UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 0-16267
WALSHIRE ASSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2023240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
3350 Whiteford Road, P. O. Box 3849, York, PA 17402-0138
(Address of principal executive offices) (Zip code)
(717)757-0000
(Registrant s telephone number, including area code)
(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
Indicate the number of shares outstanding of each of the issuer s classes of
common stock, as of the latest practical date.
Class: Outstanding at August 7, 1998:
Common stock - $.01 Par Value 4,443,188 shares
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
INDEX
PAGE
NUMBER
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 . . . . . . . . . 2
Consolidated Statements of Income for the three
months ended June 30, 1998 and 1997 (unaudited). . . 4
Consolidated Statements of Income for the six
months ended June 30, 1998 and 1997 (unaudited). . . 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 (unaudited). . . 6
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management s Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 8
Part II OTHER INFORMATION . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. 10
Item 5. Other Information . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
June 30, December 31,
Assets 1998 1997
(Unaudited)
Investments:
Held to maturity:
Fixed maturities (fair value $15,262 and
$17,754) . . . . . . . . . . . . . . . . $ 14,733 $ 17,228
Available for sale:
Fixed maturities (cost $44,437 and
$37,722) . . . . . . . . . . . . . . . . 44,943 38,182
Equity securities (cost $8,627 and
$8,268). . . . . . . . . . . . . . . . . 8,667 8,205
Short-term investments . . . . . . . . . . . . 5,895 7,531
Other investments. . . . . . . . . . . . . . . 1,508 2,656
Total investments . . . . . . . . . . . . . 75,746 73,802
Cash. . . . . . . . . . . . . . . . . . . . . . . 223 254
Accrued investment income receivable. . . . . . . 842 800
Amounts receivable from reinsurers. . . . . . . . 1,739 3,698
Amounts receivable from reinsured company . . . . 547 542
Agents balances (net of allowance for doubtful
accounts of $120). . . . . . . . . . . . . . . 6,049 7,411
Installment premiums receivable . . . . . . . . . 7,586 7,681
Agents balances and installment premiums
receivable from related parties. . . . . . . . 1,389 1,897
Premium finance receivables (net of unearned
finance charges and allowance for credit
losses of $75 and $84) . . . . . . . . . . . . 3,436 4,283
Reinsurance receivable. . . . . . . . . . . . . . 23,983 24,370
Deferred acquisition costs. . . . . . . . . . . . 4,361 4,778
Property and equipment (net of accumulated
depreciation of $2,433 and $2,194) . . . . . . 2,818 3,462
Other assets. . . . . . . . . . . . . . . . . . . 2,453 1,464
Total assets. . . . . . . . . . . . . . . . $131,172 $134,442
See accompanying notes to consolidated financial statements.
2
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(In thousands,
except per share data)
June 30, December 31,
Liabilities and Shareholders Equity 1998 1997
(Unaudited)
Liabilities:
Unpaid claims and claim settlement expenses. $ 54,186 $ 48,964
Unearned premiums. . . . . . . . . . . . . . 24,868 27,384
Short-term notes payable . . . . . . . . . . 5,623 5,015
Long-term notes payable. . . . . . . . . . . 299 558
Deposits by insureds . . . . . . . . . . . . 2,306 2,445
Commissions payable to agents. . . . . . . . 1,381 1,442
Commissions payable to related parties . . . 132 163
Other liabilities. . . . . . . . . . . . . . _ 464 980
Total liabilities . . . . . . . . . . . . 89,259 86,951
Shareholders equity:
Preferred stock, par value $.01 per share;
2,000 shares authorized; 128 and 123
shares issued and outstanding . . . . . . 1 1
Common stock, par value $.01 per share;
10,000 shares authorized; 4,692 and
4,710 shares issued; 4,442 and 4,710
shares outstanding. . . . . . . . . . . . 47 47
Additional paid-in capital . . . . . . . . . 38,831 38,812
Unrealized gains on investments available
for sale (net of deferred taxes of $185
and $135) . . . . . . . . . . . . . . . . 361 262
Retained earnings. . . . . . . . . . . . . . 4,667 8,369
43,907 47,491
Treasury stock (250 shares in 1998). . . . . ( 1,994) - __
Shareholders equity. . . . . . . . . . . 41,913 47,491
Total liabilities and shareholders equity . $ 131,172 $134,442
See accompanying notes to consolidated financial statements.
3
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands,
except per share data)
Three Months Ended
June 30, _____
1998 1997
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $ 13,118 $ 15,904
Premiums ceded. . . . . . . . . . . . . . . . . . ( 2,201) ( 4,726)
Net premiums earned . . . . . . . . . . . . . . . 10,917 11,178
Net investment income . . . . . . . . . . . . . . 1,095 1,069
Net realized gains on investments . . . . . . . . 313 757
Other . . . . . . . . . . . . . . . . . . . . . . 97 169
Total revenues . . . . . . . . . . . . . . . . 12,422 13,173
Expenses:
Claims and claim settlement expenses. . . . . . . 15,229 11,879
Reinsurance recoveries. . . . . . . . . . . . . . ( 2,731) ( 3,279)
Net claims and claim settlement expenses. . . . . 12,498 8,600
Amortization of deferred acquisition costs. . . . 1,973 1,728
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 1,631 2,121
Interest. . . . . . . . . . . . . . . . . . . . . 104 175
Total expenses . . . . . . . . . . . . . . . . 16,206 12,624
Income (loss) before income taxes. . . . . . . . . . ( 3,784) 549
Provision for income taxes (benefit) . . . . . . . . ( 1,305) 92
Net income (loss). . . . . . . . . . . . . . . . . . ( 2,479) 457
Dividends on convertible preferred stock . . . . . . 112 104
Net income (loss) applicable for common stock. . . . $( 2,591) $ 353
Net income (loss) per common share:
Basic and diluted:
Net income (loss). . . . . . . . . . . . . . . $( .57) $ .07
Weighted average shares outstanding. . . . . . 4,553 4,780
See accompanying notes to consolidated financial statements.
4
WALSHIRE ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands,
except per share data)
Six Months Ended
June 30, _____
1998 1997
(Unaudited)(Unaudited)
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . $ 26,657 $ 31,550
Premiums ceded. . . . . . . . . . . . . . . . . . ( 4,548) ( 8,225)
Net premiums earned . . . . . . . . . . . . . . . 22,109 23,325
Net investment income . . . . . . . . . . . . . . 2,161 2,051
Net realized gains on investments . . . . . . . . 540 1,393
Other . . . . . . . . . . . . . . . . . . . . . . 215 332
Total revenues . . . . . . . . . . . . . . . . 25,025 27,101
Expenses:
Claims and claim settlement expenses. . . . . . . 26,791 22,692
Reinsurance recoveries. . . . . . . . . . . . . . ( 4,650) ( 4,999)
Net claims and claim settlement expenses. . . . . 22,141 17,693
Amortization of deferred acquisition costs. . . . 3,991 3,328
Underwriting, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . 3,169 4,357
Interest. . . . . . . . . . . . . . . . . . . . . 200 365
Total expenses . . . . . . . . . . . . . . . . 29,501 25,743
Income (loss) before income taxes. . . . . . . . . . ( 4,476) 1,358
Provision for income taxes (benefit) . . . . . . . . ( 1,581) 234
Net income (loss). . . . . . . . . . . . . . . . . . ( 2,895) 1,124
Dividends on convertible preferred stock . . . . . . 212 208
Net income (loss) applicable for common stock. . . . $( 3,107) $ 916
Net income (loss) per common share:
Basic and diluted:
Net income (loss). . . . . . . . . . . . . . . $( .67) $ .19
Weighted average shares outstanding. . . . . . 4,620 4,811
See accompanying notes to consolidated financial statements.
5
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30, _______
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $( 2,895) $ 1,124
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Net realized gains on investments. . . . . . . ( 540) ( 1,393)
Decrease (increase) in assets:
Accrued investment income receivable. . . . . ( 42) 1
Amounts receivable from reinsurers. . . . . . 1,959 1,837
Amounts receivable from reinsured company . . ( 5) 2
Agents balances and installment premiums
receivable . . . . . . . . . . . . . . . . . 1,457 515
Agents balances and installment premiums
receivable from related parties. . . . . . . 508 800
Premium finance receivables . . . . . . . . . 847 178
Reinsurance receivables . . . . . . . . . . . 387 ( 6,677)
Deferred acquisition costs. . . . . . . . . . 417 ( 64)
Other, net. . . . . . . . . . . . . . . . . . ( 725) 760
(Decrease) increase in liabilities:
Unpaid claims and claim settlement expenses . 5,222 4,805
Unearned premiums . . . . . . . . . . . . . . ( 2,516) ( 1,436)
Amounts payable to reinsurers . . . . . . . . --- 3,743
Deposits by insureds. . . . . . . . . . . . . ( 139) 2
Other, net. . . . . . . . . . . . . . . . . . ( 570) ( 739)
Net cash provided by operating activities. . . . . 3,365 3,458
Cash flows from investing activities:
Purchase of investments:
Held to maturity . . . . . . . . . . . . . . . . --- ( 2,340)
Available for sale . . . . . . . . . . . . . . . (19,988) (15,750)
Sale of investments:
Available for sale . . . . . . . . . . . . . . . 11,836 17,451
Maturity of investments. . . . . . . . . . . . . . 3,978 1,781
Net sale (purchase) of short term and other
investments . . . . . . . . . . . . . . . . . . . 2,858 ( 4,120)
Purchase of property and equipment . . . . . . . . ( 43) ( 155)
Sale of property and equipment . . . . . . . . . . 421 12
Other, net . . . . . . . . . . . . . . . . . . . . ( 27) 88
Net cash (used in) investing activities. . . . . ( 965) ( 3,033)
Cash flows from financing activities:
Cash dividends paid. . . . . . . . . . . . . . . . ( 805) ( 815)
Issuance of common stock . . . . . . . . . . . . . 19 116
Purchase of treasury stock . . . . . . . . . . . . ( 1,994) ---
Proceeds from notes payable . . . . . . . . . . . 608 700
Payment of notes payable . . . . . . . . . . . . . ( 259) ( 299)
Net cash (used in) financing activities. . . . . ( 2,431) ( 298)
Net increase (decrease) in cash. . . . . . . . . . . ( 31) 127
Cash at beginning of the period. . . . . . . . . . . 254 637
Cash at end of the period. . . . . . . . . . . . . . $ 223 $ 764
See accompanying notes to consolidated financial statements.
6
WALSHIRE ASSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated balance sheet as of June 30, 1998, the consolidated
statements of income for the three and six months ended June 30, 1998 and 1997,
and the consolidated statements of cash flows for the six months then ended have
been prepared by Walshire Assurance Company ( the Company ) without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 1998 and for all periods presented, have
been made.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these unaudited consolidated financial
statements be read in conjunction with the financial statements and notes
thereto
included in the Company s 1997 Annual Report. The results of operations for the
period ended June 30, 1998 are not necessarily indicative of the results of
operations for the full year.
3. Basic net income per share is computed by dividing net income applicable for
common stock by the weighted average number of common shares outstanding during
the year. Diluted earnings per share includes the additional shares that would
have been outstanding had the 6 1/2% Convertible Preferred Stock been converted
to common, if dilutive, as well as the diluted effect of the Company's stock
option and stock purchase plans.
4. Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", was issued by the Financial Accounting Standards Board
(FASB) in 1997. As defined in SFAS 130, comprehensive income is composed of net
income, as well as other revenues, expenses, gains and losses that are currently
excluded from net income, but are accounted for separately in the shareholders'
equity section of the balance sheet. SFAS 130 requires that all items of
comprehensive income be reported in a financial statement. Total comprehensive
income (loss) is as follows:
(In thousands)
Six Months Ended
June 30, _______
1998 1997
(Unaudited) (Unaudited)
Net income (loss) . . . . . . . . . . . . . . . . . $(2,895) $ 1,124
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax:
Unrealized holding gains arising during period. 455 915
Less: reclassification adjustment for gains
realized in net income. . . . . . . . . . . . 356 919
Net unrealized gain (loss). . . . . . . . . . . 99 ( 4)
Other comprehensive income (loss) . . . . . . . . . 99 ( 4)
Total comprehensive income (loss) . . . . . . . . . $(2,796) $ 1,120
5. Forward Looking Statements. The information contained in this Quarterly
Report contains forward looking statements (as such term is defined in the
Securities Exchange Act of 1934 and the regulations thereunder), including
without limitation, statements as to the allowances for doubtful accounts and
7
credit losses, reserves for unpaid claims and claim settlement expenses, the
classification of the Company's investment portfolio and other statements as to
management's beliefs, expectations or opinions. Such forward looking statements
are subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the forward
looking statements. Certain of these risks, uncertainties and other factors are
discussed in this Quarterly Report or in the Company's Annual Report on Form
10-K
for the year ended December 31, 1997, a copy of which may be obtained from the
Company upon request and without charge (except for the exhibits thereto).
6. Investment Considerations. In analyzing whether to make, or to continue,
an investment in the Company, investors should consider, among other factors,
certain investment considerations more particularly described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
7. Subsequent Event. On August 12, 1998, the Company announced that it had
entered into a definitive Merger Agreement, pursuant to which Kingsway Financial
Services Inc. will acquire all outstanding shares of Walshire common stock for
$8.25 per share in cash and all outstanding shares of Walshire preferred stock
for $50.00 per share, plus all accrued and unpaid dividends through the
Effective
Date of the Merger (an amount equal to the redemption price for such shares).
The closing of the transaction is subject to obtaining all necessary shareholder
and regulatory approvals and the satisfaction of certain other closing
conditions.
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Revenues for the three month period ended June 30, 1998 decreased $.8 million,
or 5.7%, from revenues for the three month period ended June 30, 1997. This
decrease was primarily the result of decreases in net premiums earned and net
realized gains on investments. The decrease in net premiums earned was the
result
of a decrease in direct premiums written over the past twelve months, offset, in
part by a decrease in premiums ceded. Direct premiums written decreased $3.5
million, or 23.8%, in the three month period ended June 30, 1998 when compared
to the same period in 1997. The decreases in direct premiums written resulted
from additional competition, re-underwriting of existing business and rate
reductions. The following table sets forth the direct premiums written by the
Company for the three month periods ended June 30, 1998 and 1997 by line of
business.
(In thousands)
Three months ended June 30,
1998 1997 %Change
Auto liability $ 4,898 $ 6,632 (26.1)%
Auto physical damage 3,162 4,637 (31.8)%
Inland marine 707 735 ( 3.8)%
Homeowners 690 749 ( 7.8)%
Workers compensation 587 777 (24.4)%
Other 1,185 1,201 ( 1.3)%
Total $11,229 $14,731 (23.8)%
Expenses for the three month period ended June 30, 1998 increased $3.6 million,
or 28.4%, over expenses for the three month period ended June 30, 1997. The
increase was primary the result of increases in net claims and claim settlement
expenses offset, in part, by a decrease in underwriting, general and
administrative expenses. Increases in net claims and claim
8
settlement expenses were the result of an increase in the statutory loss ratio
from 78.4% in 1997 to 115.6% in 1998. The increase in the loss ratio was due
primarily to adverse loss development in prior year loss reserves totaling
approximately $4.8 million. Decreases in underwriting, general and
administrative
expenses were primarily the result of the reduction in operating expenses due to
decreases in direct premiums written. The statutory combined ratio for the
three
month period ended June 30, 1998 was 148.2%, an increase from 117.5% for the
three month period ended June 30, 1997.
Revenues for the six month period ended June 30, 1998 decreased $2.1 million,
or 7.7%, from revenues for the six month period ended June 30, 1997. This
decrease was primarily the result of decreases in net premiums earned and net
realized gains on investments. The decrease in net premiums earned was the
result of a decrease in direct premiums written over the past twelve months,
offset, in part by a decrease in premiums ceded. Direct premiums written
decreased $7.0 million, or 22.5%, in the six month period ended June 30, 1998
when compared to the same period in 1997. The decrease in direct premiums
written resulted from additional competition, re-underwriting of existing
business and rate reductions. The following table sets forth the direct
premiums
written by the Company for the six month periods ended June 30, 1998 and 1997 by
line of business.
(In thousands)
Six months ended June 30,
1998 1997 %Change
Auto liability $11,273 $14,258 (20.9)%
Auto physical damage 6,610 9,535 (30.7)%
Inland marine 1,511 1,759 (14.1)%
Homeowners 1,190 1,339 (11.1)%
Workers compensation 1,167 1,955 (40.3)%
Other 2,376 2,265 4.9 %
Total $24,127 $31,111 (22.5)%
Expenses for the six month period ended June 30, 1998 increased $3.8 million,
or 14.6%, over expenses for the six month period ended June 30, 1997. The
increase was primarily the result of increases in net claims and claim
settlement
expenses, offset, in part, by a decrease in underwriting, general and
administrative expenses. Increases in net claims and claim settlement expenses
were the result of an increase in the statutory loss ratio from 77.4% in 1997
to 101.2% in 1998. The increase in the loss ratio was due primarily to adverse
development in prior year loss reserves totaling $5.4 million. Decreases in
underwriting, general and administrative expenses were primarily the result of
the reduction in operating expenses due to decreases in direct premium written.
The statutory combined ratio for the six month period ended June 30, 1998 was
132.7%, an increase from 111.1% for the six month period ended June 30, 1997.
Liquidity and Capital Resources
Historically, the Company has generated funds sufficient to support its
operations and has maintained a high degree of liquidity in its investment
portfolio. The primary sources of funds to meet the demands of claim
settlements
and operating expenses are premiums, ceding commissions, investment income and
existing lines of credit. The Company s funds generally are invested in
securities with maturities intended to provide adequate funds to pay claims and
expenses without the forced sale of investments. The Company believes that its
current cash and short term investments, together with funds generated from
operations, will be sufficient to meet its operating and capital requirements
for
the foreseeable future.
9
Part II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders was held on June 2, 1998. Two
matters were voted upon at the meeting. The first matter was the
election of three directors for a term of three years. The
results of the
election were as follows:
Richard S. L. Edward William R.
Kahlbaugh Sausman Tierney, Jr.
Voting For 2,898,852 3,848,630 2,970,414
Voting against
or withheld 1,451,257 501,479 1,379,695
The terms of the following directors will expire in:
(a) 1999
1. Peter D. Bennett
2. John J. Buchan, Jr.
3. Gary J. Orndorff
(b) 2000
1. Kenneth R. Taylor
2. Charles W. Hash, Jr.
The second matter was for the approval of the Company's 1997
Equity Incentive Plan. The results of the election were as
follows:
Voting For Voting Against Abstentions
2,366,055 513,875 73,464
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibit 27.1 Financial data schedule
Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALSHIRE ASSURANCE COMPANY
(Registrant)
DATE: August 13, 1998 /s/ Kenneth R. Taylor
Kenneth R. Taylor
Chairman, President and Chief
Executive Officer
DATE: August 13, 1998 /s/ Gary J. Orndorff
Gary J. Orndorff
Vice President/Treasurer
and Chief Financial Officer
11
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALSHIRE ASSURANCE COMPANY
(Registrant)
DATE: August 13, 1998 __________________________
Kenneth R. Taylor
Chairman, President and Chief
Executive Officer
DATE: August 13, 1998 __________________________
Gary J. Orndorff
Vice President/Treasurer
and Chief Financial Officer
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 7
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<PERIOD-TYPE> 06-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 44,943
<DEBT-CARRYING-VALUE> 14,733
<DEBT-MARKET-VALUE> 15,262
<EQUITIES> 8,667
<MORTGAGE> 93
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<TOTAL-INVEST> 75,746
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22,109
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