<PAGE> 1
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 March 31, 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 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: 7,764,611 shares of Common
Stock, $1 par value, at May 13, 1998.
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars shown in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
----------------- -----------------
Investments: (Unaudited)
<S> <C> <C>
Debt securities, available-for-sale, at market (cost of $41,337 $ 41,378 $ 41,934
at 1998 and $41,845 at 1997)
Equity securities, at market (cost of $906 at 1998 and 1997 928 915
Cash and short-term investments 6,161 8,922
Other long-term investments 30 22
----------------- -----------------
Total cash and investments 48,497 51,793
Accrued investment income 585 785
Premiums and agents' balances receivable, net 4,939 5,674
Premium notes receivable 3,798 3,233
Reinsurance recoverable on paid losses and
loss adjustment expenses 29,534 30,244
Reinsurance recoverable on unpaid losses and
loss adjustment expenses 82,311 75,616
Property and equipment, net 5,328 5,462
Prepaid reinsurance premiums - ceded business 54,374 50,602
Deferred policy acquisition costs 2,531 1,580
Other assets 12,500 9,629
----------------- -----------------
Total assets $ 244,397 $ 234,618
================= =================
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 28,149 $ 30,847
- ceded business 73,228 66,262
Adjustment expenses
- retained business 7,970 8,307
- ceded business 9,083 9,354
Unearned premiums:
Property and casualty
- retained business 5,416 3,739
- ceded business 54,374 50,602
Credit life 41 41
Balances due other insurance companies 15,639 15,489
Debt 6,110 3,036
Current income taxes payable 0 41
Other liabilities and deferred items 5,058 7,156
----------------- -----------------
Total liabilities 205,068 194,874
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE, CONVERTIBLE, REDEEMABLE, NONVOTING SPECIAL
PREFERRED STOCK, Redemption value $2,700 and $2,200; 270,000 and 220,000
shares
issued and outstanding at 1998 and 1997 respectively 2,700 2,200
----------------- -----------------
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000 shares, none outstanding 0 0
Common stock, $1 par value, authorized 12,500,000 shares, issued &
outstanding of 7,764,101 and 7,730,725 shares at 1998 and 1997 7,764 7,731
Additional paid-in-capital 61,863 61,665
Accumulated other comprehensive income 40 47
Accumulated deficit (33,038) (31,899)
----------------- -----------------
Total shareholders' equity 36,629 37,544
----------------- -----------------
Total liabilities and shareholders' equity $ 244,397 $ 234,618
================= =================
</TABLE>
<PAGE> 3
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the three months ended March 31,
(Amounts shown in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commission & service income $ 11,139 $ 10,964
Premiums earned 2,705 2,323
Net investment income 716 708
Other interest income 232 297
Realized gains on investments (25) 219
Other income 429 4
------------ -------------
Total revenue 15,196 14,515
------------ -------------
Expenses:
Losses & loss adjustment expenses 2,478 3,827
Policy acquisition costs 302 582
Interest expense 106 17
Other operating costs & expenses 12,847 9,373
------------ -------------
Total expenses 15,733 13,799
------------ -------------
(Loss)/income from operations, before provision for
income taxes and effect of change in accounting principle (537) 716
Provision for income taxes 0 (13)
------------ -------------
(Loss)/income before effect of change in accounting principle (537) 703
Effect of change in accounting principle (601) 0
------------ -------------
Net income (1,138) 703
Other Comprehensive Income
Change in value of marketable securities, less reclassification
adjustment of $3 and ($219) for losses (gains) included in
net income in 1998 and 1997 (7) (475)
------------ -------------
Comprehensive net income $ (1,145) $ 228
============ =============
Basic earnings per share:
Net (loss)/income $ (0.07) $ 0.11
Weighted average shares outstanding 7,746 6,175
Diluted earnings per share:
Net (loss)/income $ (0.07) $ 0.11
Weighted average shares outstanding 7,955 6,175
Basic earnings per share after accounting change:
Net (loss)/income $ (0.15) $ 0.11
Weighted average shares outstanding 7,746 6,175
Diluted earnings per share after accounting change:
Net (loss)/income $ (0.15) $ 0.11
Weighted average shares outstanding 7,955 6,175
</TABLE>
<PAGE> 4
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(Unaudited)
(Amounts shown in thousands)
<TABLE>
<CAPTION>
1998 1997
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)/income $ (1,138) $ 703
Adjustments to reconcile net (loss) income to net cash (used in)/
provided by operating activities:
Equity in earnings of unconsolidated subsudiary (13) 0
Depreciation and amortization 261 249
Realized losses/(gains) on investments 25 (219)
Net change in assets and liabilities affecting
cash flows from operating activities (3,044) 5,304
------------ --------------
Net cash (used in)/provided by operating activities (3,909) 6,037
------------ --------------
Cash flows from investing activities:
Proceeds from investments sold or matured 13,133 1,928
Cost of investments acquired (12,595) 0
Issuance of premium notes receivable, net of collections (565) 0
Proceeds from property and equipment sold 6 0
Purchase of property and equipment (36) (58)
------------ --------------
Net cash (used in)/provided by investing activities (57) 1,870
------------ --------------
Cash flows from financing activities:
Proceeds from issuance of debt 6,000 0
Repayment of debt (2,926) 0
Stock issued under stock option plans 231 192
Cash used in the purchase of subsidiary (2,100) 0
------------ --------------
Net cash provided by financing activities 1,205 192
------------ --------------
Net (decrease)/increase in cash and short term investments (2,761) 8,099
Cash and short term investments, January 1 8,922 2,664
------------ --------------
Cash and short term investments, March 31 $ 6,161 $ 10,763
============ ==============
Supplemental cash flow information:
Cash paid for - interest $ 70 $ 9
- income taxes $ 0 $ 48
============ ==============
Nocash investing activity:
Acquisition-
Cash paid $ (2,100) $ 0
Preferred stock issued (500) 0
Assets acquired, at estimated fair value 335 0
------------ --------------
Goodwill $ (2,265) $ 0
============ ==============
</TABLE>
<PAGE> 5
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The interim financial statements 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, 1997.
NOTE 2. ACQUISITIONS
Effective March 31, 1998, the Company acquired America's Flood Services, Inc.
("AFS") for $2,600,000, consisting of $2,100,000 in cash and $500,000 in
Cumulative, Convertible, Redeemable, Nonvoting Special Preferred Stock. AFS
manages flood zone determinations, flood insurance, and flood compliance
tracking. AFS had revenues of $644,000 and net income of $138,000 for the
first quarter of 1998. Had AFS been owned by the Company for the entire
quarter, the Company's revenues and net loss for the period would have been
$15,840,000 and ($1,000,000) respectively.
NOTE 3. DEBT
Effective March 31, 1998, the Company closed a $15,000,000 Credit Facility (the
Facility) with a major lending institution for the purpose of financing its
acquisition activity and other general corporate purposes. Principal payments
are due quarterly beginning March 1999 with a final payment of all remaining
principal and accrued interest due in June 2004. Accrued interest is payable
quarterly on the outstanding balance under the Facility and is calculated, at
the Company's discretion, using a pre-determined spread over LIBOR or the prime
interest rate of the lending institution. The Facility is secured by a lien on
the assets of the Seibels Bruce Group, Inc. As of March 31, 1998, the
outstanding balance under the Facility was $6,000,000.
NOTE 4. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1998, the Company adopted the provisions of SOP 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments," and recorded it as a cumulative effect of a change in accounting
principle of $601,000. As a result, the Company's participation in the North
Carolina Reinsurance Facility is no longer being treated as assumed reinsurance
and all amounts assumed from the Facility have been eliminated. The Facility
is now treated as an assessment organization. The effect of the change in
accounting principle was a reduction of $.08 per share on both a basic and
diluted basis. Below are the pro forma EPS for the three months ended March
31, 1998 and 1997, assuming the change in accounting principle was applied
retroactively.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net (loss)/income $ (537) $ 244
Earnings per common share:
Basic $ (0.07) $ 0.04
Diluted $ (0.07) $ 0.04
============== ==============
</TABLE>
NOTE 5. COMPREHENSIVE INCOME
During the quarter, the Company adopted FASB Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 requires reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a
more inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net income.
<PAGE> 6
NOTE 6. SUBSEQUENT EVENTS
Effective May 1, 1998, the Company purchased Graward General Companies, Inc.
("Graward"). Graward is a general agent that writes non-standard automobile
insurance. The purchase price was $10,250,000 and was funded through debt of
$7,550,000 and the issuance of $2,700,000 in convertible debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table indicates the more significant financial comparisons with
the applicable prior periods (dollars shown in thousands, except per share
amounts):
<TABLE>
<CAPTION>
March 31, December 31,
FINANCIAL CONDITION 1998 1997
---- ----
<S> <C> <C>
Total cash and investments $ 48,497 $ 51,793
Total assets 244,397 234,618
Total liabilities 205,068 194,874
Preferred Stock 2,700 2,200
Shareholders' equity 36,629 37,544
Per share 4.73 4.86
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended, March 31,
-----------------------------
RESULTS OF OPERATIONS 1998 1997
---- ----
<S> <C> <C>
Commission and service income $ 11,139 $ 10,964
Premiums earned 2,705 2,323
Investment and other interest income 948 1,005
Realized (loss)/gain on investments (25) 219
Other income 429 4
------------------- ------------------
Total revenue $ 15,196 $ 14,515
=================== ==================
Net (loss)/income before accounting change and income tax $ (537) $ 716
Provision for income tax 0 13
------------------- ------------------
Net (loss)/income before accounting change (537) 703
Cumulative effect of a change in accounting principle (601) 0
------------------- ------------------
Net (loss)/income $ (1,138) $ 703
=================== ==================
</TABLE>
OVERVIEW
(dollars shown in thousands)
Total revenues increased 5% principally on the strength of rising premium
volumes earned on the automobile business that the Company entered into during
the fourth quarter of 1997 and the commercial business on which now the Company
retains risk. Net loss of $537 for the first quarter of 1998, before
accounting change and income tax represents a $1,253 decrease over the
corresponding quarter of 1997. The net loss is due mainly to slower revenue
recognition of the risk-based revenue as compared to the fee-based revenue.
<PAGE> 7
RESULTS OF OPERATIONS
(dollars shown in thousands)
Three Months Ended March 31, 1998 and 1997
Commission & Service Income
Commission and service income increased $175, or 1.6%, to $11,139 for the three
months ended March 31, 1998 from $10,964 for the three months ended March 31,
1997. This increase is due primarily to increases of $587 in Flood
premium-based fees due to an increase in the number of policies serviced. This
increase was offset by decreased activity in the SC Facility premium-based fees
and fees generated by the former MGA relationship in the Company's commercial
lines business unit, which ceased to operate on a fee income basis after
February 1, 1998. Flood claims-based revenues for the three months ended March
31, 1998 decreased $251 compared to the same period in 1997. This decrease is
due to an increase in claims servicing activity resulting from Hurricane Fran
in the fourth quarter of 1996, for which an increase in claims servicing
activity carried over into the first quarter of 1997.
Premiums Earned
Net premiums earned increased $382, or 16.4%, to $2,705 for the three months
ended March 31, 1998 from $2,323 for the three months ended March 31, 1997.
Included in the earned premium for 1997 were $2,129 in earned premium
associated with the North Carolina Reinsurance Facility. These earned premiums
are not included in the 1998 figure due to the change in accounting principle
discussed in NOTE 3. $113 or 4.2% of the total earned premium was a result of
the Commercial business unit, which began to retain risk in February 1998.
$352 or 13.0% of the total earned premium came from the new South Carolina
automobile business unit, which began underwriting during the fourth quarter of
1997. $2,000 or 73.9% of earned premiums were a result of the Company's
acquisition of Universal Insurance Company during the fourth quarter of 1997.
The remaining 8.9% came from runoff operations and a low value dwelling program
the Company writes.
Net Investment and Interest Income
Net investment and other interest income decreased $57 or 5.7%, to $948 for the
three months ended March 31, 1998 from $1,005 for the three months ended March
31, 1997. This decrease is due to not recording investment income from the
NCRF due to the change in accounting principle discussed in NOTE 3.
Realized (Loss)/Gain on Investments
Realized loss on investments was $25 for the three months ended March 31, 1998
compared to a gain of $219 for the three months ended March 31, 1997.
Other Income
Other income was $429 and $4 for the three months ended March 31, 1998 and
1997, respectively. The increase is due mainly to revenues produced by Premium
Budget Plan, a policy finance company the Company purchased in the fourth
quarter of 1997.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses decreased $1,349 or 35.2%, to $2,478 for
the three months ended March 31, 1998 from $3,827 for the three months ended
March 31, 1997. This decrease corresponds in part to the decrease in activity
in run-off operations during the same period and is also related to the change
in accounting principle discussed in NOTE 3, for which the three-month period
ending March 31, 1997 included $1,029 in losses and LAE.
<PAGE> 8
Policy Acquisition Costs
With the Company's reentry into the risk market, the Company has begun
deferring policy acquisition costs. The Company expensed $302 of policy
acquisition costs and deferred $951 for the three months ended March 31, 1998.
Property and casualty policy acquisition costs of $582 were expensed for the
three months ended March 31, 1997 with no deferral.
Interest Expense
Interest expense was $106 and $17 for the three months ended March 31, 1998 and
1997, respectively. The increase is due to the Company's acquisition of
Universal Insurance Company in the fourth quarter of 1997, and the debt
associated with that acquisition.
Other Operating Costs and Expenses
Other operating costs and expenses increased $3,474, or 37.1%, to $12,847 for
the three months ended March 31, 1998 from $9,373 for the three months ended
March 31, 1997. Expenses related to Universal Insurance Company and Premium
Budget Plan were $2,498. Salaries and fringes were $2,927 and $3,097 for the
three months ended March 31, 1998 and 1997, respectively, excluding Universal
Insurance Company and Premium Budget Plan. Agent commissions included in other
operating costs and expenses were $4,154 and $4,374 for the three months ended
March 31, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
(dollars shown in thousands)
Liquidity relates to the Company's ability to produce sufficient cash to
fulfill contractual obligations, primarily to policyholders. Sources of
liquidity include service fee income, premium collections, investment income
and sales or maturities of investments.
Net cash used in operations was $3,909 for the three months ended March 31,
1998, compared to cash provided by operations of $6,037 for the same period in
1997. The cash outflow is attributed to the net loss for the period plus the
continued drain on cash by runoff operations. Cash flows from financing
activities were $1,205 and were primarily related to an increase debt of
$3,074, less $2,100 for the cash portion of the purchase price of America's
Flood Service, Inc.
Total assets as of March 31, 1998 were $244,397, an increase of $9,779 or a 4.2
% increase in total assets over December 31, 1997. The majority of this
increase is caused by an increase in reinsurance recoverable on unpaid losses
and loss adjustment expenses, and prepaid reinsurance premiums associated with
ceded business.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits generally
arising in the normal course of their insurance and ancillary businesses.
ITEM 2. CHANGES IN SECURITIES
On March 31, 1998, the Company issued 50,000 shares, with a value of $500,000,
of $0.625 cumulative, convertible, redeemable, nonvoting special preferred
stock ($0.625 Special Stock) to the former owners of America's Flood Service,
Inc. (AFS) as partial consideration in conjunction with the acquisition of AFS.
The $0.625 Special Stock pays quarterly dividends at an annual rate of $0.625
per share. On or after August 15, 2000, but prior to August 15, 2002, the
Company may redeem, in whole or in part, the $0.625 Special Stock at a price of
$15.00 per share and the holders of the $0.625 Special Stock have the right to
convert each share of $0.625 Special Stock into 1.25 shares of common stock,
par value $1.00, of the Company. On August 15, 2002, the Company must redeem
any remaining shares of $0.625 Special Stock at a rate of $10.00 per share.
<PAGE> 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE> 10
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: May 14, 1998 /s/ John A. Weitzel
---------------------- --------------------------------------
John A. Weitzel
President and Director
Date: May 14, 1998 /s/ Kenneth W. Marter
---------------------- --------------------------------------
Kenneth W. Marter
Controller (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 41,378
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 928
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 42,306
<CASH> 6,161
<RECOVER-REINSURE> 29,534
<DEFERRED-ACQUISITION> 2,531
<TOTAL-ASSETS> 244,397
<POLICY-LOSSES> 118,430
<UNEARNED-PREMIUMS> 59,790
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 6,110
2,700
0
<COMMON> 7,764
<OTHER-SE> 28,865
<TOTAL-LIABILITY-AND-EQUITY> 244,397
2,705
<INVESTMENT-INCOME> 716
<INVESTMENT-GAINS> (25)
<OTHER-INCOME> 11,800
<BENEFITS> 2,478
<UNDERWRITING-AMORTIZATION> 302
<UNDERWRITING-OTHER> 12,953
<INCOME-PRETAX> (537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (601)
<NET-INCOME> (1,138)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
<RESERVE-OPEN> 47,427
<PROVISION-CURRENT> 14,857
<PROVISION-PRIOR> (3,362)
<PAYMENTS-CURRENT> 8,845
<PAYMENTS-PRIOR> 10,923
<RESERVE-CLOSE> 39,154
<CUMULATIVE-DEFICIENCY> (363,000)
</TABLE>
