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 SEPTEMBER 30, 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
of incorporation of organization) Number)
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 September 30, 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." In particular, future
claims may be higher than anticipated and revenues for Stoneville Services
Company may not meet expectations. 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
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity
For Periods Indicated
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
Notes to Financial Statements
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
September 30 December 31,
1999 1998
------------ ------------
Assets (Unaudited)
Investments:
Securities available-for-sale at fair value
- amortized cost of $864,977 and $1,139,000 $868,750 $1,175,757
Short-term investments, at cost which
approximates market 341,131 342,358
------------ ------------
Total Investments 1,209,881 1,518,115
Cash and Cash Equivalents 930,829 1,222,322
Premiums and fees receivable 955,428 420,902
Accounts receivable 205,220
Accrued interest receivable 19,819 19,888
Refundable income taxes 38,283 68,618
Reinsurance recoverable 1,023,532 1,023,532
Equipment, net of accumulated depreciation of
$43,274 and $27,000 124,486 84,598
Deferred tax assets 278,403 134,715
Other 203,152 9,912
------------ ------------
Total Assets $4,989,033 $4,502,602
============ ============
Liabilities
Reserve for losses and loss adjustment expenses $1,773,892 $1,780,687
Unearned premiums 1,050,251 475,106
Accounts payable and accrued liabilities 467,322 323,415
Capital lease obligations 7,479 8,341
------------ ------------
Total Liabilities 3,298,944 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 1,184,295 1,388,334
Accumulated other comprehensive income -
Unrealized gains on securities available
for sale, net of income taxes of $1,540
and $14,000 2,410 23,335
------------ ------------
Total Shareholders' Equity 1,690,089 1,915,053
------------ ------------
Total Liabilities and Shareholders' Equity $4,989,033 $4,502,602
============ ============
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1999 and 1998
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1999 1998 1999 1998
------------------ -----------------
Revenues
Net premiums earned (less ceded
amount of approximately $151,926
and $304,700 in 1999 and $0 in 1998) $480,345 $210,672 $1,250,277 $350,544
Investment income 23,852 26,621 73,392 65,466
Gain on sale of securities 0 6,387
Administrative and management fees 342,117 131,017 911,332 143,722
Other 0 0 22,109 59,507
--------- -------- ---------- -------
Total Revenues 846,314 368,310 2,263,497 619,239
--------- -------- ---------- -------
Expenses
Loss and loss adjustment expenses 378,348 39,032 1,038,415 118,072
Policy acquisition fees 57,673 14,747 119,021 24,538
Program administration fees 59,961 31,723 178,245 52,704
Regulatory fees 28,278 18,312 75,227 37,997
General expenses 414,218 256,991 1,187,975 534,393
--------- -------- ---------- -------
Total Expenses 938,478 360,805 2,598,883 767,704
--------- -------- ---------- -------
Income (loss) before Income Taxes (92,164) 7,505 (335,386)(148,465)
Provision (benefit) for income taxes (34,823) 2,927 (131,347) (57,901)
--------- -------- ---------- -------
Net Loss (57,341) 4,578 (204,039) (90,564)
Other Comprehensive Income, net of
income tax effect -
Unrealized gain (loss) on investments
in securities (2,337) 21,522 (16,925) 19,394
Reclassification of gains included in
net income (4,000)
--------- -------- ---------- -------
Comprehensive Loss (59,678) 26,100 (224,964) (71,170)
========= ======== ========== =======
Net Loss Per Share $(0.11) $0.01 $(0.41) $(0.18)
========= ======== ========== =======
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
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 January 1, 1998 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) (204,039) (204,039)
Net decrease in unrealized
appreciation of securities
available for sale (20,925) (20,925)
--------------------------------------------------------------
Balance at September 30, 1999
(UNAUDITED) 503,384 $503,384 $1,184,295 $2,410 $1,690,089
==============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
1999 1998
------------ ------------
Cash Flows From Operating Activities
Premiums collected $1,013,468 $1,223,237
Administrative fees collected 778,707
Losses and loss adjustment expenses paid (729,989) (172,159)
Administrative expenses paid (1,481,556) (571,316)
Income tax refund received 31,351 166,943
Investment income received 76,212 74,617
Other income received 2,278 123,720
Interest paid (685) (401)
------------ ------------
Net Cash Provided by (used in) Operating
Activities (310,214) 844,641
------------ ------------
Cash Flows From Investing Activities
Proceeds from sales of available-for-sale
securities 478,104 45,097
Purchase of available-for-sale securities (246,394) (251,692)
Capital expenditures (212,127) (65,037)
------------ ------------
Net Cash Provided by (used in) Investing
Activities 19,583 (271,632)
------------ ------------
Cash Flows From Financing Activities
Principal payments under capital lease
obligations (862) (2,142)
------------ ------------
Net Cash Used in Financing Activities (862) (2,142)
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (291,493) 570,867
Cash and Cash Equivalents at Beginning of Period 1,222,322 425,493
------------ ------------
Cash and Cash Equivalents at End of Period $930,829 $996,360
============ ============
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Quarters Ended September 30, 1999 and 1998 (Unaudited)
1. BASIS OF PRESENTATION
These interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10Q and do not include all of
the information and note disclosures required by generally accepted
accounting principles and must be read in conjunction with the 1998
annual statement. The accompanying financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management, the accompanying
interim unaudited financial statements contain all adjustments necessary
to summarize fairly the statement of financial position and results of
operations of the Company for the interim periods.
2. CONSOLIDATION OF SUBSIDIARIES
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.
In May, 1999, the Company acquired all of the outstanding stock of
American Colonial Insurance Company, an Arkansas property and casualty
insurance company. Immediately after the acquisition, the name was
changed to Stoneville Insurance Company of Arkansas. The Company has
begun to write small premium workers' compensation insurance in Arkansas
and will reinsure other workers' compensation carriers on a limited risk
basis. The Company also plans to provide claims administration and
program management services for these insurance programs through its
Arkansas subsidiary.
The accompanying financial statements present the Company and its
subsidiaries, Stoneville Service Company, Inc. and Stoneville Insurance
Company of Arkansas, on a consolidated basis. All material inter-company
profits, transactions and balances have been eliminated.
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.
The Company also began duplicating its Mississippi workers' compensation
programs in Arkansas through Stoneville Insurance Company of Arkansas in
the third quarter of 1999.
<PAGE>
4. ASSETS PLEDGED
Of the $868,750 in securities available-for-sale, $500,000 is pledged as
collateral for a letter of credit issued to an insurance carrier that
the Company reinsures on a quota share basis. A claim may be made
against the letter of credit if the ceding insurer is unable to pay
claims from premiums collected by it.
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
September 30, 1999 is adequate to cover ultimate gross cost of losses
and LAE incurred through September 30, 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.
6. 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 September 30, 1999 and 1998.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - September 30, 1999 Compared to December 31, 1998
Total shareholders' equity decreased by $224,964 or 11.7% from
$1,915,053 at December 31, 1998 to $1,690,089 at September 30, 1999. This
decrease was caused by a net loss from operations of $204,039 for the first nine
months of 1999 and a decrease in unrealized gain on securities available-for-
sale of $20,925.
Total assets increased by $486,431 or 10.8% at September 30, 1999
compared to December 31, 1998. This increase is due primarily to an increase in
premiums and fees receivable as a result of increased volume. Cash and
investments decreased a total of $599,727 during the nine months ended
September 30, 1999 due largely to the purchase of American Colonial Insurance
Company and 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 $711,395 or 27.5% at September 30, 1999
compared to December 31, 1998. This increase was due partially to the receipt
of certain quota share reinsurance agreement payments prior to the time such
payments were earned. Additionally, with the increase in premium written and
assumed in the first nine months of 1999, unearned premium increased by
$575,145.
Results of Operations - Quarter Ended September 30, 1999 Compared to Quarter
Ended September 30,1998
The Company experienced a net loss of $57,341 during the third quarter
of 1999 compared to net income of $4,578 during the third quarter of 1998. This
loss is due primarily to the costs associated with the operation of Stoneville
Service Company, a claims administration subsidiary which began operations in
early 1999. Stoneville Service Company provides claims services to third party
self-funded workers' compensation programs. The Company has recently acquired
and continues to acquire additional customers which should significantly improve
the net operating income of the Company. It is anticipated that this subsidiary
will begin generating an operating profit during the second quarter of 2000.
As a result of increased workers' compensation premium written and
assumed, earned premium during the third quarter of 1999 was $480,345 compared
to $210,672 in 1998. Losses and loss adjustment expenses were $378,348 during
the third quarter of 1999 compared to $39,032 in the same period in 1998. Other
expenses directly associated with the Company's insurance programs totaled
$145,912 during the third quarter of 1999 compared to $64,782 in the third
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 decreased from $26,621 in the third
quarter of 1998 to $23,852 in the third quarter of 1999. This decrease is a
result of having less cash available for investment in the third quarter of 1999
compared to 1998 due to increased claims and administrative expense payments
during the period.
General expenses increased from $256,991 in the third quarter of 1998 to
$414,218 in 1999. This increase is due primarily to expenses in the claims
administration operation which did not exist during the third quarter of 1998.
<PAGE>
The Company recorded an income tax benefit for the quarter ended
September 30, 1999 in the amount of $34,823 compared to a tax provision for the
same quarter in 1998 of $2,927.
Results of Operations - Nine Months Ended September 30, 1999 Compared to Nine
Months Ended September 30,1998
The Company experienced a net loss of $204,039 for the nine months ended
September 30, 1999 compared to a net loss of $90,564 for the same period in
1998. This increased loss is due to the operating loss sustained in the claims
administration subsidiary during 1999 and several significant claims experienced
in the Small Workers' Compensation program operated by the Company. The
performance of the claims administration subsidiary should improve in the next
six months as a result of an increased client base. The Company has reduced the
amount of risk taken in the Small Workers' Compensation program by increasing
the portion of the risk reinsured from 50% to 90% effective September 1, 1999.
As a result of increased workers' compensation premium written and
assumed, earned premium during the nine months ended September 30, 1999 was
$1,250,277 compared to $350,544 in 1998. Losses and loss adjustment expenses
were $1,038,415 during the first nine months of 1999 compared to $118,072 in the
same period in 1998. Other expenses directly associated with the Company's
insurance programs totaled $372,493 during the period ended September 30, 1999
compared to $115,239 in 1998. The increase in expenses directly related to
insurance programs was due to increased business written in 1999.
Investment income increased to $73,392 for the nine month period ended
September 30, 1999 from $ 65,466 in 1998. Most of the increase in the nine
month period came prior to the expenditure of start-up costs in the Stoneville
Service Company subsidiary. More cash was available for investment in early
1999 compared to 1998 due to the advance funding of the Company's reinsurance
activities in late 1998 and early 1999.
For the nine month period ended September 30, 1999, general expenses
increased to $1,187,975 from $534,393 in 1998. This increase was due primarily
to costs associated with the purchase of American Colonial Insurance Company and
the acquisition of an existing claims administrator's customer base in early
1999 as well as the operation of these subsidiaries which did not exist in 1998.
The Company recorded a tax benefit of $131,347 for the nine months ended
September 30, 1999 compared to a tax benefit of $57,901 for the same period in
1998.
Liquidity and Capital Resources
Due to the fact that workers' compensation claims are paid over a long
period of time, it is anticipated that cash flows from premiums collected will
be sufficient to pay any insurance claims that arise during 1999, 2000 and the
foreseeable future.
As a workers' compensation insurance carrier licensed in the State of
Mississippi, the Company is subject to certain minimum capital and surplus
requirements. In order to stay in compliance with these minimum requirements,
the Company will be required to generate operating profits in 2000 or raise
additional capital from other sources. The Company anticipates that its
increased customer base will generate sufficient operating profits in 2000 to
satisfy regulatory capital and surplus requirements. However, if such operating
results are not attained, the Company will have to seek other sources of capital
to allow it to maintain an adequate capital structure. The Company is not
assured that such capital alternatives will be available if and when they are
needed.
<PAGE>
PART II: OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial data schedule
<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:
--------------------------------------
Richard L. Eaton, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
DATE: November 13, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 1,209,881
<DEBT-CARRYING-VALUE> 1,206,108
<DEBT-MARKET-VALUE> 1,209,881
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,209,881
<CASH> 930,829
<RECOVER-REINSURE> 1,023,532
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,989,033
<POLICY-LOSSES> 1,773,892
<UNEARNED-PREMIUMS> 1,050,251
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,479
0
0
<COMMON> 503,384
<OTHER-SE> 1,186,705
<TOTAL-LIABILITY-AND-EQUITY> 4,989,033
1,250,277
<INVESTMENT-INCOME> 73,392
<INVESTMENT-GAINS> 6,387
<OTHER-INCOME> 933,441
<BENEFITS> 1,038,415
<UNDERWRITING-AMORTIZATION> 119,021
<UNDERWRITING-OTHER> 1,441,447
<INCOME-PRETAX> (335,386)
<INCOME-TAX> (131,347)
<INCOME-CONTINUING> (204,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,039)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
