SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-6732
Danielson Holding Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-6021257
(State of Incorporation) (I.R.S. Employer Identification No.)
767 Third Avenue, New York, New York 10017-2023
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 888-0347
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 of
1934 during the preceding 12 months (or for such shorter 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 issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 2, 1998
Common Stock, $0.10 par value 15,576,276 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
<S> <C> <C> <C> <C> <C>
Gross premiums earned $ 16,578 $ 17,796 $ 49,829 $ 46,844
Ceded premiums earned (2,705) (3,054) (8,369) (8,575)
---------- ---------- ---------- ----------
Net premiums earned 13,873 14,742 41,460 38,269
Net investment income 1,977 2,428 6,251 7,417
Net realized investment gains (losses) 71 (33) 195 2,173
Other income 255 221 676 526
---------- ---------- ---------- ----------
Total revenues 16,176 17,358 48,582 48,385
---------- ---------- ---------- ----------
Losses and expenses:
Gross losses and loss adjustment expenses 11,343 12,475 34,473 36,245
Ceded losses and loss adjustment expenses (1,450) (2,390) (5,025) (9,080)
----------- ----------- ---------- ----------
Net losses and loss adjustment expenses 9,893 10,085 29,448 27,165
Policyholder dividends 137 729 340 743
Policy acquisition expenses 3,305 3,587 9,907 9,743
General and administrative expenses 2,236 2,381 7,115 7,179
---------- -------- ---------- ----------
Total losses and expenses 15,571 16,782 46,810 44,830
---------- ---------- ---------- ----------
Income before provision for income taxes 605 576 1,772 3,555
Income tax provision 8 15 61 34
---------- ---------- ---------- ----------
Net income $ 597 $ 561 $ 1,711 $ 3,521
Earnings per share of Common Stock
Basic $ .04 $ .04 $ .11 $ .23
========= ========== ========= ========
Diluted $ .04 $ .03 $ .11 $ .22
======== ========= ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
September 30, 1998 December 31,
(Unaudited) 1997
<S> <C> <C>
Assets:
Fixed maturities, available for sale at fair value
(Cost: $109,565 and $139,089) $ 113,353 $ 140,899
Equity securities, at fair value (Cost: $20,312 and $363) 12,715 813
Short term investments, at cost which
approximates fair value 6,181 1,111
-------- ---------
Total investments 132,249 142,823
Cash 573 707
Accrued investment income 1,468 2,006
Premiums and fees receivable, net of allowances
of $142 and $179 9,862 5,438
Reinsurance recoverable on paid losses, net of allowances
of $374 and $374 8,778 8,523
Reinsurance recoverable on unpaid losses, net of
allowances of $544 and $499 19,075 20,185
Prepaid reinsurance premiums 2,028 1,681
Property and equipment, net of accumulated depreciation
of $8,149 and $7,690 2,095 2,499
Deferred acquisition costs 2,237 1,550
Other assets 2,140 2,361
-------- ---------
Total assets $ 180,505 $ 187,773
========== ==========
Liabilities and Stockholders' Equity:
Unpaid losses and loss adjustment expenses $ 98,111 $ 105,947
Unearned premiums 13,651 10,249
Policyholder dividends 267 411
Reinsurance premiums payable 2,952 1,244
Funds withheld on ceded reinsurance 1,437 1,254
Other liabilities 4,525 4,748
-------- ---------
Total liabilities 120,943 123,853
Preferred stock ($0.10 par value; authorized
10,000,000 shares; none issued and outstanding) -- --
Common stock ($0.10 par value; authorized
20,000,000 shares; issued 15,586,994 shares;
outstanding 15,576,276 and 15,576,287 shares) 1,559 1,559
Additional paid-in capital 46,673 46,673
Accumulated other comprehensive income:
Net unrealized gain (loss) on securities (3,809) 2,260
Retained earnings 15,205 13,494
Treasury stock (Cost of 10,718 and 10,707 shares) (66) (66)
-------- ---------
Total stockholders' equity 59,562 63,920
-------- ---------
Total liabilities and stockholders' equity $ 180,505 $ 187,773
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Comprehensive
Income for the
Nine Months Ended
September 30, 1998 September 30, 1998
<S> <C> <C>
Retained earnings
Balance, beginning of year $ 13,494
Net income 1,711 1,711
--------
Balance, end of period 15,205
Accumulated other comprehensive income
Balance, beginning of year 2,260
Net unrealized loss on available-for-sale securities (1) (6,069) (6,069)
--------- ---------
Balance, end of period (3,809) (4,358)
=======
Common stock
Balance, beginning of year $ 1,559
--------
Balance, end of period 1,559
--------
Additional paid-in capital
Balance, beginning of year 46,673
--------
Balance, end of period 46,673
--------
Treasury stock
Balance, beginning of year (66)
--------
Balance, end of period (66)
--------
Total stockholders' equity $ 59,562
========
Common stock, shares
Balance, beginning of year 15,586,994
----------
Balance, end of period 15,586,994
----------
----------
Treasury stock, shares
Balance, beginning of year 10,707
Purchased during period 11
--------
Balance, end of period 10,718
======
(1) Disclosure of reclassification amount:
Unrealized holding losses arising during the period $(6,264)
Less: reclassification adjustment for gains included in 195
net income --------
Net unrealized loss on available-for-sale securities $(6,069)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
---------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,711 $ 3,521
Adjustments to reconcile net income to net cash
used in operating activities:
Net realized investment gains (195) (2,173)
Depreciation and amortization 525 633
Change in accrued investment income 538 631
Change in premiums and fees receivable (4,424) 493
Change in reinsurance recoverables (255) (5,585)
Change in reinsurance recoverable on unpaid losses 1,110 3,367
Change in prepaid reinsurance premiums (347) 499
Change in deferred acquisition costs (687) (769)
Change in unpaid losses and loss adjustment expenses (7,836) (12,971)
Change in unearned premiums 3,402 3,012
Change in reinsurance payables and funds withheld 1,891 (899)
Change in policyholder dividends payable (144) (209)
Other, net (159) 126
---------- --------
Net cash used in operating activities (4,870) (10,324)
--------- --------
Cash flows from investing activities:
Proceeds from sales:
Fixed income maturities available-for-sale 20,985 300
Equity securities 4 2,159
Investments, matured or called:
Fixed income maturities available-for-sale 31,109 19,176
Investments purchased:
Fixed income maturities available-for-sale (22,230) (13,448)
Equity securities (19,952) (129)
Proceeds from sale of property and equipment 6 --
Purchases of property and equipment (116) (109)
---------
Net cash provided by investing activities 9,806 7,949
--------- --------
Cash flows from financing activities:
Proceeds from exercise of options to purchase Common Stock -- 671
--------- --------
Net cash provided by financing activities -- 671
--------- --------
Net increase (decrease) in cash and short term investments 4,936 (1,704)
Cash and short term investments at beginning of year 1,818 6,683
--------- --------
Cash and short term investments at end of period $ 6,754 $ 4,979
========= ========
</TABLE>
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements of
Danielson Holding Corporation ("DHC" or "Registrant") and subsidiaries
(collectively with DHC, the "Company") have been prepared in accordance with
generally accepted accounting principles. However, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, reference is made to the Consolidated Financial Statements and
footnotes thereto included in DHC's Annual Report on Form 10-K for the year
ended December 31, 1997.
2) PER SHARE DATA
Per share data is based on the weighted average number of
shares of common stock of DHC, par value $0.10 per share ("Common Stock"),
outstanding during a particular year or other relevant period. Diluted earnings
per share computations, as calculated under the treasury stock method, include
the average number of shares of additional outstanding Common Stock issuable for
stock options, whether or not currently exercisable. Such average shares were
15,942,447 and 16,088,596 for the three and nine months ended September 30,
1998, respectively, and 16,267,307 and 16,188,834 for the three and nine months
ended September 30, 1997, respectively. Basic earnings per share are calculated
using only the average number of outstanding shares of Common Stock and
disregarding the average number of shares issuable for stock options. Such
average shares were 15,576,276 and 15,576,283 for the three and nine months
ended September 30, 1998, respectively, and 15,576,287 and 15,448,944 for the
three and nine months ended September 30, 1997, respectively.
3) INCOME TAXES
DHC files a Federal consolidated income tax return with its
subsidiaries and with certain trusts that assumed various former liabilities of
certain present and former subsidiaries of DHC. The Company records its interim
tax provisions based upon estimated effective tax rates for the year.
The Company has made provisions for certain state and local franchise
taxes. Tax filings for these jurisdictions do not consolidate the activities of
the trusts referred to above. For further information, reference is made to Note
11 of the Notes to Consolidated Financial Statements included in DHC's Annual
Report on Form 10-K for the year ended December 31, 1997.
4) FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS
During 1998, DHC's main operating subsidiary, National American
Insurance Company of California ("NAICC") invested approximately $10.3 million
in Japanese yen based equity securities. In order to hedge the currency risk of
these investments, during the second quarter NAICC purchased a foreign currency
option to sell Japanese yen at a fixed price on a given date in 1999. The
foreign currency option is considered a derivative investment. For the nine
months ended September 30, 1998, the Company recorded an unrealized loss on the
Japanese yen based equity securities of $2.8 million, of
<PAGE>
which $416,826 was a result of changes in foreign currency exchange rates,
included in net unrealized gain (loss) on securities in the accompanying
consolidated balance sheets.
Investments in equity securities denominated in foreign currencies are
translated into U.S. dollars using current rates of exchange and the related
translation adjustments are recorded in net unrealized gain (loss) as a
component of equity net of the unrealized exchange gain or loss associated with
any related foreign exchange hedging instruments.
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for
fiscal years beginning after June 15, 1999 and establishes standards for the
reporting for derivative instruments. It requires any changes in the fair value
of a derivative instrument and any changes in the fair value of the assets or
liabilities hedged by such instrument to be included in income. To the extent
that the hedge transaction is effective, income is equally offset by both
investments. Currently the changes in fair value of derivative instruments and
hedged items are reported in net unrealized gain (loss) on securities. The
Company has not adopted SFAS 133. However, the effect of adoption on the
consolidated financial statements at September 30, 1998 would not be material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. GENERAL
Danielson Holding Corporation ("DHC") is organized as a holding company
with substantially all of its operations conducted by subsidiaries (collectively
with DHC, the "Company"). DHC, on a parent-only basis, has limited continuing
expenditures for rent and administrative expenses and derives revenues primarily
from investment returns on portfolio securities. Therefore, the analysis of the
Company's financial condition is generally done on an operating subsidiary
basis.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, including statements
concerning capital adequacy, adequacy of reserves, goals, future events, Year
2000 compliance or performance and underlying assumptions and other statements
which are other than statements of historical facts. Such forward-looking
statements may be identified, without limitation, by the use of the words
"believes", "anticipates", "expects", "intends", "plans" and similar
expressions. All such statements represent only current estimates or
expectations as to future results and are subject to risks and uncertainties
which could cause actual results to materially differ from current estimates or
expectations. See "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS".
2. RESULTS OF NAICC'S OPERATIONS
The operations of DHC's principal subsidiary, National American
Insurance Company of California ("NAICC"), are primarily in specialty property
and casualty insurance. At September 30, 1998, NAICC had a B++ rating from A.M.
Best Company ("Best").
<PAGE>
Property and Casualty Insurance Operations
Net premiums earned were $13.9 million and $41.5 million for
the three and nine months ended September 30, 1998, respectively. Net premiums
earned were $14.7 million and $38.3 million for the three and nine months ended
September 30, 1997, respectively. The increase in year-to-date net premiums
earned is directly related to the change in year-to-date net premiums written.
Net premiums written were $14.3 million and $44.5 million for the three and nine
months ended September 30, 1998, respectively. Net premiums written were $14.6
million and $41.7 million for the three and nine months ended September 30,
1997, respectively.
Overall premium volume in 1998 has increased by 7 percent compared to
1997. Year-to-date increases in net written premiums in the commercial
automobile line of business were offset by decreases in net written premiums in
the private passenger automobile line. Workers' compensation premiums remain
comparable to last year. The increase in commercial automobile net premiums
written is due to NAICC's continued increased marketing efforts in that line and
the decrease in private passenger automobile net premiums written is due to
increasing competition in California.
Net investment income was $1.9 million and $5.9 million for the three
and nine months ended September 30, 1998, respectively. Net investment income
was $2.3 million and $7.0 million for the three and nine months ended September
30, 1997, respectively. The year-to-date decline is reflective of a decrease in
average portfolio yield on bonds for the 1998 periods, and the purchase of
equity securities during the second quarter of 1998.
Net losses and loss adjustment expenses ("LAE") were $9.9 million and
$29.4 million for the three and nine months ended September 30, 1998,
respectively, compared with $10.1 million and $27.2 million for the three and
nine months ended September 30, 1997, respectively. The resulting net loss and
LAE ratios for the corresponding nine month periods were 71.03 percent and 70.98
percent, respectively.
Policy acquisition costs were $3.3 million and $9.9 million for the
three and nine months ended September 30, 1998, respectively. Policy acquisition
costs were $3.6 million and $9.7 million for the three and nine months ended
September 30, 1997, respectively. As a percentage of net premiums earned, policy
acquisition expenses were 23.9 percent and 25.4 percent for the nine months
ended September 30, 1998 and 1997, respectively. The decline in the policy
acquisition expense ratio in 1998 is due primarily to the overall growth in
premium volume while fixed underwriting expenses of policy acquisition costs
remained relatively constant.
General and administrative expenses were $1.8 million and $5.4 million
for the three and nine months ended September 30, 1998, respectively. General
and administrative expenses were $1.8 million and $5.3 million for the three and
nine months ended September 30, 1997, respectively.
The combined ratios (which represent a ratio of losses and expenses to
net earned premiums in a particular period) were 108.7 percent and 112.2 percent
for the nine months ended September 30, 1998 and 1997, respectively. Net income
from insurance operations for the three and nine months ended September 30, 1998
was $1.0 million and $3.2 million, respectively. Net income from insurance
operations for the three and nine months ended September 30, 1997 was $1 million
and $5 million, respectively. The decrease in net income from insurance
operations during the first nine months of 1998 compared to the same period for
1997 is attributable primarily to the recognition of a realized gain of $2.2
million in the first quarter of 1997.
Cash Flow from Insurance Operations
Cash used in operations was $3.3 million and $8.9 million for the nine
months ended September 30, 1998 and 1997, respectively. The decrease in cash
used in operations is due to the continued decline in payments of losses and LAE
related to prior years and to an increase in premiums written. Overall cash
<PAGE>
and invested assets, at market value, at September 30, 1998 were $125.4
million, compared to $134.8 million at December 31, 1997.
Liquidity and Capital Resources
The Company's insurance subsidiaries require both readily liquid assets
and adequate capital to meet ongoing obligations to policyholders and claimants,
as well as to pay ordinary operating expenses. The primary sources of funds to
meet these obligations are premium revenues, investment income, recoveries from
reinsurance and, if required, the sale of invested assets. NAICC's investment
policy guidelines require that all liabilities be matched by a comparable amount
of investment grade invested assets. Management of NAICC believes that NAICC has
both adequate capital resources and sufficient reinsurance to meet any
unforeseen events such as natural catastrophes, reinsurer insolvencies or
possible reserve deficiencies.
The two most common measures of capital adequacy for insurance
companies are premium-to-surplus ratios (which measure current operating risk)
and reserves-to-surplus ratios (which measure financial risk related to possible
changes in the level of loss and loss adjustment expense reserves). A commonly
accepted standard net written premium-to-surplus ratio is 3 to 1, although this
varies with different lines of business. NAICC's annualized net written
premiums-to-surplus ratio of 1.5 to 1 and 1.3 to 1 for the nine months ended
September 30, 1998 and 1997, respectively, remains well under current industry
standards. A commonly accepted standard for the ratio of losses and loss
adjustment expense reserves-to-surplus ratio is 5 to 1, compared with NAICC's
ratio of 2.5 to 1 at September 30, 1998. Given these relatively conservative
financial security ratios, management is confident that existing capital is
adequate to support continued higher than industry average premium growth for
the foreseeable future.
3. RESULTS OF DHC'S OPERATIONS
Cash Flow from Parent-Only Operations
Operating cash flow of DHC on a parent-only basis is primarily
dependent upon the rate of return achieved on its investment portfolio and the
payment of general and administrative expenses incurred in the normal course of
business. For the nine months ended September 30, 1998 and 1997, cash used in
parent-only operating activities was $1.6 million and $1.4 million,
respectively. The increase in cash used was primarily attributable to the timing
of interest income receipts offset by the expiration of certain non-recurring
compensation expense obligations. For information regarding DHC's operating
subsidiaries' cash flow from operations, see "2. RESULTS OF NAICC'S OPERATIONS,
Cash Flow from Insurance Operations."
Liquidity and Capital Resources
At September 30, 1998, cash and investments of DHC were approximately
$7.4 million, compared to $8.7 million at December 31, 1997. As described above,
the primary use of funds was the payment of general and administrative expenses
in the normal course of business. For information regarding DHC's operating
subsidiaries' liquidity and capital resources, see "2. RESULTS OF NAICC'S
OPERATIONS, Liquidity and Capital Resources."
<PAGE>
4. AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for
fiscal years beginning after June 15, 1999 and establishes standards for the
reporting for derivative instruments. It requires changes in the fair value of a
derivative instrument and the changes in fair value of the assets or liabilities
hedged by that instrument to be included in income. To the extent that the hedge
transaction is effective, income is equally offset by both investments.
Currently the changes in fair value of derivative instruments and hedged items
are reported in net unrealized gain (loss) on securities. The Company has not
adopted SFAS 133. However, the effect of adoption on the consolidated financial
statements at September 30, 1998 would not be material.
As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income encompasses all changes in
stockholders' equity (except those arising from transactions with stockholders)
and includes net income and net unrealized capital gains or losses on
available-for-sale securities. As this new standard only relates to presentation
of information, it has no impact on the results of operations or financial
condition of the Company. In accordance with the provisions of SFAS 130, the
Company has presented comprehensive income in its Statement of Stockholders'
Equity.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the reporting of information about operating segments in annual
financial statements and requires the reporting of select information about
operating segments in interim financial reports. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. The Company
currently operates as one segment. Therefore, the adoption of this standard
would have no impact on the presentation of the Company's consolidated financial
statements.
5. YEAR 2000
The Company has undertaken a review of its systems for "Year
2000" compliance at both the holding company and subsidiary levels. DHC has
completed an assessment of its hardware and software systems and has contacted
the third party vendors that it believes are critical to its operations. DHC is
currently developing a budget for bringing its systems into compliance (which it
expects to have completed by the end of 1998) but does not anticipate that it
will be required to make material expenditures. Although DHC expects that it
will be Year 2000 compliant prior to the end of 1999 and has received assurances
from its third party vendors that they will be Year 2000 compliant, DHC is
currently developing a contingency plan in the event that those assumptions are
incorrect.
NAICC is highly dependent on electronic data processing and information
systems in its operations. NAICC has reviewed its information systems, hardware
and software operations and applications in relation to the year 2000. NAICC
believes that its hardware and operating system software are Year 2000
compliant. NAICC also believes that it has identified substantially all of the
application software programs which require modification in order to become Year
2000 compliant and has a formal plan to correct and test the programs affected
by the conversion of a two-digit year to a four-digit year. By the end of 1998,
NAICC expects that it will have substantially completed and tested the
modifications to the systems and programs considered to be critical to its
ongoing operations.
<PAGE>
NAICC has identified the third parties it believes are material to its
operations and is continuing to monitor and, in the case of certain material
third parties, has been able to test the progress of those parties' Year 2000
efforts.
NAICC believes that it does not currently issue any insurance policies
with coverages under which claims for Year 2000 related losses or damages could
be successfully asserted. Management does not believe that material risk exists
that such claims will be made on previous policies.
NAICC is utilizing internal and external resources to meet its
deadlines for Year 2000 modifications. Management believes that the costs of
Year 2000 related efforts were approximately $140,000 for the nine months ended
September 30, 1998. Remediation costs are currently expected to total
approximately $150,000 for each of 1998 and 1999. Due to the complexities of
estimating the cost of modifying all applications to become Year 2000 compliant
and the difficulties in assessing third-party vendors' abilities to become Year
2000 compliant, estimates are subject to and are likely to change.
The management of NAICC believes that its electronic data processing
and information systems will be year 2000 compliant. However, should any
material system fail to correctly process information due to the century change,
operations could be interrupted and this could have a material adverse effect on
NAICC's results of operations.
NAICC anticipates that its systems will be substantially Year
2000 compliant by the end of 1998. Therefore no contingency plan has been
established at this time.
6. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
As noted above, the foregoing discussion may include
forward-looking statements that involve risks and uncertainties. In addition to
other factors and matters discussed elsewhere herein, some of the important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
following:
1. The insurance products sold by the Company are subject to
intense competition from many competitors, many of whom have substantially
greater resources than the Company. There can be no assurance that the Company
will be able to successfully compete and generate sufficient premium volume at
attractive prices to be profitable.
2. In order to implement its business plan, the Company has been
seeking to enter into strategic partnerships and/or make acquisitions of
businesses that would enable the Company to earn an attractive return on
investment. Restrictions on the Company's ability to issue additional equity in
order to finance any such transactions exist which could significantly affect
the Company's ability to finance any such transaction. The Company may have
limited other resources with which to implement its strategy and there can be no
assurance that any transaction will be successfully consummated.
3. The insurance industry is highly regulated and it is not
possible to predict the impact of future state and federal regulation on the
operations of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
NAICC is a party to various legal proceedings which are considered
routine and incidental to its business and are not material to the financial
condition and operation of its business. DHC is not a party to any legal
proceeding which is considered material to the financial condition and operation
of its business.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
None
<PAGE>
SIGNATURES
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.
Date: November 16, 1998
DANIELSON HOLDING CORPORATION
(Registrant)
By: /s/ DAVID BARSE
David Barse
President & Chief Operating Officer
By: /s/ MICHAEL CARNEY
Michael Carney
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10Q FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225648
<NAME> DANIELSON HOLDING CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 113,353
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 12,715
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 132,249
<CASH> 573
<RECOVER-REINSURE> 27,853 <F1>
<DEFERRED-ACQUISITION> 2,237
<TOTAL-ASSETS> 180,505
<POLICY-LOSSES> 98,111
<UNEARNED-PREMIUMS> 13,651
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 267
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,559
<OTHER-SE> 58,003 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 180,505
41,460
<INVESTMENT-INCOME> 6,251
<INVESTMENT-GAINS> 195
<OTHER-INCOME> 676
<BENEFITS> 29,448
<UNDERWRITING-AMORTIZATION> 7,153
<UNDERWRITING-OTHER> 9,869
<INCOME-PRETAX> 1,772
<INCOME-TAX> 61
<INCOME-CONTINUING> 1,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,711
<EPS-PRIMARY> 0.11 <F3>
<EPS-DILUTED> 0.11 <F4>
<RESERVE-OPEN> 85,762
<PROVISION-CURRENT> 29,240
<PROVISION-PRIOR> 208
<PAYMENTS-CURRENT> 10,555
<PAYMENTS-PRIOR> 25,620
<RESERVE-CLOSE> 79,035
<CUMULATIVE-DEFICIENCY> (940)
<FN>
<F1> INCLUDES REINSURANCE RECOVERABLES ON UNPAID LOSSES OF 19,075 AND
REINSURANCE RECOVERABLES ON PAID LOSSES OF 8,778.
<F2> INCLUDES TREASURY STOCK OF 66.
<F3> REPRESENTS EARNINGS PER SHARE - BASIC.
<F4> REPRESENTS EARNINGS PER SHARE-DILUTED.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETLY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225648
<NAME> DANIELSON HOLDING CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 138,467
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 802
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 142,672
<CASH> 1,576
<RECOVER-REINSURE> 28,835 <F1>
<DEFERRED-ACQUISITION> 1,726
<TOTAL-ASSETS> 188,772
<POLICY-LOSSES> 107,680
<UNEARNED-PREMIUMS> 11,306
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 199
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,559
<OTHER-SE> 60,691 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 188,772
38,269
<INVESTMENT-INCOME> 7,417
<INVESTMENT-GAINS> 2,173
<OTHER-INCOME> 526
<BENEFITS> 27,165
<UNDERWRITING-AMORTIZATION> 7,001
<UNDERWRITING-OTHER> 9,921
<INCOME-PRETAX> 3,555
<INCOME-TAX> 34
<INCOME-CONTINUING> 3,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,521
<EPS-PRIMARY> 0.23 <F3>
<EPS-DILUTED> 0.22 <F4>
<RESERVE-OPEN> 97,105
<PROVISION-CURRENT> 27,165
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 9,483
<PAYMENTS-PRIOR> 27,287
<RESERVE-CLOSE> 87,500
<CUMULATIVE-DEFICIENCY> (10,120)
<FN>
<F1> INCLUDES REINSURANCE RECOVERABLES ON UNPAID LOSSES OF 20,179 AND
REINSURANCE RECOVERABLES ON PAID LOSSES OF 8,656.
<F2> INCLUDES TREASURY STOCK OF 66.
<F3> REPRESENTS EARNINGS PER SHARE-BASIC.
<F4> REPRESENTS EARNING PER SHARE-DILUTED.
</FN>
</TABLE>
