<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 MARCH 31, 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 May 11, 1994, 7,046,125 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
March 31, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 10
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 10
Exhibit 11.0 - Computation of Earnings Per Share 11
</TABLE>
- 2 -
<PAGE> 3
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at $324,775 $334,719
market value(amortized cost:1994-$319,372
and 1993-$318,868)
Short-term 11,821 8,676
Total Investments 336,596 343,395
Cash 1,040 692
Accrued investment income 6,086 6,280
Premiums receivable 62,134 57,227
Reinsurance balances recoverable 12,140 12,557
Other assets 44,215 38,466
Total Assets $462,211 $458,617
LIABILITIES
Claims and claim expenses $203,574 $200,638
Unearned premiums 53,016 46,487
Convertible debentures 69,000 69,000
Other liabilities 11,693 11,719
Total Liabilities 337,283 327,844
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: 9,536,159 shares 954 954
Additional paid-in capital 93,194 93,194
Unrealized appreciation on fixed maturities
available for sale, net of tax 3,566 10,461
Retained earnings 56,863 55,890
Unearned compensation - restricted common stock (1,555) (1,632)
Treasury stock, at cost; 2,490,284 shares (28,094) (28,094)
Total Shareholders' Equity 124,928 130,773
Total Liabilities and Shareholders' Equity $462,211 $458,617
</TABLE>
See notes to condensed consolidated financial statements.
- 3 -
<PAGE> 4
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
1994 1993
<S> <C> <C>
REVENUES
Premiums earned $ 29,207 $ 28,732
Net investment income 5,197 4,383
Net realized investment gains 41 -
Total 34,445 33,115
EXPENSES
Claims and claim expenses 21,200 20,415
Amortization of deferred acquisition costs 8,039 7,939
Other operating expenses 2,549 2,177
Interest expense 949 353
Total 32,737 30,884
Income before Federal income taxes 1,708 2,231
Federal income tax expense 171 223
Net Income $ 1,537 $ 2,008
PER SHARE DATA
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 7,054 6,463
Primary earnings per share $ .22 $ .31
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 11,069 6,939
Fully diluted earnings per share $ .20 $ .31
Cash dividends declared per share $ .08 $ .07
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $ 5,084 $ 9,403
INVESTING ACTIVITIES
Sales of fixed maturities 572 112
Maturities or calls of fixed maturities 1,000 1,705
Purchases of fixed maturities (2,609) (17,804)
Net (purchases) sales of short-term investments (3,145) 6,520
Net additions to property and equipment (61) (34)
Net Cash Used in Investing Activities (4,243) (9,501)
FINANCING ACTIVITIES
Cash dividends to shareholders (493) (379)
Short-term debt borrowings, net - 150
Acquisition of treasury stock - (18)
Exercise of common stock options - 30
Net Cash Used in Financing Activities (493) (217)
Increase (Decrease) in Cash 348 (315)
Cash at Beginning of Year 692 2,002
Cash at End of Period $ 1,040 $ 1,687
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
RE CAPITAL CORPORATION AND SUBSIDIARES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 March 31, 1994 and December 31, 1993, other assets include net
deferred tax assets of $13,706,000 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.
- 6 -
<PAGE> 7
RE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1994 (CONTINUED)
NOTE 4 - REINSURANCE (CONTINUED)
The components of the Company's reinsurance balances recoverable at
March 31, 1994 and December 31, 1993 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
<S> <C> <C>
Ceded claims and claim expenses $ 8,703 $ 9,039
Prepaid reinsurance premiums 2,183 2,424
Reinsurance recoverable on paid losses 1,254 1,094
$12,140 $12,557
</TABLE>
The effect of the Company's retrocessional program on premiums
written, premiums earned and claims and claim expenses for the three
months ended March 31, 1994 and 1993 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1994 1993
<S> <C> <C>
Ceded premiums written $ 1,725 $ 1,387
Ceded premiums earned $ 1,965 $ 1,376
Ceded claims and claim expenses $ 897 $ 771
</TABLE>
NOTE 5 - DIVIDEND
At its meeting held on March 22, 1994, the Board of Directors of the
Company declared a quarterly dividend of $.08 per share payable on
June 10, 1994 to shareholders of record on May 18, 1994.
- 7 -
<PAGE> 8
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1994
Management's discussion and analysis of financial condition compares
certain financial results for the quarter ended March 31, 1994 with
the quarter ended March 31, 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 March 31, 1994 was
$1,537,000 versus $2,008,000 for the comparable 1993 period. Primary
and fully diluted earnings per share for the three months ended March
31, 1994 were $.22 and $.20, respectively, as compared with $.31 on
both a primary and fully diluted basis for the first quarter of 1993.
After-tax net income for the first quarter of 1993 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. First quarter 1993 after-tax net income 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 for the first quarter of 1994 increased 26.4% to
$35,978,000 from $28,467,000 in the first quarter of 1993. Net
premiums earned for the first quarter of 1994 and 1993 were
$29,207,000 and $28,732,000, respectively. The increase in net
premiums written, which is expected to translate into increased
premiums earned in subsequent quarters, resulted from a combination of
new business written and increased participations on existing
business. The growth in premiums written was concentrated in the
automobile liability and automobile physical damage lines of business.
The statutory combined ratio for the first quarter of 1994 was 104.0%
compared with 105.4% for the first quarter of 1993. The components of
the combined ratios for both quarters are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1994 1993
<S> <C> <C>
Loss ratio 72.6% 71.1%
Underwriting expense ratio:
Commission & Brokerage 25.9 27.8
Other operating expenses 5.5 6.5
Total expense ratio 31.4 34.3
Combined ratio 104.0% 105.4%
</TABLE>
- 8 -
<PAGE> 9
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1994 (CONTINUED)
Losses resulting from the Northridge earthquake increased the
Company's 1994 first quarter combined ratio by 3.9 points while the
World Trade Center bombing added 2.3 points to the first quarter 1993
combined ratio. Net investment income, exclusive of net realized
gains, increased 18.6% to $5,197,000 in the first quarter of 1994 from
$4,383,000 recorded in the first quarter of 1993. This increase
resulted primarily 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 quarter
ended March 31, 1994 increased by 2.8% over the first quarter of 1993.
The pre-tax yield on investments declined to 6.4% in the first quarter
of 1994 from 6.9% in the first quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations aggregated $5,084,000 for the quarter ended
March 31, 1994 compared to $9,403,000 for the corresponding period of
1993. Cash flow in the first quarter of 1994 was reduced by the
Company's initial interest payment on its convertible debentures of
$1,940,000.
The Company's shareholders' equity and Re Cap's statutory surplus at
March 31, 1994 amounted to $124,928,000 and $156,685,000, compared
with $130,773,000 and $155,530,000 at December 31, 1993. The
Company's shareholders' equity per share decreased to $17.73 at March
31, 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 increase in shareholders' equity for the unrealized
appreciation on its fixed income portfolio, net of tax. During the
first quarter of 1994, this unrealized appreciation, net of tax,
decreased by $6,895,000 or $.98 per share to $3,566,000.
The Board of Directors of the Company declared a quarterly dividend of
$.08 per share in the first quarter compared with $.07 per share in
the first quarter of 1993.
- 9 -
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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.
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 Executive May 11, 1994
James E. Roberts Officer and Director
(Principal Executive Officer)
/s/ R. Richard Mueller Vice President, Chief Financial May 11, 1994
R. Richard Mueller Officer and Treasurer
(Principal Accounting and
Financial Officer)
</TABLE>
- 10 -
<PAGE> 11
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
MARCH 31,
1994 1993
<S> <C> <C>
PRIMARY
Average shares outstanding 6,923 6,329
Weighted average shares of common stock
equivalents associated with stock options, net 131 134
Total 7,054 6,463
Net Income $ 1,537 $ 2,008
Per share amount $ .22 $ .31
FULLY DILUTED
Average shares outstanding 6,923 6,329
Weighted average shares of common stock
equivalents associated with stock options, net 131 134
Assumed conversion of convertible
debentures and note 4,015 476
Total 11,069 6,939
Net Income $ 1,537 $ 2,008
Add convertible debenture and note
interest, net of Federal income tax effect 626 132
Adjusted Net Income $ 2,163 $ 2,140
Per share amount $ .20 $ .31
</TABLE>
- 11 -
