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 June 30, 1996
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 ofthe latest practicable date: 18,407,686 shares of Common
Stock, $1 par value, at July 31, 1996
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars shown in thousands)
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June 30, December 31
ASSETS 1996 1995
Investments: (Unaudited)
Fixed maturities, at market (cost of $35,406
at 1996 and $33,171 at 1995) $ 34,590 $ 33,581
Equity securities available-for-sale, at market
(cost of $39 at 1996 and $222 at 1995) 34 377
Cash and short-term investments 14,601 16,649
Other long-term investments 34 34
Total cash and investments 49,259 50,641
Accrued investment income 713 697
Premiums and agents' balances receivable, net 8,819 7,005
Reinsurance recoverable on paid losses and loss
adjustment expenses 25,925 27,423
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 64,083 84,492
Property and equipment, net 5,443 5,396
Prepaid reinsurance premiums - ceded business 44,967 43,469
Deferred policy acquisition costs 153 293
Other assets 4,758 4,589
Total assets $ 204,120 $ 224,005
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 41,427 $ 47,445
- ceded business 55,535 74,918
Adjustment expenses - retained business 11,839 13,586
- ceded business 8,548 9,574
Unearned premiums:
Property and casualty - retained business 1,049 1,900
- ceded business 44,967 43,469
Credit life 395 758
Balances due other insurance companies 16,838 12,438
Notes payable 0 2,476
Current income taxes payable 57 191
Escrow liability 6,344 0
Other liabilities and deferred items 3,079 7,063
Total liabilities 190,078 213,818
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 50,000,000 shares,
issued & outstanding 18,407,686 shares (16,772,686 at
1995) 18,408 16,773
Additional paid-in capital 35,588 34,080
Unrealized gain/(loss) on securities (986) 401
Accumulated deficit (38,968) (41,067)
Total shareholders' equity 14,042 10,187
Total liabilities and shareholders' equity $ 204,120 $ 224,005
</TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
(Unaudited)
(Amounts shown in thousands, except per share amounts)
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Six Months Ended
June 30, Second Quarter
1996 1995 1996 1995
Premiums:
Property and casualty:
Net premiums written $ 2,974 $ 5,058 $ 620 $ 914
Change in unearned premiums 851 455 206 1,291
Premiums earned 3,825 5,513 826 2,205
Credit life premiums earned 225 416 100 221
Commission and service income 21,600 25,552 11,379 12,529
Net investment income 1,248 1,577 588 811
Other interest income 187 774 69 366
Realized gains on investments 194 35 0 (29)
Other income 41 807 18 710
Total revenue 27,320 34,674 12,980 16,813
Expenses:
Property and casualty:
Losses and loss adjustment expense 3,331 7,164 327 2,096
Policy acquisition costs 765 2,113 82 906
Credit life benefits 131 266 61 128
Interest expense 125 103 40 73
Other operating costs and expenses 20,959 26,775 11,226 13,360
Total expenses 25,311 36,421 11,736 16,563
Income (loss) from operations, before 2,009 (1,747) 1,244 250
Provision for income taxes (90) 12 (98) 0
Net income (loss) $ 2,099 $ (1,759) $ 1,342 $ 250
Per share and common equivalent share:
Net income (loss) - primary and
fully diluted $ 0.11 $ (0.11) $ 0.07 $ 0.01
Shares used in computing per common
and common equivalent share: 18,307 16,361 19,223 16,718
Change in value of marketable securities
credited /(charged) directly to
equity $ (1,387) $ 1,905 $ (352) $ 1,346
</TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Temporary Cash Investments
(Unaudited)
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Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net income (loss) $ 2,099 $ (1,759)
Adjustments to reconcile net income (loss) to - -
net cash used in operating activities: - -
Depreciation 483 398
(Gains) on investments (194) (35)
Net change in assets and liabilities
affecting cash flows from
operating activities (8,977) (8,995)
Net cash used in operating activities (6,589) (10,391)
Cash flows from investing activities:
Proceeds from investments sold 1,281 8,042
Proceeds from investments matured 3,095 2,030
Cost of investments acquired (6,238) (3,182)
Net change in short-term investments - (21)
Proceeds from property and equipment sold 113 105
Purchases of property and equipment (627) (37)
Net cash provided by (used in) investing activities (2,376) 6,937
Cash flows from financing activities:
Issuance of capital stock held in escrow 6,250 -
Issuance of capital stock 3,143 -
Repayment of notes payable (2,476) -
Proceeds from stock rights offering - 5,321
Increase in notes payable - 2,037
Net cash provided by financing activities 6,917 7,358
Net increase (decrease) in cash and temporary
cash investments (2,048) 3,904
Cash and temporary cash investments, January 1, 16,649 20,243
Cash and temporary cash investments, June 30, $ 14,601 $ 24,147
Supplemental cash flow information:
Cash paid for - interest $ 271 -
- income taxes paid $ 43 $ 147
</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Notes to Consolidated Financial Statements
NOTE 1. NOTES PAYABLE
Notes payable at June 30, 1996 and December 31, 1995, are summarized as
follows:
June 30, December 31,
1996 1995
(amounts in thousands)
Note payable (due 5/1/96,
interest accrues at a rate
equal to NationsBank's Prime
Rate plus 2%, compounded daily $ 0 $ 2,000
Interest note payable,
due 5/1/96, interest at 8.5% 0 476
Notes payable $ 0 $ 2,476
As discussed in Note 2, the proceeds of the capital contribution made at the
end of the first quarter of 1996 were used to pay off the above note balances
on May 1, 1996. This leaves the Company debt-free as of June 30, 1996,
excluding current payables.
NOTE 2. CAPITAL CONTRIBUTIONS
During the first quarter of 1996, the Company issued 6,250,000 shares of
authorized but unissued shares at a price of $1.00 to several related
investors. The proceeds of the sale were deposited into escrow pending
approval of the transaction by shareholders and by the South Carolina
Department of Insurance ("DOI"). On June 14, 1996, the shareholders
approved the transaction at a special meeting. The DOI held a hearing to
consider the approval of the transaction on July 29, 1996. The proceeds are
still being held in escrow pending issuance of an order by the DOI. In
conjunction with the sale of common stock, the Company also has issued
stock options to acquire an additional 3,125,000 shares at the higher of
$1.50 per share or book value at December 31, 1998 and 3,125,000 shares
at the higher of $2.00 or book value at December 31, 2000.
Also during the first quarter of 1996, the Company issued 1,635,000 shares
of authorized but unissued shares at a price of $2.00 per share to a different
group of investors. The proceeds of this stock sale were used to liquidate
the notes payable that were due May 1, 1996. In addition, the Company has
issued to this group stock options expiring December 31, 2000 to acquire
an additional 1,635,000 shares at the higher of $2.50 per share or book
value at the date of exercise.
NOTE 3. BENEFIT PLANS
On June 14, 1996, the Company's shareholders approved the following benefit
plans:
a) The 1996 Stock Option Plan for Employees supersedes the 1987 Stock
Option Plan and became effective November 1, 1995. The 1996 Plan
reserves 5 million shares of Company stock which may be issued as
stock options, incentive stock and restricted stock to employees of and
consultants to the Company. The exercise price will be greater than or
equal to the market value on the date of grant. During the six months
ended June 30, 1996, 994,100 options were granted at exercise prices
ranging from $1.50 to $5.50 per share.
b) The 1995 Stock Option Plan for Non-employee Directors became
effective June 15, 1995. Under the plan, all non-employee directors
will be automatically granted 5,000 options to purchase Company
stock on an annual basis every June 15th. The exercise price will be
the market value at the date of grant. The options will be fully vested
at the date of grant. On June 15, 1996, 35,000 options were granted
at an exercise price of $2.625 per share.
c) The 1995 Stock Option Plan for Independent Agents became effective
December 21, 1995. The exercise price will be greater than or equal
to the market value on the date of grant. Vesting will be determined
on an individual grant basis. During the six months ended June 30,
1996, 294,000 options were granted at exercise prices ranging from
$1.50 to $2.94 per share.
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, 1995.
The following table indicates the more significant financial comparisons with
the applicable prior periods (dollars shown in thousands, except per share
amounts):
June 30 December 31,
FINANCIAL CONDITION 1996 1995
Total cash and investments $ 49,259 $ 50,641
Total assets 204,120 224,005
Total liabilities 190,078 213,818
Shareholders' equity 14,042 10,187
Per Share 0.76 0.61
Six Months Ended
June 30 Second Quarter
RESULTS OF OPERATIONS 1996 1995 1996 1995
Operating revenues
Insurance
Commission and service income $ 21,600 $ 25,552 $ 11,379 $ 12,529
Premiums earned 4,050 5,929 926 2,426
Net investment and other interest
income 1,435 2,351 657 1,177
Realized gains (losses) on investments 194 35 - (29)
Other income 41 807 18 710
Total operating revenues $ 27,320 $ 34,674 $12,980 $ 16,813
Net income (loss) $ 2,099 $(1,759) $ 1,342 $ 250
Per share $ 0.11 (0.11) $ 0.07 $ 0.01
Results of Operations
The Company had net income during the second quarter of 1996 of $1.3
million, compared to $0.3 million for the second quarter of 1995. The six
months ended June 30, 1996 reflect net income of $2.1 million, compared to
a net loss of $1.8 million in 1995. Total revenues in the second quarter of
1996 decreased $3.8 million (22.8%), when compared to the second quarter
of 1995. Total revenues for the six month period ended June 30, 1996
decreased $7.4 million (21.2%), when compared to the same period in 1995.
The majority of this is related to the decrease in commission and service
income due to the Company obtaining a smaller book of business at lower
rates during the bid process in late 1994. However, total expenses (including
losses and loss adjustment expenses) also decreased in the second quarter of
1996 and the six months ended June 30, 1996 by $4.8 million (29.2%) and
$11.1 million (30.5%), respectively, when compared to 1995. While the
Company has seen premiums earned decrease as the related policies runoff,
the losses and loss adjustment expenses on the business earned prior to 1996
have stabilized. Results in the first six months of 1996, and the last three
quarters of 1995, confirm management's opinion that reserves appear to be
adequate to cover any future development on this business. In addition, the
Company continues its constant monitoring of expenses related to the
contracts it services to keep the profit margin from decreasing at the same rate
as revenues.
The six months ended June 30, 1995 includes $5.9 million of losses and loss
adjustment expenses ("LAE") on this business the Company no longer retains.
Premiums earned on this business for the six months was $5.3 million.
Premiums earned had been reduced by the premiums the Company pays for
catastrophe reinsurance. Effective July 1, 1995, the Company had renewed
this coverage at a cost more consistent with the fact that the Company is no
longer writing high-risk property premiums.
Net investment income for the second quarter of 1996 was $0.6 million,
compared to $0.8 million for the same quarter in 1995. The six months ended
June 30, 1996 shows a decrease of $0.3 million, when compared to the same
time period in 1995. These decreases are due to lower average invested
assets during 1996, as compared to 1995. In addition, only minimal earnings
were recognized on the two capital contributions discussed below. While the
capital investment of $6.3 million is included in short-term investments at the
end of both quarters in 1996, the Company will not recognize the interest
earnings until the funds are transferred out of escrow in the third quarter. The
other capital investment of $3.3 million is included in short-term investments
at the end of both quarters of 1996; however, it was only available for
earnings the last three days of the first quarter.
Other income in 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 was dissolved in the second quarter of 1995 as it was no longer a
part of the Company's operating plans.
Capital Resources and Liquidity
Cash used in operations during the six months ended June 30, 1996 was $6.6
million, compared to $10.4 million in 1995. The negative cash flow in both
periods was due to reduced premium collections and the payment of claims
for the six months. While additional cash drain is anticipated during 1996, the
expected amount is less than the $14.6 million of cash and short-term
investments held at June 30, 1996.
Shareholders' equity at June 30, 1996 was $14.0 million ($0.76 per share),
compared to $10.2 million ($0.61 per share) at December 31, 1995. Included
in shareholders' equity is depreciation in the market value on the Company's
investment portfolio of $1.0 million during the six months ended June 30,
1996.
During the first quarter of 1996, the Company issued 6,250,000 shares of
authorized but unissued shares at a price of $1.00 to several related
investors. The proceeds of the sale are currently deposited into escrow pending
approval by the DOI for the Company to write certain retained business. In
conjunction with the sale of common stock, the Company also has issued
stock options to acquire an additional 3,125,000 shares at the higher of $1.50
per share or book value at December 31, 1998 and 3,125,000 shares at the
higher of $2.00 or book value at December 31, 2000.
Also during the first quarter of 1996, the Company issued 1,635,000 shares
of authorized but unissued shares at a price of $2.00 to a different group of
investors. The proceeds of this stock sale were used to liquidate the notes
payable that were due May 1, 1996. In addition, the Company has issued to
this group stock options expiring December 31, 2000 to acquire an additional
1,635,000 shares at the higher of $2.50 per share or book value at the date of
exercise.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1996, the Company filed a Statement of Claim for arbitration before
the National Association of Securities Dealers, naming Prudential Securities,
Inc. and William B. Danzell as respondents. The Company alleges eleven (11)
claims against the Respondents as follows: breach of contract, negligence,
breach of fiduciary duties, fraud, fraudulent sale of securities under S.C. Code
Ann. Section 35-1-1220, fraudulent sale of securities under S.C. Code Ann.
Section 35-1-1490, violation of S.C. Code Ann. Section 35-1-1230, deceptive
trade practices,
fraudulent sale of securities under Securities Act of 1933 Section 17(a),
violation of
Section 10(b) of the Exchange Act of 1934 and Rule 10b-5, and violation of 15
U.S.C. Section 80b-6. The arbitration involves a contract between the Company
and Prudential Securities, Inc., governing the investment of the Company s
insurance reserves. The Company seeks to rescind the contract and asks for
restitution of all losses resulting from the mismanagement of the investments
of the insurance reserve, along with other appropriate relief.
Due to the nature of their business, certain subsidiaries are parties to various
other legal proceedings which are considered routine litigation incidental to
the insurance business.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders (the "Meeting") of the Company was held
on June 14, 1996. As of April 11, 1996, and for purposes of the Meeting,
there were 18,407,686 shares of common stock of the Company, par value
$1.00 per share (the "Common Stock"), issued and outstanding. The Meeting
was called for the following purposes and with the following results:
(1) To consider and act upon a proposal to increase the authorized
Common Stock from 25,000,000 to 50,000,000 shares and to amend
the Company s Articles of Incorporation accordingly. Passed with
17,874,791 votes (97%) in favor.
(2) To consider and act upon a proposal to approve the issuance of
6,250,000 shares of Common Stock (the "Powers Shares"), the
issuance of options (the "Powers Options") to purchase a further
6,250,000 shares of Common Stock at an exercise price per share of
the greater of $1.50 or the book value per share at the date of
exercise with respect to 3,125,000 shares and the greater of $2.00 or
the book value per share at the date of exercise with respect to a
further 3,125,000 shares, and the issuance of the shares of Common
Stock underlying the Powers Options (the "Powers Option Shares") for
an aggregate purchase price of $6,250,000, as contemplated by the
Stock Purchase Agreement, dated as of January 29, 1996, as amended
January 30, 1996 (the "Powers Agreement") between the Company
and Charles H. Powers, Walker S. Powers, Rex Huggins and Jane
Huggins (collectively, "the Powers"), which approval is required by
the By-Laws of the National Association of Securities Dealers, Inc.
(the "NASD"). Passed with 13,326,044 votes (72%) in favor.
(3) To consider and act upon a proposal to grant full and unlimited voting
rights under the South Carolina Control Share Acquisitions Act to all
12,500,000 shares of Common Stock purchased or to be purchased
by the Powers pursuant to the Powers Agreement and the Powers
Options, in accordance and in compliance with Title 35, Chapter 2,
Article 1, Section 35-2-109 of the South Carolina Code. Passed with
12,864,900 votes (70%) in favor.
(4) To consider and act upon a proposal to increase the number of
directors of the Company from 11 to 18. Passed with 17,742,035
votes (96%) in favor.
(5) To consider and act upon a proposal to adopt a stock option plan for
non-employee directors of the Company. Passed with 17,227,693
votes (93%) in favor.
(6) To consider and act upon a proposal to adopt a stock option plan to
supersede the 1987 Stock Option Plan, for the employees of the
Company. Passed with 17,222,698 votes (93%) in favor.
(7) To consider and act upon a proposal to adopt a stock option plan for
independent agents of the Company. Passed with 17,300,733 votes
(94%) in favor.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On April 8, 1996, Form 8-K was filed reporting the closing of the capital
contribution whereby the Company issued 1,635,000 shares of authorized but
unissued shares at a price of $2.00 to a group of investors. In addition, the
Company issued to this group stock options expiring December 31, 2000 to
acquire an additional 1,635,000 shares at the higher of $2.50 per share or
book value at the date of exercise.
<PAGE>
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: August 14, 1996 /s/ John A. Weitzel
John A. Weitzel
Chief Financial Officer and Director
Date: August 14, 1996 /s/ Ernst N. Csiszar
Ernst N. Csiszar
President and Director
Date: August 14, 1996 /s/ Mary M. Gardner
Mary M. Gardner
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 34,590,000
<DEBT-CARRYING-VALUE> 34,590,000
<DEBT-MARKET-VALUE> 34,590,000
<EQUITIES> 34,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 55,000,000
<CASH> (5,741,000)
<RECOVER-REINSURE> 25,925,000
<DEFERRED-ACQUISITION> 153,000
<TOTAL-ASSETS> 204,120,000
<POLICY-LOSSES> 53,266,000
<UNEARNED-PREMIUMS> 1,444,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 18,408,000
<OTHER-SE> (4,366,000)
<TOTAL-LIABILITY-AND-EQUITY> 204,120,000
4,050,000
<INVESTMENT-INCOME> 1,435,000
<INVESTMENT-GAINS> 194,000
<OTHER-INCOME> 21,641,000
<BENEFITS> 3,462,000
<UNDERWRITING-AMORTIZATION> 765,000
<UNDERWRITING-OTHER> 21,084,000
<INCOME-PRETAX> 2,009,000
<INCOME-TAX> (90,000)
<INCOME-CONTINUING> 2,099,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,099,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
<RESERVE-OPEN> 61,031,000
<PROVISION-CURRENT> 1,967,000
<PROVISION-PRIOR> 1,364,000
<PAYMENTS-CURRENT> 1,193,000
<PAYMENTS-PRIOR> 9,903,000
<RESERVE-CLOSE> 53,266,000
<CUMULATIVE-DEFICIENCY> 1,364,000
</TABLE>
