SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
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 0-8804
THE SEIBELS BRUCE GROUP, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0672136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 Lady Street (PO Box 1), Columbia, SC 29201(2)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 748-2000
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 registrant's classes
of common stock, as of the latest practicable date: 16,752,686 shares of
Common Stock, $1 par value, at November 13, 1995.
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
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September 30, December 31,
ASSETS 1995 1994
-------------- -------------
Investments: (Unaudited)
Fixed maturities, at market (cost of $34,668,805
at 1995 and $41,321,214 at 1994) $ 34,083,591 $ 38,940,939
Equity securities available-for-sale, at market
(cost of $221,561 at 1995 and $540,655 at 1994) 346,618 458,492
Short-term investments, including temporary cash
investments of $15,975,496 ($20,243,331 at 1994) 16,101,412 20,457,513
Mortgage loan on real estate, at estimated
realizable value (cost of $2,949,080 at 1994) - 1,965,000
Other long-term investments 45,342 46,092
---------- ----------
Total investments 50,576,963 61,868,036
Cash, other than invested cash 249,393 -
Accrued investment income 292,442 808,774
Premiums and agents' balances receivable, net 8,712,014 13,027,605
Reinsurance recoverable on paid losses and loss
adjustment expenses 29,622,305 30,277,569
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 78,558,734 88,730,898
Property and equipment, net 5,598,037 6,270,334
Prepaid reinsurance premiums - ceded business 47,153,066 48,482,673
Deferred policy acquisition costs 673,042 899,053
Other assets 3,988,005 5,569,630
----------- -----------
Total assets $ 225,424,001 $ 255,934,572
=========== ===========
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 51,374,713 $ 64,220,902
- ceded business 66,616,228 74,140,671
Adjustment expenses - retained business 13,745,921 14,893,169
- ceded business 11,942,506 14,590,227
Unearned premiums:
Property and casualty - retained business 3,339,556 6,945,280
- ceded business 47,153,066 48,482,673
Credit life 922,344 1,570,468
Balances due other insurance companies 13,785,645 17,264,627
Notes payable 2,476,496 439,167
Current income taxes payable 74,012 148,966
Other liabilities and deferred items 6,457,380 12,588,570
----------- -----------
Total liabilities 217,887,867 255,284,720
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000
shares, none issued and outstanding -
Common stock, $1 par value, authorized 25,000,000 shares,
issued & outstanding 16,752,686 shares
(14,500,534 at 1994) 16,752,686 14,500,534
Additional paid-in capital 34,091,983 30,983,592
Unrealized loss on securities (614,688) (2,615,004)
Retained deficit (42,693,847) (42,219,270)
------------ ------------
Total shareholders' equity 7,536,134 649,852
----------- -----------
Total liabilities and shareholders' equity $ 225,424,001 $ 255,934,572
=========== ===========
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30, Third Quarter
------------------- ----------------------
1995 1994 1995 1994
--------- ---------- ---------- ----------
Premiums:
<C> <S> <S> <S> <S>
Property and casualty:
Net premiums written $ 5,466,293 $ 11,109,648 $ 408,763 $ 3,717,610
Change in unearned premiums 3,043,558 792,033 2,588,320 (230,085)
---------- ---------- --------- ----------
Premiums earned 8,509,851 11,901,681 2,997,083 3,487,525
Credit life premiums earned 160,140 1,851,671 47,985 829,925
Commission and service income, net 17,396,916 20,670,538 6,311,986 7,105,541
Net investment income 2,502,080 5,053,415 924,959 1,857,907
Other interest income 985,999 525,259 212,189 102,445
Realized gains (losses) on investments 34,933 (2,174,646) (142) (3,404,825)
Other income 815,530 2,259,710 8,651 329,063
---------- ---------- ---------- ----------
Total revenue 30,405,449 40,087,628 10,502,711 10,307,581
---------- ---------- ---------- ----------
Expenses:
Property and casualty:
Losses and loss adjustment expenses 10,322,594 11,153,492 3,159,056 (3,423,275)
Policy acquisition costs 1,854,966 3,889,725 (258,339) 1,342,889
Credit life benefits 347,429 533,181 81,264 165,417
Interest expense 194,069 288,807 91,104 37,122
Other operating costs and expenses 18,088,516 20,148,209 6,084,487 8,999,046
---------- ---------- ---------- ----------
Total expenses 30,807,574 36,013,414 9,157,572 7,121,199
Income (loss) from operations, before inco (402,125) 4,074,214 1,345,139 3,186,382
Provision (benefit) for income taxes 72,452 22,794 60,892 (84,599)
---------- ---------- ---------- ---------
Net income (loss) $ (474,577) $ 4,051,420 $ 1,284,247 $ 3,270,981
========== ========== ========== ==========
Per share:
Net income (loss) $ (0.03) $ 0.41 $ 0.08 $ 0.23
Average number of shares outstanding 16,491,653 9,910,789 16,749,262 14,500,534
Change in value of marketable securities
credited /(charged) directly to equity$ 2,000,316 $ (7,897,328) $ 95,532 $ 1,496,773
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Temporary Cash Investments
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
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1995 1994
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (474,577) $ 4,051,420
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 603,686 359,996
Realized losses (gains) on investments (34,933) 2,174,646
Net change in assets and liabilities affecting
cash flows from operating activities (18,638,753) (35,752,906)
------------ ------------
Net cash used in operating activities (18,544,577) (29,166,844)
------------ ------------
Cash flows from investing activities:
Proceeds from investments sold 8,164,930 118,845,800
Proceeds from investments matured 2,030,000 242,350
Cost of investments acquired (3,184,169) (80,921,673)
Net change in short-term investments 88,266 717,400
Proceeds from property and equipment sold 106,164 943,894
Purchases of property and equipment (37,553) (2,222,362)
----------- -----------
Net cash provided by investing activities 7,167,638 37,605,409
----------- -----------
Cash flows from financing activities:
Proceeds from stock rights offering 5,321,168 -
Increase in notes payable 2,037,329 439,167
Repayment of notes payable - (1,749,161)
----------- -----------
Net cash provided by (used in) financing activities 7,358,497 (1,309,994)
----------- -----------
Net increase (decrease) in cash and temporary
cash investments (4,018,442) 7,128,571
Cash and temporary cash investments, January 1 20,243,331 12,218,893
----------- -----------
Cash and temporary cash investments, September 30 $ 16,224,889 $ 19,347,464
=========== ===========
Supplemental cash flow information:
Cash paid for - interest $ 53,827 $ 187,184
- income taxes paid 147,405 601,307
Non-cash financing activities:
Notes payable exchanged for common stock $ - $ 10,000,000
Notes payable exchanged for accrued interest 439,167 -
Issuance of common stock 39,375 -
</TABLE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The interim financial statements in Item 1 are unaudited, but in the opinion
of management, reflect all adjustments necessary for fair presentation of
results for such periods. All such adjustments are of a normal recurring
nature. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto
contained in the Company's annual report Form 10-K for the year ended
December 31, 1994.
The following table indicates the more significant financial comparisons with
the applicable prior periods (dollars shown in thousands, except per share
amounts):
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September 30, December 31,
FINANCIAL CONDITION 1995 1994
------------- -----------
Total investments $ 50,577 $ 61,868
Total assets 225,424 255,935
Total liabilities 217,888 255,285
Shareholders' equity 7,536 650
Per Share 0.45 0.05
</TABLE>
<TABLE>
Nine Months Ended
September 30, Third Quarter
----------------- ---------------
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RESULTS OF OPERATIONS 1995 1994 1995 1994
-------- ------- ------- --------
Operating revenues
Insurance
Commission and service income $ 17,397 $ 20,671 $ 6,312 $ 7,106
Premiums earned 8,670 13,753 3,045 4,318
Net investment and other interest income 3,488 5,579 1,137 1,960
Realized gains (losses) on investments 35 (2,175) - (3,405)
Other income 815 2,260 9 329
Total operating revenues $ 30,405 $ 40,088 $ 10,503 $ 10,308
Net income (loss) $ (475) $ 4,051 $ 1,284 $ 3,271
Per share $ (0.03) $ 0.41 $ 0.08 $ 0.23
</TABLE>
Results of Operations
The Company had net income during the third quarter of 1995 of $1.3 million
compared to $3.3 million for the third quarter of 1994. While revenues
(excluding realized losses on investments) have decreased 23.4%, expenses
(policy acquisition and other operating costs and expenses, combined) have
decreased 43.1%. The decrease in revenues is related to the Company ceasing
to write any voluntary business that would be retained by the Company.
Additionally, the Company has seen commission and service income decrease as
its participation in the South Carolina Reinsurance Facility decreased
effective October 1, 1994. The Company has seen expenses decrease steadily
during 1995 and expects this trend to continue as all expenses are reviewed to
find ways to implement further reductions. The third quarter of 1994
includes a non-recurring reduction to losses and loss adjustment expenses
("LAE") in the amount of $6.1 million. On September 30, 1994, the Company
satisfied its obligation with respect to all outstanding and future claims
estimated at $22.2 million associated with the Company's participation in the
National Workers' Compensation Reinsurance Pool ("NCCI") for a cash payment
of $16.2 million. The settlement reduced losses and LAE incurred.
The nine months ended September 30, 1995 reflect a net loss of $.5 million
compared to net income of $4.1 million in 1994. As discussed above, the
Company continues to see expenses drop at a faster rate than revenues.
However, the effects of these reductions have only begun to help reduce losses
during the second and third quarters. The Company expects the continued
efforts of management and all employees to result in additional expense
reductions in future quarters. The nine months ended September 30, 1994
includes reductions to losses and LAE incurred with a net effect of $3.3
million increase to net income. The NCCI commutation, discussed above,
decreased losses and LAE by $6.1 million. In the second quarter of 1994, the
Company settled pending arbitration related to certain reserves that
resulted in an increase to losses and LAE incurred in the amount of $2.9
million. Net realized investment losses of $3.4 million were recognized in
the third quarter of 1994. The nine months ended September 30, 1994
reflected net realized losses of $2.2 million. The losses are due to sales
of securities in the second and third quarter to provide operating cash,
commute the workers' compensation reserves and to settle the arbitration
dispute.
At December 31, 1994, three groups of independant actuaries reviewed the
Company's reserves at the request of management. The result of this was
additional reserve strengthening recorded in the fourth quarter of 1994.
Since then, management has been monitoring the development on these reserves
and believes that reserves remain adequate at this time. This belief was
confirmed by an independant review of reserves at June 30, 1995. In an area
that historically had proven troublesome in the past, the Company's West
Coast business terminated in 1986, the Company is seeing favorable
development. The trends for the past eighteen months have shown decreased
legal expenses, decreases in new claims reported and lower severity in these
claims than in the past.
Net investment income for the third quarter of 1995 was $1.1 million,
compared to $2.0 million for the same quarter in 1994. The nine months ended
September 30, 1995 also reflects a decrease of $2.1 million when compared to
1994. These decreases are related to the decrease in the investment
portfolio as a result of large bond sales in the third and fourth quarter of
1994.
Other income for the nine months ended September 30, 1995 includes a
settlement received on litigation the Company was involved in for several
years. Also included in other income is a gain on the sale of certain assets
of Forest Lake Travel Service, Inc. This subsidiary has been dissolved as
it is no longer a part of the Company's operating plans. In addition to the
revenues of operations discontinued in 1995, other income in 1994 includes a
$.6 million gain in connection with the sale of the assets of the Company's
premium financing subsidiary.
The 1995 provision for taxes on income from operations was $72,000 for the
nine months and $61,000 for the quarter. These charges resulted from the tax
limitations on offsetting the Company's net operating loss carryforwards
against state income taxes and certain life insurance taxable income. The
Company's tax net operating loss carryforward at September 30, 1995 is
approximately $93 million and a capital loss carryforward of approximately
$5 million.
Capital Resources and Liquidity
The investment portfolio at September 30, 1995 was $50.6 million, compared to
$61.9 million at the end of 1994. Shareholders' equity at September 30, 1995
was $7.5 million ($0.45 per share), compared to $.6 million ($.05 per share)
at December 31, 1994. This increase is due to proceeds received from a
rights offering in the first quarter of 1995 and increases in the market
value of the Company's investment portfolio. The increase in the market
value of the Company's bond and stock portfolio resulted in an unrealized
gain of $.1 million in the third quarter and $2.0 million for the nine
months.
Cash used in operations during the first nine months of 1995 was $18.5
million, compared to $29.2 million in 1994. The outflows in both periods
were due to reduced premium volume and the payment of claims for the three
months. The 1994 outflow also includes large cash payments resulting from
the two settlements discussed previously. While additional cash drain is
anticipated in 1995, the expected amount is less than the $16.4 million of
cash and short-term investments held at September 30, 1995. Hence, no
unplanned sales of securities from the investment portfolio are anticipated
during 1995.
Cash provided from financing activities includes the proceeds from the rights
offering and $2 million of debt incurred by the Company in the form of a
promissory note executed in the favor of the investors currently holding
approximately 49% of the Company's stock. The proceeds of this note
were contributed directly to the capital of South Carolina Insurance Company.
PART I. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On July 18, 1995, Form 8-K was filed reporting projected second quarter
results at the request of the National Association of Security Dealers.
On July 25, 1995, Form 8-K was filed reporting a projected balance sheet
for the period ended June 30 ,1995 at the request of the National Association
of Security Dealers.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE SEIBELS BRUCE GROUP, INC.
(Registrant)
Date: November 14, 1995 /s/ John A. Weitzel
----------------- -------------------------
John A. Weitzel
Chief Financial Officer and Board of Directors
Date: November 14, 1995 /s/Ernst N. Csiszar
----------------- -------------------------
Ernst N. Csiszar
President and Board of Directors
Date: November 14, 1995 /s/Mary M. Gardner
----------------- -------------------------
Mary M. Gardner
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 34,083,591
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 346,618
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 50,576,963
<CASH> 249,393
<RECOVER-REINSURE> 29,622,305
<DEFERRED-ACQUISITION> 673,042
<TOTAL-ASSETS> 225,424,001
<POLICY-LOSSES> 65,120,634
<UNEARNED-PREMIUMS> 4,261,900
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,476,496
<COMMON> 16,752,686
0
0
<OTHER-SE> (9,216,552)
<TOTAL-LIABILITY-AND-EQUITY> 225,424,001
8,669,991
<INVESTMENT-INCOME> 3,488,079
<INVESTMENT-GAINS> 34,933
<OTHER-INCOME> 18,212,446
<BENEFITS> 10,670,023
<UNDERWRITING-AMORTIZATION> 1,854,966
<UNDERWRITING-OTHER> 18,282,585
<INCOME-PRETAX> (402,125)
<INCOME-TAX> 72,452
<INCOME-CONTINUING> (474,577)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (474,577)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<RESERVE-OPEN> 79,114,071
<PROVISION-CURRENT> 9,590,000
<PROVISION-PRIOR> 732,594
<PAYMENTS-CURRENT> 5,479,000
<PAYMENTS-PRIOR> 18,837,031
<RESERVE-CLOSE> 65,120,634
<CUMULATIVE-DEFICIENCY> (732,594)
</TABLE>
