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 JUNE 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 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 August 12, 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 under the Small Comp Workers' Compensation Program may be higher than
anticipated. 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
June 30, 1999 and December 31, 1998
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity
For Periods Indicated
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
Notes to Financial Statements
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(Unaudited)
June 30, December 31,
1999 1998
-------- ------------
Assets
Investments:
Securities available-for-sale at fair value
- amortized cost of $862,182 and $1,139,000 $ 868,927 $1,175,757
Short-term investments, at cost which
approximates market 244,954 342,358
------------ -------------
Total Investments 1,113,881 1,518,115
Cash and Cash Equivalents 1,113,231 1,222,322
Premiums receivable 705,729 420,902
Accounts receivable 137,770
Accrued interest receivable 17,054 19,888
Refundable income taxes 69,634 68,618
Reinsurance recoverable 1,023,532 1,023,532
Equipment, net of accumulated depreciation
of $41,471 and $27,000 131,651 84,598
Deferred tax assets 243,123 134,715
Other 199,025 9,912
------------ -------------
Total Assets $4,754,630 $4,502,602
============ =============
Liabilities
Reserve for losses and loss adjustment expenses $1,808,042 $1,780,687
Unearned premiums 748,296 475,106
Accounts payable and accrued liabilities 441,100 323,415
Capital lease obligations 7,733 8,341
------------ -------------
Total Liabilities 3,005,171 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 1,241,328 1,388,334
Accumulated other comprehensive income -
Unrealized gains on securities available for
sale, net of income taxes of $1,998 and
$14,000 4,747 23,335
------------ -------------
Total Shareholders' Equity 1,749,459 1,915,053
------------ -------------
Total Liabilities and Shareholders' Equity $4,754,630 $4,502,602
============ =============
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1999 and 1998
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1999 1998 1999 1998
--------- -------- ------- ---------
Revenues
Net premiums earned (less ceded
amount of approximately $98,067
and $152,774 in 1999 and $0 in 1998) $534,540 $27,576 769,932 139,872
Investment income 23,821 21,282 49,229 38,845
Gain on sale of securities 6,387 6,387
Administrative and management fees 198,873 569,215
Other 20,447 28,820 22,109 72,213
--------- --------- ----------- ---------
Total Revenues 784,068 77,678 1,416,872 250,930
--------- --------- ----------- ---------
Expenses
Loss and loss adjustment expenses 437,298 14,290 660,068 79,040
Policy acquisition fees 37,225 1,930 61,348 9,791
Program administration fees 75,262 4,137 118,284 20,981
Regulatory fees 29,711 14,070 46,949 19,685
General expenses 427,132 168,732 773,753 277,403
---------- --------- ----------- ---------
Total Expenses 1,006,628 203,159 1,660,402 406,900
---------- --------- ----------- ---------
Loss before Income Taxes (222,560) (125,481) (243,530) (155,970)
Provision (benefit) for income taxes (88,345) (50,462) (96,524) (60,828)
---------- --------- ----------- ---------
Net Loss (134,215) (75,019) (147,006) (95,142)
Other Comprehensive Income, net of
income tax effect -
Unrealized loss on investments in
securities (6,372) 1,754 (18,588) (2,128)
---------- --------- ----------- ---------
Comprehensive Loss (140,587) (73,265) (165,594) (97,270)
========== ========= =========== =========
Net Loss Per Share $(0.27) $(0.15) $(0.29) $(0.19)
========== ========= =========== =========
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 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) (147,006) (147,006)
Net decrease in unrealized
appreciation of securities
available for sale (18,588) (18,588)
-------------------------------------------------------------
Balance at June 30, 1999
(Unaudited) 503,384 $503,384 $1,241,328 $4,747 $1,749,459
=============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
----------- ------------
Cash Flows From Operating Activities
Premiums collected $641,864
Administrative fees collected 287,472
Losses and loss adjustment expenses paid (345,578)
Administrative expenses paid (883,860) $(346,586)
Income tax refund received $166,943
Investment income received 54,688 54,571
Other income received 2,278 61,713
Interest paid (497) (250)
----------- ------------
Net Cash Provided by Operating Activities (243,633) (63,609)
----------- ------------
Cash Flows From Investing Activities
Proceeds from sales of available-for-sale
securities 281,392 43,832
Purchase of available-for-sale securities (131,414)
Reclass available-for-sale securities as cash
equivalents 196,712
Capital expenditures (211,541) (70,475)
----------- ------------
Net Cash Provided by Investing Activities 135,149 (26,643)
----------- ------------
Cash Flows From Financing Activities
Principal payments under capital lease obligations (607) (1,677)
----------- ------------
Net Cash Used in Financing Activities (607) (1,677)
----------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents (109,091) (91,929)
Cash and Cash Equivalents at Beginning of Period 1,222,322 425,493
----------- ------------
Cash and Cash Equivalents at End of Period $1,113,231 $333,564
=========== ============
See accompanying notes to financial statements.
<PAGE>
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Quarters Ended June 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 statements. 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 for a fair 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 plans 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 plans to duplicate its Mississippi workers' compensation
programs in Arkansas through Stoneville Insurance Company of Arkansas.
4. ASSETS PLEDGED
Of the $868,927 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.
<PAGE>
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 June 30, 1999
is adequate to cover ultimate gross cost of losses and LAE incurred through
June 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 June 30, 1999 and 1998.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition - June 30, 1999 Compared to December 31, 1998
Total shareholders' equity decreased by $165,594 or 8.6% from $1,915,053
at December 31, 1998 to $1,749,459 at June 30, 1999. This decrease was caused by
a net loss from operations of $147,006 for the first six months of 1999 and a
decrease in unrealized gain on securities available-for-sale of $18,588.
Total assets increased by $252,028 or 5.6% at June 30, 1999 compared to
December 31, 1998. Cash and investments decreased a total of $513,325 during
the six months ended June 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 associated
start-up costs with that operation.
Total liabilities increased by $417,622 or 16% at June 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 six months of 1999, unearned premium increased by $117,685.
Results of Operations - Second Quarter 1999 Compared to Second Quarter 1998
The Company experienced a net loss of $134,215 during the second quarter
of 1999 compared to a net loss of $75,019 during the second quarter of 1998.
This loss is due primarily to the costs associated with the start-up and
acquisition costs of subsidiaries in 1999 and to unusually high claims incurred
in the Company's Small Comp Workers' Compensation Program during the second
quarter of 1999. It is expected that these claims will be significantly lower
in subsequent quarters, thus improving the Company's profitability. As a result
of increased workers' compensation premium written and assumed, earned premium
during the second quarter of 1999 was $534,540 compared to $27,576 in 1998.
Losses and loss adjustment expenses were $437,298 during the second six months
of 1999 compared to $14,290 in the same period in 1998. Other expenses directly
associated with the Company's insurance programs totaled $142,198 during the
second quarter of 1999 compared to $20,137 in the second 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 $21,282 in the second
quarter of 1998 to $23,821 in the second quarter of 1999. This increase is a
result of having more cash available for investment in the second quarter of
1999 compared to 1998 due to increased insurance business written coupled with
increased fee based income.
General expenses increased from $168,732 in the second quarter of 1998
to $427,132 in 1999. This increase is due primarily to the claims administration
operation which did not exist during the second quarter of 1998 and costs
associated with acquiring American Colonial Insurance Company.
The Company recorded an income tax benefit for the quarter ended June 30,
1999 in the amount of $88,345 compared to a tax benefit for the same quarter in
1998 of $50,462.
<PAGE>
PART II: OTHER INFORMATION
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: August 13, 1999
BY: /s/ Richard L. Eaton
--------------------------------------
Richard L. Eaton, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
DATE: August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 1,113,881
<DEBT-CARRYING-VALUE> 1,107,136
<DEBT-MARKET-VALUE> 1,113,881
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,113,881
<CASH> 1,113,231
<RECOVER-REINSURE> 1,023,532
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,754,630
<POLICY-LOSSES> 1,808,042
<UNEARNED-PREMIUMS> 748,296
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,733
0
0
<COMMON> 503,384
<OTHER-SE> 1,246,075
<TOTAL-LIABILITY-AND-EQUITY> 4,754,630
769,932
<INVESTMENT-INCOME> 49,229
<INVESTMENT-GAINS> 6,387
<OTHER-INCOME> 591,324
<BENEFITS> 660,068
<UNDERWRITING-AMORTIZATION> 61,348
<UNDERWRITING-OTHER> 938,986
<INCOME-PRETAX> (243,530)
<INCOME-TAX> (96,524)
<INCOME-CONTINUING> (147,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,006)
<EPS-BASIC> (.29)
<EPS-DILUTED> (.29)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
