SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
Commission File Number 0-3578
Piedmont Management Company Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2612123
(State or other jurisdiction of corporation (IRS Employer Identification
or organization) Number)
80 Maiden Lane, New York, N.Y.
10038
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (212) 363-4650
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 X NO
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock - $.50 Par Value
Authorized 12,000,000 Shares
5,252,503 Shares Issued and Outstanding
(Includes 265,000 Shares of Treasury Stock)
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REINSURANCE OPERATIONS:
Gross premiums earned . . . . $53,497,586 $58,558,954 $161,593,922 $159,103,593
Ceded premiums earned . . . . (23,090,378) (22,253,017) (68,602,921) (69,358,463)
----------- ----------- ----------- ------------
Net premiums earned . . . . . 30,407,208 33,305,937 92,991,001 89,745,130
Net investment income . . . . 4,261,554 4,582,927 14,556,810 13,614,268
Realized capital gains. . . . 2,149,273 226,277 3,434,420 940,752
---------- --------- --------- ----------
Total revenues. . . . . . . . 36,818,035 38,115,141 110,982,231 104,300,150
Losses and loss expenses. . . 74,131,668 43,088,526 151,888,234 146,301,596
Reinsurance recoveries. . . . (21,463,546) (14,369,497) (53,710,835) (64,437,506)
----------- ---------- ---------- -----------
Net losses and loss expenses. 52,668,122 28,719,029 98,177,399 81,864,090
Acquisition and other
underwriting expenses. . . 8,618,561 10,586,991 32,666,172 31,159,076
----------- ---------- ---------- ----------
Total expenses. . . . . . . . 61,286,683 39,306,020 130,843,571 113,023,166
Reinsurance operating loss. . (24,468,648) (1,190,879) (19,861,340) (8,723,016)
INVESTMENT ADVISORY OPERATIONS:
Advisory, counseling fees
earned and other income. . 5,383,549 5,723,038 15,825,768 16,732,355
Service and marketing costs . 4,872,134 4,417,784 13,681,935 13,498,731
----------- --------- ---------- ----------
Investment advisory
operating income. . . . . 511,415 1,305,254 2,143,833 3,233,624
PARENT COMPANY:
Investment and other income 279,143 188,840 723,366 607,347
Realized capital gains (losses) - - (125) 368,215
Interest expense. . . . . . . 453,660 107,613 1,426,247 317,569
Other corporate expenses. . . 318,322 462,402 1,061,539 1,330,612
--------- ------- --------- ---------
Parent company operating loss (492,839) (381,175) (1,764,545) (672,619)
Loss before equity in earnings
(losses) of investees and
income taxes. . . . . . . . (24,450,072) (266,800) (19,482,052) (6,162,011)
Equity in net earnings (losses)
of investees . . . . . . . 40,291 (87,843) 283,821 (138,843)
---------- -------- ----------- -----------
(24,409,781) (354,643) (19,198,231) (6,300,854)
Provision for income taxes:
Current . . . . . . . . . . . (1,606,964) (765,466) (529,587) (2,915,487)
Deferred. . . . . . . . . . . (6,862,294) 455,923 (6,467,211) 50,390
----------- --------- ----------- ----------
(8,469,258) (309,543) (6,996,798) (2,865,097)
Net loss. . . . . . . . . . . $(15,940,523) $(45,100) $(12,201,433) $(3,435,757)
=========== ======= ============ ===========
RESULTS PER COMMON SHARE (EXHIBIT 1):
Net loss . . . . . . . . . . . $(3.20) $(.01) $(2.45) $(.69)
Deduction for preferred dividends (.01) (.01) (.03) (.03)
---- ----- ---- -----
Net loss . . . . . . . . . . . $(3.21) $(.02) $(2.48) $(.72)
===== ==== ===== =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
9/30/95 12/31/94
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Held-to-Maturity, at amortized cost
(market: $9,213,162 and $8,818,353) 8,777,995 8,813,314
Available-for-Sale, at market
(amortized cost: $239,469,877 and $262,325,625) 237,172,352 244,335,744
Equity Securities, at market
(cost: $48,972,472 and $67,214,430). . .. 52,478,441 66,666,764
Short-Term investments, at cost . . . . .. 94,336,433 51,703,561
----------- -----------
Total investments . . . . . . . . . . . 392,765,221 371,519,383
Cash. . . . . . . . . . . . . . . . . . .. 10,342,988 9,066,870
Investments in and advances to investee companies 5,155,745 4,634,527
Accrued interest and dividends receivable 3,418,930 3,687,258
Reinsurance recoverable . . . . . . . . .. 172,765,393 170,278,300
Premiums receivable . . . . . . . . . . .. 32,542,665 35,602,712
Prepaid reinsurance premiums. . . . . .... 24,219,051 22,980,856
Deferred policy acquisition costs . . .... 12,649,199 10,896,632
Deferred income taxes . . . . . . . . . .. 20,824,587 21,799,010
Other assets . . . . . . . . . . . . . ... 27,560,252 25,003,520
----------- -----------
Total assets. . . . . . . . . . . . . . $702,244,031 $675,469,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Outstanding losses and loss expenses. . . . $486,064,880 $461,533,490
Unearned premiums . . . . . . . . . . . . . 77,553,005 73,839,992
Loan payable. . . . . . . . . . . . . . . . 19,500,000 20,000,000
Expenses, taxes and other liabilities . . . 15,150,377 17,615,047
----------- -----------
Total liabilities . . . . . . . . . . .. 598,268,262 572,988,529
----------- -----------
Stockholders' equity:
Capital stock:
Preferred stock, $1 par value, authorized
2,000,000 shares; cumulative convertible
Series A shares issued: 244,936 and 245,068 244,936 245,068
Common stock, $.50 par value, authorized
12,000,000 shares; shares issued:
5,252,503 and 5,250,539. . . . . . . . .. 2,626,252 2,625,269
Paid-in capital . . . . . . . . . . . . . . 28,023,481 28,007,604
Unrealized depreciation on investments and
foreign translation adjustment, net of
deferred income taxes.. . . . . . . . . . (109,404) (13,929,580)
Retained earnings . . . . . . . . . . . . . 74,913,004 87,254,678
Less cost of treasury stock (265,000 shares
common, 53,000 shares preferred) . . . . . (1,722,500) (1,722,500)
Total stockholders' equity. . . . . . . 103,975,769 102,480,539
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity $702,244,031 $675,469,068
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . $(12,201,433) $(3,435,757)
Adjustments to reconcile net loss to net
cash from operating activities:
Realized capital gains . . . . . . . . . (3,434,295) (1,308,967)
Outstanding losses and loss expenses . . 24,531,390 23,087,664
Unearned premiums. . . . . . . . . . . . 3,713,013 10,928,927
Reinsurance recoverable. . . . . . . . . (2,487,093) (17,479,279)
Premiums receivable. . . . . . . . . . . 3,060,047 2,078,358
Prepaid reinsurance premiums . . . . . . (1,238,195) (511,134)
Deferred acquisition costs . . . . . . . (1,752,567) (2,184,650)
Amortization of bond premium, net. . . . 452,395 500,248
Equity in net (earnings) losses of investees (283,821) 138,843
Income taxes recoverable . . . . . . . . (529,587) (2,914,457)
Deferred income tax expense (benefit). . (6,467,211) 50,390
Accrued interest and dividends . . . . . 268,328 (17,914)
Other items, net . . . . . . . . . . . . (4,298,375) (501,576)
--------- ----------
Total cash flows from operating activities. (667,404) 8,430,696
Cash flows from investing activities:
Purchases of Held-to-Maturity securities. . - (3,519,421)
Purchases of Available-for-Sale securities (49,169,365) (59,982,203)
Proceeds from maturity of Held-to-Maturity
securities. . . . . . . . . . . . . . . - 4,000,000
Proceeds from maturity of Available-for-Sale
securities. . . . . . . . . . . . . . . - 28,695,342
Proceeds from sale of Available-for-Sale
securities. . . . . . . . . . . . . . . 72,732,243 16,262,030
Net (purchases) sales of Equity Securities 21,533,421 (4,351,892)
Net (purchases) sales/maturities of Short-Term
investments. . . . . . . . . . . . . . . (42,669,502) 13,221,998
---------- ----------
Total cash flows from investing activities. 2,426,797 (5,674,146)
Cash flows from financing activities:
Repayment of loans. . . . . . . . . . . . (500,000) (1,575,000)
Proceeds from exercise of stock options . . 16,725 303,558
-------- ---------
Total cash flows from financing activities (483,275) (1,271,442)
Net increase in cash . . . . . . . . . . . 1,276,118 1,485,108
Cash balance, beginning of year. . . . . . 9,066,870 6,727,821
--------- ----------
Cash balance, end of period. . . . . . . . $10,342,988 $8,212,929
========== =========
Supplemental cash flow disclosure:
Interest paid . . . . . . . . . . . . . . . $1,056,230 $311,597
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION:
The interim financial information presented is unaudited. In the opinion of
Company management, all adjustments necessary to present fairly the
consolidated financial position and the results of operations for the interim
periods have been made. The financial statements should be read in
conjunction with the financial statements and related notes in the Company's
1994 Annual Report on Form 10K.
2. RESULTS PER COMMON SHARE:
For all periods presented, loss per share was based on the weighted average
number of common shares outstanding, excluding the effect of common stock
equivalents which would be anti-dilutive. In 1995 and 1994 accrued dividends
of $.01 and $.03 per share in the quarter and nine month periods, respectively,
on cumulative Series A preferred stock were deducted in arriving at the net loss
per share.
3. MERGER and SPIN-OFF:
On August 7, 1995, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Chartwell Re Corporation ("Chartwell"),
pursuant to which the Company agreed to merge (the "Merger") with and into
Chartwell, with Chartwell being the surviving corporation. Following the
Merger, The Reinsurance Corporation of New York, the Company's principal
reinsurance underwriting subsidiary ("RECO"), will become a subsidiary of
Chartwell Reinsurance Company, the reinsurance underwriting subsidiary of
Chartwell.
In the Merger, holders of common and preferred stock of the Company will
receive newly-issued shares of common stock of Chartwell representing
approximately 45.25% of the outstanding common stock of the combined entity.
Chartwell intends to seek a stock exchange listing of its common stock effective
upon the closing of the Merger.
Prior to the Merger, Lexington Management Corporation (combined with the
Company's other asset management operations) will be spun-off on a one-for-one
share basis to the Company's stockholders in a tax-free transaction. Also prior
to the Merger, stockholders of the Company will receive a dividend of contingent
interest notes of the Company. The notes, which will mature on June 30, 2006,
unless previously redeemed, will not pay any interest to holders until
maturity. The notes will provide for payment of up to $57.0 million to
holders at maturity, substantially depending on the results, particularly
loss reserve development, over time of RECO's previously written business.
The notes may be settled at maturity in registered common stock. The notes
will be assumed by Chartwell in the Merger.
The combined entity will be managed by Chartwell's current management team.
Four members of the Company's existing Board of Directors will become
directors of Chartwell upon the Merger. Pursuant to the Merger Agreement, the
Company increased RECO's reserves for losses incurred but not reported in
respect of its existing business by $32.5 million gross and $25.0 million net in
the period ended September 30, 1995.
The Merger is subject to the consent of the Company's and Chartwell's
stockholders, bank, regulatory and certain other approvals and certain other
conditions. The Merger and Spin-Off are each expected to be consummated in
the fourth quarter of 1995.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
4. BANK LOAN AGREEMENT:
On November 9, 1995, the Company's commercial bank lender agreed to waive,
for a period not to exceed six months, certain defaults under its loan agreement
with the Company that would otherwise have occurred as a result of the $25.0
million net reserve strengthening. The waiver includes an agreement by the
Company to make certain principal payments in the event of termination of the
Merger Agreement between the Company and Chartwell and provides for certain
increases (not to exceed 2% in total) in the interest rate on the loan in the
event the Merger Agreement is not consummated by certain specified dates.
Under the terms of the waiver, the Company has agreed to liquidate certain
short-term invested assets and apply the proceeds thereof at the time of any
such termination of the Merger Agreement to reduce amounts outstanding on the
loan and to use its best efforts to sell its holdings of certain equity
securities and apply the proceeds thereof to further reduce amounts outstand-
ing on the loan. Chartwell has agreed, under certain circumstances, to
purchase any such equity securities not otherwise sold in the event of a
termination of the Merger Agreement. The Company has also agreed, under
certain circumstances, to provide a security interest in certain liquid
investments to its bank lender.
As a result of the foregoing waiver, the Company is not currently in default
with respect to its bank loan agreement.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis contained in the Company's Annual
Report on Form 10-K for December 31, 1994 is incorporated herein by reference
and should be read in conjunction with the following.
Consolidated Results of Operations
The consolidated net loss for the nine months ended September 30, 1995 was
$12.2 million, $2.48 per share. This compares to a net loss for the nine months
ended September 30, 1994 of $3.4 million, $0.72 per share. Included in the
nine months results for 1995 are charges in connection with the merger of the
Company with and into Chartwell Re Corporation (Chartwell) as well as other
non-recurring expenses relating to the spin-off of the Company's asset
management operations. Further information regarding these adjustments is
contained in the following discussion. Additional information on the Merger and
Spin-Off is contained in Note 3 of the Notes to Financial Statements.
Nine Months Ended September 30, 1995 and 1994
Reinsurance Operations
The pre-tax operating loss for The Reinsurance Corporation of New York
(RECO) was $19.9 million compared to a pre-tax operating loss of $8.7 million
in 1994. Included in the results for 1995 is a charge of $25.0 million, net of
reinsurance of $7.5 million, strengthening the reserves for losses incurred but
not reported with respect to RECO's business written in prior years. This
reserve strengthening was agreed to in the Merger Agreement between the
Company and Chartwell and was based on a reevaluation of RECO's business,
particularly environmental and other latent injury claims and other long-tail
casualty exposures. Such increase reflects the utilization of factors that are
consistent with recent trends in the property and casualty insurance industry
where a number of companies have increased IBNR reserves for these types of
exposures in light of continued adverse development and as additional
information becomes known.
Net premiums written were $95.5 million for nine months, a 5% decline over
the prior year period. Premiums earned increased to $93.0 million from $89.8
million a year ago. The decline in premiums written is in line with RECO's
strategy of withdrawing from certain classes of business. RECO has chosen not
to renew a number of property reinsurance accounts primarily in an effort to
reduce exposure to property related catastrophe losses. Excluding the effects
of the $25 million net reserve strengthening mentioned above, loss activity for
RECO declined in comparison to the prior year, primarily as a result of a
reduction in catastrophe and other major loss activity in 1995. The combined
ratio, computed on a generally accepted accounting principles basis, after
excluding the foregoing reserve strengthening was 113.8% in the 1995 period.
For the 1995 period, net investment income was $14.6 million compared to
$13.6 million for the 1994 period, a 7% increase. This increase is attributed
to higher average yields and growth in the base of invested assets. During the
fourth quarter of 1994, additional cash for investment was provided by the
$17.5 million capital contribution made by Piedmont.
Investment Advisory Operations
Pre-tax operating income was $2.1 million in the 1995 period, down from $3.2
million earned in the 1994 period. Results in the 1995 period include $1.0
million in non-recurring expenses (primarily legal and other professional fees)
connected with the spin-off of Piedmont's asset management companies which
is expected to occur by the end of 1995. Primarily as a result of a decline in
average net assets, revenues in the mutual fund segment of Lexington are down in
comparison to the prior year period. Service and marketing expenses also de-
clined as compared to last year. On September 30, 1995 total assets under man-
agement were $3.5 billion, an increase of $100 million since December 31, 1994.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Parent Company and Investees
The parent company operating loss for the nine months was $1.8 million
compared to a loss of $673,000 a year ago. The main reason for the increase in
pre-tax loss from last year relates to increased interest expense which, for
the 1995 period, was $1.4 million compared to $318,000 for the 1994 period.
The Company entered into a senior term loan agreement in December of 1994
for $20.0 million, which replaced a previously outstanding loan in the amount
of $8.2 million.
Equity in net earnings (losses) of investees was $284,000 in the 1995 period
compared to a loss of $139,000 a year ago. This component of the Company's
operating results is represented by RECO's investment in Continental National
Corporation (CNC), an affiliated company. CNC has experienced an
improvement in underwriting results in 1995 primarily as a result of the
abatement in weather related losses in comparison to the prior year period and
a continuing emphasis on underwriting lines of business that historically have
produced better results for CNC.
The Company recorded a $19.2 million pre-tax loss for the nine months of 1995
which in turn created a net operating loss for tax purposes. The Company has
accrued a current tax benefit of $530,000 because it was able to carry back a
portion of this net operating loss to 1993. The $6.5 million deferred tax
benefit is virtually all related to the net operating loss generated from
results of operations in the period. The Company expects to realize the
benefit of this loss based upon projections of taxable income to be earned
in the carryforward period. On September 30, 1995 the net deferred tax
asset carried in the balance sheet was $20.8 million. Management believes
that amount will be realized based on estimates of future taxable income.
Third Quarter 1995 Compared with Third Quarter 1994
In 1995, the consolidated net loss for the period was $15.9 million, $3.21 per
share compared to a net loss of $45,000, $0.02 per share, in 1994.
Reinsurance Operations
RECO's underwriting results in the third quarter were negatively impacted by
losses from Hurricanes Luis and Marilyn which, in the aggregate, totalled $1.4
million. There was an additional loss reserve increase of $1.8 million in the
period for RECO's share of a textile plant fire loss that occurred earlier this
year. Excluding the effects of the $25.0 million net reserve strengthening,
hurricanes and the fire loss of $3.2 million in the period, RECO's combined
ratio, computed on a generally accepted accounting principles basis, was
108.8% in the third quarter of 1995. The 1994 third quarter reflected
additional development of $1.1 million from the Northridge, California
earthquake as well as $1 million relating to airline accidents and launching
failures on telecommunication satellites.
RECO will incur losses from Hurricane Opal, which struck the Gulf Coast
region on October 4, 1995. At this time, based on early reports of losses and
projections of additional losses, up to approximately $1.0 million, pre-tax,
could be incurred from this hurricane. Since all reporting is not complete,
ultimate losses could be higher.
Net investment income was $4.3 million in the third quarter, down $300,000
from the 1994 period.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Investment Advisory Operations
Investment advisory pre-tax income was $511,000 in the third quarter, down
from $1.3 million for the third quarter of 1994. However, results in this
period include $1.0 million in non-recurring expenses as mentioned above.
Also, as mentioned above, mutual fund revenues in this period were down
slightly in comparison to 1994, but operating expenses, notably personnel
related costs and marketing expenses, likewise declined.
Parent Company and Investees
The parent company operating loss in the third quarter was $493,000 compared
to $381,000 for the same period in 1994.
Investment and other income increased to $279,000 in the 1995 period
compared to $189,000 for the same period of 1994. The 1995 period included
interest of $66,000 received from the Internal Revenue Service relating to a
refund of prior year taxes. As explained above, interest expense increased over
the prior year period.
Primarily for the reasons mentioned in the preceding section, the Company
accrued current and deferred income tax benefits totalling $8.5 million.
Third Quarter 1995 Compared With Second Quarter 1995
The consolidated net loss in the third quarter was $15.9 million, $3.21 per
share, compared to net income of $3.8 million, $0.69 per share, earned in the
second quarter of this year. RECO's operating results in the third quarter
reflect the $25.0 million net reserve strengthening, as well as other losses
from hurricanes and development on a prior period fire loss. Pre-tax realized
capital gains in the third quarter were $2.1 million compared to $432,000 for
the second quarter. This is in line with a policy decision to sell a portion of
RECO's common stock portfolio to minimize its exposure to equity market
volatility. Net investment income was $4.3 million compared to $5.1 million in
the second quarter.
Excluding the effects of the reserve strengthening of $25.0 million and the
hurricane and fire losses, the combined ratio in the third quarter was 108.8%
compared to 101.0% in the second quarter. The second quarter was virtually
catastrophe free, accounting for the lower combined ratio in that period.
Investment advisory pre-tax income in the third quarter declined to $511,000.
However, this included $1.0 million in non-recurring costs related to the
spin-off of the asset management companies. Investment advisory pre-tax
operating income was $779,000 in the second quarter. The parent company
operating loss in the third quarter was $493,000 compared to a loss of
$674,000 in the second quarter.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Financial Condition
Total assets on September 30, 1995 were $702.2 million, up from $675.5
million at the end of 1994. Invested assets grew to $392.8 million from $371.5
million at the end of 1994. Virtually all of the Company's fixed income
investments, primarily bonds, are categorized as available for sale and carried
at market values, with unrealized gains and losses reflected in stockholders'
equity, net of related deferred income taxes. On September 30, 1995, the
weighted average maturity of the bond portfolio was 3.6 years and the average
quality rating was AAA. On September 30, 1995, fixed maturities carried at
market value were $237.2 million with an amortized cost of $239.5 million.
Total cash flow from operating activities was $(667,000) on September 30, 1995
compared to $8.4 million a year ago. The negative cash flow for the nine
months of 1995 is reflective of the payments made for several large property
losses incurred in 1995 through RECO's participation in underwriting pools.
The overall liquidity of the Company is strong. Management intends to satisfy
ongoing cash obligations through internally generated cash without having to
liquidate significant amounts of invested assets.
In keeping with an investment policy decision to reduce RECO's level of equity
securities, a program was initiated during 1995 to sell a portion of equity
investments. Proceeds from the sales of those investments have primarily been
reinvested in short term investments and intermediate term fixed income
securities.
On November 9, 1995, the Company's commercial bank lender agreed to waive,
for a period not to exceed six months, certain defaults under its loan agreement
with the Company that would otherwise have occurred as a result of the $25.0
million net reserve strengthening. The waiver includes an agreement by the
Company to make certain principal payments in the event of termination of the
Merger Agreement between the Company and Chartwell and provides for certain
increases (not to exceed 2% in total) in the interest rate on the loan in the
event the Merger Agreement is not consummated by certain specified dates.
Under the terms of the waiver, the Company has agreed to liquidate certain
short-term invested assets and apply the proceeds thereof at the time of any
such termination of the Merger Agreement to reduce amounts outstanding on the
loan and to use its best efforts to sell its holdings of certain equity
securities and apply the proceeds thereof to further reduce amounts outstanding
on the loan. Chartwell has agreed, under certain circumstances, to purchase
any such equity securities not otherwise sold in the event of a termination
of the Merger Agreement. The Company has also agreed, under certain
circumstances, to provide a security interest in certain liquid investments
to its bank lender.
As a result of the foregoing waiver, the Company is not currently in default
with respect to its bank loan agreement.
Consolidated stockholders' equity on September 30, 1995 was $104.0 million,
compared to $102.5 million at the end of 1994. Consolidated stockholders'
equity includes net unrealized depreciation on invested assets of $109,000,
compared to unrealized depreciation of $13.9 million at the end of 1994. The
significant turnaround in the nine months of 1995 was primarily due to the
positive effects of the bond market rally on RECO's fixed income portfolio.
Exhibit to Part I
Computation of Loss Per Common Share and Common Equivalent Share for the
Nine Months Ended September 30, 1995 and 1994.
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Nine Months Ended September 30, 1995 and 1994
Item 6. Exhibits and Reports on Form 8K
Exhibit No. 27 Financial Data Schedule (filed with the Securities and
Exchange Commission).
On August 8, 1995, Piedmont Management Company Inc. (Piedmont) filed
a Form 8K announcing that it had signed a definitive agreement to merge with
and into Chartwell Re Corporation (Chartwell) and concurrent with that merger
Piedmont would spin-off to its stockholders, in a tax free transaction, its
asset management operations. On August 10, 1995, a Form 8K was filed
containing copies of the Merger Agreement between Piedmont and Chartwell
and other related documentation.
Other items under Part II have been omitted since they are either not required
or are not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PIEDMONT MANAGEMENT COMPANY INC.
Date: November 20, 1995 By: /S/ PETER J. PALENZONA
-----------------------
Peter J. Palenzona, Senior Vice President
Finance and Administration
(Chief Financial Officer)
PIEDMONT MANAGEMENT COMPANY INC. AND SUBSIDIARIES
<TABLE>
COMPUTATION OF LOSS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE (Unaudited)
<CAPTION>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
(A) Loss per common share and common
equivalent share:
Number of common shares:
Issued (weighted average) . . . . . . . 5,251,637 5,230,844
Less treasury stock . . . . . . . . . . (265,000) (265,000)
-------- ----------
Outstanding for period. . . . . . . . . 4,986,637 4,965,844
Common equivalent shares (two common for
each preferred share). . . . . . . . . - -
Average stock options outstanding
(net of repurchased shares under the
treasury stock method). . . . . . . . - -
--------- ----------
4,986,637 4,965,844
Net loss. . . . . . . . . . . . . . . . . $(12,201,433) $(3,435,757)
Deduction ($.75 per share) for dividends
on preferred stock . . . . . . . . . . . 143,976 144,434
---------- ----------
Net loss applicable to common stock . . . $(12,345,409) $(3,580,191)
=========== =========
Loss per common share . . . . . . . . . . $(2.48) $(.72)
===== ====
(B) Loss per common share assuming
full dilution:
Number of common shares:
Outstanding for period. . . . . . . . . 4,986,637 4,965,844
Common equivalent shares (two common for
each preferred share). . . . . . . . 383,988 385,156
--------- ----------
5,370,625 5,315,000
Average stock options outstanding
(net of repurchased shares under the
treasury stock method) . . . . . . 33,890 79,205
--------- ---------
5,404,515 5,430,205
Net loss. . . . . . . . . . . . . . . . . $(12,201,433) $(3,435,757)
========== ==========
Loss per common share and common
equivalent share . . . . . . . . . . . . $(2.26) $(.63)
===== =====
NOTE: In computing loss per common share in 1995 and 1994, results were reduced by accrued
dividends on cumulative convertible Series A preferred stock as inclusion of common stock
equivalents would have been anti-dilutive. Accordingly, only weighted average shares were
used in the computations.
EXHIBIT I
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PIEDMONT
MANAGEMENT COMPANY INC. FORM 10-Q/A QUARTERLY REPORT FOR THE PERIOD ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 237172
<DEBT-CARRYING-VALUE> 8778
<DEBT-MARKET-VALUE> 9213
<EQUITIES> 52478
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 392765
<CASH> 10343
<RECOVER-REINSURE> 172765
<DEFERRED-ACQUISITION> 12649
<TOTAL-ASSETS> 702244
<POLICY-LOSSES> 487628
<UNEARNED-PREMIUMS> 77553
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 19500
<COMMON> 2626
5753
245
<OTHER-SE> 101105
<TOTAL-LIABILITY-AND-EQUITY> 702244
92991
<INVESTMENT-INCOME> 14557
<INVESTMENT-GAINS> 3434
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 28798
<UNDERWRITING-OTHER> 3868
<INCOME-PRETAX> (19198)
<INCOME-TAX> (6997)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12201)
<EPS-PRIMARY> (2.48)
<EPS-DILUTED> (2.48)
<RESERVE-OPEN> 461534
<PROVISION-CURRENT> 72448
<PROVISION-PRIOR> 25729
<PAYMENTS-CURRENT> 26914
<PAYMENTS-PRIOR> 49219
<RESERVE-CLOSE> 486065
<CUMULATIVE-DEFICIENCY> 25729
</TABLE>
