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
September 30, 1998 and December 31, 1997
Statements of Income and Comprehensive Income
Three Months and Nine Months Ended September 30, 1998 and 1997
Statements of Changes in Stockholders' Equity
Period Ended December 31, 1997
Nine Months Ended September 30, 1998
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
STONEVILLE INSURANCE COMPANY
Balance Sheets
September 30, 1998 and December 31, 1997
September 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Assets
Investments:
Trading securities (at fair value)
Equity securities $0 $247
Securities available-for-sale (at fair value)
Fixed maturities (amortized cost - $1,495,002 and $1,295,572) 1,539,679 1,320,855
-------------- -------------
Total Investments 1,539,679 1,321,102
Cash and cash equivalents 996,360 425,493
Funds held by ceding companies 652,801 0
Fees receivable 238,030 0
Accrued interest receivable 27,694 29,819
Capital equipment leases at cost less
accumulated depreciation of $21,756 and $12,087 87,121 7,292
Prepaid expenses 29,517 25,300
Deferred tax assets 213,396 322,438
Other assets 1,525 575
-------------- -------------
Total Assets $3,786,123 $2,132,019
============== =============
Liabilities
Reserve for losses and loss adjustment expenses $939,688 $0
Unearned premium 629,872 0
Unearned fees 169,021
Accounts payable and accrued liabilities 96,486 117,226
Capital lease obligations 8,689 1,256
-------------- -------------
Total Liabilities 1,843,756 118,482
-------------- -------------
Shareholders' Equity
Common stock ($1 par value; 650,000 shares authorized;
503,384 shares issued) 503,384 503,384
Retained earnings 1,394,306 1,484,870
Accumulated other comprehensive income
Unrealized gains from investments in securities 44,677 25,283
-------------- -------------
Total Shareholders' Equity 1,942,367 2,013,537
-------------- -------------
Total Liabilities and Shareholders' Equity $3,786,123 $2,132,019
============== =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STONEVILLE INSURANCE COMPANY
Statements of Income and Comprehensive Income
Three Months and Nine Months Ended September 30, 1998 and 1997
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1998 1997* 1998 1997*
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenue
Premium assumed $210,672 $0 $350,544 $0
Premiums ceded 0 0 0 0
------------------------- ---------------------------
Net premiums earned 210,672 0 350,544 0
Investment income 26,621 47,694 65,466 138,550
Other 131,017 (9,958) 203,229 (19,073)
------------------------- ---------------------------
Total Revenue 368,310 37,736 619,239 119,477
------------------------- ---------------------------
Expenses
Loss and loss adjustment expenses 39,032 0 118,072 0
Policy acquisition fees 14,747 0 24,538 0
Program administration fees 31,723 52,704 0
Regulatory fees 18,312 5,751 37,997 17,253
General expenses 256,991 109,603 534,393 293,363
------------------------- ---------------------------
Total Expenses 360,805 115,354 767,704 310,616
------------------------- ---------------------------
Net Income
Before Income Tax Provision 7,505 (77,618) (148,465) (191,139)
Provision (benefit) for income taxes 2,927 (26,045) (57,901) (66,534)
------------------------- ---------------------------
Net Income (Loss) $4,578 ($51,573) (90,564) ($124,605)
Other Comprehensive Income
Unrealized gain (loss) on investments in securities
net of income tax affect 21,522 12,914 19,394 15,453
------------------------- ---------------------------
Comprehensive Income (Loss) $26,100 ($38,659) ($71,170) ($109,152)
========================= ===========================
Per Share Data
Net Income (Loss) $0.01 ($.10) ($0.17) ($0.25)
========== ========= ============ =========
<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> <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) (90,564) (90,564)
Net increase (decrease) in unrealized appreciation of
securities available for sale net of tax 19,394 19,394
-----------------------------------------------------------------
Balance at September 30, 1998 503,384 $503,384 $44,677 $1,394,306 $1,942,367
=================================================================
<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 Cash Flows
Nine Months Ended September 30, 1998 and 1997
1998 1997*
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities
Premiums collected $1,223,237 $0
Losses and loss adjustment expenses paid (172,159) (1,124,467)
Refunds and premium adjustments paid 0 (63,172)
Administrative expenses paid (571,316) (304,595)
Income taxes net refund received 166,943 97,071
Investment income received 74,617 154,024
Other income received 123,720 0
Net decrease in trading securities 0 1,676,780
Interest paid (401) 0
------------- -------------
Net Cash Provided by Operating Activities 844,641 435,641
------------- -------------
Cash Flows From Investing Activities
Proceeds from sales of available-for-sale securities 45,097 2,067
Purchase of available-for-sale securities (251,692) (587,775)
Proceeds from maturities of held-to-maturity securities 0 422,220
Transfer of held-to-maturity security to cash equivalent 0 286,242
Capital expenditures (65,037) 0
------------- -------------
Net Cash Provided by (used in) Investing Activities (271,632) 122,754
------------- -------------
Cash Flows From Financing Activities
Principal payments under capital lease obligations (2,142) (1,845)
------------- -------------
Net Cash (used in) Financing Activities 2,142 (1,845)
------------- -------------
Net Increase in Cash and
Cash Equivalents 570,867 556,550
Cash and Cash Equivalents at Beginning of Period 425,493 1,379,935
------------- -------------
Cash and Cash Equivalents at End of Period $996,360 $1,936,485
============= =============
<FN>
Continued
*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 Cash Flows (Continued)
Nine Months Ended September 30, 1998 and 1997
Reconciliation of net income to net cash provided 1998 1997*
by Operating Activities ------------- -------------
<S> <C> <C>
Net Income ($90,564) ($124,605)
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized loss or (gain) on sale of assets 0 19,073
Depreciation 9,669 3,614
Decrease in trading securities 0 1,676,780
Decrease (increase) in funds held by ceding company (652,801) 0
Decrease (increase) in prepaid expenses (4,217) 11,815
Decrease (increase) in accrued interest receivable 2,125 0
(Increase) decrease in notes and other receivables (238,030) 14,575
(Increase) decrease in other assets (950) (1,700)
Amortization of bond premium 7,414
Increase (decrease) in unpaid loss and loss adjustment expenses 939,688 (1,124,467)
(Decrease) increase in accounts payable and accrued liabilities (35,628) (69,981)
Increase (decrease) in unearned fees 169,021
Increase (decrease) in unearned premiuns 629,872
(Decrease) increase in deferred taxes 109,042 30,537
------------- -------------
Net cash provided by operating activities $844,641 $435,641
============= =============
Non-cash financing and investing activities
Issuance of stock for Trust units $503,384
=============
Captial Leases incurred $9,574
=============
<FN>
*1997 represents the combined information of two previously separate entities.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
Stoneville Insurance Compaoy
Notes to Financial Statements
Quarters Ended September 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
Company 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. Although The Company did not write
workers compensation insurance on a direct basis during the first three
quarters of 1998, it has begun doing so in the fourth quarter.
4. Assets Pledged
Of the $1,539,679 in securities available-for-sale, $200,000 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.
Additionally, $885,949 in cash is pledged as collateral for a letter of
credit issued to an insurer that the Company reinsures. The letter of
credit secures the payment of claims being administered by the Company.
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 $20,808 as of September 30, 1998. The reserve for
losses and LAE is attributable to reinsurance arrangements in which the
Company participates only as a reinsurer. Management believes that the
reserve for loss and LAE as of September 30, 1998 is adequate to cover
the ultimate
<PAGE>
gross cost of losses and LAE incurred through September 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.
Included in the reserve for loss and loss adjustment expenses is
$789,686 of reserves associated with a reinsurance agreement that is
being accounted for using the deposit method. Under this method, no
premium income is recorded. Income or expenses are recorded only as
claims are settled. During the quarter ended September 30, 1998, the
Company recognized $90,000 of income from settlement activity by
reducing claims expense and the reserve for loss and loss adjustment
expenses. Since claims under this reinsurance arrangement are expected
to be settled in a short period of time, their reserves have not been
discounted.
6. Operations of Previously Separate Companies
As indicated in the financial statements, the information presented for
the nine months and three months ended September 30, 1997 represents the
combined information from two previously separate entities. Presented
below are the operating results of each entity and the intercompany
adjustments made as a result of the combination for the nine months
ended September 30, 1997.
Delta
Stoneville Agricultural
Insurance & Industrial
Company Trust Combined
Total Revenues $ 0 $ 120,376 $ 120,376
Net Income ( 1,481) (123,124) (124,605)
Intercompany Interest Expense
Eliminated 899
Intercompany Interest Income
Eliminated 899
7. Other Income
Other Income for the nine months ended September 30, 1998 includes
$188,233 in fees earned by the Company for management of certain
insurance programs for a ceding carrier. For the nine months ended
September 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 (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 September 30, 1998. No shares were
issued until December 31, 1997. Consequently, earnings per share
for 1997 was calculated using 503,384 shares, the aggregate shares
issued as a part of the plan of conversion and reorganization.
<PAGE>
Item 2: Management's Discvssion and Analysis of Financial Condition and Results
of Operations
Financial Condition - September 30, 1998 Compared to December 31, 1997
Total shareholders' equity decreased by $71,170 or 3.5% from $2,013,537
at December 31, 1997 to $1,942,367 at September 30, 1998. This decrease was
caused by a net loss from operations of $90,564 for the first nine months of
1998 and a increase in unrealized gain on securities available-for-sale of
$19,394.
Total assets increased by $1,654,104 or 77.6% at September 30, 1998
compared to December 31, 1997. Cash and investments increased a total of
$789,444 during the nine months ended September 30, 1998 due primarily to the
funding of a reinsurance agreement whereby the Company agreed to assume all of
the insurance liabilities of the business written by Delta Agricultural and
Industrial Trust. These insurance liabilities had previously been assumed by
another commercial carrier as part of an assumption reinsurance agreement with
the Trust. The commercial carrier remains the ultimate guarantor of the payment
of these insurance liabilities with the Company's involvement limited to that of
a reinsurer. The cash and liabilities received by the Company as a result of
this reinsurance agreement totaled $1,051,845. Claims totaling $165,896 were
paid in conjunction with this agreement during the period ending September 30,
1998. The Company also made significant disbursements in the development of its
risk control and claims management services division during the nine months
ended September 30, 1998. Funds held by ceding companies increased by $652,801
during the period due to a significant amount of insurance written during the
three months ended September 30, 1998. Additionally, because the Company
provides risk control and claims management services to the ceding company on
this business, fees due from the ceding company also increased by $238,030
during the period.
Total liabilities increased by $1,725,274 or 1,456% at September 30, 1998
compared to December 31, 1997. This increase was due primarily to the insurance
liabilities assumed as a part of the reinsurance agreement discussed above. The
cash received as a part of this arrangement collateralizes a letter of credit to
the ceding carrier guaranteeing the payment of these liabilities. The Company
also increased its reserve for losses and loss adjustment expenses for its share
of insurance liabilities associated with a quota share reinsurance arrangement.
As a result of these two reinsurance arrangements, total reserve for loss and
loss adjustment expenses increased to $939,688 at September 30, 1998 compared to
$0 at December 31, 1997. Unearned premium from the quota share reinsurance
arrangement increased $629,872 as a result of a significant amount of insurance
business written during the period. Unearned risk control and claims management
fees also increased by $169,021 as a result of the business written.
Results of Operations - Quarter and Nine Months Ended September 30, 1998
Compared to Quarter and Nine Months Ended September 30, 1997
The Company experienced net income of $4,578 during the third quarter of
1998 compared to a net loss of $51,573 during the third 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 third quarter of 1998 was
$210,672 compared to $0 in 1997. Losses and loss adjustment expenses related to
this program were $129,032 during the third quarter of 1998 compared to $0 in
the same period in 1997. Other expenses associated with this program totaled
$64,782 during the third quarter of 1998 compared to $0 in the
<PAGE>
third quarter of 1997. The Company's share of net income before tax
associated with this program during the third quarter of 1998 was $16,858
compared to $0 in the third quarter of 1997. During the third quarter of 1998,
the Company entered into a reinsurance agreement with another carrier whereby
the Company reinsured the ceding carrier for 100% of the liabilities that were
assumed by the ceding carrier from Delta Agricultural and
Industrial Trust at December 31, 1997. The Company recognizes income or loss
from this arrangement as claims are settled by increasing or decreasing loss and
loss adjustment expenses on the statement of income. During the quarter ended
September 30, 1998, the Company decreased its loss and loss adjustment expenses
by $90,000 for the income that was attributable to settlements during the period
compared to $0 for the same period in 1997.
The Company experienced a net loss of $90,564 during the nine months
ended September 30,1998 compared to a net loss of 124,605 during the same period
in 1997. As a result of the quota share reinsurance arrangement, the Company had
earned premium for the nine months ended September 30, 1998 of $350,544 compared
to $0 in 1997. Losses and loss adjustment expenses related to this program
totaled $208,072 for the first nine months of 1998 compared to $0 in 1997. Other
expenses related to this program totaled $115,239 for the first nine months of
1998 compared to $0 in 1997. Net income before tax from this program was $27,233
for the first nine months of 1998 compared to $0 in 1997. As a result of the
reinsurance agreement entered into during the third quarter of 1998, the company
recognized a reduction in loss and loss adjustment expenses from settled claims
during the nine months ended September 30, 1998 in the amount of $90,000
compared to $0 in the same period in 1997.
Investment income of the Company decreased from $47,694 in the third
quarter of 1997 to $26,621 in the third quarter of 1998. This decrease was a
result of having less cash to invest for three primary reasons: the funding of
an Assumption Reinsurance Agreement in December, 1997 in which the Company paid
a premium of $1,586,463 to be relieved of all of its insurance liabilities; net
operating losses during the first half of 1998; and the payment of significant
claims under a reinsurance agreement funded in July, 1998. Although the Company
received $1,051,845 from a ceding carrier in conjunction with this reinsurance
arrangement, the net cash available for investment, after payment of claims, was
significantly less in the third quarter of 1998 compared to 1997.
As a result of having less cash available to invest as described above,
investment income of the Company for the nine months ended September 30, 1998
decreased to $65,466 from $138,550 for the first nine months of 1997.
The Company realized capital losses in the third quarter of 1997
totaling $9,958. No capital gains or losses were realized during the third
quarter of 1998. The Company realized capital losses of $19,073 for the nine
months ended September 30, 1997 compared to $0 in capital gains and losses for
the nine months ended September 30, 1998.
The Company recognized "other income" of $131,017 in third quarter of
1998 related primarily to services provided to the ceding carrier in reinsurance
arrangements compared to $0 for the same quarter of 1997. Other income related
primarily to these services for the nine months ended September 30, 1998 totaled
$203,229 compared to $0 for the same period in 1997.
During the first nine months of 1998, the Company acted as a reinsurer
only and did no direct writing. Effective October 1, 1998, the Company began
writing direct workers's compensation insurance to employers with annual
premiums generally less than $4,000. The Company will cede 50% of this program
to a reinsurer under a quota share reinsurance arrangement.
General expenses increased from $109,603 in the third quarter of 1997 to
$256,991 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. For the nine
months ended September 30, 1998, general expenses were $534,393 compared to
$293,363 for the same period in
<PAGE>
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 provision for the quarter ended
September 30, 1998 of $2,927 compared to a tax benefit for the same quarter in
1997 of $26,045. The tax benefit for the nine months ended September 30, 1998
was $57,901 compared to $66,534 for the nine months ended September 30, 1997.
The tax provision for the third quarter of 1998 was a result of having a net
operating profit the quarter compared to a net loss for the same period in 1997.
The increased tax benefit for the nine months ended September 30, 1998 was a
result of larger operating losses experienced by the Company during this period
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
September 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: November 13, 1998 /s/ Harry Vickery
--------------------------------------
President and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 1,539,679
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,539,679
<CASH> 996,360
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 3,786,123
<POLICY-LOSSES> 939,688
<UNEARNED-PREMIUMS> 629,872
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 8,689
0
0
<COMMON> 503,384
<OTHER-SE> 1,438,983
<TOTAL-LIABILITY-AND-EQUITY> 3,786,123
350,544
<INVESTMENT-INCOME> 65,466
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 203,229
<BENEFITS> 118,072
<UNDERWRITING-AMORTIZATION> 24,538
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (148,465)
<INCOME-TAX> (57,901)
<INCOME-CONTINUING> (90,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,564)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
