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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
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. 68102
Omaha, Nebraska (Zip Code)
(Address of principal executive offices)
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 May 9, 1996 was:
Class of Common Stock No. of Shares Outstanding
Common Stock, $.40 Par Value 15,211,941
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<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1996 (unaudited) and December 31, 1995
(audited)
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1996 and 1995
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)
March 31, December 31,
1996 1995
----------- ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale $205,587 $218,300
Marketable equity securities -
preferred stock 50,549 30,608
Marketable equity securities -
common stock 19,353 17,929
Mortgage loans and other investments 10,950 11,290
Real estate 3,354 3,354
Short-term investments, at cost,
which approximates market 95,209 86,520
-------- --------
385,002 368,001
Cash 4,504 7,648
Investment in Major Realty Corporation 9,814 9,878
Receivables, net 86,764 106,246
Reinsurance recoverable on unpaid
loss and loss adjustment expenses 116,679 167,888
Prepaid reinsurance premiums 41,542 38,341
Property and equipment, net 6,350 5,284
Deferred policy acquisition costs 25,607 24,585
Excess of cost over acquired net assets 36,719 37,003
Deferred income tax 10,144 9,403
Other assets 11,375 6,757
-------- --------
Total assets $734,500 $781,034
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss adjustment expenses $324,998 $369,244
Unearned premiums 130,653 124,122
Amounts payable to reinsurers 14,899 18,161
Accounts payable and accrued liabilities 16,007 22,720
Bank borrowings 69,000 69,000
-------- --------
Total liabilities 555,557 603,247
Contingencies - -
Stockholders' equity:
Preferred stock, no par value,
5,000,000 shares authorized,
none issued - -
Common stock, $.40 par value,
20,000,000 shares authorized;
15,143,481 and 15,141,220 shares
issued 6,057 6,057
Capital in excess of par value 194,851 194,823
Unrealized gain (loss) on available-
for-sale securities, net of tax (3,330) 19
Accumulated deficit (14,371) (18,848)
-------- --------
183,207 182,051
Less:
Treasury stock, at cost, 35,559 shares (1,564) (1,564)
Contingent stock, 240,000 shares (2,700) (2,700)
--------- ---------
Total stockholders' equity 178,943 177,787
--------- ---------
Total liabilities and
stockholders' equity $734,500 $781,034
========= =========
<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 ended March 31, 1996 and 1995
(in thousands, except per share data)
(unaudited)
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Insurance premiums earned $ 67,504 $51,276
Insurance agency commissions 629 873
Net investment income 6,464 4,421
Net realized capital gains 1,181 434
-------- -------
75,778 57,004
-------- -------
Costs and expenses:
Cost of revenues:
Insurance losses and loss adjustment
expenses 45,883 34,606
Insurance agency costs 531 710
Insurance underwriting expenses 21,274 16,116
General and administrative expenses 535 599
-------- -------
68,223 52,031
-------- -------
Operating profit 7,555 4,973
-------- -------
Other income (expense):
Interest expense (1,253) (513)
Share of net loss of investee (64) (74)
Other, net 58 40
-------- -------
(1,259) (547)
-------- -------
Income before income taxes 6,296 4,426
Income tax expense (benefit):
Current 755 225
Deferred 1,063 1,218
-------- -------
Net income $ 4,478 $ 2,983
======== =======
Net income per share:
Primary $ .30 $ .20
======== =======
Fully diluted $ .29 $ .20
======== =======
<FN>
The accompanying notes are an integral part of the
interim consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(in thousands)
(unaudited)
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,478 $ 2,983
Net adjustment to reconcile net
income to net cash provided by
operating activities 14,961 13,786
--------- --------
Net cash provided by operating
activities 19,439 16,769
--------- --------
Cash flows from investing activities:
Proceeds from sales of investments
available for sale 29,169 29,879
Proceeds from maturities of
investments 3,520 6,279
Proceeds from maturities of
investments available for sale 3,086 3,066
Purchases of investments (11,106) (16,881)
Purchases of investments available
for sale (44,997) (61,933)
Purchases of property and equipment (1,520) (722)
--------- --------
Net cash used for investing activities (21,848) (40,312)
--------- --------
Cash flows from financing activities:
Repayments of bank borrowing - -
Proceeds from bank borrowings - -
Repayments of other borrowings - -
Minority interests - -
Proceeds from issuance of common
stock 28 17
--------- --------
Net cash provided by financing
activities 28 17
--------- --------
<PAGE>
Net increase (decrease) in cash and
short-term investments (2,381) (23,526)
Cash and short-term investments at
beginning of period 84,740 50,236
--------- --------
Cash and short-term investments at
end of period 82,359 $ 26,710
========= ========
Supplemental disclosure of cash
flow information:
Cash paid during the period for
interest $ 1,207 $ 388
========= ========
Cash paid during the period for
income taxes $ 450 $ 1,143
========= ========
<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 March 31,
1996 and December 31, 1995, and the results of operations
for the three months ended March 31, 1996 and 1995 and cash
flows for the three months ended March 31, 1996 and 1995.
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 March
31, 1996 approximately $17,354,000 of short-term investments
had a maturity date at acquisition of greater than three
months.
Recent Statements of Financial Accounting Standards
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. This statement establishes
accounting standards for the recognition and measurement of
the impairment of long-lived assets and goodwill and is
effective in 1996. The adoption of this statement had no
material effect on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation,"
which is effective for the Company on January 1, 1996. SFAS
No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No.
25, which recognizes compensation cost based on the
intrinsic value of the equity instruments awarded. The
Company will continue to apply APB No. 25 to its stock based
compensation awards to employees and directors.
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 15.3 million, respectively, for the three
months ended March 31, 1996 and approximately 15.0 million
and 15.2 million, respectively, for the three months ended
March 31, 1995.
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>
March 31, 1996:
Fixed maturities
available for sale:
U.S. Treasury and
government securities $ 48,097 $ 216 $ 289 $ 48,024
States, municipalities
and political
subdivisions 67,977 794 651 68,120
Mortgage-backed
securities 69,646 270 7,560 62,356
Other debt securities 26,686 713 312 27,087
-------- -------- ------- --------
$212,406 $ 1,993 $ 8,812 $205,587
======== ======== ======= ========
Marketable equity
securities -
preferred stock $ 51,768 $ 136 $ 1,355 $ 50,549
======== ======== ======= ========
<PAGE>
Marketable equity
securities - common
stock $ 16,437 $ 3,800 $ 884 $ 19,353
======== ======== ======= ========
December 31, 1995:
Fixed maturities
available for sale:
U.S. Treasury and
government securities $ 51,022 $ 684 $ 17 $ 51,689
States, municipalities
and political
subdivisions 69,433 1,991 230 71,194
Mortgage-backed
securities 72,359 407 5,546 67,220
Other debt securities 27,484 1,060 347 28,197
-------- -------- ------- --------
$220,298 $ 4,142 $ 6,140 $218,300
======== ======== ======= ========
Marketable equity
securities -
preferred stock $ 31,299 $ 266 $ 957 $ 30,608
======== ======== ======= ========
Marketable equity
securities - common
stock $ 15,211 $ 3,302 $ 584 $ 17,929
======== ======== ======= ========
</TABLE>
4. Insurance Premiums and Claims
Insurance premiums written and earned by the Company's
insurance subsidiaries for the three months ended March 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Direct premiums written $113,709 $102,300
Assumed premiums written 10,020 465
Ceded premiums written (52,895) (44,606)
-------- --------
Net premiums written $ 70,834 $ 58,159
======== ========
Direct premiums earned $108,216 $ 89,606
Assumed premiums earned 8,982 1,189
Ceded premiums earned (49,694) (39,519)
-------- --------
Net premiums earned $ 67,504 $ 51,276
======== =========
</TABLE>
Insurance loss and loss adjustment expenses have been
reduced by recoveries recognized under reinsurance contracts
of approximately $25,440,000 and $27,451,000 for the three
months ended March 31, 1996 and 1995, respectively.
5. Bank Borrowings:
On July 26, 1995, the Company amended its borrowing
arrangements with its bank lenders providing 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 the borrowing.
Further, the Company may 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. Interest is payable
quarterly. At March 31, 1996, the Company had $69 million
outstanding under this arrangement at a weighted average
interest rate of 6.79%.
6. Income Taxes:
As of March 31, 1996, management believes it is more likely
than not that the Company will realize a portion of the
deferred tax asset. The valuation allowance at March 31,
1996 primarily relates to capital loss items whose
realization is uncertain. The net deferred tax asset is as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Unpaid losses and loss adjustment
expenses 10,502 10,701
Unearned premiums 6,238 6,004
Allowances for doubtful accounts 1,106 869
Other 1,598 1,443
Unrealized loss on fixed maturities
available for sale 2,382 699
Major Realty basis difference 7,973 7,950
--------- -------
Deferred tax asset 29,799 27,666
--------- -------
<PAGE>
Deferred policy acquisition costs (8,962) (8,605)
Other (2,020) (888)
Unrealized gain on marketable equity
securities (590) (710)
--------- -------
Deferred tax liability (11,572) (10,203)
--------- -------
18,227 17,463
Valuation allowance (8,083) (8,060)
--------- -------
Net deferred tax asset $ 10,144 $ 9,403
========= =======
</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 (in thousands):
<TABLE>
<CAPTION>
March 31,
1996 1995
-------- ---------
<S> <C> <C>
Computed U.S. federal income taxes $ 2,204 $ 1,549
Nondeductible amortization of
goodwill and other intangibles 141 134
Tax-exempt interest income (350) (196)
Dividends received deduction (208) (66)
Other 31 22
-------- --------
Income taxes provided $ 1,818 $ 1,443
======== ========
</TABLE>
<PAGE>
PART 1.
- -------
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
Forward-Looking Information
Except for the historical information contained in this Quarterly
Report on Form 10-Q, matters discussed herein may constitute
forward-looking information. Such forward-looking information
reflects the Company's current best estimates regarding future
operations, but, since these are only estimates, actual results
may differ materially from such estimates.
A variety of events, most of which are outside the Company's
control, cannot be accurately predicted and may materially impact
estimates of future operations. Important among such factors are
weather conditions, natural disasters, changes in state and
federal regulations, price competition impacting premium levels,
changes in tax laws, financial market performance, changes in
court decisions effecting coverages, and general economic
conditions.
The Company's results are significantly impacted by its crop
business, particularly its MPCI line. Results from the crop
lines are not generally known until the third and fourth quarters
of the year, after crops are harvested. Crop results are
particularly dependent on events beyond the Company's control,
notably weather conditions during the crop growing season in the
states where the Company writes a substantial amount of its crop
insurance. Additionally, federal regulations governing aspects
of crop insurance are frequently modified, and any such changes
may impact crop insurance results.
Forward-looking information set forth herein does not take into
account any impact from any adverse weather conditions during the
1996 crop season, or the various other factors noted above which
may affect crop and non-crop operating results.
<PAGE>
Three months ended March 31, 1996
Compared to three months ended March 31, 1995
The Company's operating profit and net income increased 51.9% and
50.1% respectively during the three months ended March 31, 1996
as compared to the same period in 1995. The increase in
operating profit was approximately $2.6 million, increasing from
$5.0 million in the first quarter of 1995 to $7.6 million in the
first quarter of 1996 while the increase in net income was $1.5
million increasing from $3.0 million in the first quarter of 1995
to $4.5 million in the first quarter of 1996. The principal
components of the increase in operating income were an increase
in insurance premiums earned, an increase in net investment
income, an increase in net realized capital gains and an increase
in crop insurance income. These positive changes were offset by
an increase in the combined operating ratio of the Company's
Property and Casualty Division. In addition, the Company's net
income in the first quarter of 1996 as compared to the first
quarter of 1995 was positively impacted by a decrease in the
Company's tax rate, but adversely effected by an increase in
interest expense.
The Company's net premiums earned increased by $16.2 million or
31.6% during the first quarter of 1996 as compared to the same
period a year earlier. Each one of the Company's four divisions
recorded increased premiums earned in the first quarter of 1996
versus the first quarter of 1995, with the General Agency
Division contributing an increase of $4.7 million, the Program
Division contributing an increase of $7.4 million, the Non-
Standard Automobile Division an increase of $1.6 million and the
Crop Division an increase of $2.5 million. This increase in
insurance premiums earned was offset by an increase in both the
loss ratio and expense ratio of the Company's Property and
Casualty (non-crop) Division. The loss ratio of the Company's
non-crop operations increased from 66.0% during the first three
months of 1995 to 70.4% during the first three months of 1996.
This increase in loss ratio can be attributed primarily to an
increase in the Company's automobile physical damage losses
primarily as a result of winter storm activity in the first
quarter of 1996 and from higher loss ratios in the Company's
workers' compensation and non-standard automobile programs. The
increase in the Company's expense ratio for the three months
ended March 31, 1996 as compared to the similar period a year
earlier resulted primarily from an increase in the Company's net
commission expense to agents as lines of business with higher
commission rates grew more rapidly than those with lower
commission rates.
The Company's investment income and realized capital gains
increased 46.2% and 172.1% respectively during the first three
months of 1996 as compared to the first three months of 1995.
The increase in investment income resulted from both an increase
in the average size of the Company's investment portfolio, $380.8
million during the three months ended March 31, 1996 as compared
to $291.8 million during the same three months in 1995, and an
improvement in the annualized investment yield of the portfolio
from 6.1% during the first three months of 1995 to 6.8% during
the first three months during 1996. The size of the investment
portfolio increased from retained earnings, two contributions of
$20 million each made during 1995 from the Company's line of
credit, and continued positive cash flows from operations.
Investment yields increased in the two compared periods due to an
overall higher interest rate environment present during the first
quarter of 1996 as compared to the same period a year earlier.
The increase in realized gains was principally a product of gains
realized in the Company's equity portfolio.
The Company's operating income also benefited from a $2.8 million
profit in the Company's Crop Division. The principal component
of this $2.8 million profit was the recording of an additional
$3.8 million in profit sharing under the Company's Multi-Peril
Crop Insurance (MPCI) program. The Company's estimate of its
profit sharing income under the MPCI program at December 31, 1995
was effected by a volatile crop growing season during which many
of the rules pertaining to prevented planting payments were
changed and in which a combination of unusual weather conditions
manifested themselves in an unusually late harvest. As claims
were closed during the first quarter and the final prevented
planting rules applied to these losses, the Company was able to
earn additional profit sharing. Offsetting this income were
losses in the Company's named peril insurance programs.
Net income during the first three months of 1996 as compared to
the same period in 1995 was also effected by an increase in
interest expense. The increase in interest expense was a result
of additional borrowings under the Company's bank credit facility
with average borrowings increasing from $29 million during the
first quarter of 1995 to $69 million during the first quarter of
1996. During the two periods being compared, the average
interest rate under the bank credit facility was relatively
stable at 7.1% during the first quarter of 1995 and 7.3% during
the first quarter of 1996.
Net income was also effected by a lower effective income tax rate
during the first quarter of 1996 as compared to the first quarter
of 1995, as tax expense decreased from 32.6% of income before
income taxes during the first quarter of 1995 to 28.9% during the
same period in 1996. This reduction in the Company's income tax
expense was the result of additional income from tax advantage
securities in the Company's investment portfolio such as
preferred stocks and municipal bonds.
Recent Statements of Financial Accounting Standards
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This statement establishes accounting standards
for the recognition and measurement of the impairment of long-
lived assets and goodwill and is effective in 1996. The adoption
of this statement had no material effect on the Company's
financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," which is
effective for the Company on January 1, 1996. SFAS No. 123
requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity
instruments awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to
employees and directors.
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, two surplus
notes 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
notes, 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 from insurance companies to parent
companies to certain statutorily approved limits. As of March
31, 1996, the statutory limitation on dividends from insurance
company subsidiaries to the parent without further insurance
departmental approval was approximately $10.5 million. In
addition to dividends from the insurance companies, the Company
also may receive distributions from its non-insurance
subsidiaries which are engaged in agency, premium finance and
claim service operations.
The Company currently holds two surplus notes, each in the amount
of $20.0 million, issued by one of its insurance company
subsidiaries 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 is
currently required.
The Company is currently a party to a tax sharing agreements with
its subsidiaries, under which such subsidiaries pay the Company
amounts in general equal to the federal income tax that would be
payable by such subsidiaries on a stand-alone basis.
The Company is also party to a $90 million Credit Agreement with
a group of bank lenders, secured by substantially all of the
Company's assets. The Credit Agreement provides for a three-
year Revolving Credit Facility in amounts not exceeding $75
million and a one-year Term Loan Facility not exceeding $15
million. Interest is payable quarterly at a rate selected by the
Company equal to either the prime rate or LIBOR plus a margin
which varies depending on the Company's debt-to-equity ratio and
whether funds have been borrowed under the Line of Credit
Facility. At March 31, 1996, the outstanding balance under the
facility was $69 million, bearing interest at 7.3%. Borrowings
under the facility were used to provide capital for the Insurance
Companies and to repay other debt. The Revolving Credit Facility
expires on July 26, 1998, and may be extended annually by
additional one-year periods with the consent of the lenders. The
Term Loan Facility expires to the extent not drawn upon on July
26, 1996, and the balance due thereunder must be repaid July 26,
1997. The Company is currently negotiating with its banks to
extend the expiration date for the Term Loan Facility or to
increase the Revolving Credit Facility to include amounts
expiring under the Term Loan Facility.
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 notes 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 at a duration which
approximates the estimated cash requirements for the payment of
loss and loss adjustment expenses.
Changes in Financial Condition
The Company's stockholders' equity increased by approximately
$1.2 million at March 31, 1996 as compared to December 31, 1995.
The two components of this increase were net income of $4.5
million in the first quarter of 1996 and an increase in the
unrealized loss on available for sale securities net of tax, in
the Company's investment portfolio of $3.3 million.
Consolidated Cash Flow
Cash flows from operating activities increased from $16.8 million
during the first three months of 1995 to $19.4 million during the
same three months in 1996. The largest component of net cash
provided by operating activities in both periods were profit
sharing payments received from the federal government's Multi-
Peril Crop insurance program. During the first three months of
1995 this component of operating cash flows was $11.6 million
while in the first three months of 1996 it was $15.9 million.
Cash flows for the Company's MPCI and crop hail businesses differ
in certain respects from cash flows associated with more
traditional property and casualty lines. MPCI premiums are not
received from farmers until the covered crops are harvested, and
when received are promptly remitted by the Company in full to the
government. Covered losses are paid by the Company in full to
the government. Covered losses are paid by the Company during
the growing season as incurred, with such expenditures reimbursed
by the government within three business days. Policy acquisition
and administration expenses are paid by the Company as incurred
during the year. The Company periodically throughout the year
receives a payment in reimbursement of its policy administration
expenses.
In the crop hail insurance business, premiums are generally not
received until after the harvest, while losses and other expenses
are paid throughout the year.
Inflation
The Company does not believe that inflation has had a material
impact on its financial condition or the results of operation.
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
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.
May 14, 1996 /s/ Kenneth C. Coon
----------------------------
Kenneth C. Coon
Chief Executive Officer
May 14, 1996 /s/ Georgia M. Mace
----------------------------
Georgia M. Mace
Treasurer and Chief Accounting
Officer
<PAGE>
ACCEPTANCE INSURANCE COMPANIES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996
EXHIBIT INDEX
NUMBER EXHIBIT DESCRIPTION
3.1 Amendment to the Registrant's Restated
Certificate of Incorporation. Incorporated
by reference to Exhibit 3.(i) to the
Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1995.
3.2 Restated By-laws of Acceptance Insurance
Companies Inc. Incorporated by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
10.1 $90,000,000 Credit Agreement By and Among the
Registrant, NBD Bank, N.A., First National
Bank of Omaha, FirsTier Bank, N.A., Comerica
Bank, First Interstate Bank of Arizona and
NBD Bank, N.A., As Agent, dated as of July
26, 1995. Incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June
30, 1995.
10.2 Intercompany Federal Income Tax Allocation
Agreement between Acceptance Insurance
Holdings Inc. and its subsidiaries and the
Registrant dated April 12, 1990, and related
agreements. Incorporated by reference to
Exhibit 10i to the Registrant's Annual Report
on Form 10-K for the fiscal year ended August
31, 1990.
10.3 Amended and Restated Registration Rights
Agreement, dated April 9, 1990, between the
Registrant and Patricia Investments, Inc.
Incorporated by reference to Exhibit 10d to
the Registrant's Quarterly Report on Form 10-
Q for the period ended May 31, 1990.
10.4 Warrants to purchase a total of 389,507
shares of common stock ($.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.
<TABLE>
<CAPTION>
ACCEPTANCE INSURANCE COMPANIES INC.
COMPUTATION OF INCOME PER SHARE
for the three months ended March 31, 1996 and 1995
(in thousands, except per share data)
(unaudited)
Exhibit 11
Three Months
1996 1995
--------- ---------
<S> <C> <C>
PRIMARY INCOME PER SHARE:
Net income $ 4,478 $ 2,983
======== ========
Weighted average number of
shares outstanding 14,867 14,854
Adjustment for stock options 131 146
-------- --------
Adjusted weighted average number
of shares outstanding 14,998 15,000
======== ========
Primary income per share $ .30 $ .20
======== ========
FULLY DILUTED INCOME PER SHARE:
Net income $ 4,478 $ 2,983
======== ========
Weighted average number of shares
outstanding 15,107 15,094
Adjustment for stock options 144 146
-------- --------
Adjusted weighted average number
of shares outstanding 15,251 15,240
======== ========
Fully diluted income per share $ .29 $ .20
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements included in the 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-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 205,587
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 69,902
<MORTGAGE> 10,950
<REAL-ESTATE> 3,354
<TOTAL-INVEST> 385,002
<CASH> 4,504
<RECOVER-REINSURE> 14,295
<DEFERRED-ACQUISITION> 25,607
<TOTAL-ASSETS> 734,500
<POLICY-LOSSES> 324,998
<UNEARNED-PREMIUMS> 130,653
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,000
0
0
<COMMON> 6,057
<OTHER-SE> 172,886
<TOTAL-LIABILITY-AND-EQUITY> 734,500
67,504
<INVESTMENT-INCOME> 6,464
<INVESTMENT-GAINS> 1,181
<OTHER-INCOME> 629
<BENEFITS> 45,883
<UNDERWRITING-AMORTIZATION> (1,022)
<UNDERWRITING-OTHER> 22,296
<INCOME-PRETAX> 6,296
<INCOME-TAX> 1,818
<INCOME-CONTINUING> 4,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,478
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
<RESERVE-OPEN> 0<F1>
<PROVISION-CURRENT> 0<F1>
<PROVISION-PRIOR> 0<F1>
<PAYMENTS-CURRENT> 0<F1>
<PAYMENTS-PRIOR> 0<F1>
<RESERVE-CLOSE> 0<F1>
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1>This amount is presented on an annual basis. See 12/31/95 Form 10-K for the
most recent reported amounts.
</FN>
</TABLE>
