<PAGE> 1
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 MARCH 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-3565
CAPSURE HOLDINGS CORP.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 34-1010356
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
</TABLE>
(312) 879-1900
(Registrant's telephone number, including area code)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,397,649 shares of Common Stock, $.05 par value as of April 28, 1995.
<PAGE> 2
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information (Unaudited):
Item 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1995 and December 31, 1994......... 3
Consolidated Statements of Income for the Three Months Ended
March 31, 1995 and 1994..................................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1995 and 1994..................................................... 5
Notes to Consolidated Financial Statements at March 31, 1995................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 9
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K............................................ 13
</TABLE>
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<PAGE> 3
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------------- ----------------
<S> <C> <C>
ASSETS
Invested assets and cash:
Fixed maturities:
At fair value (amortized cost: 1995 - $244,288; 1994 - $249,328).................. $ 236,362 $ 235,625
At amortized cost (fair value: 1995 - $14,443; 1994 - $10,326).................... 14,971 10,968
Equity securities, at fair value (cost: 1995 - $28,290; 1994 - $29,774)............... 26,117 28,205
Short-term investments, at cost which approximates fair value......................... 23,460 22,079
Other investments, at fair value...................................................... 3,935 4,890
Cash.................................................................................. 5,743 4,131
--------------- ----------------
310,588 305,898
Deferred policy acquisition costs.......................................................... 26,863 25,150
Reinsurance receivable..................................................................... 39,929 39,582
Intangible assets, net of amortization..................................................... 17,328 18,031
Excess cost over net assets acquired, net of amortization.................................. 83,485 84,099
Deferred income taxes, net of valuation allowance.......................................... 52,560 54,205
Other assets............................................................................... 28,274 26,405
--------------- ----------------
$ 559,027 $ 553,370
=============== ================
LIABILITIES
Reserves:
Unpaid losses and loss adjustment expenses............................................ $ 151,875 $ 149,041
Unearned premiums..................................................................... 80,887 76,630
--------------- ----------------
232,762 225,671
Reinsurance payable........................................................................ 2,882 3,373
Long-term debt............................................................................. 59,000 71,000
Other liabilities.......................................................................... 31,907 28,461
--------------- ----------------
Total liabilities................................................................. 326,551 328,505
--------------- ----------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share, 5,000,000 shares authorized;
none issued and outstanding........................................................... - -
Common stock, par value $.05 per share, 20,000,000 shares authorized;
15,411,315 shares issued at March 31, 1995;
15,407,815 shares issued at December 31, 1994......................................... 771 770
Additional paid-in capital................................................................. 179,282 179,250
Retained earnings from August 1, 1986 (date of reorganization)............................. 58,993 54,756
Unrealized loss on securities, net of deferred income taxes................................ (6,489) (9,830)
Treasury stock, at cost (13,666 shares in 1995 and 1994)................................... (81) (81)
--------------- ----------------
Total stockholders' equity........................................................ 232,476 224,865
--------------- ----------------
$ 559,027 $ 553,370
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revenues:
Net earned premiums........................................................................ $ 24,496 $ 22,382
Net investment income...................................................................... 5,093 4,354
Net investment gains (losses).............................................................. (54) 369
Other income............................................................................... 4 62
------------- -------------
29,539 27,167
------------- -------------
Expenses:
Net losses and loss adjustment expenses.................................................... 5,375 5,995
Net commissions, brokerage and other underwriting.......................................... 14,358 12,414
Interest expense........................................................................... 1,373 1,423
Write-off of unamortized deferred loan fees................................................ - 1,556
Amortization of goodwill and intangibles................................................... 925 815
Other...................................................................................... 540 357
------------- -------------
22,571 22,560
------------- -------------
Income before income taxes..................................................................... 6,968 4,607
Income taxes................................................................................... 2,731 1,778
------------- -------------
Net income..................................................................................... $ 4,237 $ 2,829
============= =============
Weighted average common and common equivalent shares outstanding............................... 15,394 15,043
============= =============
Earnings per common and common equivalent share................................................ $ .28 $ .19
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................................................... $ 4,237 $ 2,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................... 1,284 1,222
Accretion of bond discount, net............................................................. (794) (683)
Net investment (gains) losses............................................................... 54 (369)
Changes in:
Reserve for unpaid losses and loss adjustment expenses...................................... 2,834 1,921
Reserve for unearned premiums............................................................... 4,257 2,270
Deferred income taxes, net.................................................................. 1,645 (1,396)
Other assets and liabilities................................................................ (2,013) 4,558
---------- ----------
Net cash provided by operating activities......................................................... 11,504 10,352
---------- ----------
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases - fixed maturities................................................................ (3,685) (32,201)
Sales - fixed maturities.................................................................... 6,078 9,689
Maturities - fixed maturities............................................................... 3,404 6,168
Purchases - equity securities............................................................... - (8,746)
Sales - equity securities................................................................... 1,243 223
Securities held-to-maturity:
Purchases - fixed maturities................................................................ (4,026) (1,110)
Change in short-term investments............................................................... (1,381) 32,851
Change in other investments.................................................................... 955 119
Capital expenditures, net...................................................................... (512) (719)
---------- ----------
Net cash provided by investing activities......................................................... 2,076 6,274
---------- ----------
FINANCING ACTIVITIES:
Proceeds from long-term debt................................................................... - 68,000
Principal payments on long-term debt........................................................... (12,000) (85,214)
Exercise of options and warrants............................................................... 32 2
---------- ----------
Net cash used in financing activities............................................................. (11,968) (17,212)
---------- ----------
Increase (decrease) in cash....................................................................... 1,612 (586)
Cash at beginning of period....................................................................... 4,131 3,280
---------- ----------
Cash at end of period............................................................................. $ 5,743 $ 2,694
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................................... $ 1,404 $ 1,203
Income taxes, net of refunds................................................................ $ 51 $ 55
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These unaudited Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in Capsure Holdings Corp.'s ("Capsure" or the "Company") 1994 Annual
Report on Form 10-K. The following Notes to the Consolidated Financial
Statements highlight significant changes to the Notes included in the 1994
Annual Report on Form 10-K and such interim disclosures as required by the
Securities and Exchange Commission. Certain financial information that is
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles but is not required for interim
reporting purposes has been condensed or omitted. The accompanying unaudited
Consolidated Financial Statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature. The
financial results for interim periods may not be indicative of financial results
for a full year. Certain reclassifications have been made to the 1994
Consolidated Financial Statements to conform with the presentation in the 1995
Consolidated Financial Statements.
2. ACQUISITIONS
On September 22, 1994, Capsure, through its wholly owned subsidiary,
Capsure Financial Group, Inc. ("CFG"), acquired all of the outstanding common
stock of Universal Surety Holding Corp. ("USHC"), the parent company of
Universal Surety of America.
The following pro forma financial information has been prepared as if the
acquisition of USHC had been consummated on January 1, 1993, at the same
purchase price, with the consolidated results of operations being adjusted for
the effects of the transaction in the same manner as subsequent to the
acquisition. In management's opinion, the pro forma financial information is not
indicative of results of operations that may have occurred had the acquisition
taken place on January 1, 1993, or of future results of operations of the
combined companies under the ownership and management of the Company. In the
following table, the amounts are in thousands except per share amounts:
<TABLE>
<CAPTION>
Pro Forma for the Three Months
Ended March 31, 1994
------------------------------
<S> <C>
Revenues .............................................. $ 30,247
Net income ............................................ $ 2,933
Net income per common share ........................... $ .19
</TABLE>
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<PAGE> 7
3. INVESTMENTS
The amortized cost and estimated fair value of investments at March 31,
1995 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amortized Gross Gross Estimated
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Available-For-Sale Securities
Fixed maturities:
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies:
U.S. Treasury notes..................................... $ 3,317 $ 23 $ (1) $ 3,339
Collateralized mortgage obligations..................... 116,411 133 (5,872) 110,672
Mortgage pass-through securities........................ 43,624 81 (954) 42,751
Debt securities of foreign governments.................... 5 - - 5
Obligations of states and political subdivisions.......... 15,419 8 (276) 15,151
Corporate bonds........................................... 1,974 18 (62) 1,930
Other collateralized mortgage obligations................. 5,779 97 (77) 5,799
Asset-backed securities:
Second mortgages/home equity loans...................... 32,610 250 (557) 32,303
Credit card receivables................................. 4,000 20 - 4,020
Automobile loans........................................ 7,060 127 (600) 6,587
Other underlying assets................................. 14,089 49 (333) 13,805
-------------- ----------- ------------ ------------
244,288 806 (8,732) 236,362
Equity securities......................................... 26,244 164 (2,390) 24,018
-------------- ----------- ------------ ------------
Total available-for-sale securities.................. $ 270,532 $ 970 $ (11,122) $ 260,380
============== =========== ============ ============
Held-To-Maturity Securities
Fixed maturities - U.S. Government
treasury securities.................................... $ 14,971 $ 100 $ (628) $ 14,443
============== =========== ============ ============
Trading Securities
Equity securities......................................... $ 2,046 $ 130 $ (77) $ 2,099
============== =========== ============ ============
</TABLE>
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<PAGE> 8
4. REINSURANCE
The effect of reinsurance on premiums written and earned for the three
months ended March 31, 1995 and 1994 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
Written Earned Written Earned
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Direct.............................................. $ 31,625 $ 27,779 $ 27,273 $ 24,987
Assumed............................................. 172 282 59 180
Ceded............................................... (4,202) (3,565) (2,620) (2,785)
----------- ----------- ----------- ----------
Net premiums........................................ $ 27,595 $ 24,496 $ 24,712 $ 22,382
=========== =========== =========== ===========
</TABLE>
The effect of reinsurance on losses and loss adjustment expenses incurred
for the three months ended March 31, 1995 and 1994 was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Gross losses and loss adjustment expenses ........................... $ 6,921 $ 7,113
Reinsurance recoveries............................................... (1,546) (1,118)
----------- -----------
Net losses and loss adjustment expenses ............................. $ 5,375 $ 5,995
=========== ===========
</TABLE>
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<PAGE> 9
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1995
GENERAL
The following is a discussion and analysis of the operating results,
financial condition, liquidity, and capital resources of Capsure Holdings Corp.
and subsidiaries ("Capsure" or the "Company") for the three months ended March
31, 1995 compared to the corresponding period in 1994.
The Company operates in the property and casualty insurance business
through its subsidiaries, Western Surety Company ("Western Surety"), acquired in
August 1992, United Capitol Insurance Company ("United Capitol"), acquired in
February 1990, and Universal Surety of America ("Universal Surety"), acquired in
September 1994.
RESULTS OF OPERATIONS
The components of net income for each period are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Underwriting income.......................................... $ 4,763 $ 3,973
Net investment income........................................ 5,093 4,354
Net investment gains (losses)................................ (54) 369
Interest expense............................................. (1,373) (1,423)
Write-off of unamortized deferred loan fees.................. - (1,556)
Amortization of goodwill and intangibles..................... (925) (815)
Other expenses, net.......................................... (536) (295)
------------- -------------
Income before income taxes................................... 6,968 4,607
Income taxes................................................. 2,731 1,778
------------- -------------
Net income............................................. $ 4,237 $ 2,829
============= =============
</TABLE>
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<PAGE> 10
INSURANCE UNDERWRITING
Underwriting results for the three months ended March 31, 1995 and 1994 are
summarized in the following table (dollars in thousands):
<TABLE>
<CAPTION>
Surety and Fidelity Excess and Surplus Lines Consolidated
----------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gross written premiums............ $ 25,415 $ 20,368 $ 6,382 $ 6,964 $ 31,797 $ 27,332
============ ============ ============ ============ ============ ============
Net written premiums.............. $ 24,311 $ 19,976 $ 3,284 $ 4,736 $ 27,595 $ 24,712
============ ============ ============ ============ ============ ============
Net earned premiums............... $ 20,688 $ 16,918 $ 3,808 $ 5,464 $ 24,496 $ 22,382
------------ ------------ ------------ ------------ ------------ ------------
Net losses and loss adjustment.... 3,124 2,867 2,251 3,128 5,375 5,995
Underwriting expenses............. 14,187 11,241 171 1,173 14,358 12,414
------------ ------------ ------------ ------------ ------------ ------------
Total losses and expenses......... 17,311 14,108 2,422 4,301 19,733 18,409
------------ ------------ ------------ ------------ ------------ ------------
Underwriting income............... $ 3,377 $ 2,810 $ 1,386 $ 1,163 $ 4,763 $ 3,973
============ ============ ============ ============ ============ ============
Loss ratio........................ 15.1% 17.0% 59.1% 57.2% 22.0% 26.8%
Expense ratio..................... 68.6 66.4 4.5 21.5 58.6 55.4
------------ ------------ ------------ ------------ ------------ ------------
Combined ratio.................... 83.7% 83.4% 63.6% 78.7% 80.6% 82.2%
============ ============ ============ ============ ============ ============
</TABLE>
Surety and fidelity represents the combined results of Western Surety and
Universal Surety, since its September 22, 1994 acquisition. Surety and fidelity
are the principal lines of business of Western Surety and Universal Surety.
Excess and surplus lines represents the results of United Capitol. United
Capitol's principal lines of business are other liability, product liability and
commercial property primarily written on an excess and surplus lines basis.
Gross written premiums increased 16.3%, or $4.5 million, for the three
months ended March 31, 1995, principally due to the inclusion of the results of
Universal Surety in 1995. Universal Surety contributed $3.8 million of gross
written premiums in the first quarter of 1995. Western Surety experienced a 6.8%
increase in gross written premiums, mainly due to an increase in public official
bond premiums as compared to 1994. This increase was expected since writings for
this product typically increase every other year following the November
elections. United Capitol's gross written premiums decreased 3.8% in 1995, as
its premium volume, particularly in the increasingly competitive asbestos
abatement line, continued to be significantly affected by prolonged soft market
conditions.
Net earned premiums increased $2.1 million for the three months ended March
31, 1995, principally due to the inclusion of the results of Universal Surety in
1995. Universal Surety contributed net earned premiums of $3.5 million in the
first quarter of 1995. Western Surety's net earned premiums increased 1.6% in
1995 compared to 1994. United Capitol's net earned premiums decreased 30.3%, or
$1.7 million in 1995, reflecting decreases in both gross written premiums and
net retentions. The lower net retentions are due primarily to the increased use
of reinsurance for primary casualty risks in an effort to limit the potential
loss volatility associated with a diminished premium base. United Capitol's net
earned premiums for the three months ended March 31, 1995 and 1994 included $0.5
million and $0.6 million, respectively, of contingent premiums recognized under
its reinsurance agreements.
Underwriting income for the three months ended March 31, 1995 increased
19.9% as compared to the prior year quarter, principally due to the addition of
$0.5 million in underwriting income from Universal Surety and the recognition of
$0.5 million in contingent commission income at United Capitol's Fischer
Underwriting subsidiary. The consolidated combined ratio decreased to 80.6% in
1995 from 82.2% in 1994. The consolidated loss ratio decreased to 22.0% in 1995
from 26.8% in 1994. The surety and fidelity
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<PAGE> 11
loss ratio decreased to 15.1% in 1995 from 17.0% in 1994, primarily due to
favorable development of prior years' loss reserves and increased salvage
recoveries at Western Surety. United Capitol's loss ratio increased to 59.1% in
1995 from 57.2% in 1994, reflecting relatively less favorable development of
prior years' loss reserves than was experienced in 1994.
The consolidated expense ratio increased to 58.6% in 1995, compared to
55.4% in 1994. The surety and fidelity expense ratio increased to 68.6% in 1995
from 66.4% in 1994, reflecting increased operating expenses, particularly, wage
and postal expense increases. United Capitol's expense ratio decreased
significantly to 4.5% in 1995 compared to 21.5% in 1994, reflecting the impact
of the aforementioned $0.5 million of contingent commission income in respect of
Fischer Underwriting's directors' and officers' liability ("D&O") business.
Profit commission arrangements are generally included in the Company's
reinsurance and underwriting management agreements. Such commissions are
recognized when fully earned. The Company does not anticipate recognizing
further material contingent commission income in 1995.
INVESTMENT INCOME
Net investment income for the three months ended March 31, 1995 and 1994
was $5.1 million and $4.4 million, respectively. The average pretax yields of
the portfolio for the three months ended March 31, 1995 and 1994 were 6.8% and
5.7%, respectively.
Capsure's insurance companies invest funds provided by operations
predominantly in high-quality, short-duration, taxable fixed income securities.
Beginning in 1994, the Investment Committees of the Board of Directors of the
Company and its insurance subsidiaries have approved the investment of up to $26
million in the aggregate by the insurance subsidiaries and at the parent company
level in publicly traded nonaffiliated real estate investment trust ("REIT")
equity securities. At March 31, 1995 and December 31, 1994, the carrying value
of the Company's REIT portfolio was approximately $23.1 million and $24.3
million, respectively.
ANALYSIS OF OTHER OPERATIONS
Net investment gains (losses) were $(0.1) million and $0.4 million for the
three months ended March 31, 1995 and 1994, respectively. Net investment gains
of $28,000 in 1995 and $0.5 million in 1994 resulted from the sale of equity
securities in the investment portfolio at the parent company level and net
investment losses of $0.5 million and $0.1 million, respectively, from the
insurance operations. The net investment losses from insurance operations
principally relate to a writedown to estimated fair value for a single security
for which an other than temporary decline in value occurred in 1995. Included in
1995 and 1994 net investment gains were $0.4 million and $(0.1) million,
respectively, of net unrealized investment gains (losses) on the trading
securities portfolio held at the parent company level.
Amortization expense was $0.9 million for the three months ended March 31,
1995 and $0.8 million in 1994. Amortization expense in 1995 and 1994 included
$0.3 million of amortization of intangible assets and $0.6 million and $0.5
million, respectively, of amortization of excess cost over net assets acquired
related to the acquisitions of Western Surety, Universal Surety, United Capitol
and Fischer. Excess cost over net assets acquired is amortized substantially
over 40 years. Other intangible assets are amortized over periods ranging from
three to 20 years.
Interest expense was $1.4 million for the three months ended March 31, 1995
and 1994. The Company's average debt outstanding for the three months ended
March 31, 1995 was approximately $68.1 million compared to $84.2 million in
1994. The weighted average interest rates were 7.1% and 5.8% for the three
months ended March 31, 1995 and 1994, respectively. In connection with the early
retirement
-11-
<PAGE> 12
of the Company's bank term loans, the Company incurred a $1.6 million write-off
of unamortized deferred loan fees in the three months ended March 31, 1994.
INCOME TAXES
Income taxes were $2.7 million and $1.8 million for the three months ended
March 31, 1995 and 1994, respectively. The effective income tax rates were 39.2%
and 38.6%, respectively. The increase in the 1995 effective tax rate was
principally attributable to an increased level of nondeductible goodwill
amortization in connection with the acquisition of Universal Surety. The
Company's income tax expense does not approximate actual taxes paid, primarily
due to the utilization of the Company's net operating tax loss carry- forwards.
Actual income taxes paid were $0.1 million for both three month periods ended
March 31, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries are highly liquid. The insurance
operations derive liquidity from net premium collections, reinsurance recoveries
and investment earnings and use these funds to pay claims and operating
expenses. The operations of an insurance company generally result in cash being
collected from customers in the form of premiums in advance of cash outlays for
claims. Each insurance company invests its collected premiums, generating
investment income, until such time cash is needed to pay claims and associated
expenses.
Cash flow at the parent company level is derived principally from dividend
and tax sharing payments from its insurance subsidiaries.
The Company's consolidated net cash flow provided by operating activities
was $11.5 million and $10.4 million for the three months ended March 31, 1995
and 1994, respectively. Consolidated operating cash flow (pretax income
excluding the write-off of deferred loan fees, net investment gains and
amortization of goodwill and intangibles) for the three months ended March 31,
1995, was $7.9 million as compared to $6.6 million in 1994.
On March 29, 1994, the Company formed a direct, wholly owned subsidiary,
Capsure Financial Group, Inc. ("CFG"), to which Capsure contributed
substantially all its assets and liabilities. Concurrently, CFG entered into a
senior reducing revolving credit agreement with a syndicate of banks for $135
million (the "Credit Facility"). At closing, $68 million of funds drawn under
the Credit Facility, together with a portion of the Company's cash, were used to
repay $84.6 million of previously existing bank term debt. Paydowns of $37
million and borrowings of $28 million for the acquisition of Universal Surety
have occurred since then. The remaining availability under the Credit Facility
of $76 million at March 31, 1995 may be used to finance future acquisitions and
for general corporate purposes. The Company continues to pursue acquisitions of
financial services businesses with a particular focus on the insurance industry.
Although the emphasis is on financial services and insurance, the Company may
consider other investments that would further enhance the Company's value.
Principal and interest payments required under the Credit Facility are
funded principally by dividend and intercompany tax sharing payments received
from Capsure's insurance subsidiaries. In the three months ended March 31, 1995
and 1994, Capsure received $10.3 million (including $3.5 million of dividends
requiring prior approval from state regulatory authorities) and $4.3 million,
respectively, in dividends from its insurance subsidiaries. Capsure received tax
sharing payments from its subsidiaries of $0.5 million and $1.1 million in the
three months ended March 31, 1995 and 1994, respectively.
-12-
<PAGE> 13
CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
-13-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPSURE HOLDINGS CORP.
(Registrant)
/s/ Mary Jane Robertson
------------------------------------------------
Mary Jane Robertson
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ John S. Heneghan
------------------------------------------------
John S. Heneghan
Controller
(Principal Accounting Officer)
Date: May 10, 1995
-----------------
-14-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAPSURE
HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES THERETO INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 236,362
<DEBT-CARRYING-VALUE> 14,971
<DEBT-MARKET-VALUE> 14,443
<EQUITIES> 26,117
<MORTGAGE> 0
<REAL-ESTATE> 0
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0
0
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24,496
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</TABLE>
