SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 0-6964
------
20TH CENTURY INDUSTRIES
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1935264
- - -------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
Suite 700, 6301 Owensmouth Avenue, Woodland Hills, California 91367
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 704-3700
-----------------------------
None
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----------------- ---------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 26, 1996
Common Stock, Without Par Value 51,512,006 shares
<PAGE> 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
June 30, December 31,
1996 1995
---- ----
(Unaudited)
(Amounts in thousands)
Investments:
<S> <C> <C>
Fixed maturities - available-for-
sale, at fair value - Note 3 $1,069,668 $1,125,548
Equity securities, at fair value 4,032 1,564
---------- ----------
Total investments 1,073,700 1,127,112
Cash and cash equivalents 34,707 50,609
Accrued investment income 20,523 19,862
Premiums receivable 84,085 90,835
Reinsurance recoverables 57,579 48,314
Prepaid reinsurance premiums 27,596 28,823
Deferred income taxes - Note 4 202,789 206,230
Deferred policy acquisition costs 9,701 10,481
Other assets 26,639 26,620
---------- ----------
$1,537,319 $1,608,886
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 2
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1996 1995
---- ----
(Unaudited)
(Amounts in thousands, except share data)
<S> <C> <C>
Unpaid losses and loss
adjustment expenses $ 533,806 $ 584,834
Unearned premiums 270,129 288,927
Bank loan payable - Note 5 175,000 175,000
Claims checks payable 40,927 49,306
Reinsurance payable 22,148 23,176
Other liabilities 24,289 21,058
---------- ----------
Total liabilities 1,066,299 1,142,301
---------- ----------
Stockholders' equity
Capital stock
Preferred stock, par value $1.00 per
share; authorized 500,000 shares,
none issued
Series A convertible preferred
stock, stated value $1,000 per
share, authorized 376,126 shares,
outstanding 224,950 in 1996 and
1995 224,950 224,950
Common stock without par value;
authorized 110,000,000 shares,
outstanding 51,512,006 in 1996
and 51,493,406 in 1995 69,980 69,805
Common stock warrants 16,000 16,000
Unrealized investment gains (losses), net (9,621) 33,508
Retained earnings 169,711 122,322
---------- ----------
Total stockholders' equity 471,020 466,585
---------- ----------
$1,537,319 $1,608,886
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 3
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Amounts in thousands, except per share data)
REVENUES:
<S> <C> <C> <C> <C>
Net premiums earned $ 225,068 $ 240,085 $ 457,696 $ 488,822
Net investment income 18,776 20,634 37,465 41,813
Realized investment gains 1,310 2,019 3,898 2,204
---------- ---------- ---------- ----------
245,154 262,738 499,059 532,839
---------- ---------- ---------- ----------
LOSSES AND EXPENSES:
Net losses and loss
adjustment expenses 173,230 216,111 364,826 461,104
Policy acquisition costs 8,321 9,548 16,489 20,997
Other operating expenses 12,516 12,159 24,888 25,150
Loan interest and fees expense 3,483 3,877 7,048 8,265
---------- ---------- ---------- ----------
197,550 241,695 413,251 515,516
---------- ---------- ---------- ----------
Income before federal
income taxes 47,604 21,043 85,808 17,323
Federal income taxes - Note 4 15,676 6,432 28,297 4,130
---------- ---------- ---------- ----------
NET INCOME $ 31,928 $ 14,611 $ 57,511 $ 13,193
========== ========== ========== ==========
EARNINGS PER COMMON SHARE - Note 2
- - ----------------------------------
PRIMARY $ 0.46 $ 0.18 $ 0.80 $ 0.07
========== ========= ========== ==========
FULLY DILUTED $ 0.41 $ - $ 0.73 $ -
========== ========= ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 4
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1996
(Unaudited)
Convertible
Preferred Stock Common Stock Unrealized
$1 Par Value Without Common Investment
Per Share Par Value Stock Gains Retained
Amount Amount Warrants (Losses) Earnings
--------- ---------- ---------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $224,950 $ 69,805 $ 16,000 $ 33,508 $ 122,322
Net income 57,511
Effect of common stock issued
under restricted shares plan 175
Net change in unrealized
gains (losses) on
investments, net of
taxes of $23,223 (43,129)
Cash dividends paid on
preferred stock (10,122)
-------- -------- -------- -------- ---------
Balance at June 30, 1996 $224,950 $ 69,980 $ 16,000 $ (9,621) $ 169,711
======== ======== ======== ======== =========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 5
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-----------------------------
1996 1995
---- ----
(Unaudited)
(Amounts in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 57,511 $ 13,193
Adjustments to reconcile net
income to net cash provided
(used) by operating activities:
Provision for depreciation
and amortization 2,543 3,526
Provision for deferred income taxes 26,665 4,130
Realized gains on sale of investments,
fixed assets, etc. (3,903) (2,146)
Federal income taxes (1,383) 74,064
Prepaid reinsurance premiums
and reinsurance recoverables (8,038) (47,256)
Unpaid losses and loss
adjustment expenses (51,028) (96,930)
Unearned premiums (18,798) (196)
Claims checks payable (8,378) (11,712)
Proposition 103 payable - (78,307)
Other 9,565 30,122
---------- ----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES $ 4,756 $ (111,512)
</TABLE>
<PAGE> 6
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Six Months Ended June 30,
-----------------------------
1996 1995
---- ----
(Unaudited)
(Amounts in thousands)
INVESTING ACTIVITIES:
Investments available-for-sale:
<S> <C> <C>
Purchases $ (231,136) $ (285,982)
Called or matured 13,451 8,207
Sales 208,334 207,119
Net purchases of property and equipment (1,185) (985)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (10,536) (71,641)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 20,000
Proceeds from bank loan - 10,000
Dividends paid (10,122) (4,500)
---------- ----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (10,122) 25,500
---------- ----------
Net decrease in cash (15,902) (157,653)
Cash and cash equivalents, beginning of year 50,609 249,834
---------- ----------
Cash and cash equivalents, end of quarter $ 34,707 $ 92,181
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 7
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and notes
thereto included in the 20th Century Industries and Subsidiaries
annual report on Form 10-K for the year ended December 31, 1995.
2. Earnings Per Common Share
Primary earnings per common share are computed using the weighted
average number of common shares plus the net effect of dilutive common
share equivalents (i.e., warrants and stock options) outstanding
during the period. Common share equivalents outstanding are computed
using the modified treasury stock method. The primary weighted
average number of shares was 58,485,420 and 58,952,256 for the three
and six months ended June 30, 1996 and 57,141,079 and 51,437,970 for
the three and six months ended June 30, 1995, respectively. The fully
diluted weighted average number of shares was 78,604,029 and
78,806,625 for the three and six months ended June 30, 1996,
respectively, assuming conversion of the convertible preferred stock.
Fully diluted earnings per share for the three and six months ended
June 30, 1995 are not presented because the results are anti-dilutive.
<PAGE> 8
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Investments
In accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company classifies all of its investments as
available-for-sale.
The amortized cost, gross unrealized gains and losses, and fair values
of fixed maturities as of June 30, 1996 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Amounts in thousands)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 40,015 $ 47 $ 789 $ 39,273
Obligations of states and
political subdivisions 329,238 1,886 8,849 322,275
Public utilities 180,496 1,171 5,702 175,965
Corporate securities 536,243 7,647 11,735 532,155
---------- ------- ------- ----------
Total available-for-sale $1,085,992 $10,751 $27,075 $1,069,668
========== ======= ======= ==========
4. Income Taxes
Income taxes do not bear the expected relationship to pre-tax income
primarily because of tax-exempt investment income. As of June 30,
1996, the Company has a net operating loss carryforward of
approximately $443,286,000 and $301,179,000 for regular tax and
alternative minimum tax, respectively, and an alternative tax credit
carryforward of $10,358,000. The net operating loss carryforwards
will expire in 2009. Alternative minimum tax credits may be carried
forward indefinitely to offset future regular tax liabilities.
<PAGE> 9
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Income Taxes (continued)
Federal income tax expense consists of:
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
(Amounts in thousands)
Current tax expense $ 1,632 $ -
Deferred tax expense 26,665 4,130
--------- ---------
$ 28,297 $ 4,130
========= =========
<PAGE> 10
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- - -------------------
The Company's core automobile insurance business produced a record underwriting
profit of $28.6 million in the second quarter compared to $19.2 million for the
second quarter of 1995 after adjustment for nonrecurring items. For the six
months ended June 30, 1996, the Company achieved a total underwriting profit of
$51.5 million and net income of $57.5 million.
As of June 30, 1996, the Company's insurance subsidiaries had a combined
statutory surplus of $432.7 million, a ratio of 2.1:1 of net written premium to
surplus, and was in full compliance with its loan covenants and all California
Department of Insurance ("DOI") requirements. 20th Century Insurance Company's
earned surplus returned to a positive balance in the first quarter of 1996, and
thus, regular dividends have resumed from the subsidiary to the parent to fund
bank debt, preferred dividends and holding company expense requirements.
The Company implemented new auto rating plans during the first half of the year
with overall rate level reductions of approximately 5.5%. On July 8, 1996, the
Company filed a request with the DOI for an additional 5.9% overall rate level
decrease. The new rates have been approved and will be implemented on
September 1, 1996. The Company expects these lower rates, combined with an
aggressive marketing and advertising campaign, including new automobile coverage
offerings, to restore unit growth in the automobile line.
Because the Company is still subject to the order issued by the DOI in June
1994, the homeowner and condominium policies are being non-renewed as they
expire starting in July 1996, and the Company will be fully withdrawn from this
line by the end of July 1997. A 100% quota share reinsurance agreement,
effective July 1, 1996, will cover the in force and renewal premiums on this
business. The Company will receive a commission that will vary with the
profitability of this business. The current commission rate is 12.5%, and
unearned premiums for the homeowners and condominium line were $32.7 million at
June 30, 1996.
<PAGE> 11
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
Invested assets as of June 30, 1996 were $1.1 billion. Of the Company's total
investments at June 30, 1996, 28% at fair value was invested in tax-exempt state
and municipal bonds and 72% was invested in taxable government, corporate and
municipal securities.
Loss and loss expense payments are the most significant cash flow requirements
of the Company. The Company continually monitors loss payments to provide
projections of future cash requirements. For the six months ended June 30,
1996, the Company achieved positive cash flow from operations for the first time
since the January 1994 Northridge Earthquake.
At June 30, 1996, the Company had $225 million of preferred stock outstanding,
bearing dividends of 9% per year payable quarterly in cash or in kind. Cash
dividends of $10,122,000 were paid in the first six months of 1996. Cash
dividends of $4,500,000 were paid and in kind stock dividends of $4,950,000
(4,950 shares) were issued in the first six months of 1995.
The Company has a revolving credit line available of $213.8 million at July 1,
1996, with interest obligations varying according to market conditions. As of
June 30, 1996, the outstanding balance on the loan was $175 million. Presently,
interest is paid quarterly; interest payments in 1996 have totaled $6.7 million.
Funds required by 20th Century Industries to pay preferred stock dividends, debt
obligations and holding company expenses are provided by the insurance
subsidiaries. The ability of the insurance subsidiaries to pay dividends to the
holding company is regulated by state law. Both net income and earned surplus
were sufficient in 1996 to enable 20th Century Insurance Company to declare a
$10 million dividend to the parent in each of the first and second quarters to
service debt, preferred dividend and holding company expense requirements.
These dividends were paid on April 9 and June 10, 1996. No dividends were paid
to the parent in 1995.
<PAGE> 12
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
On June 27, 1996, the Arizona Department of Insurance issued a certificate of
authority, licensing 20th Century Insurance Company of Arizona to market and
service private passenger automobile insurance. This joint venture company is
owned 51% by American International Group, Inc. ("AIG") and 49% by 20th Century
Industries. Automobile policies will be written beginning in August 1996.
Results of Operations
- - ---------------------
UNITS IN FORCE
Units in force for the Company's insurance programs as of June 30 were as
follows:
1996 1995
---- ----
Private Passenger Automobile
(number of vehicles) 1,017,020 1,101,353
Homeowner and Condominium
(number of policies) 165,703 187,201
Personal Excess Liability
(number of policies) 10,396 10,641
--------- ---------
1,193,119 1,299,195
Total ========= =========
The overall decrease in units in force is attributable to rate increases
totaling 9.6% implemented between late 1994 and mid-1995 and the run-off of
homeowners' business. The Company's voluntary auto units in force declined by
7.6% compared to a year ago from 1,092,809 units in force at June 30, 1995 to
1,010,322 units in force at June 30, 1996. Voluntary auto units in force
declined 1.5% in the second quarter of 1996, from 1,026,105 insured units as of
March 31, 1996. Assigned Risk units decreased by 21.6% from the same period a
year ago, from 8,544 units in force at June 30, 1995 to 6,697 units in force at
June 30, 1996. The second quarter decrease was 6.6% from 7,169 insured units as
of March 31, 1996.
Units in force for the Company's homeowner and condominium programs declined by
11.5% between June 30, 1995 and June 30, 1996 primarily as a result of the DOI's
order for the Company to discontinue writing new homeowners, condominium owners
and earthquake insurance in order to reduce the Company's earthquake exposure.
The decline in this line for the second quarter was 2.8%.
<PAGE> 13
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
UNDERWRITING RESULTS
<TABLE>
Premium revenue and underwriting results for the Company's insurance programs
were as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
Gross Premiums Written
<S> <C> <C> <C> <C>
Automobile $ 226,785 $ 248,716 $ 463,080 $ 501,495
Homeowner and Condominium 16,919 19,294 31,896 36,124
Personal Excess Liability 616 625 1,091 1,120
--------- --------- --------- ---------
Total $ 244,320 $ 268,635 $ 496,067 $ 538,739
========= ========= ========= =========
Net Premiums Earned
Automobile $ 212,200 $ 230,699 $ 431,923 $ 473,644
Homeowner and Condominium 12,675 9,172 25,383 14,740
Personal Excess Liability 193 214 390 438
--------- --------- --------- ---------
Total $ 225,068 $ 240,085 $ 457,696 $ 488,822
========= ========= ========= =========
Underwriting Profit (Loss)
Automobile $ 28,630 $ 49,289 $ 49,134 $ 52,949
Homeowner and Condominium 2,131 (47,295) 1,903 (71,578)
Personal Excess Liability 239 273 455 200
--------- --------- --------- ---------
Total $ 31,000 $ 2,267 $ 51,492 $ (18,429)
========= ========= ========= =========
</TABLE>
Automobile
Automobile insurance is the primary line of business written by the Company and
has been consistently profitable. After adjustment for nonrecurring items
affecting 1995, the Company's voluntary automobile program realized underwriting
profits for the six and three month periods ended June 30, 1996 of $49.4 million
and $28.7 million compared to $25.2 million and $20.5 million for the comparable
1995 periods. The primary reasons for improvement in 1996 underwriting results
were the effects of rate increases implemented in 1994 and 1995, partially
<PAGE> 14
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
offset by the rate declines taken in 1996, and good weather patterns. Prior
year underwriting results were affected by a one-time only credit of $30.1
million realized in June 1995, related to the elimination of the Company's
remaining Proposition 103 liability, and an overall decline in gross written
premiums.
Gross written premiums for the six months ending June 30, 1996 decreased 7.1%
from the same period a year ago; premiums for the second quarter decreased 8.4%
compared to the second quarter of 1995. The decrease in gross written premiums
resulted primarily from the decline in insured units over the period and, to a
lesser extent, the effects of lower premium rates which began to take effect in
1996.
Net earned premiums also decreased in both the second quarter of 1996 and for
the six months ended June 30, 1996 as compared to the prior year. The 7.8% and
8.7% respective decreases resulted primarily from the decreases in gross written
premiums and from the 10% quota share reinsurance agreement with AIG, the full
impact of which was not realized until 1996.
Assigned Risk units produced an underwriting loss of $303,000 in the first six
months of 1996 compared to a $2,356,000 underwriting loss for the first six
months of 1995. This improvement is largely due to a rate increase of 5.2%
implemented in June 1995 and a 21.6% reduction in the number of Assigned Risk
units insured over the same period. The underwriting loss for the quarter ended
June 30, 1996 was $40,000 compared to a loss of $1.3 million a year ago.
Homeowner and Condominium
As ordered by the DOI, the Company no longer writes new homeowner or condominium
policies or earthquake coverage endorsements. The Company continued to renew
existing homeowner and condominium policies without earthquake coverage through
July 23, 1996. As of July 1, 1996, the Company reinsured 100% of the in force
and renewal premiums through the expiration of all remaining policies in July
1997. Due to the requirement to exit the homeowners market, units in force
<PAGE> 15
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
for the homeowner and condominium program decreased 11.5% between June 1995 and
June 1996 and 2.8% in the second quarter of 1996. This decline in units
resulted in lower gross premiums written for both quarter and year-to-date
periods ended June 30, 1996 as compared to the prior year, although the net
earned premiums increased due to the expiration, in July 1995, of the high-
limit, high premium earthquake catastrophe reinsurance program.
Underwriting results for these programs are subject to the variability caused by
weather-related claims and by infrequent disasters. The underwriting profit for
this line was $1.9 million for the first six months of 1996 compared to an
underwriting loss of $71.6 million for the same period in 1995. Underwriting
profits of $2.1 million were realized for the second quarter of 1996 compared to
a $47.3 million underwriting loss for the same period in 1995. The improvement
in the underwriting results in 1996 is primarily due to adverse development of
earthquake-related losses of approximately $50 million in the second quarter of
1995 as well as first-party property claims totaling $14.2 million related to a
series of severe storms in the first quarter of 1995. The underwriting results
were also positively affected by the reduction in the reinsurance premium
expense, a decrease in the overall exposure during the period due to the runoff
of the business, and milder weather in the first quarter of 1996 compared to
that of 1995. As a result of the 100% quota share agreement entered into as of
July 1, 1996, the Company's exposure to weather-related and disaster claims has
been significantly reduced.
Personal Excess Liability
Units in force decreased by 2.3% from June 30, 1995 to June 30, 1996. Gross
premiums written decreased 2.6% in the first six months and 1.4% in the second
quarter of 1996 compared to the same periods in 1995. The decline in this
business is primarily attributable to the runoff of the homeowner and
condominium programs, as policyholders for this program are likely to purchase
excess liability coverage in conjunction with their homeowner policies.
Underwriting profits can vary significantly with the number of claims which
occur infrequently.
<PAGE> 16
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
Policy Acquisition and General Operating Expenses
The Company's policy acquisition and general operating expense ratio continues
to be one of the lowest in the industry because as a direct writer, the Company
does not incur agent commissions and thus enjoys an expense advantage over most
of its competitors. Net underwriting expenses for the first half and second
quarter of 1996 decreased $4.8 million (10.3%) and $869,000 (4.0%) compared to
the same periods in 1995. These decreases reflect a reduction in general
operating expenses due to the decline in business as well as steps taken to
achieve operating cost efficiencies. The ratios of net underwriting expenses
(excluding loan interest and fees) to net earned premium for the first half and
second quarter of 1996 were 9.0% and 9.3% compared to 9.4% and 9.0% in 1995.
The increase in the expense ratio for the second quarter is mainly due to the
decline in earned premiums.
INVESTMENT INCOME
Net pre-tax investment income decreased 10.4% during the first six months of
1996 and 9.0% in the three months ended June 30, 1996 compared to the same
periods in 1995. Average invested assets decreased 9.0% between June 1995 and
June 1996. The average annual pre-tax yield on invested assets decreased from
6.7% for the first six months of 1995 to 6.6% for the first six months of 1996.
The yield for the second quarter was 6.7% compared to 6.8% for the second
quarter of 1995. The decline in investment income from June 1995 levels is
primarily the result of lower investable funds.
Realized gains on sales of investments increased in the first six months of 1996
to $3.9 million from $2.2 million for the same period of 1995. Realized gains
for the second quarter of 1996 decreased to $1.3 million from $2.0 million for
the same period last year. Unrealized gains on investments decreased
$43.1 million (128.7%) since December 31, 1995, primarily because of unfavorable
conditions in the bond market.
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended June 30,
1996.
<PAGE> 18
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.
20TH CENTURY INDUSTRIES
-----------------------
(Registrant)
Date August 9, 1996 WILLIAM L. MELLICK
--------------------- ---------------------------------------
President and Chief Executive Officer
Date August 9, 1996 ROBERT B. TSCHUDY
--------------------- ---------------------------------------
Senior Vice President and
Chief Financial Officer
<PAGE> 19
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Amounts in thousands, except per share data)
Primary:
<S> <C> <C> <C> <C>
Average shares outstanding 51,460 51,440 51,459 51,438
Net effect of dilutive stock
warrants and options based
on the modified treasury
stock method using average
market price 7,025 5,701 7,493 -
---------- ---------- ---------- ---------
Totals 58,485 57,141 58,952 51,438
========== ========== ========== =========
Net income $ 31,928 $ 14,611 $ 57,511 $ 13,193
Dividends on preferred stock (5,061) (4,950) (10,122) (9,450)
Net interest expense reduction - 436 - -
---------- ---------- ---------- ---------
Net income applicable
to common stock $ 26,867 $ 10,097 $ 47,389 $ 3,743
========== ========== ========== ==========
Earnings per common share $ 0.46 $ 0.18 $ 0.80 $ 0.07
========== ========== ========== ==========
</TABLE>
<PAGE> 20
<TABLE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
EXHIBIT 11: COMPUTATION OF EARNINGS PER COMMON SHARE (continued)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Amounts in thousands, except per share data)
Fully diluted:
<S> <C> <C> <C> <C>
Average shares outstanding 51,460 51,440 51,459 51,438
Net effect of dilutive stock
warrants and options based
on the modified treasury stock
method using the higher of
average market price or
closing price 7,289 5,701 7,493 5,701
Assuming conversion
of convertible
preferred stock 19,855 19,442 19,855 18,625
---------- --------- --------- ---------
Totals 78,604 76,583 78,807 75,764
========== ========= ========= =========
Net income $ 31,928 $ 14,611 $ 57,511 $ 13,193
Net interest expense reduction - 363 $ - $ 806
---------- --------- --------- ---------
Net income applicable
to common stock $ 31,928 $ 14,974 $ 57,511 $ 13,999
========== ========= ========== =========
Earnings per common share $ 0.41 $ 0.20* $ 0.73 $ 0.18*
========== ========= ========== =========
*Not presented in the financial statements as the results are anti-dilutive.
</TABLE>
<PAGE> 21
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,069,668
<DEBT-CARRYING-VALUE> 1,069,668
<DEBT-MARKET-VALUE> 1,069,668
<EQUITIES> 4,032
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,073,700
<CASH> 34,707
<RECOVER-REINSURE> 57,579
<DEFERRED-ACQUISITION> 9,701
<TOTAL-ASSETS> 1,537,319
<POLICY-LOSSES> 533,806
<UNEARNED-PREMIUMS> 270,129
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
224,950
<COMMON> 69,980
<OTHER-SE> 176,090
<TOTAL-LIABILITY-AND-EQUITY> 1,537,319
457,696
<INVESTMENT-INCOME> 37,465
<INVESTMENT-GAINS> 3,898
<OTHER-INCOME> 0
<BENEFITS> 364,826
<UNDERWRITING-AMORTIZATION> 16,489
<UNDERWRITING-OTHER> 24,888
<INCOME-PRETAX> 85,808
<INCOME-TAX> 28,297
<INCOME-CONTINUING> 57,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,511
<EPS-PRIMARY> .80
<EPS-DILUTED> .73
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
