<PAGE> 1
UNITED STATES
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 the quarterly period ended JUNE 30, 1994
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: 1-5429
_________________________________
RE CAPITAL CORPORATION
Delaware 13-3351768
(State of incorporation) (IRS employer identification no.)
Two Stamford Plaza
P.O. Box 10148
Stamford, Connecticut 06904
(Address of principal executive offices)
Telephone Number: (203) 977-6100
________________________________________
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 periods 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
At August 11, 1994, 7,049,795 shares of common stock, $.10 par
value of the registrant were outstanding.
<PAGE> 2
RE CAPITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of
Income
Three and Six Months Ended June 30, 1994
and 1993 4
Condensed Consolidated Statements of
Cash Flows
Six Months Ended June 30, 1994 and 1993 5
Notes to Condensed Consolidated
Financial Statements 6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of
Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 11.0 - Computation of Earnings Per Share 13
</TABLE>
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<PAGE> 3
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, $334,029 $334,719
at market value (amortized cost:
1994 - $333,301 and 1993 - $318,868)
Short-term 6,980 8,676
Total Investments 341,009 343,395
Cash 984 692
Accrued investment income 6,636 6,280
Premiums receivable 63,766 57,227
Reinsurance balances recoverable 12,205 12,557
Other assets 37,118 38,466
Total Assets $461,718 $458,617
LIABILITIES
Claims and claim expenses $203,114 $200,638
Unearned premiums 53,091 46,487
Convertible debentures 69,000 69,000
Other liabilities 12,299 11,719
Total Liabilities 337,504 327,844
SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value,
authorized: 1,000,000 shares, none
issued
Common stock, $.10 par value,
authorized: 50,000,000 shares, issued:
9,536,454 shares (1994) and 9,536,159
shares (1993) 954 954
Additional paid-in capital 93,197 93,194
Unrealized appreciation on fixed
maturities available for sale, net
of tax 480 10,461
Retained earnings 59,154 55,890
Unearned compensation - restricted
common stock (1,477) (1,632)
Treasury stock, at cost; 2,490,284
shares (28,094) (28,094)
Total Shareholders' Equity 124,214 130,773
Total Liabilities and Shareholders'
Equity $461,718 $458,617
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $ 35,020 $ 29,624 $ 64,227 $58,356
Net investment income 5,346 4,510 10,543 8,892
Net realized investment
(losses) gains (3) 388 38 389
Total 40,363 34,522 74,808 67,637
EXPENSES
Claims and claim expenses 25,626 21,431 46,826 41,846
Other operating expenses 10,623 9,516 21,211 19,632
Interest expense 949 316 1,898 669
Total 37,198 31,263 69,935 62,147
Income before Federal
income tax 3,165 3,259 4,873 5,490
Federal income tax expense 311 408 482 631
Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859
PER SHARE DATA
PRIMARY EARNINGS PER SHARE:
Weighted average shares
outstanding 7,048 6,601 7,055 6,532
Primary earnings per
share $ .40 $ .43 $ .62 $ .74
FULLY DILUTED EARNINGS PER
SHARE:
Weighted average shares
outstanding 11,063 6,944 11,070 6,927
Fully diluted earnings
per share $ .31 $ .43 $ .51 $ .74
Cash dividends declared
per share $ .08 $ .07 $ .16 $ .14
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating
Activities $ 15,280 $ 9,326
INVESTING ACTIVITIES
Sales of fixed maturities 1,262 7,812
Maturities or calls of fixed maturities 4,250 7,330
Purchases of fixed maturities (21,056) (31,115)
Net sales of short-term investments 1,696 6,472
Net additions to property and equipment (86) (70)
Net Cash Used in Investing Activities (13,934) (9,571)
FINANCING ACTIVITIES
Cash dividends to shareholders (1,057) (823)
Exercise of common stock options 3 31
Short-term debt borrowings, net - 150
Acquisition of treasury stock - (18)
Net Cash Used in Financing Activities (1,054) (660)
Increase (Decrease) in Cash 292 (905)
Cash at Beginning of Year 692 2,002
Cash at End of Period $ 984 $ 1,097
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
RE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1994
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated
financial statements of Re Capital Corporation (the "Company")
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included. Certain
balances in the 1993 financial statements have been reclassified
to conform to the 1994 presentation. Operating results for any
interim period are not necessarily indicative of results that may
be expected for the full year. For further information, refer to
the consolidated financial statements and notes thereto included
in the Company's Annual Report and Form 10-K for the year ended
December 31, 1993.
NOTE 2 - EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per share are based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during the period, computed in accordance with the
assumptions required by the treasury stock method. Fully diluted
earnings per share assumes conversion of dilutive convertible
debentures and the assumed exercise of all common stock
equivalents.
NOTE 3 - INCOME TAXES
The Omnibus Budget Reconciliation Act of 1993, which was signed
in August 1993, resulted in a graduated corporate tax rate
increase from 34% to 35%, for companies with taxable income in
excess of $10,000,000. The Company is not presently affected by
this change, as its expected taxable income is below this
threshold.
The Company's effective federal income tax rate is less than the
statutory tax rate due primarily to tax-exempt interest income.
At June 30, 1994 and December 31, 1993, other assets include net
deferred tax assets of $15,540,000 and $9,674,000, respectively.
NOTE 4 - REINSURANCE
All of the Company's premiums are assumed from other insurance
companies. The Company also cedes reinsurance to other
companies. Risks are reinsured (retroceded) with other companies
to permit the recovery of a portion of the Company's losses. The
Company remains liable regardless of whether the reinsuring
companies meet their obligations under the reinsurance treaties.
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<PAGE> 7
RE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1994 (CONTINUED)
NOTE 4 - REINSURANCE (CONTINUED)
The components of the Company's reinsurance balances recoverable
at June 30, 1994 and December 31, 1993 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993
<S> <C> <C>
Ceded claims and claim expenses $ 8,401 $ 9,039
Prepaid reinsurance premiums 2,495 2,424
Reinsurance recoverable on paid
losses 1,309 1,094
$12,205 $12,557
</TABLE>
The effect of the Company's retrocessional program on premiums
written, premiums earned and claims and claim expenses for the
three and six month periods ended June 30, 1994 and 1993 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Ceded premiums written $2,254 $2,249 $3,979 $3,636
Ceded premiums earned $1,942 $1,680 $3,907 $3,056
Ceded claims and claim
expenses $1,035 $ 744 $1,932 $1,515
</TABLE>
NOTE 5 - DIVIDENDS
At its meeting held on May 18, 1994, the Board of Directors of
the Company declared a quarterly dividend of $.08 per share
payable on September 9, 1994 to shareholders of record on August
18, 1994. Subsequently, on July 26, 1994, the Board of Directors
of the Company declared a quarterly dividend of $.08 per share
payable on December 9, 1994 to shareholders of record on November
18, 1994.
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<PAGE> 8
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1994
Management's discussion and analysis of financial condition
compares certain financial results for the three and six month
periods ended June 30, 1994 with the corresponding periods of
1993. The Company is engaged primarily in the underwriting of
domestic property and casualty reinsurance through its wholly-
owned subsidiary, Re Capital Reinsurance Corporation ("Re Cap").
RESULTS OF OPERATIONS
The Company's net income for the quarter ended June 30, 1994 was
$2,854,000 versus $2,851,000 for the comparable 1993 period.
Primary and fully diluted earnings per share for the three months
ended June 30, 1994 were $.40 and $.31, respectively as compared
with $.43 on both a primary and fully diluted basis for the
quarter ended June 30, 1993. Net income for the six months ended
June 30, 1994 was $4,391,000 compared with $4,859,000 for the six
months ended June 30, 1993. Primary and fully diluted earnings
per share were $.62 and $.51, respectively for the 1994 period
and $.74 on both bases for 1993. After-tax net income for the
six months ended June 30, 1994 was reduced by $747,000, or $.11
per share on a primary basis ($.06 per share on a fully diluted
basis) as a result of losses related to the Northridge
earthquake. Net income for the six months ended June 30, 1993
was reduced by $444,000, or $.07 per share on both a primary and
fully diluted basis as a result of the World Trade Center
bombing.
Net premiums written and net premiums earned for the second
quarter of 1994 of $34,782,000 and $35,020,000, increased 16.1%
and 18.2%, respectively from the second quarter of 1993. Net
premiums written and net premiums earned for the first half of
1994 increased 21.1% and 10.1%, respectively to $70,760,000
and $64,227,000 from $58,419,000 and $58,356,000 in the first six
months of 1993. The increase in net premiums written in 1994
resulted from a combination of new business written and increased
participations on existing treaties. The growth in premiums
written was concentrated in the automobile liability and
automobile physical damage lines of business. In the first six
months of both 1994 and 1993, approximately 83% of the Company's
business was written on a pro rata basis and 17% on an excess of
loss basis.
The statutory combined ratios for the second quarter and six
months ended June 30, 1994 were 102.1% and 103.1%,
respectively, compared with 103.2% and 104.2% for the 1993
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<PAGE> 9
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1994 (CONTINUED)
second quarter and six month period, respectively. The
components of the combined ratios for these periods are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Loss Ratio 73.2% 72.4% 72.9% 71.7%
Underwriting expense ratio:
Commission & Brokerage 22.7 24.3 24.4 26.0
Other operating expenses 6.2 6.5 5.8 6.5
Total expense ratio 28.9 30.8 30.2 32.5
Combined ratio 102.1% 103.2% 103.1% 104.2%
</TABLE>
First quarter losses resulting from the Northridge earthquake
increased the Company's combined ratio for the six months ended
June 30, 1994 by 1.8 points while the World Trade Center bombing
added 1.1 points to the combined ratio for the comparable period
of 1993.
Net investment income, exclusive of net realized gains (losses),
was $5,346,000 for the quarter ended June 30, 1994, an increase
of 18.5% from $4,510,000 recorded in the second quarter of 1993.
For the six months ended June 30, 1994, net investment income,
exclusive of net realized gains, totalled $10,543,000, an
increase of 18.6% from the $8,892,000 recorded in the comparable
period of 1993. These increases resulted principally from an
increase in invested assets as a result of the Company's
convertible debenture offering which closed in July 1993.
Exclusive of investment income allocable to the proceeds of this
offering, the Company's net investment income for the three and
six months ended June 30, 1994 increased by 3.0% and 2.9%,
respectively, over comparable 1993 amounts. The pre-tax yield on
investments declined to 6.5% for the six months ended June 30,
1994 from 6.9% for the comparable period of 1993.
Included in the Company's net income for the first six months of
1994 were after-tax realized investment gains of $25,000 compared
to after-tax realized gains of $257,000 or $.04 per share in
1993. The 1993 gains were the result of the Company selectively
selling certain taxable securities and replacing them with
tax-exempt securities in order to increase after-tax yield.
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<PAGE> 10
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1994 (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations aggregated $15,280,000 for the six
months ended June 30, 1994 compared to $9,326,000 for the
corresponding period of 1993. Cash flow from operations for the
first six months of 1994 was increased as the result of a
restructuring of a cedant trust agreement.
The Company's shareholders' equity and Re Cap's statutory surplus
at June 30, 1994 amounted to $124,214,000 and $160,307,000,
compared with $130,773,000 and $155,530,000 at December 31, 1993.
The Company's shareholders' equity per share decreased to $17.63
at June 30, 1994 from $18.56 at December 31, 1993. Effective
December 31, 1993, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." In connection therewith, the
Company recorded a $10,461,000 ($1.48 per share) increase in
shareholders' equity for the unrealized appreciation on its fixed
income portfolio, net of tax. During the first six months of
1994, this unrealized appreciation, net of tax, decreased by
$9,981,000, or $1.41 per share, to $480,000.
The Board of Directors of the Company declared a quarterly
dividend of $.08 per share in the second quarter of 1994 compared
with $.07 per share in the second quarter of 1993.
- 10 -
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1994 annual meeting of shareholders of the Company was held
on May 18, 1994. The following individuals were elected to the
Board of Directors of the Company at such meeting: George G.
D'Amato, Jr., James E. Roberts and Richard R. West as Class II
directors with terms expiring at the 1997 annual meeting and Jean
R. Perrette as a Class I director with a term expiring at the
1996 annual meeting. The stockholder vote on this matter was as
follows: 5,566,213 shares for the election of George G. D'Amato,
Jr. with 15,770 shares withholding authority to vote; 5,566,363
shares each for the election of James E. Roberts, Richard R. West
and Jean R. Perrette with 15,620 shares withholding authority to
vote. The following directors, who have continuing terms, were
not up for election at this meeting: Dennis E. Hoffmann and
Maurice W. Slayton whose terms of office will continue until the
1995 annual meeting; and Donald E. Chisholm and Harold R. Hiser,
Jr. whose terms expire at the 1996 annual meeting.
The stockholders also ratified the appointment of Ernst & Young
as the Company's independent certified public accountants for
1994. The stockholder vote on this matter was as follows:
5,563,198 shares for ratification, 200 shares against
ratification and 18,585 shares abstaining.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 11.0 - Computation of Earnings Per Share.
b. Reports on Form 8-K: None.
- 11 -
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ James E. Roberts President and Chief August 11, 1994
James E. Roberts Executive Officer
(Principal Executive
Officer)
/s/ R. Richard Mueller Vice President, Chief August 11, 1994
R. Richard Mueller Financial Officer and
Treasurer
(Principal Accounting
and Financial Officer)
</TABLE>
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<PAGE> 13
RE CAPITAL CORPORATION AND SUBSIDIARIES
ITEM 6.a. - EXHIBIT 11.0 - COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 6,923 6,490 6,923 6,410
Weighted average shares of
common stock equivalents
associated with stock
options, net 125 111 132 122
Total 7,048 6,601 7,055 6,532
Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859
Per share amount $ .40 $ .43 $ .62 $ .74
FULLY DILUTED
Average shares outstanding 6,923 6,490 6,923 6,410
Weighted average shares of
common stock equivalents
associated with stock
options, net 125 113 132 122
Assumed conversion of
convertible debentures and
note 4,015 341 4,015 395
Total 11,063 6,944 11,070 6,927
Net Income $ 2,854 $ 2,851 $ 4,391 $ 4,859
Add convertible debenture
and note interest, net of
Federal income tax effect 626 101 1,252 233
Adjusted Net Income $ 3,480 $ 2,952 $ 5,643 $ 5,092
Per share amount $ .31 $ .43 $ .51 $ .74
</TABLE>
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