UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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)
--------------
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.
503,384 Common Shares were outstanding as of May 15, 1999 for
financial statement purposes.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
<PAGE>
PART I: FINANCIAL INFORMATION
In addition to historical information, this report contains statements
which constitute forward-looking statements and information which are based on
management's beliefs, plans, expectations and assumptions and on information
currently available to management. The words "may," "should," "expect,"
"anticipate," "intend," "plan," "continue," "believe," "seek," "estimate," and
similar expressions used in this report that do not relate to historical facts
are intended to identify forward-looking statements. These statements appear in
a number of places in this report, including, but not limited to, statements
found in Item 2 "Management's Discussion and Analysis." All phases of the
Company's operations are subject to a number of risks and uncertainties.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projects in the forward-looking
statements. Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in this report, including,
without limitation, the portions referenced above, and the uncertainties set
forth from time to time in the Company's other public reports and filings and
public statements, many of which are beyond the control of the Company, and any
of which, or a combination of which, could materially affect the results of the
Company's operations and whether forward-looking statements made by the Company
ultimately prove to be accurate.
Item 1 - Stoneville Insurance Company and Subsidiary Consolidated Financial
Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity
Year Ended December 31, 1998
Three Months Ended March 31, 1999
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
Notes to Financial Statements
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
March 31, December 31,
1999 1998
--------- ------------
Assets
Investments:
Securities available-for-sale at fair value
- amortized cost of $1,136,399 and $1,139,000 $1,163,170 $1,175,757
Short-term investments, at cost which
approximates market 341,615 342,358
---------- -----------
Total Investments 1,504,785 1,518,115
Cash and Cash Equivalents 1,057,666 1,222,322
Premiums receivable 466,094 420,902
Accounts receivable 92,315 0
Accrued interest receivable 27,214 19,888
Refundable income taxes 68,618 68,618
Reinsurance recoverable 1,023,532 1,023,532
Equipment, net of accumulated depreciation of
$34,124 and $27,000 120,944 84,598
Deferred tax assets 146,967 134,715
Other 156,477 9,912
---------- -----------
Total Assets $4,664,612 $4,502,602
========== ===========
Liabilities
Reserve for losses and loss adjustment expenses $1,687,785 $1,780,687
Unearned premium 622,210 475,106
Accounts payable and accrued liabilities 450,625 323,415
Capital lease obligations 8,102 8,341
---------- -----------
Total Liabilities 2,768,722 2,587,549
---------- -----------
Shareholders' Equity
Common stock ($1 par value; 10,000,000 shares
authorized; 503,384 shares issued and
outstanding) 503,384 503,384
Retained earnings 1,375,543 1,388,334
Accumulated other comprehensive income -
Unrealized gains on securities available for
sale, net of income taxes of $9,808 and $14,000 16,963 23,335
---------- -----------
Total Shareholders' Equity 1,895,890 1,915,053
---------- -----------
Total Liabilities and Shareholders' Equity $4,664,612 $4,502,602
========== ===========
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998
Three Months Ended March 31,
1999 1998
---- ----
Revenues
Net premiums earned (less ceded amount of
approximately $54,706 and $0) $305,537 $112,296
Investment income 25,407 17,563
Administrative and management fees 300,197 43,393
Other 1,662 0
-------- ---------
Total Revenues 632,803 173,252
-------- ---------
Expenses
Loss and loss adjustment expenses 222,769 64,750
Policy acquisition fees 24,123 7,861
Program administration fees 43,022 16,844
Regulatory fees 17,238 5,615
General expenses 346,621 108,671
-------- ---------
Total Expenses 653,773 203,741
-------- ---------
Income before Income Taxes (20,970) (30,489)
Provision (benefit) for income taxes (8,179) (10,366)
-------- ---------
Net Loss (12,791) (20,123)
Other Comprehensive Income, net of income tax
effect - Unrealized loss on investments in
securities (6,372) (3,982)
-------- --------
Comprehensive Loss (19,163) (24,105)
======== ========
Net Loss Per Share ($0.03) ($0.04)
======== ========
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
For Periods Indicated
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
---------------- Retained Comprehensive Shareholders'
Shares Amount Earnings Income Equity
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 503,384 $503,384 $1,484,870 $15,852 $2,004,106
1998
Net income (loss) (96,536) (96,536)
Net increase in unrealized
appreciation of securities
available for sale 7,483 7,483
----------------------------------------------------------------
Balance at December 31, 1998 503,384 $503,384 $1,388,334 $23,335 $1,915,053
1999
Net income (loss) (12,791) (12,791)
Net increase in unrealized
appreciation of securities
available for sale (6,372) (6,372)
----------------------------------------------------------------
Balance at March 31, 1999 503,384 $503,384 $1,375,543 $16,963 $1,895,890
================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
Three Months Ended March 31,
1999 1998
----------- -----------
Cash Flows From Operating Activities
Premiums collected $412,626
Administrative fees collected 129,039
Losses and loss adjustment expenses paid (214,538)
Administrative expenses paid (318,551) ($171,396)
Investment income received 18,928 24,463
Other income received 1,662 28,393
Interest paid (203) (27)
------------ -----------
Net Cash Provided by Operating Activities 28,963 (118,567)
------------ -----------
Cash Flows From Investing Activities
Proceeds from sales of available-for-sale
securities 36,847
Capital expenditures (193,487)
------------ -----------
Net Cash Provided by Investing Activities (193,487) 36,847
------------ -----------
Cash Flows From Financing Activities
Principal payments under capital lease obligations (132) (494)
------------ -----------
Net Cash Used in Financing Activities (132) (494)
------------ -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (164,656) (82,214)
Cash and Cash Equivalents at Beginning of Period 1,222,322 425,493
----------- -----------
Cash and Cash Equivalents at End of Period $1,057,666 $343,279
=========== ===========
Continued
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
Three Months Ended March 31, 1999 and 1998
Three Months Ended March 31,
Reconciliation of net income to net cash provided 1999 1998
by Operating Activities --------- ----------
Net Income ($12,791) ($20,123)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,642 969
Deferred income tax benefit (8,179) (10,366)
Decrease (increase) in accrued interest receivable (7,326) 1,865
Decrease in premiums and reinsurance receivables (45,192)
Decrease (increase) in other assets (4,065) (9,824)
(Increase) decrease in notes and other receivables (92,315)
Amortization of bond premium (discount) 5,357
Decrease in unpaid losses and loss adjustment
expenses (92,902) 53,366
Increase (decrease) in unearned premiums 147,104
(Decrease) increase in accounts payable and accrued
liabilities 129,987 (139,811)
---------- ----------
Net cash provided by operating activities $28,963 ($118,567)
========== ==========
See accompanying notes to financial statements.
<PAGE>
Stoneville Insurance Company and Subsidiary
Notes to Consolidated Financial Statements
Quarters Ended March 31, 1999 and 1998
1. Basis of Presentation
These interim consolidated financial statements have been prepared on the
basis of accounting principles used in the annual financial statements ended
December 31, 1998, and must be read in conjunction with the 1998 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. Consolidation of Subsidiary
In January, 1999, the Company formed Stoneville Service Company, Inc., a
Mississippi corporation owned entirely by Stoneville Insurance Company.
Stoneville Service Company, Inc. provides claims and risk control services
primarily to Arkansas groups that are self-funded for workers' compensation
purposes. The accompanying financial statements present the two companies on a
consolidated basis. All necessary eliminating entries have been made.
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 and began direct writing of workers' compensation insurance in the
fourth quarter of 1998. In July, 1998, the Company began providing claims and
risk control services as well as program management services to the insurance
programs being reinsured by the Company. In January, 1999, the Company began
providing claims and risk control services to Arkansas self-funded workers'
compensation groups through its newly formed subsidiary, Stoneville Service
Company, Inc.
4. Assets Pledged
Of the $1,163,170 in securities available-for-sale, $500,000 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. 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 not to discount such reserves. Management believes that the reserve for
loss and LAE as of March 31, 1999 is adequate to cover ultimate gross cost of
losses and LAE incurred through March 31, 1999. 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. Results of Operations - Subsidiary
As indicated in Note 2, the financial statements of the Company and its
wholly owned subsidiary are presented on a consolidated basis. Presented below
are the operating results of each entity for the three months ended March 31,
1999.
Stoneville Stoneville
Insurance Service
Company Company Consolidated
Total Revenues $ 571,448 $ 61,355 $ 632,803
Net Income $ 8,209 $ (21,000) $ (12,791)
7. 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 March 31, 1999 and 1998.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - March 31, 1999 Compared to December 31, 1998
Total shareholders' equity decreased by $19,163 or 1% from $1,915,053 at
December 31, 1998 to $1,895,890 at March 31, 1999. This decrease was caused by
a net loss from operations of $12,791 for the first three months of 1999 and a
decrease in unrealized gain on securities available-for-sale of $6,372.
Total assets increased by $162,010 or 3.6% at March 31, 1999 compared to
December 31, 1998. Cash and investments decreased a total of $177,986 during the
three months ended March 31, 1999 due primarily to the formation of Stoneville
Service Company, a wholly owned subsidiary of Stoneville Insurance Company, and
the start-up costs associated with that operation.
Total liabilities increased by $181,173 or 7% at March 31, 1999 compared
to December 31, 1998. This increase was due primarily to the receipt of certain
quota share reinsurance agreement payments prior to the time such payments were
earned.
Results of Operations - First Quarter 1999 Compared to First Quarter 1998
The Company experienced a net loss of $12,791 during the first quarter
of 1999 compared to a net loss of $20,123 during the first quarter of 1998.
Results the first quarter of 1999 and the first quarter of 1998 differ
significantly because of the development of the Company's operations over the
last year. In early 1998, the Company began its active reinsurance business
operations, in July of 1998 the Company began its claims administration and risk
control operations, and in the fall of 1998, the Company began its direct
insurance business operations. As a result of increased workers' compensation
premium written and assumed, earned premium during the first quarter of 1999 was
$305,537 compared to $112,296 in 1998. Losses and loss adjustment expenses were
$222,769 during the first three months of 1999 compared to $64,750 in the same
period in 1998. Other expenses directly associated with the Company's insurance
programs totaled $83,383 during the first quarter of 1999 compared to $30,320 in
the first quarter of 1998. The increase in expenses directly related to
insurance programs was due to increased business written in 1999.
Investment income of the Company increased from $17,563 in the first
quarter of 1998 to $25,407 in the first quarter of 1999. This increase is a
result of having more funds available for investment in 1999 due to increased
insurance business written coupled with increased fee based income.
General expenses increased from $108,671 in the first quarter of 1998 to
$346,621 in 1999. This increase is due primarily to the costs associated with
the claims administration operation which did not exist during the first quarter
of 1998.
The Company recorded an income tax benefit for the quarter ended
March 31, 1999 in the amount of $8,179 compared to a tax benefit for the same
quarter in 1998 of $10,366.
<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 5 - Other Information
On May 3, 1999, the Company acquired American Colonial Insurance Company
("American Colonial") for $319,266 in cash. American Colonial is a small
Arkansas domestic property and casualty insurer formed April 15, 1958 and is
licensed to write workers' compensation insurance in the State of Arkansas.
American Colonial has been re-named Stoneville Insurance Company of Arkansas and
will write direct workers' compensation insurance for small employers in
Arkansas.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
(b) A report on Form 8-K was filed on January 28, 1999 and amended on
February 25, 1999 reporting the appointment of Deloitte & Touche to act as the
Company's independent accountants.
<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
BY: /s/ Harry E. Vickery
--------------------------------------
Harry E. Vickery, President
DATE: May 15, 1999
BY: /s/ Richard L. Eaton
--------------------------------------
Richard L. Eaton, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
DATE: May 15, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 1,504,785
<DEBT-CARRYING-VALUE> 1,478,014
<DEBT-MARKET-VALUE> 1,504,785
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,504,785
<CASH> 1,057,666
<RECOVER-REINSURE> 1,023,532
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,664,612
<POLICY-LOSSES> 1,687,785
<UNEARNED-PREMIUMS> 622,210
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 8,102
0
0
<COMMON> 503,384
<OTHER-SE> 1,392,506
<TOTAL-LIABILITY-AND-EQUITY> 4,664,612
305,537
<INVESTMENT-INCOME> 25,407
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 301,859
<BENEFITS> 222,769
<UNDERWRITING-AMORTIZATION> 24,123
<UNDERWRITING-OTHER> 406,881
<INCOME-PRETAX> (20,970)
<INCOME-TAX> (8,179)
<INCOME-CONTINUING> (12,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,791)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
