UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-24739
STONEVILLE INSURANCE COMPANY
-----------------------------------------------------------------
(exact name of Registrant as specified in its charter)
MISSISSIPPI 72-1341156
- ----------------------------------------------- --------------------
(State or other jurisdiction (I.R.S. Identification Number)
of incorporation of organization)
633 North State Street, Suite 200, Jackson, Mississippi 39202-7817
- -------------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (601-352-7817)
----------------------
Securities registered pursuant to section 12(g) of the Act: None
------------
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 if 1934 during the preceding 12 months (or for such shorted 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 Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 12, 1998
Common stock, $1.00 par value 503,384 Shares
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1 - Stoneville Insurance Company Financial Statements
Balance Sheets
June 30, 1998 and December 31, 1997
Statements of Income and Comprehensive Income
Three Months and Six Months Ended June 30, 1998 and 1997
Statements of Changes in Stockholders' Equity
Period Ended December 31, 1997
Six Months Ended June 30, 1998
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STONEVILLE INSURANCE COMPANY
Balance Sheets
June 30, 1998 and December 31, 1997
June 30, December 31,
1998 1997
-------------- ---------------
Assets
Investments:
Trading securities (at fair value)
<S> <C> <C>
Equity securities $0 $247
Securities available-for-sale (at fair value)
Fixed maturities (amortized cost - $1,246,289 and $1,295,572) 1,269,444 1,320,855
-------------- ---------------
Total Investments 1,269,444 1,321,102
Cash and Cash Equivalents 333,564 425,493
Funds held by ceding companies 130,654 0
Accrued interest receivable 19,977 29,819
Capital equipment leases at cost less
accumulated depreciation of $16,561 and $12,087 82,867 7,292
Prepaid expenses 50,700 25,300
Deferred tax assets 216,323 322,438
Other assets 1,325 575
-------------- ---------------
Total Assets $2,104,854 $2,132,019
============== ===============
Liabilities
Reserve for losses and loss adjustment expenses $56,506 $0
Unearned Premium 52,480 0
Accounts payable and accrued liabilities 70,448 117,226
Capital lease obligations 9,153 1,256
-------------- ---------------
Total Liabilities 188,587 118,482
-------------- ---------------
Shareholders' Equity
Common stock ($1 par value; 650,000 shares authorized;
503,384 shares issued) 503,384 503,384
Retained earnings 1,389,728 1,484,870
Accumulated other comprehensive income
Unrealized gains (losses) from investments in securities 23,155 25,283
-------------- ---------------
Total Shareholders' Equity 1,916,267 2,013,537
-------------- ---------------
Total Liabilities and Shareholders' Equity $2,104,854 $2,132,019
============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STONEVILLE INSURANCE COMPANY
Statements of Income and Comprehensive Income
Six Months and Three Months Ended June 30, 1998 and 1997
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997** 1998 1997**
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenue
Premium assumed $27,576 $0 $139,872 $0
Premiums ceded 0 0 0 0
--------------------------- ----------------------------
Net premiums earned 27,576 0 139,872 0
Investment income 21,282 39,178 38,845 90,856
Net realized gains and losses on
securities available-for-sale 0 0 0
Other 28,820 844 72,213 (9,115)
--------------------------- ----------------------------
Total Revenue 77,678 40,022 250,930 81,741
--------------------------- ----------------------------
Expenses
Loss and loss adjustment expenses 14,290 0 79,040 0
Policy acquisition fees 1,930 0 9,791 0
Program administration fees 4,137 20,981 0
Regulatory fees 14,070 2,502 19,685 11,502
General expenses 168,732 98,890 277,403 183,760
--------------------------- ----------------------------
Total Expenses 203,159 101,392 406,900 195,262
--------------------------- ----------------------------
Net Income
Before Income Tax Provision (125,481) (61,370) (155,970) (113,521)
Provision (benefit) for income taxes (50,462) (31,938) (60,828) (40,489)
--------------------------- ----------------------------
Net Income ($75,019) ($29,432) (95,142) ($73,032)
Other Comprehensive Income
Unrealized gain (loss) on investments in securities
net of income tax affect 1,754 10,253 (2,128) 2,539
--------------------------- ----------------------------
Comprehensive Income ($73,265) ($19,179) ($97,270) ($70,493)
=========================== ============================
Per Share Data
Net Income ($0.14) ($0.18)
============ ==========
<FN>
** 1997 represents the combined information of two previously separate entities.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STONEVILLE INSURANCE COMPANY
Statements of Changes in Shareholders' Equity
For Periods Indicated
Accumulated
Common Stock Other Total
----------------------- Comprehensive Retained Shareholders'
Shares Amount Income Earnings Equity
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 0 $0 ($9,236) $2,462,693 $2,453,457
1997**
Net income (loss) (474,439) (474,439)
Issuance of stock upon conversion from a Trust 503,384 503,384 (503,384) 0
to a stock company
Net increase in unrealized appreciation of
securities available for sale net of tax 34,519 34,519
-------------------------------------------------------------------------
Balance at December 31, 1997 503,384 $503,384 $25,283 $1,484,870 $2,013,537
1998
Net income (loss) (95,142) (95,142)
Net increase (decrease) in unrealized appreciation of
securities available for sale net of tax (2,128) (2,128)
-------------------------------------------------------------------------
Balance at June 30, 1998 503,384 $503,384 $23,155 $1,389,728 $1,916,267
======= ======== ======= ========== ==========
<FN>
** 1997 represents the combined information of two previously separate entities.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
STONEVILLE INSURANCE COMPANY
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
1998 1997**
---------- ---------
Cash Flows From Operating Activities
Premiums collected $0 $0
Losses and loss adjustment expenses paid 0 (879,879)
Refunds and premium adjustments paid 0 (60,241)
Administrative expenses paid (346,586) (208,011)
Income taxes (paid) refund received 166,943 (37,417)
Investment income received 54,571 105,953
Other income received 61,713 0
Net (increase) decrease in trading securities 0 1,680,339
Interest paid (250) 0
---------- ---------
Net Cash Provided by Operating Activities (63,609) 600,744
---------- ---------
Cash Flows From Investing Activities
Proceeds from sales of available-for-sale securities 43,832 0
Purchase of held-to-maturity securities (589,285)
Transfer of held-to-maturity security to cash equivalent 0 507,686
Capital expenditures (80,049) 0
---------- ---------
Net Cash Provided by Investing Activities (36,217) (81,599)
---------- ---------
Cash Flows From Financing Activities
Proceeds from capital leases 9,574 0
Principal payments under capital lease obligations (1,677) (170)
---------- ---------
Net Cash Used in Financing Activities 7,897 (170)
---------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents (91,929) 518,975
Cash and Cash Equivalents at Beginning of Period 425,493 1,379,935
---------- ----------
Cash and Cash Equivalents at End of Period $333,564 $1,898,910
========== ==========
** 1997 represents the combined information of two previously separate
entities.
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY
Statements of Cash Flows (Continued)
Six Months Ended June 30, 1998 and 1997
Reconciliation of net income to net cash provided 1998 1997**
---------- ---------
by Operating Activities
Net Income ($95,142) ($73,032)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,474 3,919
Decrease in trading securities 0 1,696,697
Decrease in premiums receivable 0 0
Increase in Funds held by ceding companies (130,654) 0
Decrease (increase) in prepaid expenses (25,400) (2,867)
Decrease (increase) in accrued interest receivable 9,842 11,054
(Increase) decrease in notes and other receivables 0 (9,958)
(Increase) decrease in other assets (750)
Amortization of bond premium (discount) 5,698 2,201
Increase (decrease) in unpaid loss and loss adjustment 56,506 (879,879)
expenses
(Decrease) increase in accounts payable and accrued (46,778) (9,294)
liabilities
Increase in unearned premiums 52,480 0
Increase (decrease) in premium adjustment reserve 0 (60,191)
(Decrease) increase in income tax liability 106,115 (77,906)
---------- ---------
Net cash provided by operating activities ($63,609) $600,744
========== =========
** 1997 represents the combined information of two previously separate
entities.
See accompanying notes to financial statements.
<PAGE>
Stoneville Insurance Company
Notes to Financial Statements
Quarters Ended June 30, 1998 and 1997
1. Basis of Presentation
These interim financial statements have
been prepared on the basis of accounting principles used in the annual
financial statements ended December 31, 1997, and must be read in
conjunction with the 1997 statements. In the opinion of management,
the accompanying interim unaudited financial statements contain all
adjustments necessary for a fair statement of financial position and
results of operations of the Trust for the interim periods.
2. Plan of Reorganization and Conversion
A Plan and Agreement of Reorganization and Conversion was entered
into on September 11, 1997 by and between Delta Agricultural and
Industrial Trust and Stoneville Insurance Company whereby the Trust
transferred all of its existing assets and liabilities to Stoneville
on December 31, 1997 in exchange for stock in Stoneville. The Trust
was then liquidated and dissolved with the stock of Stoneville
distributed to its former members in accordance with the terms
outlined in the Plan.
3. Operations of the Company
The Company was formed to become the successor to the Delta
Agricultural and Industrial Trust, a Mississippi self-funded workers
compensation trust. The Company entered the workers compensation
market in the first quarter of 1998 as a reinsurer. The Company
currently does not write workers compensation insurance on a direct
basis.
4. Assets Pledged
Of the $1,269,444 in securities available-for-sale, $234,921 is
pledged as collateral for a letter of credit issued to an insurer that
the Company reinsures on a quota share basis. A claim can be made
against the letter of credit if the ceding insurer is unable to pay
claims from premiums collected by it. It is unlikely that there will
be such a claim against the letter of credit.
5. Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses ("LAE") is
based upon case reserve reports received from ceding insurance
companies and the company's own estimates. Loss and LAE reserves also
include estimates of incurred but not reported losses based on past
experience modified for current trends and estimates of expenses for
investigating and settling claims. It is the company's policy to
discount workers' compensation claims on reported and unreported
losses to present value using an interest rate of 4.5%. Such discount
resulted in a reduction in gross loss reserves of $9,078 as of June
30, 1998. The reserve for losses and LAE is attributable to a quota
share reinsurance arrangement in which the Company participates only
as a reinsurer. Management believes that the reserve for loss and LAE
as of June 30, 1998 is adequate to cover ultimate gross cost of losses
and LAE incurred through June 30, 1998. The reserve is based on
estimates of losses and LAE incurred and, therefore, the amount
ultimately paid may be more or less than such estimates.
<PAGE>
6. Operations of Previously Separate Companies
As indicated in the financial statements, the information
presented for the six months and three months ended June 30, 1997
represents the combined information from two previously separate
companies. Presented below are the operating results of each entity
and the intercompany adjustments made as a result of the combination
combination for the six months ended June 30, 1997.
Delta
Stoneville Agricultural
Insurance & Industrial
Company Trust Combined
----------- ------------ -----------
Total Revenues $ 0 $ 81,741 $ 81,741
Net Income (588) (72,444) (73,032)
Intercompany Interest Expense
Eliminated 588
Intercompany Interest Income
Eliminated 588
7. Other Income
Other Income for the six months ended June 30, 1998 includes
$57,044 in fees paid to the Company for management of certain
insurance programs for a ceding carrier. For the six months ended June
30, 1997, other income represented a loss on the sale of trading
securities.
8. Earnings (Loss) Per Share
Earnings (loss) per common share is based on net income or (loss)
and the weighted average number of shares outstanding during each
interim period. The number of shares used in computing earnings per
share is 503,384 for the quarter ended June 30, 1998. No shares were
issued until December 31, 1997, therefore no earnings per share
amounts are presented for the period ended June 30, 1997.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition - June 30, 1998 Compared to December 31, 1997
Total shareholders' equity decreased by $97,270 or 4% from $2,013,537 at
December 31, 1997 to $1,916,267 at June 30, 1998. This decrease was caused by a
net loss from operations of $95,142 for the first six months of 1998 and a
decrease in unrealized gain on securities available-for-sale of $2,128.
Total assets decreased by $27,165 or 1.3% at June 30, 1998 compared to
December 31, 1997. Cash and investments decreased a total of $143,587 during the
six months ended June 30, 1998 due primarily to limited revenue producing
activities in the first six months of 1998 coupled with the payment of certain
costs associated with the development of the Company's claims and risk control
services. In July of 1998, the Company entered into two agreements with another
insurance carrier. Under one agreement the Company will service certain workers
compensation claims on behalf of the other insurance carrier in Mississippi.
Under the other agreement the Company will provide loss control services to
certain insureds of the other insurance carrier. Additional expenditures were
made relating to the Plan of Reorganization and Conversion of the Delta
Agricultural and Industrial Trust that became effective December 31, 1997.
Total liabilities increased by $70,105 or 59.17% at June 30, 1998 compared
to December 31, 1997. This increase was due primarily to the purchase of claims
administration software, the payment for which was not due until after the
balance sheet date.
Results of Operations - Quarter and Six Months Ended June 30, 1998 Compared
to Quarter and Six Months Ended June 30, 1997
The Company experienced a net loss of $75,019 during the second quarter of
1998 compared to a net loss of $29,432 during the second quarter of 1997. During
the first quarter of 1998 the Company entered into a quota share reinsurance
arrangement with another insurance carrier in which the Company shares in 25% of
the income and is obligated to pay 25% of the expenses associated with the
business written within this program. As a result of this arrangement, the
Company's portion of earned premium during the second quarter of 1998 was
$27,576 compared to $0 in 1997. Losses and loss adjustment expenses related to
this program were $14,290 during the second quarter of 1998 compared to $0 in
the same period in 1997. Other expenses associated with this program totaled
$8,844 during the second quarter of 1998 compared to $0 in the second quarter of
1997. The Company's share of net income before tax associated with this program
during the second quarter of 1998 was $4,442 compared to $0 in the second
quarter of 1997.
The Company experienced a net loss of $95,142 during the six months ended
June 30,1998 compared to a net loss of 73,032 during the same period in 1997. As
a result of the quota share reinsurance arrangement, the Company had earned
premium for the six months ended June 30, 1998 of $139,872 compared to $0 in
1997. Losses and loss adjustment expenses related to this program totaled
$79,040 for the first six months of 1998 compared to $0 in 1997. Other expenses
related to this program totaled $39,164 for the first six months of 1998
compared to $0 in 1997. Net income before tax from this program was $21,668 for
the first six months of 1998 compared to $0 in 1997.
Investment income of the Company decreased from $39,178 in the second
quarter of 1997 to $21,282 in the second quarter of 1998. This decrease was a
result of having less cash to invest due to the funding of an Assumption
Reinsurance Agreement in December, 1997 in which the Company was relieved of all
of its insurance liabilities as of that date. In conjunction with this
agreement, the Company paid a premium of $1,586,463 to the carrier that assumed
the Company's insurance liabilities. The payment of this premium resulted in
less cash being available for investment during 1998.
As a result of having less cash available to invest as described above,
investment income of the Company for the six months ended June 30, 1998
decreased to $38,845 from $90,856 for the first six months of 1997.
<PAGE>
The Company realized capital gains in the second quarter of 1997 totaling
$844. No capital gains or losses were realized during the second quarter of
1998. The Company realized capital losses of $9,115 for the six months ended
June 30, 1997 compared to $0 in capital gains and losses for the six months
ended June 30, 1998.
General expenses increased from $98,890 in the second quarter of 1997 to
$168,732 in the same period in 1998. This increase is due primarily to the
development of a claims and risk control department within the Company that
began providing claims and risk control services in July, 1998. Under one
agreement the Company will service certain workers compensation claims on behalf
of the other insurance carrier in Mississippi. Under the other agreement the
Company will provide loss control services to certain insureds of the other
insurance carrier. For the six months ended June 30, 1998, general expenses were
$277,403 compared to $183,760 for the same period in 1997. This increase is due
primarily to the costs involved in re-entering the commercial insurance market
in the first quarter of 1998 including the costs associated with the execution
of certain reinsurance agreements and the development of a claims and risk
control department within the Company.
The Company recorded an income tax benefit for the quarter ended June 30,
1998 of $50,462 compared to a tax benefit for the same quarter in 1997 of
$31,938. The tax benefit for the six months ended June 30, 1998 was $60,828
compared to $40,489 for the six months ended June 30, 1997. The increased tax
benefit for both the quarter and six month period ended June 30, 1998 was a
result of larger operating losses experienced by the Company during this period
in 1998 compared to 1997.
<PAGE>
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes to the legal proceedings described in the
Company's Registration Statement on Form 10-K (File Number 333-24739).
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1998.
<PAGE>
STONEVILLE INSURANCE COMPANY
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.
STONEVILLE INSURANCE COMPANY
(Registrant)
DATE: August 14, 1998 /s/ Harry Vickery
--------------------------------------
President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 1,269,444
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,269,444
<CASH> 333,564
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 2,104,854
<POLICY-LOSSES> 56,506
<UNEARNED-PREMIUMS> 52,480
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 9,513
0
0
<COMMON> 503,384
<OTHER-SE> 1,412,883
<TOTAL-LIABILITY-AND-EQUITY> 2,104,854
139,872
<INVESTMENT-INCOME> 38,845
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 72,213
<BENEFITS> 79,040
<UNDERWRITING-AMORTIZATION> 9,791
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (155,970)
<INCOME-TAX> (60,828)
<INCOME-CONTINUING> (95,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,142)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
