FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7411
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 13-2530665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, New York 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)387-3000
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[ ]
On August 6, 1997 there were 7,078,625 shares of Common Stock outstanding.
<PAGE>
ALLCITY INSURANCE COMPANY
INDEX
PAGE
PART I Financial Information
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996.... 2
Consolidated Statements of Operations - Six months ended June
30, 1997 and June 30, 1996 and three months ended June 30, 1997 and
June 30, 1996........................................................ 3-4
Consolidated Statements of Cash Flows - Six months ended June
30, 1997 and June 30, 1996........................................... 5
Consolidated Statements of Changes in Shareholders' Equity - Six
months ended June 30, 1997 and June 30, 1996......................... 6
Notes to Interim Consolidated Financial Statements................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations............................. 8-10
PART II Other Information
Item 5. Other Information............................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................. 11
Signatures............................................................. 12
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<TABLE>
CONSOLIDATED BALANCE SHEETS
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except par value amounts)
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of
$268,789 in 1997 and $254,645 in 1996) $266,629 $252,073
Held to maturity (aggregate fair value
of $479 in 1997 and $485 in 1996) 475 477
Short term (at cost) 5,923 20,442
TOTAL INVESTMENTS 273,027 272,992
Cash 1,311 2,232
Agents' balances, less allowance for doubtful
accounts ($1,498 in 1997 and $1,363 in 1996) 19,271 17,814
Accrued investment income 2,684 2,822
Reinsurance balances receivable 265,717 264,159
Prepaid reinsurance premiums 65,735 70,061
Equity in pools and associations 1,704 275
Deferred policy acquisition costs 7,951 7,707
Deferred tax benefit 12,897 13,019
Other assets 1,211 2,649
TOTAL ASSETS $651,508 $653,730
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES
Unpaid losses $352,136 $353,536
Unpaid loss adjustment expenses 52,901 52,551
Unearned premiums 108,661 111,657
Accounts payable and accrued liabilities 2,229 2,644
Drafts payable 4,866 5,712
Due to affiliates 18,711 14,232
Unearned service fee income 5,980 5,461
Reserve for servicing carrier claim expenses 6,745 8,043
Other postretirement benefits 3,699 3,819
Reinsurance balances payable 3,098 4,887
Other liabilities 1,449 1,415
Surplus note 14,412 14,115
TOTAL LIABILITIES 574,887 578,072
SHAREHOLDERS' EQUITY
Common stock, par value $1.00: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 1997 and 1996 7,079 7,079
Additional paid-in capital 9,331 9,331
Net unrealized losses on investments (1,403) (1,672)
Retained earnings 61,614 60,920
TOTAL SHAREHOLDERS' EQUITY 76,621 75,658
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $651,508 $653,730
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
<CAPTION>
Six Months Ended
June 30
1997 1996
<S> <C> <C>
REVENUES
Premiums earned $43,042 $49,843
Net investment income less expenses of $181
in 1997 and $182 in 1996 7,726 7,977
Service fee income 3,777 2,958
Net securities (losses)/gains (136) 464
Other income 259 356
54,668 61,598
LOSSES AND EXPENSES
Losses 35,276 37,691
Loss adjustment expenses 5,205 6,831
Other underwriting expenses less deferrals
of $7,836 in 1997 and $10,190 in 1996 5,230 5,752
Amortization of deferred policy acquisition
costs 7,592 9,407
Interest on surplus note 298 297
53,601 59,978
INCOME BEFORE FEDERAL INCOME TAXES 1,067 1,620
FEDERAL INCOME TAXES:
Current 395 1,495
Deferred (benefit) (22) (928)
373 567
NET INCOME $ 694 $ 1,053
Per share data, based on 7,078,625 average
shares outstanding in 1997 and 1996:
NET INCOME PER SHARE $ 0.10 $ 0.15
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
<CAPTION>
Three Months Ended
June 30
1997 1996
<S> <C> <C>
REVENUES
Premiums earned $20,820 $24,900
Net investment income less expenses of $81
in 1997 and $84 in 1996 3,863 3,905
Service fee income 1,882 1,728
Net securities losses (153) -
Other income 148 181
26,560 30,714
LOSSES AND EXPENSES
Losses 18,152 19,126
Loss adjustment expenses 2,380 3,417
Other underwriting expenses less deferrals
of $3,524 in 1997 and $4,322 in 1996 2,473 2,744
Amortization of deferred policy acquisition
costs 3,656 4,515
Interest on surplus note 149 148
26,810 29,950
(LOSS)/INCOME BEFORE FEDERAL INCOME TAXES (250) 764
FEDERAL INCOME TAXES:
Current (40) 565
Deferred (benefit) (48) (298)
(88) 267
NET (LOSS)/INCOME $ (162) $ 497
Per share data, based on 7,078,625 average
shares outstanding in 1997 and 1996:
NET (LOSS)/INCOME PER SHARE $ (0.02) $ 0.07
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
<CAPTION>
Six Months Ended
June 30
1997 1996
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 694 $ 1,053
Adjustments to reconcile net income to net
cash (used for)/provided by operations:
Provision for deferred tax benefits (22) (928)
Amortization 7,790 9,747
Provision for doubtful accounts 135 139
Net securities losses/(gains) 136 (464)
Policy acquisition costs incurred and deferred (7,836) (10,190)
Net change in:
Agents' balances (1,592) (4,437)
Reinsurance balances receivable (1,558) (10,979)
Prepaid reinsurance premiums 4,326 (6,338)
Unpaid losses and loss adjustment expenses (1,050) 13,489
Unearned premiums (2,996) 11,659
Drafts payable (846) 762
Due to affiliates 4,479 891
Unearned services fees 519 1,417
Reserve for servicing carrier claim expenses (1,298) 1,293
Reinsurance balances payable (1,789) (1,256)
Other (28) 847
NET CASH (USED FOR)/PROVIDED BY OPERATING
ACTIVITIES (936) 6,705
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale:
Acquisition of investments (68,354) (93,714)
Proceeds from sales of investments 52,118 75,974
Proceeds from maturities of investments 1,732 18,074
Net change in short-term investments 14,519 (7,426)
NET CASH PROVIDED BY/(USED FOR) INVESTING
ACTIVITIES 15 (7,092)
NET DECREASE IN CASH (921) (387)
Cash at beginning of period 2,232 3,272
Cash at the end of period $ 1,311 $ 2,885
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
<CAPTION>
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-in (Loss) on Retained
Value Capital Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $7,079 $9,331 $ 1,240 $58,286 $75,936
Change in unrealized
gains (losses) on
investments (4,517) (4,517)
Net income 1,053 1,053
Balance, June 30, 1996 $7,079 $9,331 $(3,277) $59,339 $72,472
Balance, January 1, 1997 $7,079 $9,331 $(1,672) $60,920 $75,658
Change in unrealized
gains (losses) on
investments 269 269
Net income 694 694
Balance, June 30, 1997 $7,079 $9,331 $(1,403) $61,614 $76,621
<FN>
See Notes to Interim Consolidated Financial Statements.
</TABLE>
<PAGE>
ALLCITY INSURANCE COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect
all adjustments (consisting only of normal recurring items) that management
believes necessary to fairly present results of interim operations, should be
read in conjunction with the Notes to Consolidated Financial Statements
(including the Summary of Significant Accounting Policies) included in the
Company's audited consolidated financial statements for the year ended
December 31, 1996, which are included in the Company's Annual Report filed on
Form 10-K for such year (the "1996 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 1996 was extracted from the audited
annual financial statements and does not include all disclosures required by
generally accepted accounting principles for annual financial statements.
2. Certain amounts for prior periods have been reclassified to conform with
the 1997 presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Interim Operations
The following should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
1996 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company has been profitable for the first six months of
1997, it had a modest loss in the three month period ended June 30, 1997
mainly due to reduced earned premiums and higher losses incurred due to
reserve strengthening for prior accident years. For the six and three month
periods ended June 30, 1997, the Company had a negative cash flow from
operations principally due to decreased premiums and increased loss and loss
adjustment expense payments. Cash required to fund operations was principally
provided from the maturity of short-term investments.
The Company maintains cash, short-term and readily marketable securities
in an amount sufficient to satisfy its anticipated cash needs and believes it
has sufficient capital to meet its currently anticipated level of operations.
RESULTS OF OPERATIONS--SIX AND THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THE SIX AND THREE MONTHS ENDED JUNE 30, 1996
Earned premium revenues were $43.0 million and $49.8 million for the six
month periods ended June 30, 1997 and 1996, respectively, and $20.8 million
and $24.9 million for the three month periods ended June 30, 1997 and 1996,
respectively. The decreases in earned premiums principally relates to the
<PAGE>
depopulation of the assigned risk automobile pools and reduced volume in
certain commercial lines resulting from tighter underwriting standards and
increased competition.
Although investment income for the three months ended June 30, 1997 was
relatively flat when compared to the three months ended June 30, 1996,
investment income for the six months ended June 30, 1997 was $0.3 million, or
3%, lower than the six months 1996. This decrease resulted mainly from the
decrease in invested assets experienced by the Company in the first quarter
1997 caused by the negative cash flow from operations.
Service fee income for the six months ended June 30, 1997 was $0.8
million, or 28%, higher than the six months 1996 largely as a result of
reductions in the estimates of fees earned as a servicing carrier for the New
York Public Automobile Pool and assigned risk business in the first quarter
1996. Service fee income for the three months ended June 30, 1997 was $0.2
million, or 9%, higher compared to the three months ended June 30, 1996 mainly
due to increased fees earned on the New York Public Automobile Pool.
Incurred losses and loss adjustment expenses for the six month and three
month periods ended June 30, 1997 were $4.0 million, or 9%, and $2.0 million,
or 9%, lower, respectively, than in the comparable 1996 periods mainly as a
result of the reduced volume of business. The loss ratios (the ratio of
incurred losses and loss adjustment expenses to premiums earned) for the six
month and three month periods ended June 30, 1997 were 94.0% and 98.6%,
respectively, compared to 89.3% and 90.5% for the six month and three month
periods ended June 30, 1996, respectively. The increases in the loss ratios
in 1997 were primarily the result of reserve strengthening for prior accident
years in the commercial multiple peril and commercial automobile lines
<PAGE>
of business, higher loss reserves provided on assigned risk business, arising
from a depopulating New York Automobile Insurance Plan, and increased levels
of new voluntary private passenger automobile business.
The combination of other underwriting expenses and the amortization of
deferred policy acquisition costs for the six month and three month periods
ended June 30, 1997 were $2.3 million, or 15%, and $1.1 million, or 16%,
lower, respectively, than in the comparable 1996 periods. These decreases
were largely the result of an increase in service fee credits and lower
operating costs related to reduced premium volume in 1997 and certain unusual
expense charges which were recorded during the first quarter of 1996.
<PAGE>
Part II - Other Information
Item 5. Other Information
In June 1997, the Company formed a special committee to evaluate a
proposal from Leucadia National Corporation ("Leucadia") for a
business combination pursuant to which shares of the Company's
common stock not currently beneficially owned by Leucadia would be
acquired at a purchase price of $10.00 per share. Affiliates of
Leucadia currently beneficially own approximately 90% of the
outstanding shares of common stock of the Company. The special
committee, which consists of directors of the Company unaffiliated
with Leucadia, is currently evaluating the proposal.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The following exhibit is filed herewith:
Exhibit Number Description of Document
27 Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended June 30, 1997.
<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.
ALLCITY INSURANCE COMPANY
Registrant
Date: August 12, 1997 By FRANCIS M. COLALUCCI
Francis M. Colalucci
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting
Officer)
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<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 266,629
<DEBT-CARRYING-VALUE> 273,027
<DEBT-MARKET-VALUE> 273,031
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 273,027
<CASH> 1,311
<RECOVER-REINSURE> 331,452
<DEFERRED-ACQUISITION> 7,951
<TOTAL-ASSETS> 651,508
<POLICY-LOSSES> 405,037
<UNEARNED-PREMIUMS> 108,661
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 7,079
<OTHER-SE> 69,542
<TOTAL-LIABILITY-AND-EQUITY> 651,508
43,042
<INVESTMENT-INCOME> 7,726
<INVESTMENT-GAINS> (136)
<OTHER-INCOME> 4,036
<BENEFITS> 40,481
<UNDERWRITING-AMORTIZATION> 7,592
<UNDERWRITING-OTHER> 5,230
<INCOME-PRETAX> 1,067
<INCOME-TAX> 373
<INCOME-CONTINUING> 694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
