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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-1
AMENDMENT NO. 1
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7461
ACCEPTANCE INSURANCE COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 31-0742926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 South 15th St., Suite 600 N.
Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(402) 344-8800
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 XX NO
---- ----
The number of shares of each class of the Registrant's common
stock outstanding on August 10, 1995 was:
Class of Common Stock No. of Shares Outstanding
Common Stock, $.40 Par Value 15,101,236
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ACCEPTANCE INSURANCE COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1995 (unaudited) and December 31, 1994
(audited)
Consolidated Statements of Operations (unaudited)
Three Months and Six Months Ended June 30, 1995 and
1994
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1995 and 1994
Notes to Interim Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1995 1994
--------- -----------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale $220,170 $190,180
Marketable equity securities - preferred
stock 12,581 6,758
Marketable equity securities - common
stock 9,948 5,772
Mortgage loans and other investments 1,747 1,869
Real estate 3,881 3,891
Short-term investments, at cost, which
approximates market 63,199 56,273
-------- --------
311,526 264,743
Cash 1,352 9,339
Equity investment in Major Realty
Corporation 4,922 5,079
Receivables, net 80,728 76,993
Reinsurance recoverable on unpaid loss
and loss adjustment expenses 107,328 79,811
Prepaid reinsurance premiums 34,287 25,988
Property and equipment, net 5,053 4,572
Deferred policy acquisition costs 22,677 19,834
Excess of cost over acquired net assets 37,572 38,142
Deferred income tax 8,570 13,025
Other assets 9,586 5,561
-------- --------
Total assets $623,601 $543,087
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses $266,812 $221,325
Unearned premiums 116,901 97,170
Amounts payable to reinsurers 24,630 19,309
Accounts payable and accrued liabilities 12,789 16,529
Bank borrowings 29,000 29,000
-------- --------
Total liabilities 450,132 383,333
Contingencies -- --
<PAGE>
Stockholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized, none issued -- --
Common stock, $.40 par value, 20,000,000
shares authorized; 15,135,773 and
15,128,846 shares issued 6,054 6,052
Capital in excess of par value 194,757 194,674
Unrealized gain (loss) on
available-for-sale securities,
net of tax (4,557) (13,705)
Accumulated deficit (18,521) (23,003)
-------- --------
177,733 164,018
Less:
Treasury stock, at cost, 35,559 shares (1,564) (1,564)
Contingent stock, 240,000 shares (2,700) (2,700)
-------- --------
Total stockholders' equity 173,469 159,754
-------- --------
Total liabilities and stockholders'
equity $623,601 $543,087
======== ========
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months and six months ended June 30, 1995 and 1994
(in thousands, except per share data)
(unaudited)
Three Months Six Months
-------------- ---------------
1995 1994 1995 1994
----- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums earned $62,413 $46,716 $113,689 $84,694
Insurance agency commissions 769 949 1,642 1,802
Net investment income 4,817 3,040 9,238 5,677
Net realized capital gains 599 161 1,033 398
------- ------- -------- -------
68,598 50,866 125,602 92,571
------- ------- -------- -------
Costs and expenses:
Cost of revenues:
Insurance losses and loss
adjustment expenses 44,513 34,363 79,119 60,583
Insurance agency costs 742 855 1,452 1,667
Insurance underwriting
expenses 19,892 12,056 36,008 23,953
General and administrative
expenses 649 389 1,248 692
------- ------- -------- -------
65,796 47,663 117,827 86,895
------- ------- -------- -------
Operating profit 2,802 3,203 7,775 5,676
------- ------- -------- -------
Other income (expense):
Interest expense (531) (371) (1,044) (699)
Share of net loss of investee (83) (71) (157) (154)
Other, net 41 58 81 45
------- ------- -------- -------
(573) (384) (1,120) (808)
------- ------- -------- -------
Income before income taxes
and minority interests 2,229 2,819 6,655 4,868
Income tax expense:
Current 1,465 65 1,690 65
Deferred (735) (2,200) 483 (2,200)
Minority interests in net
income of consolidated
subsidiaries -- -- -- 80
------- ------- -------- -------
Net income $ 1,499 $ 4,954 $ 4,482 $ 6,923
======= ======= ======== =======
Earnings per share:
Primary $.10 $.41 $.30 $.61
======= ======= ======== =======
Fully diluted $.10 $.40 $.29 $.59
======= ======= ======== =======
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1995 and 1994
(in thousands)
(unaudited)
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,482 $ 6,923
Net adjustment to reconcile net
income to net cash provided by
operating activities 21,640 20,990
------- -------
Net cash provided by operating activities 26,122 27,913
------- -------
Cash flows from investing activities:
Proceeds from sales of investments -- 641
Proceeds from sales of investments
available for sale 61,744 13,631
Proceeds from maturities of investments 10,481 508
Proceeds from maturities of investments
available for sale 4,706 11,162
Purchases of investments (18,740) (5,731)
Purchases of investments available for
sale (91,624) (41,125)
Purchases of property and equipment (1,242) (678)
-------- -------
Net cash used for investing activities (34,675) (21,592)
-------- --------
Cash flows from financing activities:
Repayments of bank borrowing -- (18,597)
Proceeds from bank borrowings -- 29,000
Repayments of other borrowings -- (323)
Minority interests -- 7
Proceeds from issuance of common stock 85 225
Other -- (340)
------- -------
Net cash provided by financing activities 85 9,972
------- -------
Net increase (decrease) in cash and
short-term investments (8,468) 16,293
Cash and short-term investments at
beginning of period 50,236 17,561
------- -------
Cash and short-term investments at
end of period $41,768 $33,854
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 1,079 $ 572
======= =======
<PAGE>
Cash paid during the period for
income taxes $ 2,853 $ 58
======= =======
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies:
Principles of Consolidation
The Company's consolidated financial statements include the
accounts of Acceptance Insurance Companies Inc. and its
majority owned subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated.
Management's Opinion
The accompanying consolidated financial statements reflect
all adjustments, consisting only of normal recurring
adjustments except as otherwise disclosed, which in the
opinion of management are considered necessary to fairly
present the Company's financial position as of June 30, 1995
and December 31, 1994, and the results of operations for the
three months and six months ended June 30, 1995 and 1994 and
cash flows for the six months ended June 30, 1995 and 1994.
Statements of Cash Flows
The Company aggregates cash and short-term investments with
maturity dates of three months or less from the date of
purchase for purposes of reporting cash flows. As of June
30, 1995 approximately $22,783,000 of short-term investments
had a maturity date at acquisition of greater than three
months.
Recent Statements of Financial Accounting Standards
On January 1, 1995 the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 114 and 118,
"Accounting by Creditors for Impairment of a Loan." As of
January 1, 1995 and June 30, 1995 the Company has no
material loans that are considered impaired. Accordingly,
the adoption of SFAS No. 114 and 118 had no effect on the
Company's financial statements.
Reclassifications
Certain prior year accounts have been reclassified to
conform with current period presentation.
2. Per Share Data:
Primary and fully diluted earnings per share are based on
the weighted average shares outstanding of approximately
15.0 million and 15.2 million, respectively, for the three
months ended June 30, 1995 and approximately 13.5 million
and 13.7 million, respectively, for the three months ended
June 30, 1994. Primary earnings per share and fully diluted
earning per share are based on the weighted average shares
outstanding of approximately 15.0 million and 15.2 million,
respectively, for the six months ended June 30, 1995 and
approximately 13.3 million and 13.5 million, respectively,
for the six months ended June 30, 1994. Included in
weighted average shares outstanding in 1994 is the assumed
exercise of all outstanding options and warrants utilizing
the modified treasury stock method, since average
outstanding options and warrants during the period exceeded
20% of the outstanding stock. Under this method,
appropriate adjustment to net income is made to reflect the
assumed use of the proceeds of the exercise.
3. Investments
The amortized cost and related market values of debt and
equity securities in the accompanying balance sheets are as
follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
June 30, 1995:
Fixed maturities available
for sale:
U.S. Treasury and
government securities $ 64,051 $ 1,033 $ 136 $ 64,948
States, municipalities and
political subdivisions 61,112 1,123 472 61,763
Mortgage-backed securities 73,020 277 9,360 63,937
Other debt securities 29,302 683 463 29,522
-------- ------- ------- -------
227,485 3,116 10,431 220,170
======== ======= ======= =======
Marketable equity
securities - preferred
stock $ 12,997 $ 70 $ 486 $ 12,581
======== ======= ======= ========
Marketable equity
securities - common
stock $ 9,226 $ 1,351 $ 629 $ 9,948
======== ======= ======= ========
December 31, 1994:
Fixed maturities available
for sale:
U.S. Treasury and
government securities $ 68,308 $ 4 $ 2,225 $ 66,087
States, municipalities and
political subdivisions 39,544 8 1,957 37,595
Mortgage-backed securities 73,024 -- 13,949 59,075
Other debt securities 28,199 100 876 27,423
-------- ------- ------- --------
$209,075 $ 112 $19,007 $190,180
======== ======= ======= ========
Marketable equity
securities - preferred
stock $ 7,803 $ 4 $ 1,049 $ 6,758
======== ======= ======= ========
Marketable equity
securities - common
stock $ 5,960 $ 530 $ 718 $ 5,772
======== ======= ======= ========
</TABLE>
4. Insurance Premiums and Claims
Insurance premiums written and earned by the Company's
insurance subsidiaries for the three months and six months
ended June 30, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Direct premiums written $110,799 $94,077 $213,099 $168,347
Assumed premiums written 80 5,246 545 6,395
Ceded premiums written (43,917) (41,691) (88,523) (69,623)
-------- -------- -------- --------
Net premiums written $ 66,962 $57,632 $125,121 $105,119
======== ======== ======== ========
Direct premiums earned $102,509 $81,705 $192,115 $144,487
Assumed premiums earned 609 5,256 1,798 6,159
Ceded premiums earned (40,705) (40,245) (80,224) (65,952)
-------- -------- -------- --------
Net premiums earned $ 62,413 $46,716 $113,689 $ 84,694
======== ======== ======== ========
</TABLE>
Insurance loss and loss adjustment expenses have been
reduced by recoveries recognized under reinsurance contracts
of approximately $51,379,000 and $30,828,000 for the three
months ended June 30, 1995 and 1994, respectively. Insurance
loss and loss adjustment expenses have been reduced by
recoveries recognized under reinsurance contracts of
approximately $78,830,000 and $47,962,000 for the six months
ended June 30, 1995 and 1994, respectively.
5. Bank Borrowings, Term Debt and Other Borrowings:
The Company's borrowing arrangements with its bank lenders
as of June 30, 1995 provided a $35 million line of credit
with interest payable quarterly at the prime rate or LIBOR
plus a margin of 1% to 1.75%, depending on the Company's
debt to equity ratio. On June 30, 1995, the Company had $29
million outstanding under this arrangement. On July 6, 1995
the Company elected LIBOR plus 1% percent or 7.05% through
August 7, 1995.
In July of 1995, the Company's bank lenders agreed to a new
$90 million line of credit facility to replace its existing
$35 million line of credit. The $90 million facility will
be utilized primarily to capitalize the Company's insurance
company subsidiaries.
Generally, the new agreement provides for a $75 million
three year revolving line of credit which, with the consent
of the banks, can be renewed annually for three years, and a
$15 million line of credit with a maturity of the earlier of
July 1997 or one year from the date of borrowing. Further,
the Company will select its interest rate as either the
prime rate or LIBOR plus a margin of .75% to 1.5% and 1.5%
to 2.25% for the $75 million revolving line of credit and
$15 million line of credit, respectively, depending on the
Company's debt to equity ratio.
6. Income Taxes:
As of June 30, 1995, management believes it is more likely
than not that the Company will realize a portion of the
deferred tax asset. The valuation allowance at June 30,
1995 primarily relates to capital loss items whose
realization is uncertain. The net deferred tax asset is as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- -----------
<S> <C> <C>
Unpaid losses and loss adjustment
expenses 7,851 7,263
Unearned premiums 5,783 4,840
Allowances for doubtful accounts 722 449
Other 1,904 1,599
Unrealized loss on marketable
equity securities -- 419
Unrealized loss on fixed maturities
available for sale 2,560 6,424
Major Realty basis difference 7,912 7,632
------- ------
Deferred tax asset 26,732 28,626
------- ------
Deferred policy acquisition costs (7,937) (6,744)
Other (2,085) (681)
Unrealized gain on marketable
equity securities (107) --
-------- ------
Deferred tax liability (10,129) (7,425)
-------- ------
16,603 21,201
Valuation allowance (8,033) (8,176)
------- -------
Net deferred tax asset $ 8,570 $13,025
======= =======
</TABLE>
Income taxes computed by applying statutory rates to income
before income taxes are reconciled to the provision for
income taxes set forth in the consolidated financial
statements as follows for the six months ended June 30, 1995
(in thousands):
<TABLE>
<S> <C>
Computed U.S. federal income taxes $2,328
Nondeductible amortization of goodwill and
other intangibles 269
Tax-exempt interest income (437)
Dividends received deduction (145)
Other 158
------
Income taxes provided $2,173
</TABLE> ======
<PAGE>
PART I.
-------
Item 2.
ACCEPTANCE INSURANCE COMPANIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition
and results of operations of the Company and its consolidated
subsidiaries is based upon the Company's interim consolidated
financial statements and the notes thereto included in this
report.
RESULTS OF OPERATIONS
Three months and six months ended June 30, 1995
Compared to three months and six months ended June 30, 1994
The Company's net income for the three months ended June 30, 1995
decreased 69.7% from the same period in 1994, while the net
income for six months decreased by 35.3% as compared to the first
six months of 1994. The second quarter of 1995 was positively
impacted by an increase in net premiums earned, an increase in
net investment income and realized capital gains, and an
improvement in the loss ratio of the Company all when compared
with the same period a year earlier. These positive effects were
more than offset by an increase in the underwriting expense
ratio, an increase in general and administrative expense, an
increase in interest expense and a change in the provision for
income taxes from a benefit in the second quarter of 1994 to a
tax expense in the second quarter of 1995.
The Company's results for the six months ended June 30, 1995 also
showed a declining net income from the period ended June 30,
1994, but the decline was only 35.3% as the results of the three
months ended June 30, 1995 were offset by an increase in net
income during the three months ended March 31, 1995 of 51.5% over
the same period in 1994.
The Company's net premiums earned increased by 33.6% and 34.2% in
the three and six months ended June 30, 1995 respectively as
compared to the similar periods a year earlier. These increases
were principally attributable to growth in the direct premiums
written by the Company's general agency and program divisions,
offset in part by declining premium revenues in the nonstandard
automobile division. The rate of growth in the Company's direct
premiums written decreased from 37.7% in the first quarter of
1995 to 17.4% during the second quarter of 1995, both percentages
as compared to the same periods in 1994. The Company believes
that this somewhat diminished rate of growth should continue for
the remainder of 1995 in its non crop lines of business, but
higher growth rates are predicted for the crop lines.
Coupled with this increase in premium revenues was an improvement
in the Company's loss ratio. The Company's loss ratios fell from
73.6% in the three months ended June 30, 1994 to 71.3% for the
three months ended June 30, 1995 and from 71.5% in the six months
ended June 30, 1994 to 69.6% for the six months ended June 30,
1995. The higher loss ratio for the second quarter of 1995 as
compared to the first quarter of 1995 was attributable to losses
the Company suffered in a series of wind and hail storms
occurring across Texas and Louisiana during the months of April
and May in which the Company incurred approximately $1.1 million
of pre tax losses. In addition, during the second quarter of
1995, the Company experienced a deterioration in the loss ratio
of its commercial automobile liability business. This was
principally attributable to a more rapid emergence of losses from
the 1994 year than had been expected by the Company. At this
time, the Company is continuing to monitor closely the results in
the commercial automobile lines in order to determine whether
these higher loss ratios indicate a continuing trend or merely a
quarterly aberration from normal patterns.
Offsetting the improved loss ratio was an increase in the
Company's expense ratio from 25.8% and 28.3% respectively in the
three and six months ended June 30, 1994 to 31.9% and 31.7%
respectively in the three and six months ended June 30, 1995.
This increase was mainly attributable to the Company recording an
estimated operating expense margin in its crop insurance lines
the second quarter of 1994, compared to no such margin being
recognized in the second quarter of 1995. In 1995, problems
arising out of delayed planting issues resulted in changing rules
under the new Federal MPCI program, and therefore, the Company
could not estimate any operating expense margin under the
program. To a lesser extent, the Company's expense ratio
increased from costs associating with developing new property and
casualty programs in its Program Division.
Thus, improved loss ratios were more than offset by increased
expense ratios for both the three and six months ended June 30,
1995 as compared to the similar periods a year earlier. This
resulted in an increase in the Company's combined underwriting
ratios from 99.4% and 99.8% in the three and six months ended
June 30, 1994 to 103.2% and 101.3% in the same periods a year
later.
The Company's investment income increased 58.5% and 62.7%
respectively in the three and six months ended June 30, 1995 from
the same three and six month periods during 1994. This increase
in investment income principally resulted from an increase in the
average size of the investment portfolio of the Company. During
the three and six months ended June 30, 1995 the Company's
average investment portfolio was approximately $308.7 million and
$302.8 million respectively as compared to $205.1 million and
$196.0 million during the similar periods ended June 30, 1994.
In addition, the Company's average investment yield also
increased for the three and six months ended June 30, 1995 as
compared to the same periods in 1994. Investment yields for the
three and six months ended June 30, 1995 were 6.24% and 6.10%
respectively. For the three and six months ended June 30, 1994
the Company's investment yield was 5.93% and 5.79% respectively.
The size of the investment portfolio increased from retained
earnings, positive cash flows, and approximately $53.4 million in
proceeds from the exercise of warrants in December of 1994.
Investment yields increased as the overall interest rate
environment present during the first and second quarters of 1995
was higher than the interest rate environment in the first and
second quarters of 1994.
The Company's income from realized capital gains also increased
in the three and six months ended June 30, 1995 when compared to
the similar periods a year earlier. These increases resulted
primarily from changes in the interest rate environment which
provided the Company with opportunities to realize gains in its
fixed income portfolio as well as from the sale of certain equity
securities.
The Company experienced an increase in its general and
administrative expense as well as its interest expense during the
two reporting periods of 1995 as compared to the similar periods
in 1994. General and administrative expenses increased from
expenses associated with a proposed offering of convertible
debentures which was withdrawn by the Company in May of 1995.
Interest expense increased in the two reporting periods of 1995
due to both an increase in interest rates as well as an increase
in average outstanding bank borrowings.
The largest single component of the decrease in the Company's net
income in the 1995 reporting periods was the impact of income
taxes. During the three and six months ended June 30, 1994, the
Company's net income benefitted from a deferred tax benefit of
$2.2 million. Not only was there no such deferred tax benefit
during the three and six months ended June 30, 1995, but there
were no net operating loss carryforwards to diminish tax payments
in the three and six month periods of 1995 as there had been
during the same time periods in 1994. The deferred tax benefit
resulted from the Company meeting the realizability test under
SFAS No. 109, "Accounting for Income Taxes," adopted by the
Company in January 1993. SFAS No. 109 requires that the Company
recognize the deferred tax asset for all temporary differences
and net operating loss carryforwards and a related valuation
allowance account when realization of the asset is uncertain.
The Company had reported pre tax losses from 1989 through 1992.
Although the circumstances that generated these losses were not
indicative of operating income, management was uncertain of
future earnings and recorded the related valuation allowance
account. Management continued assessing the weight of evidence
at each balance sheet and at June 30, 1994 believed it was more
likely than not that the Company would realize a portion of the
deferred tax asset. The deferred tax benefit of $2.2 million in
the three and six months ended June 30, 1994 is a portion of the
deferred tax asset that was estimated to be realized in future
years. For the three and six months ended June 30, 1995 the
Company was in a fully taxable situation, thus providing for
decreases in the Company's net income of approximately $2.9 and
$4.3 million in the three and six months ended June 30, 1995 when
compared to the same periods in 1994.
Recent Statement of Financial Accounting Standards
On January 1, 1995 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114 and 118, "Accounting by
Creditors for Impairment of a Loan." As of January 1, 1995 and
June 30, 1995 the Company has no material loans that are
considered impaired. Accordingly, the adoption of SFAS No. 114
and 118 had no effect on the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has included a discussion of the liquidity and
capital resources requirements of the Company and the Company's
insurance subsidiaries.
The Company - Parent Only
As an insurance holding company, the Company's assets consist
primarily of the capital stock of its subsidiaries, a surplus
note issued by one of its insurance company subsidiaries and
investments held at the holding company level. The Company's
primary sources of liquidity are dividends and other
distributions from subsidiaries, interest payments on the surplus
note, tax sharing payments from its subsidiaries and net
investment income from, and proceeds from the sale of, holding
company investments. The Company's liquidity needs are primarily
to service debt, pay operating expenses and taxes and make
investments in subsidiaries.
Dividends from the insurance subsidiaries of the Company are
regulated by the state regulatory authorities of the states in
which each subsidiary is domiciled. The laws of such states
generally restrict dividends form insurance companies to parent
companies to certain statutorily approved limits. As of June 30,
1995, the statutory limitations on dividends from the insurance
company subsidiaries to the parent without further insurance
department approval were approximately $6.0 million. In addition
to dividends, the parent company receives additional liquidity
from cash flows from agency and claims service operations of its
noninsurance company subsidiaries.
The Company currently holds a surplus note issued by one of its
insurance company subsidiaries in the amount of $20.0 million,
bearing interest at the rate of 9% per annum, payable quarterly.
Although repayment of all or part of the principal of this
surplus note requires prior insurance department approval, no
prior approval of interest payments currently is required.
At June 30, 1995, the Company held approximately $8.2 million of
cash and investments available to meet liquidity needs.
The Company is also a party to a Revolving Credit Facility with a
group of bank lenders which is secured by substantially all of
the Company's assets. At June 30, 1995 the maximum amount which
might have been borrowed under the facility was $35.0 million.
On July 26, 1995 the Company closed on a new facility under which
the Company's maximum borrowing limit was increased to $90
million. Generally, the new agreement provides for a $75 million
three year revolving line of credit which, with the consent of
the banks, can be renewed annually for three years, and a $15
million line of credit with a maturity of the earlier of July
1997 or one year from the date of borrowing. Further, the
Company will select its interest rate at either the Prime rate or
LIBOR plus a margin of .75% to 1.5% and 1.5% to 2.25% for the $75
million revolving line of credit and $15 million line of credit,
respectively, depending on the Company's debt to equity ratio.
As of June 30, 1995 the Company had $29 million outstanding under
its previous bank facility. This $29 million continues to be
outstanding under the Company's new facility.
The $90 million facility will be utilized primarily to capitalize
the Company's insurance company subsidiaries. The Company
intends to borrow additional funds from the new facility to
further capitalize its insurance company operations during the
third quarter of 1995. It is believed that the new borrowings
will increase the outstanding debt under the new facility to
approximately $50 million by the end of the third quarter.
Insurance Companies
The principal liquidity needs of the insurance companies are to
fund losses and loss adjustment expense payments, to pay
underwriting expenses including commissions to agents, to pay
interest under the surplus note described above and to make tax
payments. Available sources for these requirements are premiums
received and cash flows from investment activities. Together,
these sources historically have been adequate to meet the
described requirements on a timely basis. The Company monitors
the cash flows of its insurance company subsidiaries and attempts
to maintain sufficient cash to meet current operating expenses
and to structure its investment portfolio of a duration which
approximates the estimated cash requirements for the payment of
loss and loss adjustment expense.
<PAGE>
Changes in Financial Condition
The Company's stockholders' equity increased by approximately
$13.7 million at June 30, 1995 as compared to December 31, 1994
principally as a result of net income of $4.5 million generated
during the first six months of 1995 and a decrease in the
unrealized loss, net of tax, in the Company's available for sale
securities from $13.7 million at December 31, 1994 to $4.5
million at June 30, 1995.
The NAIC has released it Risk Based Capital (RBC) formula for
property and casualty insurance companies. The Company's
insurance company subsidiaries have reviewed and applied this RBC
formula for the 1994 year and have exceeded the requirements of
such formula.
Consolidated Cash Flow
Cash flows from operating activities were relatively similar in
the six months ended June 30, 1995 as compared to the same six
months in 1994. Operating activities produced $26.1 million of
positive cash flow during the first six months of 1995 compared
to $27.9 million in the first six months of 1994.
Inflation
The Company does not believe that inflation has had a material
impact on its financial condition or the results of operation.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) No reports on Form 8-K were filed by the registrant
during the quarter for which this report is filed.
<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.
ACCEPTANCE INSURANCE COMPANIES INC.
/s/ Kenneth C. Coon
August 16, 1995 ------------------------------
Kenneth C. Coon
Chief Executive Officer
/s/ Georgia M. Mace
August 16, 1995 ------------------------------
Georgia M. Mace
Treasurer and Chief Accounting
Officer
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1995
EXHIBIT INDEX
NUMBER EXHIBIT DESCRIPTION
3.(i)* Amendment to the Registrant's Restated Certificate
of Incorporation.
10.1* $90,000,000 Credit Agreement By and Among the
Registrant, NBD Bank, N.A., First National Bank of
Omaha, FirsTier Bank, N.A., Comerica Bank, First
Interstate Bank of Arizona and NBD Bank, N.A., As
Agent, dated as of July 26, 1995.
10.2 Intercompany Federal Income Tax Allocation Agreement
between Acceptance Insurance Holdings Inc. and its
subsidiaries and the Registrant dated April 12, 1990,
and related agreements. Incorporated by reference to
Exhibit 10i to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1990.
10.3 Amended and Restated Registration Rights Agreement,
dated April 9, 1990, between the Registrant and
Patricia Investments, Inc. Incorporated by reference
to Exhibit 10d to the Registrant's Quarterly Report on
Form 10-Q for the period ended May 31, 1990.
10.4 Warrants to purchase a total of 389,507 shares of
common stock ($.10 par value) of the Registrant dated
April 10, 1992, issued by the Registrant to the various
purchasers of the Floating Rate Secured Subordinated
Notes, due 1993, Series A and B. Incorporated by
reference to Exhibit 10.41 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1991.
10.5 Employment Agreement dated February 19, 1990 between
Acceptance Insurance Holdings Inc., the Registrant and
Kenneth C. Coon. Incorporated by reference to Exhibit
10.65 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991.
10.6 Employment Agreement dated July 2, 1993 between the
Registrant and John P. Nelson. Incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30,
1994.
10.7 Employment Agreement dated July 2, 1993 between the
Registrant and Richard C. Gibson. Incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30,
1994.
11* Computation of Income per share.
27* Financial Data Schedule.
99.1 The Registrant's Amended 1992 Incentive Stock Option
Plan. Incorporated by reference to the Registrant's
Proxy Statement filed on or about May 2, 1995.
99.2 The Registrant's Amended Employee Stock Purchase Plan.
Incorporated by reference to the Registrant's Proxy
Statement filed on or about April 29, 1994.
99.3 The Registrant's Employee Stock Ownership and Tax
Deferred Savings Plan as merged, amended and restated
effective October 1, 1990. Incorporated by reference
to Exhibit 10.4 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 30, 1990.
99.4 First Amendment to the Registrant's Employee Stock
Ownership and Tax Deferred Savings Plan. Incorporated
by reference to Exhibit 99.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1993.
99.5 Second Amendment to the Registrant's Employee Stock
Ownership and Tax Deferred Savings Plan. Incorporated
by reference to Exhibit 99.5 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1993.
* Previously filed.
