<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file Number: 001-12099
The Centris Group, Inc.
-----------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0097221
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
650 Town Center Drive, Suite 1600, Costa Mesa, CA 92626
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
(714)549-1600
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(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report.)
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
------- -------
Number of shares outstanding of each class of the Registrant's Common Stock as
of May 7, 1998:
Common Stock, par value $.01 per share: 12,180,296
Common Stock Purchase Rights: 12,180,296
<PAGE>
INDEX
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
Unaudited Condensed Consolidated Financial Statements:
Balance Sheets as of March 31, 1998 and
December 31, 1997........................................ 2
Income Statements for the Quarters Ended
March 31, 1998 and 1997.................................. 3
Statements of Cash Flows for the Quarters Ended
March 31, 1998 and 1997.................................. 4
Notes to Condensed Consolidated Financial Statements........... 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 7
Part II OTHER INFORMATION
Item 6. EXHIBITS and REPORTS ON FORM 8-K.......................... 14
SIGNATURES.............................................................. 16
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Financial Statements:
The Centris Group, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
Investments, at market (amortized cost
$220,416 at March 31,1998, $214,407 at
December 31,1997) $230,849 $223,824
Cash and invested cash 9,318 11,122
Restricted cash and short term investments 31,614 27,947
Accrued investment income 2,713 3,196
Receivables:
Reinsurance losses and reserves 29,839 26,932
Premiums 27,061 26,012
Prepaid reinsurance premiums 8,997 7,799
Deferred policy acquisition costs 4,406 4,495
Other assets 11,605 11,921
-------- --------
Total assets $356,402 $343,248
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Insurance liabilities:
Amounts due insurance companies $ 44,561 $ 36,470
Losses and loss adjustment expenses 124,362 116,801
Unearned premiums 30,402 30,249
Note payable 31,175 32,500
Accounts payable and accrued expenses 3,674 9,638
-------- --------
Total liabilities 234,174 225,658
Stockholders' Equity 122,228 117,590
-------- --------
Total liabilities and stockholders'
equity $356,402 $343,248
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
The Centris Group, Inc.
Condensed Consolidated Income Statements
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1998 1997
---- ----
Revenues:
<S> <C> <C>
Premiums earned $41,433 $39,283
Commissions and fees 8,694 8,042
Net investment income 3,149 2,691
Realized investment gains 641 177
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Total revenues 53,917 50,193
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Operating Expenses:
Losses and loss adjustment expenses
incurred 30,381 27,996
Policy acquisition expenses 12,166 11,909
General and administrative expenses 4,631 4,454
Interest 556 614
------- -------
Total operating expenses 47,734 44,973
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Income before income taxes 6,183 5,220
Income tax expense 1,949 1,560
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$ 4,234 $ 3,660
Net income ======= =======
Basic earnings per share $ 0.35 $ 0.31
======= =======
Diluted earnings per share $ 0.34 $ 0.30
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
The Centris Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash provided by operating activities $ 6,058 $ 2,381
Cash flows from investing activities:
Purchases of fixed maturity investments (14,745) (9,572)
Purchases of equity securities ( 2,814) (189)
Proceeds from sales of investment
securities 11,907 4,612
Net sales (purchases) of short term
investments (559) 3,529
Purchases of property and equipment (69) (443)
-------- -------
Cash used in investing activities (6,280) (2,063)
-------- -------
Cash flows from financing activities:
Dividends paid (374) (358)
Exercise of stock options 117 3
Payments on note payable (1,325) (625)
-------- -------
Cash (used in) provided by financing (1,582) (980)
activities -------- -------
Net decrease in cash and invested cash (1,804) (662)
Cash and invested cash at beginning of period 11,122 11,132
-------- -------
Cash and invested cash at end of period $ 9,318 $10,470
======== =======
Supplemental disclosure of cash flow
information:
Interest paid $ 567 $ 582
======== =======
$ 1,184 $ 818
Income taxes paid, net ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
The Centris Group, Inc.
Notes to Condensed Consolidated Financial Statements
1. General
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and the instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the three months
ended March 31,1998 are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31,1997 included in
the 1997 Annual Report to Stockholders of The Centris Group, Inc. (the
"Company").
2. Other
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information" will be adopted by the Company for the year ended December 31,
1998. Presently, the Company regularly reports segment information.
Accordingly, adoption of this standard is not expected to result in a
significant change to the Company's financial disclosures.
3. Stock Split
On February 3, 1998, the Company announced that its Board of Directors had
authorized a two-for-one split of its common stock in the form of a 100% stock
dividend to stockholders of record as of February 18,1998. Certificates
reflecting the stock split were issued February 27,1998. All references in the
financial statements to number of shares, per share amounts and market prices of
the Company's common stock have been adjusted retroactively for all periods
presented to reflect this change in capital structure.
<PAGE>
4. Income Per Share
Reconciliation of income and outstanding shares and related per share amounts
adjusted to reflect the February 27, 1998 two-for-one stock split, is presented
below (In thousands of dollars, except per share data):
<TABLE>
<CAPTION>
Quarter ended March 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Income(Numerator)
Income available to Common Stockholders
for Basic and Diluted income per share $ 4,234 $ 3,660
Weighted Average Shares (Denominator)
Basic Shares 12,167 11,920
Effect of dilutive securities
Common Stock Equivalents 278 268
------- -------
Diluted Shares 12,445 12,188
======= =======
Per Share Amounts
Basic Income per Share $ 0.35 $ 0.31
Diluted Income per Share $ 0.34 $ 0.30
</TABLE>
5. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" was adopted by the Company
effective January 1, 1998. Comprehensive income represents a measure of all
changes in equity of an enterprise that result from recognized transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. Comprehensive income for the quarterly periods ended March
31, 1998 and 1997 was $4,895,000 and $1,521,000, respectively. The Company's
Comprehensive Income is comprised of net income for the period plus the tax
effected increase or decrease in unrealized gains occurring during the period.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results Of Operations
- ---------------------
Consolidated revenues of The Centris Group, Inc. (the "Company") increased 7% to
$53,917,000 for the 1998 first quarter from $50,193,000 in the 1997 quarter.
Revenue improvements in the first quarter of 1998 result from growth in the
medical lines and property/casualty segments which reflect continued progress
integrating 1997 acquisitions and further expansion of geographic coverage to
enhance and increase the Company's sources of premium and fee based revenue. Net
investment income reflects a 17% increase over the 1997 period as a result of
higher levels of invested assets resulting from higher production levels in each
business segment. Changes in realized gains in the 1998 period as compared to
the 1997 period arise from the continuous evaluation of the investment portfolio
to enhance and maintain yields and total return consistent with the Company's
investment guidelines.
Insurance and reinsurance companies establish reserves for losses incurred, but
not yet paid or reported, in order to match such losses with the related
premiums earned. The process of establishing loss reserves is subject to
uncertainties that are a normal, recurring aspect of the insurance business
which requires the use of informed judgments and estimates. Loss and loss
adjustment expense("LAE") reserve development is reviewed on a regular basis,
incorporating analysis of current trends, market changes in the Company's
business segments and historical experience to analyze the Company's actuarial
assumptions. As additional experience and other data becomes available, the
Company's actuarial estimates may be revised. Such revisions may impact
earnings. Losses and LAE increased 9% to $30,381,000 in the first quarter of
1998 from $27,996,000 in the 1997 period primarily reflecting increased
reserving of casualty lines partially offset by improved loss experience in the
medical lines segment. See segment information contained herein for additional
disclosures. Policy acquisition expenses vary on the basis of market conditions
and mix of business.
General and administrative expenses increased 4% to $4,631,000 in the 1998
period from $4,454,000 in the 1997 period reflecting the Company's ongoing
emphasis on productivity, which mitigated the additional expenses attributable
to three strategic acquisitions completed during 1997. Despite such additional
expenses, the Company has maintained general and administrative expenses at 9%
of revenues in both periods.
Consolidated net income increased 16% to $4,234,000 in the first quarter of 1998
from $3,660,000 in the 1997 quarter, primarily due to increased production
levels in each business segment combined with the effect of more stringent
standards established for the medical lines producer network which are reflected
in the results of the medical segment for the first quarter of 1998.
<PAGE>
Income taxes as a percentage of pre-tax income fluctuate depending on the
proportion of tax exempt investment income to total pre-tax income and the
proportion of total income subject to state income taxes. The increase in the
effective income tax rate in the 1998 period as compared to 1997 results from
the tax effect of acquired companies and the utilization of tax benefits and
changes in valuation allowances which were available in prior periods.
The statutory combined ratio is the traditional indicator of the potential
underwriting profitability of an insurance company's business. The Company's
statutory combined ratios were 101.2 and 98.8 for the quarters ended March 31,
1998 and 1997, respectively.
Business Segments
- -----------------
The Company conducts business in two segments:
Medical lines includes medical stop-loss and provider excess coverages
- -------------
underwritten by USBenefits Insurance Services, Inc. ("USBenefits") on behalf of
The Continental Insurance Company ("Continental"), one of the CNA Insurance
Companies, reinsurance of 50% of such business by USF RE INSURANCE COMPANY ("USF
RE") and catastrophic accident and health risks underwritten and managed
nationally and internationally by INTERRA Reinsurance Group, Inc. ("INTERRA").
USBenefits is the underwriting manager and marketing organization for medical
lines coverages issued on behalf of Continental and for group life insurance
coverage issued by an affiliate of Continental. Medical stop-loss coverage is
a form of excess insurance that protects employers that self-fund their
employee healthcare plans by capping their exposure from the risk of loss.
Provider excess coverage limits the financial risks healthcare providers face
from medical plans that prepay the providers fixed sums per plan participant
(capitated fees) or provide specified rates for services. USBenefits also
markets other employee benefits related products. Medical lines products are
marketed through a network of unaffiliated third party administrators, insurance
agents, brokers and consultants.
Property/Casualty reinsurance and insurance underwriting is conducted by USF RE
- -----------------
and its wholly-owned subsidiary USF Insurance Company ("USFIC"). These
subsidiaries both carry an A (Excellent) rating from A.M. Best Company and USF
RE is assigned a claims paying ability rating of Aq (Good) by Standard & Poor's.
Insurance companies purchase reinsurance in order to control and manage the
risks they accept when they issue policies. USF RE assumes facultative and
treaty reinsurance from unaffiliated insurance companies, primarily through
reinsurance intermediaries. Facultative is reinsurance of one risk at a time,
while reinsurance treaties cover a portion of all policies written by another
insurer in a particular risk category. USF RE concentrates its casualty
writings in commercial auto liability, general liability and products liability.
It also provides a broad range of coverages for most types of property
exposures. USFIC writes surplus lines insurance on commercial
<PAGE>
property/casualty risks which are marketed through independent excess and
surplus lines brokers.
The tables set forth below present pre-tax operating information by business
segment and holding company operations (including realized gains) for the
quarters ended March 31, 1997 and 1996, respectively.
Medical Lines
- --------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended
March 31
--------------------------------
1998 1997 % Change
-------- -------- -----------
<S> <C> <C> <C>
Revenues:
Premiums earned $25,840 $25,032 3 %
Commissions and fees 8,538 8,042 6 %
Investment income 997 865 15 %
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Total revenues 35,375 33,939 4 %
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Expenses:
Losses and loss adjustment 18,224 17,886 2 %
Policy acquisition 9,092 8,606 6 %
General and administrative 3,275 3,339 (2) %
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Total expenses 30,591 29,831 3 %
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Income before income taxes $ 4,784 $ 4,108 16 %
======= ======= =====
</TABLE>
In medical lines, total revenues advanced 4% to $35,375,000 in the first quarter
of 1998 from $33,939,000 in the first quarter of 1997. Premiums earned increased
3%, reflecting growth of 12% in the Company's medical stop-loss business and 78%
in its provider excess line, offset by the planned runoff of certain business
acquired as part of the Company's 1997 purchase of Global Excess Re. Commission
and fee income for the 1998 quarter was enhanced by the contribution of INTERRA
Reinsurance Group which was acquired in September 1997.
Losses and LAE in the 1998 quarter reflect the impact of pricing and
underwriting actions taken in the third quarter of 1997 to support and improve
medical lines profitability. Such actions, including focusing marketing efforts
on larger groups with more predictable outcomes, rating actions in regions of
the country where managed care is not firmly established and more stringent
standards established for the producer network, began to be reflected in the
fourth quarter of 1997 and favorably effect results for the first quarter of
1998.
<PAGE>
Policy acquisition expenses vary due to the level of production activity, mix of
business and market conditions. Decreases in general and administrative expenses
in the 1998 quarter primarily result from continued emphasis on maximizing
efficiency and productivity.
Property/Casualty
- -----------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31
-----------------------------------
1998 1997 % Change
-------- -------- ------------
<S> <C> <C> <C>
Revenues:
Premiums earned $15,593 $14,251 9 %
Commissions and fees 156 -- --
Investment income 2,128 1,814 17 %
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Total revenues 17,877 16,065 11 %
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Expenses:
Losses and loss adjustment 12,157 10,110 20 %
Policy acquisition 3,074 3,303 (7) %
General and administrative 1,095 898 22 %
------- -------
Total expenses 16,326 14,311 14 %
------- -------
Income before income taxes $ 1,551 $ 1,754 (12) %
======= ======= =====
</TABLE>
Within the property/casualty sector, strong competition in treaty and
facultative lines continues to impact pricing and broaden contractual terms. In
this marketplace the property/casualty segment increased revenues by 11% in the
first quarter of 1998 as compared to the 1997 period as business from the east
coast treaty branch, acquired from The Hanover Insurance Company in September
1997, began to be renewed into the Company's reinsurance subsidiary, USF RE.
Changes in losses and LAE between periods reflect a change in the mix of
business to a smaller proportion of property business, which carries a lower
formula loss ratio than casualty business, combined with increased reserving in
casualty lines. The decrease in policy acquisition expenses in 1998 as compared
to 1997 primarily results from the change in the mix of business. The effect of
the new east coast treaty branch operations resulted in a 22% increase in
general and administrative expenses in the property/casualty segment for the
first quarter of 1998 as compared to the 1997 period.
<PAGE>
Holding Company
- ---------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter ended
March 31
--------
1998 1997 % Change
------ ------ --------
<S> <C> <C> <C>
Revenues:
Investment income $ 24 $ 12 100 %
Realized gains 641 177 262 %
----- -----
Total revenues 665 189 252 %
----- -----
Expenses:
General and administrative 261 217 20 %
Interest 556 614 (9)%
----- -----
Total expenses 817 831 (2)%
----- -----
Loss before income taxes $(152) $(642) 76 %
===== =====
</TABLE>
Changes in realized gains in the 1998 period as compared to the 1997 period
arise from the continuous evaluation of the investment portfolio to enhance and
maintain yields and total return consistent with the Company's investment
guidelines. Increases in general and administrative expenses resulted from
higher infrastructure costs in the 1998 quarter to support the growth of the
Company's business operations. Declines in interest expense in the 1998 period
reflect quarterly reduction in the outstanding balance of bank debt under the
Company's Credit Agreement, principal payments on which commenced in March 1997,
and changes in the variable interest rate charged on the outstanding balance.
Inflation
- ---------
The healthcare marketplace has long been subject to the effects of increases in
costs of services. Inflation in the costs of healthcare tends to generate
increases in premiums for medical lines coverage, resulting in greater revenues.
Inflation can also negatively impact insurance and reinsurance operations by
causing higher claims settlements than may have originally been estimated, while
not necessarily allowing an immediate increase in premiums to a level necessary
to maintain profit margins. Historically the Company has made no explicit
provisions for inflation, but economic trends are considered when setting
underwriting terms and claim reserves. Such reserves are subjected to a
continual internal and external review processes to assess their adequacy and
are adjusted as deemed appropriate. Overall economic trends also affect
interest rates, which in turn affect investment income and the market value of
the Company's investment portfolio.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Primary sources of cash from operations include premium collections, investment
income and commissions and fees. The principal uses of cash from operations are
for premium payments to insurance companies, payments of claims under USF RE's
and USFIC's reinsurance and insurance contracts, debt reduction, and operating
expenses such as salaries, commissions, taxes and general overhead. The
Company's Credit Agreement contains certain covenants, restrictions and dividend
payment limitations with which the Company was in compliance at March 31, 1998.
The Company anticipates that it will continue to generate sufficient cash flow
from operations to cover its short-term (1-18 months) and long-term (18 months
to 3 years) liquidity needs. While the Company currently has no immediate plans
for significant capital outlays, from time to time it contemplates acquisition
opportunities that complement its business operations.
The Company's investment portfolio reflects a current allocation of
approximately 92% in fixed-income investments, both taxable and tax free, with
an "AA" average fixed income portfolio rating, and 8% in equities. The
portfolio is not exposed to real estate investments, derivatives, high yield
bonds, private placements or mortgage loans. All such securities are carried at
quoted market values at the latest balance sheet date.
Year 2000
- ---------
As the year 2000 approaches, the Company recognizes the need to ensure that its
operations will not be adversely affected by year 2000 computer software issues.
The Company has a formal plan in place to evaluate and implement solutions to
year 2000 computer software issues. The evaluation phase of the plan, which was
completed in December 1997, included an analysis of the Company's software
systems, identification of software enhancements required to address year 2000
issues and identification of vendors and business partners that may impact
Company operations. The Company's significant operational and financial
software systems are provided by third party vendors who the Company has
confirmed have also been focusing on addressing year 2000 issues. Presently,
the Company has commenced upgrading its software products and expects to
complete this phase of its plan, including testing year 2000 changes, during
1998. The cost of the year 2000 remediation plan is not considered material to
the Company's financial position. The Company will continue to make investments
in its software systems to ensure year 2000 compliance for all its business
processing systems.
13
<PAGE>
Forward Looking Statements
- --------------------------
Some of the statements included within this quarterly report on Form 10-Q,
including, but not limited to, Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and related Notes may be considered to be forward looking statements (as that
term is defined in the Private Securities Litigation Reform Act of 1995), and
which are subject to certain risks and uncertainties. Among those factors which
could cause the actual results to differ materially from those suggested by such
statements are: catastrophe losses in the Company's insurance lines or a
material aggregation of losses; changes in federal or state law affecting an
employer's ability to self-insure; availability of adequate retrocessional
insurance coverage at appropriate prices; a downturn in the general economy; the
effects of competitive market pressures within the medical lines or
property/casualty marketplaces; the effect of changes required by generally
accepted accounting practices or statutory accounting practices; and other risks
which are described from time to time in the Company's filings with the
Securities and Exchange Commission. The words "believes", "anticipates",
"expects" and similar expressions are intended to identify forward looking
statements.
14
<PAGE>
PART II OTHER INFORMATION
Item 6. EXHIBITS and REPORTS ON FORM 8-K.
(a) The following is a list of exhibits required to be filed as part of
this Form 10-Q by Item 601 of Regulation S-K:
3.1, 4.1 The Company's Restated Certificate of Incorporation, as
amended, as presently in effect. Filed as Exhibits 3.1 and 4.1
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and incorporated herein by this reference.
3.2, 4.2 The Bylaws of the Company, as amended, as presently in effect.
Filed as Exhibits 3.2 and 4.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, and
incorporated herein by this reference.
4.3 Stock Certificate of the Company. Filed as Exhibit 4.3 to the
Company's Quarterly report on Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein by this reference.
4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated May 24, 1990, and incorporated herein
by this reference.
4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 16, 1992,
and incorporated herein by this reference.
4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated April 29, 1994,
and incorporated herein by this reference.
4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated September 28, 1995,
and incorporated herein by this reference.
4.8 Fourth Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated July 23, 1997, and
incorporated herein by this reference.
4.9 Fifth Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 28, 1998,
and incorporated herein by this reference.
15
<PAGE>
10.1(i)* Amendment No. 2 to Agreement of Employment, including
relocation loan arrangement, between the Company and David L.
Cargile.
10.5(xiii)* Amendment No. 2 dated March 1, 1998 to Severance Agreement
between the Company and Edward D. Jones, III.
11* The Centris Group, Inc. and Subsidiaries Computation of
Earnings Per Share.
15* Independent Auditors' letter regarding unaudited interim
financial information.
27* Financial Data Schedules
(b) The following reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1998:
1. Fifth Amendment to Rights Agreement, dated January 28,1998 and filed
with the Securities and Exchange Commission February 6, 1998.
2. Description of Stock Split effected in the form of a 100% stock
dividend, dated February 5, 1998 and filed with the Securities and
Exchange Commission February 6, 1998.
* Describes the exhibits filed with this Quarterly Report on Form 10-Q.
16
<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.
The Centris Group, Inc.
Date: May 12, 1997 By: /s/ DAVID L. CARGILE
----------------------------------------------
DAVID L. CARGILE
Chairman of the Board, President and Chief
Executive Officer
Date: May 12, 1997 By: /s/ CHARLES M. CAPORALE
----------------------------------------------
CHARLES M. CAPORALE
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
17
<PAGE>
EXHIBIT 10.1(i)
AMENDMENT NO. 2
TO THE PROMISSORY NOTE DATED JULY 24, 1995
IN THE AMOUNT OF $649,000
EXECUTED BY DAVID L. CARGILE AND ANN M. CARGILE
IN FAVOR OF US FACILITIES CORPORATION
__________________ __________________
In connection with the July 21, 1995 amendment to the August 4, 1994
Agreement of Employment between US Facilities Corporation, a Delaware
Corporation (the "Company" or "Lender"), and David L. Cargile (the "Executive"),
the Company loaned $649,000 to David L. Cargile and Ann M. Cargile, husband and
wife ("Borrower"). This loan was evidenced by a Promissory Note dated July 24,
1995 and secured by a Deed of Trust of even date therewith given by Borrower.
Effective as of November 1, 1996, the Company and Executive entered into a
new Agreement of Employment, the terms of which new Agreement of Employment
require that the July 24, 1995 Promissory Note be amended as set forth in
Amendment No. 1 to the Promissory Note and further amended in the manner as set
forth in this Amendment No. 2 to the Promissory Note.
NOW, THEREFORE, section 2. CREDITS is hereby amended in its entirety to read
-------
in full as follows:
"2. CREDITS
-------
"Commencing on the date hereof, for so long as David L. Cargile is
employed by Lender, at the end of each calendar month of such employment (to
a maximum of sixty (60) months thereafter), Lender shall credit Borrower the
amount of Six Thousand Nine Hundred Twenty Dollars ($6,920) per month (the
`Credit'), which Credit shall be applied against and used to reduce the
principal balance of this Note. In addition, and notwithstanding
<PAGE>
the foregoing, if Borrower should die or become disabled (as defined under
the Employment Agreement) while employed by Lender or should Borrower be
terminated by Lender for any reason whatsoever on or before the 60th Payment
Date, the full amount of the unpaid principal balance and any and all unpaid
interest of the Note shall be forgiven."
Except as modified by Amendment No. 1 and this Amendment No. 2, the terms and
provisions of the July 24, 1995 Promissory Note Secured by Deed of Trust shall
remain in full force and effect as provided therein.
This Amendment shall be effective as of the 1st day of November, 1996.
BORROWER:
- --------
/s/ David L. Cargile
- ---------------------------------
DAVID L. CARGILE
/s/ Ann M. Cargile
- ---------------------------------
ANN M. CARGILE
<PAGE>
EXHIBIT 10.5(xiii)
AMENDMENT NO. 2
TO SEVERANCE AGREEMENT
BETWEEN
THE CENTRIS GROUP, INC.
AND
EDWARD D. JONES, III
_______________ _______________
WHEREAS, THE CENTRIS GROUP, INC., a Delaware corporation (the "Company"), and
EDWARD D. JONES, III (the "Executive") entered into a Severance Agreement dated
December 4, 1996, and to an Amendment No. 1 thereto dated August 29, 1997
(collectively referred to herein as the "Agreement"), which relates to the
termination of Executive's employment with the Company under certain
circumstances; and
WHEREAS, the Company and the Executive desire to amend Section 5(a) which
defines the obligations of the Company regarding salary and bonus termination
payments to Executive;
NOW, THEREFORE, in consideration of the Executive's agreement to continue his
employment with the Company for a period of a minimum of six (6) months from the
date of this Amendment and the payment by the Company to Executive of $1.00 and
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and the Executive hereby agree to enter into this Amendment to the
Agreement as follows:
1. Section 5(a) of the Agreement as originally written shall be stricken and
eliminated from the Agreement, and shall be completely replaced by a new Section
5(a), which shall read in full as follows:
(a) Salary and Bonus: Subject to the limitations set forth in Section
7 hereof, the Company shall pay to the Executive that amount which is equal
to his regular base salary, at the rate then in effect, for a period of
<PAGE>
two (2) years, plus a bonus in an amount which shall be equal to the largest
cash bonus actually received by Executive during his term of employment with
the Company; provided, however, that if Executive shall have entered into an
Employment Agreement with the Company which is in effect at the time of
Executive's termination, then and in that event the Company and Executive
agree that upon Executive's termination Executive shall be entitled to
receive either (i) the salary and bonus termination payments under this
Section 5(a), or (ii) the salary and bonus terminations payments provided for
in such Employment Agreement, whichever salary and bonus termination payment
is the greater; but under no conditions shall Executive be entitled to
receive upon termination both the salary and bonus termination payments under
this Severance Agreement and the salary and bonus termination payments under
any such Employment Agreement.
2. Apart from this Amendment, the terms of the Agreement as entered into on
December 4, 1996 and as amended by Amendment No. 1 on August 29, 1997 shall
otherwise in all respects remain as originally written to the extent that such
terms do not conflict with or are inconsistent with this Amendment.
IN WITNESS WHEREOF, this Amendment No. 2 has been executed by a duly
authorized officer of the Company and by the Executive as of the 1st day of
March, 1998.
Company: THE CENTRIS GROUP, INC.
-------
By /s/ David L. Cargile
-----------------------------------------
DAVID L. CARGILE
President and Chief Executive Officer
Executive:
---------
/s/ Edward D. Jones, III
-----------------------------------------
EDWARD D. JONES, III
<PAGE>
EXHIBIT 11
EXHIBIT 11
THE CENTRIS GROUP, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
The computation of per share income is based upon the weighted average number
of common and common equivalent shares outstanding during each quarter ended
March 31, adjusted to reflect the February 27, 1998 two-for-one stock split.
Such information, presented in conformance with the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share" is as follows:
(000 Omitted)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net Income $4,234 $3,660
====== ======
Weighted average shares outstanding during
the period (Basic Shares) 12,167 11,920
Common stock equivalent shares 278 268
------ ------
Common and common stock equivalent shares
outstanding for purposes of calculating
diluted income per share 12,445 12,188
====== ======
Basic income per share $ 0.35 $ 0.31
====== ======
Diluted income per share $ 0.34 $ 0.30
====== ======
</TABLE>
<PAGE>
EXHIBIT 15
Independent Auditors' Review Report
-----------------------------------
The Board of Directors and Shareholders
The Centris Group, Inc.:
We have reviewed the condensed consolidated balance sheet of The Centris Group,
Inc. and subsidiaries as of March 31, 1998, and the related condensed
consolidated income statements and statements of cash flows for the three-month
periods ended March 31, 1998 and 1997. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Centris Group, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated income
statement and statements of stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated February 3, 1998, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/S/ KPMG PEAT MARWICK LLP
Los Angeles, California
April 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 230,849
<CASH> 40,932
<RECOVER-REINSURE> 29,839
<DEFERRED-ACQUISITION> 4,406
<TOTAL-ASSETS> 356,402
<POLICY-LOSSES> 124,362
<UNEARNED-PREMIUMS> 30,402
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 31,175
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 356,402
41,433
<INVESTMENT-INCOME> 3,149
<INVESTMENT-GAINS> 641
<OTHER-INCOME> 8,694
<BENEFITS> 30,381
<UNDERWRITING-AMORTIZATION> 12,166
<UNDERWRITING-OTHER> 5,187
<INCOME-PRETAX> 6,183
<INCOME-TAX> 1,949
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,234
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
