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Previous: LINCOLN NATIONAL FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT F, 497, 1997-05-06 |
Next: THORNBURG INVESTMENT TRUST, 497, 1997-05-06 |
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
-----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
X For the quarterly period ended March 31, 1997
- --------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
- --------
Commission File Number 0-16748
------------------------------
INTERCARGO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3414667
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1450 East American Lane, 20th Floor, Schaumburg, Illinois 60173
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (847) 517-2510
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 latest practicable date:
Class Outstanding at May 6, 1997
- -------------------------- ---------------------------
Common Stock, $1 par value 7,659,981 shares
<PAGE> 2
INTERCARGO CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Income for the three
months ended March 31, 1997 (unaudited) and
March 31, 1996 (unaudited) 4
Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited) 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 (unaudited) and
March 31, 1996 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Summary Statement of Income of Kingsway Financial Services,
Inc. for the three months ended March 31, 1997 (unaudited) and
March 31, 1996 (unaudited) 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position 9
PART II. OTHER INFORMATION 12
SIGNATURES 13
EXHIBITS 14
</TABLE>
2
<PAGE> 3
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities at fair value $55,655 51,567
Equity securities at fair value 1,791 1,557
Investee at cost plus cumulative undistributed earnings 14,486 13,519
-------- --------
Total investments 71,932 66,643
Cash and cash equivalents 9,834 18,492
Premiums receivable 19,652 16,231
Accrued investment income 958 833
Deferred policy acquisition costs 4,250 3,884
Reinsurance recoverable on loss and loss expense:
Paid claims 1,651 96
Unpaid claims 9,298 9,980
Prepaid reinsurance premiums 6,502 4,549
Notes receivable 629 672
Deferred income tax 2,731 2,375
Equipment, at cost less accumulated depreciation 2,214 2,276
Goodwill 2,038 2,091
Other assets 5,377 5,588
-------- --------
Total assets $137,066 133,710
======== ========
LIABILITIES
Losses and loss adjustment expenses $46,489 47,037
Unearned premiums 21,098 17,617
Funds held by Company 631 491
Supplemental duty deposits 2,278 2,358
Accrued expenses and other liabilities 8,562 8,460
Notes payable 9,735 9,735
-------- --------
Total liabilities 88,793 85,698
-------- --------
Commitments and Contingencies -- --
STOCKHOLDERS' EQUITY
Common stock--$1 par value; authorized 20,000,000 shares; issued and
outstanding, 7,659,981 shares in 1997 and in 1996 7,660 7,660
Additional paid-in capital 24,180 24,180
Net unrealized loss of foreign currency translation (1,017) (978)
Net unrealized gain (loss) on marketable securities (1,171) (366)
Retained earnings 18,621 17,516
-------- --------
Total stockholders' equity 48,273 48,012
-------- --------
Total liabilities and stockholders' equity $137,066 $133,710
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1997 1996
------- ------
<S> <C> <C>
REVENUES
Insurance premium income $13,725 14,740
Net investment income 1,047 990
Commission income 156 166
Other income 53 7
------- ------
Total 14,981 15,903
LOSSES AND EXPENSES
Losses and loss adjustment expenses 7,233 7,292
Policy acquisition costs 3,134 4,610
Other underwriting expenses 3,259 3,013
Interest expense 184 217
------- ------
Total 13,810 15,132
Operating income 1,171 771
------- ------
Income tax expense 343 207
------- ------
Net income before equity in net income of investee 828 564
Equity in net income of investee 967 552
------- ------
Net Income $1,795 1,116
======= ======
Average number of shares of common
stock and equivalents outstanding 7,673 7,663
NET INCOME PER SHARE $0.23 0 .15
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Net
Unrealized Net
(Loss) Unrealized
Additional On Foreign Gain (Loss)
Number of Common Paid-in Currency on Retained Stockholders'
Shares Stock Capital Translation Investments Earnings Equity
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 7,660 $7,660 24,180 (978) (366) 17,516 48,012
Net Income -- -- -- -- -- 1,795 1,795
Change in foreign currency translation -- -- -- (39) -- -- (39)
Change in unrealized gain (loss) on
marketable securities -- -- -- -- (805) -- (805)
Dividends paid to stockholders -- -- -- -- (690) (690)
----- ------ ------ ------- ----- ------ ------
Balance at March 31, 1997 7,660 $7,660 24,180 (1,017) (1,171) 18,621 48,273
===== ====== ====== ======= ===== ====== ======
Balance at December 31, 1995 7,641 7,641 24,104 (1,179) 567 12,488 43,621
Net income -- -- -- -- -- 1,116 1,116
Change in foreign currency translation -- -- -- 9 -- -- 9
Change in unrealized gain (loss) on
marketable securities -- -- -- -- (836) -- (836)
Dividends paid to stockholders -- -- -- -- -- (688) (688)
----- ------ ------ ------- ----- ------ ------
Balance at March 31, 1996 7,641 $7,641 24,104 (1,170) (269) 12,916 43,222
===== ====== ====== ======= ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
INTERCARGO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1997 1996
-------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,795 1,116
Adjustments to reconcile net income to net cash provided from
operating activities:
Realized Gains (10) (171)
Depreciation and amortization 393 185
Amortization of premiums on investments 12 32
Undistributed earnings of affiliate (967) (552)
Increase in premiums receivable (3,421) (2,490)
Increase in deferred policy acquisition costs (366) (310)
Decrease (increase) in reinsurance balances (2,826) 747
Change in income tax accounts 58 311
Decrease in liability for losses and loss
adjustment expenses (548) (926)
Increase in unearned premiums 3,481 1,561
Increase (decrease) in funds held 140 (265)
Decrease in supplemental duty deposits (80) (122)
Other, net 32 131
-------- -----
Net cash provided from (used in) operating activities (2,307) (753)
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities:
Purchases (6,996) (11,333)
Sales 1,547 4,106
Maturities and calls 200 1,660
Equity securities:
Purchases (498) -
Sale 301 514
Net sales (purchases) of short-term investments (102) 510
Sale of Kingsway common stock - 412
Purchase of property and equipment, net (113) (366)
-------- ------
Net cash used in investing activities (5,661) (4,497)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Dividends paid to stockholders (690) (688)
-------- ------
Net cash used in financing activities (690) (688)
-------- ------
Net increase (decrease) in cash and cash equivalents (8,658) (5,938)
Cash and cash equivalents:
Beginning of the period 18,492 16,478
-------- ------
End of the period $ 9,834 10,540
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
INTERCARGO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements of the Company have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes
that the accompanying consolidated financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of March 31, 1997,
and December 31, 1996, and the consolidated results of operations and the
consolidated cash flows for the three month periods ended March 31, 1997,
and 1996.
The results of operations for the three month period ended March 31, 1997,
are not necessarily indicative of the results to be expected for the full
year.
These consolidated unaudited interim financial statements should be read in
conjunction with the financial statements and notes thereto contained in
the December 31, 1996 Form 10-K filed by the Company.
2. Earnings per Share
Earnings per share are computed based on the weighted average number of
shares outstanding which includes common stock equivalents (if dilutive)
relating to outstanding options.
The Company's common stock at March 31, 1997, consists of 7.7 million
shares outstanding $1.00 par value per share. The Company also has 143
thousand outstanding stock options.
3. Long Term Debt
The Company's $13.8 million bank line of credit had an outstanding balance
amounting to $9.7 million at March 31, 1997 and December 31, 1996.
7
<PAGE> 8
Kingsway Financial Services, Inc.
Summary Statement of Income
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES:
Net premiums earned $24,365 11,453
Other revenues 2,551 1,177
------- ------
Total revenues 26,916 12,630
EXPENSES:
Claims incurred 21,282 7,409
Other expenses 1,946 3,352
------- ------
Total expenses 23,228 10,761
Income before income taxes 3,688 1,869
Income taxes 623 704
------- ------
NET INCOME $3,065 1,165
======= ======
</TABLE>
8
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
OPERATING RESULTS
Consolidated earned premium for the first quarter of 1997 decreased 6.9% to
$13.7 million compared to a 5.8% increase to $14.7 million for the comparable
period in 1996. Earned premiums for surety products decreased $1.8 million
reflecting the continued movement to rates net of commissions and to increased
levels of ceded premiums.
Consolidated net investment income for the first quarter of 1997 increased 5.8%
to $1,047 thousand as compared to an 11.4% increase to $990 thousand for the
first quarter of 1996. This increase is attributable to the higher average
invested balances in the three month period ended March 31, 1997 compared to
the comparable period in 1996.
Consolidated losses and loss adjustment expenses for the first quarter of 1997
decreased about 1% to $7.2 million compared to an increase of 15.2% to $7.3
million in the first quarter of 1996. This decrease is due to the decrease in
volume. The loss ratio for the first quarter of 1997 increased to 52.7% from
49.5% in the first quarter of 1996, reflecting the change in reserve factors in
certain product lines.
Consolidated policy acquisition costs for the first quarter of 1997 decreased
about $1.5 million or 32% as compared to an increase of $734 thousand or 19% in
the first quarter of 1996. The decrease is due to lower premium volumes, the
continued move to rate structures in certain products that are net of broker
commissions, and to increased deferral rates for acquisition costs for products
with improved margins.
Consolidated other underwriting expenses increased $234 thousand or 7.8% during
the first quarter of 1997. This compares to an increase of $472 thousand or
18.6% in the first quarter of 1996. Approximately $117 thousand of the
increase for 1997 is attributable to the Hong Kong operations which were not
fully operational in the 1996 period.
Equity in net income, which reflects the Company's equity in the earnings of
Kingsway Financial Services, Inc., increased 75% in the first quarter of 1997
to $967 thousand. This reflects the continued strong operations of that
entity, in which the Company has approximately a 31% ownership interest.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets at March 31, 1997 increased to $137.1 million from
$133.7 million at December 31, 1996. Stockholders' equity has increased to
$48.3 million during the first quarter of 1997 from the $48.0 million at
December 31, 1996. The net income from operations exceeded the decrease in the
unrealized market value changes in the investment portfolio and the dividend
payment. The Company declared and paid a dividend of $0.09 per share on March
14, 1997 to holders of record as of March 11, 1997.
The Company's operations required $8.7 million and $5.9 million of cash flow
for the three month periods ended March 31, 1997 and 1996, respectively. To
supplement existing working capital, the Company can access a bank line of
credit of $13.8 million. At March 31, 1997 and at December 31, 1996 the
Company has borrowed $9.735 million against this line of credit. This line is
used to fund expansion and for general corporate purposes.
10
<PAGE> 11
RESULTS BY LINE
The following table illustrates the premium earned (dollars in thousands) for
each major line of business for the three month periods ended March 31, 1997
and 1996. It also sets forth the combined ratios by line and in the aggregate
for the Company.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
OTHER
BOND MARINE E&O PROPERTY & CASUALTY TOTAL
------------------------------------------------------------------------------------------------------------
Earned Combined Earned Combined Earned Combined Earned Combined Earned Combined
Premium Ratio Premium Ratio Premium Ratio Premium Ratio Premium Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended
March 31,
1997 $4,921 93.4 $6,754 99.6 $919 120.6 $1,131 91.8 $13,725 98.3
1996 6,756 87.2 6,151 110.7 733 155.4 1,100 125.3 14,740 103.2
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended
December 31,
1996 $25,846 85.2 $26,826 113.5 $2,644 151.3 $5,631 135.3 $60,947 105.2
1995 24,700 83.5 20,808 124.7 3,069 160.3 5,498 146.8 54,075 110.2
1994 23,019 80.4 14,996 114.2 2,377 195.4 3,362 106.3 43,754 100.2
1993 19,739 106.5 12,154 85.8 1,681 175.2 772 156.2 34,346 103.6
1992 17,720 105.8 10,773 74.3 2,090 131.5 566 165.2 31,149 97.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net earned premium for the first three months of 1997 has decreased $1.0
million over the comparable period in 1996. All lines of business reported
higher earned premium in the current quarter, except bond premium which was
negatively effected by a change in reinsurance on the contract surety business
and by the continued movement to rates net of commissions for U.S. customs
bonds. Marine earned premium tallied the largest increase at $603 thousand,
followed by E & O earned premium at $186 thousand. Other property and casualty
earned premium increased $31 thousand. Management attributes the increases to
higher volume and to the effects of rate adjustments and closer underwriting.
The combined ratios for all lines of business, except bonds, have decreased in
the first quarter of 1997 over the same period for 1996. The combined ratio
decreases as policy acquisition costs and loss reserving rates decline.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - There have been no material developments in
the legal proceedings addressed in the Company's Form 10-K or new
legal proceedings during the fiscal quarter covered by this report
on form 10-Q.
Item 2. Changes in Securities - Not Applicable.
Item 3. Defaults Upon Senior Securities - Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders - Not
Applicable.
Item 5. Other Information - Not Applicable.
Item 6(a) Exhibits - See Exhibit Index immediately following the signature
page.
Item 6(b) Reports on Form 8-K - The Company filed a Form 8-K on March 5,
1997 which was subsequently amended on March 17, 1997; April 8,
1997; and April 9, 1997. The report and amendments addressed the
change in auditors for fiscal year 1997.
12
<PAGE> 13
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.
Date: May 6, 1997.
(Registrant) INTERCARGO CORPORATION
By: /s/ James R. Zuhlke
--------------------------------------
James R. Zuhlke
Chairman of the Board
President and Chief Executive Officer
By: /s/ Michael L. Rybak
--------------------------------------
Michael L. Rybak
Treasurer and Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
11.0 Computation of Earnings per share.
14
<PAGE> 1
EXHIBIT 11.0
INTERCARGO CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousand, except for per share data)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1997 1996
------ -----
<S> <C> <C>
Primary
Net income $1,795 1,116
====== =====
Shares
Weighted average number of common shares outstanding 7,660 7,641
Additional dilutive effect of outstanding warrant and options
(as determined by the application of the treasury stock method) 13 22
------ -----
Weighted average number of common shares outstanding as adjusted 7,673 7,663
====== =====
Primary earnings per share $.23 .15
====== =====
Fully diluted
Net income $1,795 1,116
====== =====
Shares
Weighted average number of common shares outstanding 7,660 7,641
Additional dilutive effect of outstanding warrant and options
(as determined by the application of the treasury stock method) 15 22
------ -----
Weighted average number of common shares outstanding as adjusted 7,675 7,663
====== =====
Fully diluted earnings per share $.23 .15
====== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 55,655
<DEBT-CARRYING-VALUE> 55,655
<DEBT-MARKET-VALUE> 55,655
<EQUITIES> 1,791
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 71,932
<CASH> 9,834
<RECOVER-REINSURE> 10,949
<DEFERRED-ACQUISITION> 4,250
<TOTAL-ASSETS> 137,066
<POLICY-LOSSES> 46,489
<UNEARNED-PREMIUMS> 21,098
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 9,735
0
0
<COMMON> 7,660
<OTHER-SE> 40,613
<TOTAL-LIABILITY-AND-EQUITY> 137,066
13,725
<INVESTMENT-INCOME> 1,037
<INVESTMENT-GAINS> 10
<OTHER-INCOME> 209
<BENEFITS> 7,233
<UNDERWRITING-AMORTIZATION> 3,134
<UNDERWRITING-OTHER> 3,443
<INCOME-PRETAX> 1,171
<INCOME-TAX> 343
<INCOME-CONTINUING> 828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,795
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
<RESERVE-OPEN> 37,057
<PROVISION-CURRENT> 7,233
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 967
<PAYMENTS-PRIOR> 6,132
<RESERVE-CLOSE> 37,191
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
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