<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 SEPTEMBER 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 November 11, 1994, 7,049,840 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
September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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 11
Exhibit 11.0 - Computation of Earnings Per Share 12
</TABLE>
- 2 -
<PAGE> 3
RE CAPITAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale,
at market value $334,301 $334,719
(amortized cost: 1994 - $336,091 and
1993 - $318,868)
Short-term 8,347 8,676
Total Investments 342,648 343,395
Cash 1,224 692
Accrued investment income 6,440 6,280
Premiums receivable 63,648 57,227
Reinsurance balances recoverable 13,767 12,557
Other assets 38,308 38,466
Total Assets $466,035 $458,617
LIABILITIES
Claims and claim expenses $203,955 $200,638
Unearned premiums 54,616 46,487
Convertible debentures 69,000 69,000
Other liabilities 13,967 11,719
Total Liabilities 341,538 327,844
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: 9,540,124
shares (1994) and 9,536,159 shares (1993) 954 954
Additional paid-in capital 93,242 93,194
Unrealized (depreciation) appreciation on fixed
maturities available for sale, net of tax (1,410) 10,461
Retained earnings 61,227 55,890
Unearned compensation - restricted
common stock (1,422) (1,632)
Treasury stock, at cost; 2,490,284 shares (28,094) (28,094)
Total Shareholders' Equity 124,497 130,773
Total Liabilities and Shareholders' Equity $466,035 $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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $ 32,102 $ 27,007 $ 96,329 $ 85,363
Net investment income 5,506 4,907 16,049 13,800
Net realized investment gains 1 306 39 694
Total 37,609 32,220 112,417 99,857
EXPENSES
Claims and claim expenses 22,684 21,099 69,510 62,945
Amortization of deferred
acquisition costs 8,510 6,765 24,380 21,787
Other operating expenses 2,701 2,464 8,042 7,074
Interest expense 948 742 2,846 1,411
Total 34,843 31,070 104,778 93,217
Income before Federal income tax 2,766 1,150 7,639 6,640
Federal income tax expense
(benefit) 129 (171) 611 460
Net Income $ 2,637 $ 1,321 $ 7,028 $ 6,180
PER SHARE DATA
PRIMARY EARNINGS PER SHARE:
Weighted average shares
outstanding 6,955 7,122 6,962 6,731
Primary earnings per share $ .38 $ .19 $ 1.01 $ .92
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares
outstanding 10,978 10,002 10,978 7,997
Fully diluted earnings
per share $ .30 $ .18 $ .81 $ .86
Cash dividends declared
per share $ .08 $ .07 $ .24 $ .21
</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)
NINE MONTHS ENDED SEPTEMBER 30,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $20,793 $16,924
INVESTING ACTIVITIES
Purchases of fixed maturities (31,691) (89,500)
Maturities or calls of fixed maturities 11,545 12,916
Sales of fixed maturities 1,262 12,203
Net sales (purchases) of short-term investments 329 (4,380)
Net additions to property and equipment (90) (261)
Net Cash Used in Investing Activities (18,645) (69,022)
FINANCING ACTIVITIES
Cash dividends to shareholders (1,620) (1,315)
Net proceeds from issuance of convertible
debentures - 67,282
Short-term debt repayments, net - (14,850)
Other, net 4 15
Net Cash (Used In) Provided by
Financing Activities (1,616) 51,132
Increase (Decrease) in Cash 532 (966)
Cash at Beginning of Year 692 2,002
Cash at End of Period $ 1,224 $ 1,036
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE> 6
RE CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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. 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 September 30, 1994 and December 31, 1993, other assets include
net deferred tax assets of $16,570,000 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)
SEPTEMBER 30, 1994 (CONTINUED)
NOTE 4 - REINSURANCE (CONTINUED)
The components of the Company's reinsurance balances recoverable at
September 30, 1994 and December 31, 1993 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
<S> <C> <C>
Ceded claims and claim expenses $ 8,717 $ 9,039
Prepaid reinsurance premiums 4,141 2,424
Reinsurance recoverable on paid losses 909 1,094
$13,767 $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 nine month periods ended September 30, 1994 and 1993 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Ceded premiums written $4,331 $1,460 $8,310 $5,096
Ceded premiums earned $2,685 $1,717 $6,592 $4,773
Ceded claims and claim expenses $1,436 $ 901 $3,368 $2,416
</TABLE>
NOTE 5 - DIVIDENDS
At its meeting held 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.
- 7 -
<PAGE> 8
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1994
Management's discussion and analysis of financial condition
compares certain financial results for the three and nine month
periods ended September 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 September 30, 1994
was $2,637,000 versus $1,321,000 for the comparable 1993 period.
Primary and fully diluted earnings per share for the three months
ended September 30, 1994 were $.38 and $.30, respectively, as
compared with $.19 and $.18 on a primary and fully diluted basis,
respectively, for the quarter ended September 30, 1993. The
Company's 1993 third quarter results were adversely impacted by
commercial property claim activity related to the runoff of quota
share treaties cancelled prior to 1993. Third quarter 1993 after-
tax losses relating to these treaties were $1,180,000 or $.16 per
share on a primary basis ($.12 per share on a fully diluted basis).
Net income for the nine months ended September 30, 1994 was
$7,028,000 compared with $6,180,000 for the nine months ended
September 30, 1993. Primary and fully diluted earnings per share
were $1.01 and $.81, respectively, for the 1994 period and $.92 and
$.86, respectively, for 1993. After-tax net income for the nine
months ended September 30, 1994 was reduced by $808,000, or $.12
per share on a primary basis ($.07 per share on a fully diluted
basis) as a result of losses related to the Northridge earthquake.
Net income for the nine months ended September 30, 1993 was reduced
by $540,000, or $.08 per share on a primary basis ($.07 per share
on a fully diluted basis) as a result of the World Trade Center
bombing.
Net premiums written and net premiums earned for the third quarter
of 1994 of $31,980,000 and $32,102,000 increased 15.3% and 18.9%,
respectively, from the third quarter of 1993. Net premiums written
and net premiums earned for the first nine months of 1994 increased
19.3% and 12.8%, respectively, to $102,740,000 and $96,329,000 from
$86,155,000 and $85,363,000 in the first nine months of 1993. The
increase in net premiums written in 1994 resulted from a
combination of new business and increased participations on
existing treaties. The growth in premium volume was concentrated in
the automobile liability and automobile physical damage lines of
business. In the first nine months of 1994, approximately 81% of
the Company's business was written on a pro rata basis and 19% on
an excess of loss basis. For the comparable period of 1993, 79% of
the business written was on a pro rata basis and 21% on an excess
of loss basis.
The statutory combined ratios for the third quarter and nine months
ended September 30, 1994 were 102.0% and 102.7%, respectively,
compared with 110.0% and 106.1% for the 1993
- 8 -
<PAGE> 9
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1994 (CONTINUED)
third quarter and nine month period, respectively. The components
of the combined ratios for these periods are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Loss Ratio 70.7% 78.1% 72.2% 73.7%
Underwriting expense ratio:
Commission & Brokerage 25.3 24.7 24.6 25.6
Other operating expenses 6.0 7.2 5.9 6.8
Total expense ratio 31.3 31.9 30.5 32.4
Combined ratio 102.0% 110.0% 102.7% 106.1%
</TABLE>
Losses resulting from the Northridge earthquake increased the
Company's combined ratio for the nine months ended September 30,
1994 by 1.3 points while the World Trade Center bombing added one
point to the combined ratio for the comparable period of 1993. The
impact of the aforementioned commercial property treaties served to
increase the 1993 third quarter and nine month combined ratio by
6.6 and 2.1 points, respectively.
Net investment income, exclusive of net realized gains, was
$5,506,000 for the quarter ended September 30, 1994, an increase of
12.2% from $4,907,000 recorded in the third quarter of 1993. For
the nine months ended September 30, 1994, net investment income,
exclusive of net realized gains, totalled $16,049,000, an increase
of 16.3% from the $13,800,000 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 nine months ended September 30,
1994 increased by 6.1% and 4.0%, respectively, over comparable 1993
amounts. The pre-tax yield on investments declined to 6.5% for the
nine months ended September 30, 1994 from 6.9% for the comparable
period of 1993.
Included in the Company's net income for the first nine months of
1994 were after-tax realized investment gains of $26,000 compared
to after-tax realized gains of $458,000 or $.06 per share on a
fully diluted basis 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.
- 9 -
<PAGE> 10
RE CAPITAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1994 (CONTINUED)
The Company's effective tax rate declined from 9.9% for the six
months ended June 30, 1994 to 8.0% for the nine months ended
September 30, 1994. The Company's projection of pre-tax income for
the year ended December 31, 1994 now includes a proportionately
higher component of tax-exempt income, thereby reducing the
expected effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations aggregated $20,793,000 for the nine
months ended September 30, 1994 compared to $16,924,000 for the
corresponding period of 1993. Cash flow from operations for the
first nine months of 1994 was increased as the result of a
restructuring of a cedant trust agreement in the second quarter.
The Company's shareholders' equity and Re Cap's statutory surplus
at September 30, 1994 amounted to $124,497,000 and $164,495,000,
compared with $130,773,000 and $155,530,000 at December 31, 1993.
The Company's shareholders' equity per share decreased to $17.66 at
September 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 nine months of 1994, the
market value of the Company's fixed income portfolio decreased by
$11,871,000, net of tax, or $1.68 per share.
The Board of Directors of the Company declared a quarterly dividend
of $.08 per share in the third quarter of 1994 compared with $.07
per share in the third quarter of 1993.
- 10 -
<PAGE> 11
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 November 11, 1994
James E. Roberts Officer
(Principal Executive Officer)
/s/ R. Richard Mueller Vice President, Chief Financial November 11, 1994
R. Richard Mueller Officer and Treasurer
(Principal Accounting and
Financial Officer)
</TABLE>
- 11 -
<PAGE> 12
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 6,923 7,038 6,923 6,621
Weighted average shares of common stock
equivalents associated with stock
options, net 32 84 39 110
Total 6,955 7,122 6,962 6,731
Net Income $ 2,637 $ 1,321 $ 7,028 $ 6,180
Per share amount $ .38 $ .19 $ 1.01 $ .92
FULLY DILUTED
Average shares outstanding 6,923 7,038 6,923 6,621
Weighted average shares of common stock
equivalents associated with stock
options, net 40 84 40 110
Assumed conversion of convertible
debentures and note 4,015 2,880 4,015 1,266
Total 10,978 10,002 10,978 7,997
Net Income $ 2,637 $ 1,321 $ 7,028 $ 6,180
Add convertible debenture and note
interest, net of Federal income tax
effect 626 453 1,879 686
Adjusted Net Income $ 3,263 $ 1,774 $ 8,907 $ 6,866
Per share amount $ .30 $ .18 $ .81 $ .86
</TABLE
- 12 -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 334,301,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 342,648,000
<CASH> 1,224,000
<RECOVER-REINSURE> 909,000
<DEFERRED-ACQUISITION> 14,350,000
<TOTAL-ASSETS> 466,035,000
<POLICY-LOSSES> 203,955,000
<UNEARNED-PREMIUMS> 54,616,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,000,000
<COMMON> 954,000
0
0
<OTHER-SE> 123,543,000
<TOTAL-LIABILITY-AND-EQUITY> 466,035,000
96,329,000
<INVESTMENT-INCOME> 16,049,000
<INVESTMENT-GAINS> 39,000
<OTHER-INCOME> 0
<BENEFITS> 69,510,000
<UNDERWRITING-AMORTIZATION> 24,380,000
<UNDERWRITING-OTHER> 8,042,000
<INCOME-PRETAX> 7,639,000
<INCOME-TAX> 611,000
<INCOME-CONTINUING> 7,028,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,028,000
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .81
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN> According to "Securities Act Guide 6," the items beginning with "Reserve-
Open" and ending with "Cumulative-Deficiency" are to be reported
for fiscal year-end periods only and are not required in interim reports.
</TABLE>
