from $74.1 million for the same period of 1997; gross earned premiums grew $7.7 million (10.9%) to $78.4 million for the six months ended June 30, 1998 from $70.7 million for the same period of 1997; net written premiums increased $9.1 million (17.0%) to $62.7 million for the six months ended June 30, 1998 from $53.6 million for the same period of 1997; and net earned premiums grew $9.0 million (18.9%) to $56.6 million in 1998 from $47.6 million in 1997. The overall growth in premiums and the varying growth rates for gross written premiums, gross earned premiums, net written premiums, and net earned premiums are attributable to the following factors: - - Overall premium growth is primarily attributable to: expanded marketing efforts relating to commercial auto, commercial package, and specialty lines products through the increase in the Company's proprietary field organization to a total of 114 professionals, production underwriters and customer service representatives; and the continued development and growth of the Company's Preferred Agent Program, initiated in 1996, wherein business relationships are formed with brokers specializing in certain of the Company's business niches, thereby increasing the distribution of the Company's niche products. Net Investment Income: Net investment income approximated $6.4 million for the six months ended June 30, 1998 and $4.6 million for the same period of 1997. Total investments grew to $299.4 million at June 30, 1998 from $192.6 million at June 30, 1997, primarily due to investing the proceeds from the Company's Feline Prides(SM) securities offering and cash flows provided from operating activities. 9 10 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued) Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $4.5 million (17.1%) to $30.8 million for the six months ended June 30, 1998 from $26.3 million for the same period of 1997 and the loss ratio decreased to 54.5% in 1998 from 55.3% in 1997. The increase in net loss and loss adjustment expenses was due primarily to the 18.9% growth in net earned premiums. Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $2.6 million (17.6%) to $17.4 million for the six months ended June 30, 1998 from $14.8 million for the same period of 1997. This increase was due primarily to the 18.9% growth in net earned premiums offset in part by changes in product and distribution mix. Income Tax Expense: The Company's effective tax rate for the six months ended June 30, 1998 and 1997 was 25.8% and 23.5%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities. 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 during 1997. RESULTS OF OPERATIONS (THREE MONTHS ENDED JUNE 30, 1998 VS JUNE 30, 1997) Premiums: Gross written premiums grew $6.0 million (15.2%) to $45.5 million for the three months ended June 30, 1998 from $39.5 million for the same period of 1997; gross earned premiums grew $2.8 million (7.3%) to $40.9 million for the three months ended June 30, 1998 from $38.1 million for the same period of 1997; net written premiums increased $6.3 million (23.9%) to $32.7 million for the three months ended June 30, 1998 from $26.4 million for the same period of 1997; and net earned premiums grew $4.5 million (17.9%) to $29.7 million in 1998 from $25.2 million in 1997. The overall growth in premiums and the varying growth rates for gross written premiums, gross earned premiums, net written premiums, and net earned premiums are attributable to similar factors as addressed in the Premiums caption of the results of operations (six months ended June 30, 1998 vs. June 30, 1997). Net Investment Income: Net investment income approximated $3.7 million for the three months ended June 30, 1998 and $2.4 million for the same period of 1997. Total investments grew to $299.4 million at June 30, 1998 from $192.6 million at June 30, 1997, primarily due to investing the proceeds from the Company's Feline Prides(SM) securities offering and cash flows provided from operating activities. 10 11 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued) Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment expenses increased $2.1 million (15.2%) to $15.9 million in the second quarter 1998 from $13.8 million in the second quarter of 1997 and the loss ratio decreased to 53.8% in 1998 from 55.0% in 1997. The increase in net loss and loss adjustment expenses was due primarily to the 17.9% growth in net earned premiums. Acquisition Costs and Other Underwriting Expenses: Acquisition costs and other underwriting expenses increased $1.3 million (16.5%) to $9.2 million for the three months ended June 30, 1998 from $7.9 million for the same period of 1997. This increase was due primarily to the 17.9% growth in net earned premiums. Income Tax Expense: The Company's effective tax rate for the three months ended June 30, 1998 and 1997 was 26.0% and 23.5%, respectively. The effective rates differed from the 35% statutory rate principally due to investments in tax-exempt securities. 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 during 1997. LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1998 the Company's investments experienced unrealized investment appreciation of $3.5 million, net of the related deferred tax expense of $1.9 million. At June 30, 1998, 93.6% of the Company's fixed maturity securities consisted of U.S. Government securities or securities rated "1" or "2" by the NAIC, 90.3% were rated "A-" or better (with no security rated lower than "BB-") by Standard & Poor's Corporation. On May 4, 1998, the Company realized proceeds of $99.6 million, from its FELINE PRIDES(SM) and Trust Preferred securities offering. This amount included the exercise of the underwriters' over allotment option. The offering consisted of 9,350,000 units of Income prides with a stated amount of $10.00, 1,000,000 units of Growth prides with a face amount equal to the stated amount, and 1,000,000 units of separate Trust Preferred securities with a stated amount of $10.00. Of the proceeds, $20.0 million was contributed to the Company's insurance subsidiaries. The company anticipates using the remaining proceeds for general corporate purposes, which may include acquisitions, (including, without limitation, acquisitions of programs or books of business), capital expenditures, additional capital contributions to its subsidiaries and the repurchase by the Company of its common stock. The investment of the proceeds by the Company and the insurance subsidiaries is being made in accordance with prevailing investment policies. Additionally, the Company is obligated to make cash distributions at a rate of 7.0% of the stated amount per annum for the Income prides and the separate Trust Preferred securities, commencing May 4, 1998 through May 15, 2001 and payable quarterly in arrears. On August 3, 1998, the Company's Board of Directors authorized the repurchase of up to $10.0 million of the Company's Common Stock. The purchases will be made from time to time in the open market or through privately negotiated transactions. The decision to authorize the stock repurchase was based on the strong relative value currently represented by the company's stock. The Company produced net cash from operations of $18.3 million and $16.9 million, respectively, for the six months ended June 30, 1998 and 1997. Management believes that the Company has adequate ability to pay all claims and meet all other cash needs. 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. 11 12 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of shareholders held on May 7, 1998, the following members were elected to the Board of Directors: William J. Henrich, Jr. Paul R. Hertel, Jr. Roger L. Larson James J. Maguire James J. Maguire, Jr. Thomas J. McHugh Michael J. Morris Sean S. Sweeney J. Eustace Wolfington 9,280,661 affirmative votes were received for the election of all Directors, except for Mr. Henrich, for which 8,970,413 affirmative votes were cast. The following other matter was approved at the Annual Meeting
Votes For Votes Against Abstentions ------------- ---------------- -------------- Approval of the Appointment of PriceWaterhouse- Coopers L.L.P. 9,297,452 1,489 4,595
Item 5. Other information None. 12 13 PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. Page No. Description ----------- -------- ----------- 11.0 15 Computation of Earnings per Share b. The Company filed the following reports on Form 8-K during the quarterly period ended June 30, 1998: Date of Report Item Reported -------------- ------------------------------------------- April 13, 1998 - Press Release dated April 13, 1998 - RE: Upgrading of the Company's insurance subsidiaries A.M. Best rating to "A+" (Superior). April 13, 1998 - Press Release dated April 16, 1998 - RE: First Quarter Results - March 31, 1998. Also filed was the Company's Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997, and the Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997. May 4, 1998 - Press Release dated May 4, 1998 - RE: Philadelphia Consolidated Holding Corp. Announces Closing of FELINE PRIDES(SM) Offering. 13 14 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 August 11, 1998 /s/ James J. Maguire ---------------- ------------------------ James J. Maguire Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) Date August 11 1998 /s/ Craig P. Keller -------------- ----------------------- Craig P. Keller Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 14 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 As of and For the Six Months Ended June 30, Months Ended June 30 ------------------------ ------------------------- 1998 1997(1) 1998 1997(1) ------- ------- ------- ------- Weighted Average Common Shares Outstanding .... 12,298 12,176 12,280 12,155 Weighted Average Share Equivalents Outstanding 2,840 2,674 2,826 2,631 ------- ------- ------- ------- Weighted Average Shares and Share Equivalents Outstanding ...................... 15,138 14,850 15,106 14,786 ======= ======= ======= ======= Net Income .................................... $ 4,841 $ 3,992 $ 9,359 $ 7,614 ======= ======= ======= ======= Basic Earnings per Share ...................... $ 0.39 $ 0.33 $ 0.76 $ 0.63 ======= ======= ======= ======= Diluted Earnings per Share .................... $ 0.32 $ 0.27 $ 0.62 $ 0.51 ======= ======= ======= =======
(1) 1997 share information restated to reflect a two-for-one split of the Company's common stock distributed in November 1997. EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 234,076 0 0 65,357 0 0 299,433 61,969 1,690 12,803 430,898 134,856 49,497 0 0 0 0 0 44,178 81,212 430,898 56,577 6,430 99 114 30,807 17,406 1,185 12,605 3,246 9,359 0 0 0 9,359 0.76 0.62 108,928 30,807 0 4,199 14,751 120,785 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 $14,071 AND $13,502 AT JUNE 30, 1998 AND DECEMBER 31, 1997.
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