SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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CAPITAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 001-10995 52-1567009
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
1325 AVENUE OF THE AMERICAS
18TH FLOOR
NEW YORK, NEW YORK 10019
(212) 974-0100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTIONS 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 (REGISTRANT
BECAME SUBJECT TO THE FILING REQUIREMENTS ON APRIL 8, 1992.)
AS OF MARCH 31, 1998, THERE WERE OUTSTANDING 15,926,562 SHARES OF
COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
CAPITAL RE CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CAPITAL RE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -MARCH 31, 1998
(UNAUDITED) AND DECEMBER 31, 1997 3
CONSOLIDATED STATEMENT OF INCOME - THREE MONTHS
ENDED MARCH 31,1998(UNAUDITED)AND
MARCH 31, 1997 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME -
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
AND MARCH 31, 1997 (UNAUDITED) 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY - THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED) 6
CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE
MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
MARCH 31 1997 (UNAUDITED) 7
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-17
PART II OTHER INFORMATION
ITEM 3 EXHIBITS AND REPORTS ON FORM 8-K 18-20
SIGNATURES 21
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands except per share amounts)
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Fixed maturity securities
available for sale, at market
amortized cost: $934,687 in
1998 and $887,205 in 1997) $975,891 $932,423
Short-term investments, at cost,
which approximates market 76,375 78,668
------- ---------
Total Investments 1,052,266 1,011,091
Cash 18,122 18,878
Accrued investment income 13,769 13,761
Deferred acquisition costs 145,220 135,332
Prepaid reinsurance premiums 74,191 64,953
Reinsurance recoverable on
ceded losses 6,456 7,245
Funds held under reinsurance
agreements 4,325 3,926
Premiums receivable, net 30,774 25,414
Amounts receivable on ceded annuity
reserves 58,635 58,635
Investment in affiliates 21,890 21,858
Goodwill 12,578 12,677
Other assets 13,932 12,032
---------- ----------
Total Assets $1,452,158 $1,385,802
========== ==========
LIABILITIES
Deferred premium revenue $436,702 $402,145
Reserve for losses and loss
adjustment expenses 45,041 37,900
Annuity benefit reserves 58,635 58,635
Accident and health reserves 16,519 16,367
Profit commission liability 31,537 30,457
Deferred federal income taxes payable 74,917 72,879
Bank note payable 25,000 25,000
Long-term debt 74,828 74,819
Other liabilities 28,638 23,657
-------- --------
Total Liabilities $791,817 $741,859
-------- --------
COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
OF CAPITAL RE LLC 75,000 75,000
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value
per share; 25,000,000 shares
authorized; no shares issued
and outstanding in 1998 and 1997 --- ---
Common stock - $.01 par value per
share; 75,000,000 shares
authorized, 15,926,562 and
15,913,437 shares issued and
outstanding in 1998 and
1997, respectively 161 161
Additional paid-in capital 225,444 225,160
Retained earnings 337,774 319,253
Treasury stock; 214,000 shares
in 1998 and 1997 (4,891) (4,891)
Other Comprehensive Income
Net unrealized gain on fixed
maturities securities available
for sale, net of tax 26,801 29,392
Foreign exchange translation 52 (132)
------- -------
Accumulated Other Comprehesive Income 26,853 29,260
------- -------
Total Stockholders' Equity 585,341 568,943
------- -------
Total Liabilities, Preferred
Securities of Capital Re LLC
and Stockholders' Equity $1,452,158 $1,385,802
========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands except per share amounts)
Three Months Ended
March 31,
(Unaudited)
--------------------
1998 1997
--------------------
<S> <C> <C>
REVENUES:
Gross premiums written $93,244 $64,525
Ceded premiums 15,362 8,255
------- -------
Net premiums written 77,882 56,270
Increase in deferred
premium revenue (25,139) (25,721)
------- -------
Net premiums earned 52,743 30,549
Net investment income 16,130 13,815
Net realized gain 1,180 2,785
Fee Income 483 445
Other income 164 25
Equity income in affiliate 32 233
------ ------
Total Revenues 70,732 47,852
------ ------
EXPENSES:
Loss and loss adjustment
expenses 15,658 4,818
Acquisition costs 26,203 17,325
Increase in deferred
acquisition costs (9,797) (7,085)
Profit commission expense 2,873 1,996
Other operating expenses 5,512 3,047
Amortization of goodwill 167 167
Interest expense 1,879 1,878
Foreign exchange (gain)/loss (341) 394
Minority interest in
Capital Re LLC 1,434 1,434
------ ------
Total Expenses 43,588 23,974
------ ------
Income before provision
for federal income taxes 27,144 23,878
Provision for federal income taxes
Current 3,889 3,830
Deferred 3,461 2,912
----- -----
Total provision for federal income taxes 7,350 6,742
----- -----
Net Income $19,794 $17,136
======= =======
Earnings per common share $1.24 $1.08
======= =======
Diluted Earnings per common share $1.21 $1.06
======= =======
Cash dividends per common share $0.08 $0.07
======= =======
Weighted average number of common
shares outstanding 15,917 15,862
======= =======
Diluted Weighted average number of
common shares outstanding 16,372 16,196
======= =======
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Three Months Ended
March 31,
(Unaudited)
--------------------
1998 1997
--------------------
<S> <C> <C>
Net Income $19,794 $17,136
Other Comprehensive Income, net of tax:
Change in net unrealized gain on fixed
maturities available for sale (2,591) (12,999)
Change in foreign exchange translation 184 (469)
Other Comprehensive Income (2,407) (13,468)
Comprehensive Income $17,387 $3,668
See Accompanying Notes to Unaudited Consolidated Financial Statements
</TABLE>
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Dollars in thousands except share amounts)
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
-----------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1998 $161 $225,160 $319,253 ($4,891)
Net Income - - 19,794 -
Exercise of stock options,
including tax benefit
(13,125 shares) - 284 - -
Fixed maturities securities
available for sale
adjustments - - - -
Foreign exchange translation - - - -
Dividend ($.08 per
common share) - - (1,273) -
------------------------------------------
Balance, March 31, 1998 $161 $225,444 $337,774 ($4,891)
==========================================
NET UNREALIZED
GAIN ON
FIXED MATURITIES
FOREIGN SECURITIES TOTAL
EXCHANGE AVAILABLE FOR STOCKHOLDERS'
TRANSLATION SALE EQUITY
------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1998 ($132) $29,392 $568,943
Net Income - - 19,794
Exercise of stock options,
including tax benefit
(13,125 shares) - - 284
Fixed maturities securities
available for sale adjustments - (2,591) (2,591)
Foreign exchange translation 184 - 184
Dividend ($.08 per
common share) - - (1,273)
--------- -------- --------
Balance, March 31, 1998 $52 $26,801 $585,341
========= ======== ========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</TABLE>
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Three Months Ended
March 31,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $19,794 $17,136
Adjustments to reconcile net
income to net cash provided
by operating activities:
Amortization of bond discount
on long-term debt 9 9
Net amortization of security
premiums (631) (225)
Provision for deferred federal
income taxes 3,461 2,875
Acquisition costs deferred (27,114) (17,326)
Amortization of deferred
acquisition costs 17,351 10,241
Equity Income in affiliates (32) (233)
Change in accrued investment income (7) 826
Change in premiums receivable, net (11,849) (13,468)
Change in deferred premium revenue, net 25,046 25,721
Change in outstanding loss reserves, net 7,824 (311)
Net realized (gain) on investments (1,180) (2,785)
Change in ceded balances payable 7,188 2,794
Other 3,690 6,428
-------- -------
Net Cash Provided by Operating Activities 43,550 31,682
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases - fixed maturities (175,964) (294,870)
Sales-fixed maturites 130,293 285,202
Maturities (purchases) of short-term
investments, net 2,293 (43,966)
Other investing activities 61 28,260
--------- --------
Net Cash Used in Investing Activities (43,317) (25,374)
FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 284 292
Purchase of treasury stock at cost 0 0
Dividends paid (1,273) (1,110)
--------- --------
Net Cash Provided (Used) by
Financing Activities (989) (818)
Effect of exchange rate changes on cash 0
--------- --------
(Decrease)Increase in Cash (756) 5,490
Cash at Beginning of Period 18,878 15,285
--------- --------
Cash at End of Period $18,122 $20,775
========= ========
See Accompanying Notes to Unaudited Consolidated Financial Statements.
</TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements and
footnotes have been prepared in accordance with the instructions to
Form 10-Q and the preparation of unaudited interim financial
statements under the Rules and Regulations of the Securities and
Exchange Commission and do not include all the information and
disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the audited
consolidated financial statements of Capital Re Corporation and
Subsidiaries (the "Corporation") included in the Corporation's 1997
Annual Report on Form 10-K. The accompanying unaudited consolidated
financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
Corporation's financial position and results of operations. The
results of operations for the three months ended March 31, 1998 may
not be indicative of the results that may be expected for the year
ending December 31, 1998.
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the
Corporation income or stockholders' equity. Statement 130 requires
unrealized gains or losses on the Corporation's available-for-sale
securities and foreign currency translation adjustments, which prior
to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of
Statement 130. For the three months ended March 31, 1998 and 1997,
total comprehensive income amounted to $17.4 million and $3.7
million, respectively.
2. REINSURANCE
Ceded earned premium for the three months ended March 31, 1998 and
1997 were $6.3 million and $3.8 million, respectively. Ceded losses
for the same periods were $1.2 million and $0.9 million,
respectively.
3. INCOME TAXES
The effective tax rate for the three months ended March 31, 1998 and
1997 is lower than the federal corporate tax rate on ordinary income
of 35% due principally to the effect of tax-exempt interest income.
Income taxes paid for the three months ended March 31, 1998 and 1997
were $1.0 million and $0.0 million, respectively.
4. OTHER
Interest paid for the three months ended March 31, 1998 and 1997 was
$0.4 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Capital Re Corporation (the "Corporation") was incorporated in the
State of Delaware in December 1991, and is the successor by merger
to a Maryland corporation incorporated in 1986. The Corporation is
an insurance holding company and has six wholly owned operating
subsidiaries. Capital Reinsurance Company ("Capital Reinsurance"),
domiciled in the State of Maryland, commenced operations in January
1988. Capital Reinsurance is engaged in the business of financial
guaranty reinsurance, primarily the reinsurance of municipal and non-
municipal bond insurance obligations. Capital Mortgage Reinsurance
Company ("Capital Mortgage"), a New York domiciled company,
commenced operations in February 1994. Capital Mortgage reinsures
only residential mortgage guaranty insurance obligations. KRE
Reinsurance Ltd. (formerly Capital Mortgage Reinsurance Company
(Bermuda) Ltd.) ("KRE"), a Bermuda domiciled company, commenced
operations in March 1994. KRE is engaged in the business of
reinsuring financial guaranty, mortgage guaranty, financial
insurance, trade credit and other specialty lines of insurance, both
as a direct reinsurer of third party primary insurers and as a
retrocessionaire of Capital Reinsurance, Capital Mortgage, Capital
Credit Reinsurance Company Ltd. ("Capital Credit") and Capital Title
Reinsurance Company ("Capital Title"). Capital Credit, also a
Bermuda domiciled insurance company, commenced operations in
February 1990. Capital Credit reinsures trade credit, political
risk, and other specialty insurance lines concentrated in Western
Europe and the United States and is a retrocessionaire of Capital
Reinsurance and Capital Mortgage. Capital Title, a New York
domiciled insurance company, commenced operations in March 1996.
Capital Title is engaged in the business of reinsuring title
insurance policies.
In November 1996, the Corporation acquired, through its newly formed
United Kingdom holding company, Capital Re (UK) Holdings, 100% of
the issued shares of Tower Street Holdings Limited (now known as RGB
Holdings, Ltd.), the holding company for RGB Underwriting Agencies
Ltd. ("RGB"). RGB is a managing agency and presently manages five
syndicates operating in the Lloyd's of London ("Lloyd's") insurance
market. In November 1997, RGB Holdings, Ltd. acquired 100% of C.I.
de Rougemont Group Limited, the ultimate holding company for C.I. de
Rougemont & Co. Ltd. ("CIDR"), another Lloyd's managing agency.
CIDR manages two syndicates, one marine and the other non-marine.
Effective January 1, 1998, the CIDR non-marine syndicate was merged
with the non-marine syndicate of RGB. In connection with its
acquisition of RGB, the Corporation established a corporate name at
Lloyd's, CRC Capital Ltd. ("CRC"), to provide underwriting capacity
to the managed syndicates commencing with the 1997 year of account.
CRC currently participates in a marine, a non-marine and two life
syndicates. At March 31, 1998, the results of RGB, CIDR and CRC
are consolidated in the Corporation's financial statements.
In December 1996, the Corporation entered into a joint venture with
GCR Holdings Ltd. ("GCR"), to form a Bermuda based insurer, Capital
Global Underwriters Limited ("CGUL"), which specializes in financial
lines reinsurance. In April 1997, EXEL Limited ("EXEL") acquired
GCR. In March 1998, EXEL sold its share of CGUL to Bermuda based ACE
Limited and CGUL was renamed ACE Capital Re Ltd. The Corporation,
through its subsidiary, KRE, owns a fifty-percent interest in ACE
Capital Re Ltd. and controls 9.9% of its voting stock. The
Corporation accounts for its investment in ACE Capital Re Ltd. under
the equity method.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED
MARCH 31, 1997
Net income for the three months ended March 31, 1998 increased 15.8%
to $19.8 million from $17.1 million for the same period of 1997.
The Company adopted Statement of Financial Standards No. 128,
"Earnings per Share" ("FAS 128"), as of December 31, 1997. FAS 128
requires the calculation and presentation on the face of the income
statement of basic earnings per share and, if applicable, diluted
earnings per share. Basic earnings per share is calculated based on
the weighted average common shares outstanding. All potentially
dilutive securities such as stock options and convertible securities
are excluded from the basic earnings per share calculation. In
calculating diluted earnings per share, the number of shares is
increased to include all potentially dilutive securities, including
stock options and convertible securities. On a per share basis,
basic and diluted net income increased to $1.24 and $1.21,
respectively, for the three months ended March 31, 1998 from $1.08
and $1.06, respectively, for the same period of 1997, or 14.8% and
14.2%, respectively. In addition, net operating income (net income
excluding realized gains and losses and foreign exchange gains and
losses) increased 20.5% to $18.8 million for the three months ended
March 31, 1998 from $15.6 million for the same period in 1997. On a
per share basis, basic and diluted net operating income increased to
$1.18 and $1.15, respectively, for the three months ended March 31,
1998 from $0.98 and $0.96, respectively, for the same period of
1997, or 20.4% and 19.8%, respectively. Growth in net premiums
earned to $52.7 million from $30.5 million, or 72.8%, and growth in
net investment income to $16.1 million from $13.8 million, or 16.7%,
were the principal causes of the increase in net income.
Gross premiums written increased 44.5% to $93.2 million for the
three months ended March 31, 1998 from $64.5 million for the same
period of 1997. Gross premiums written increased across all product
lines. In addition, in 1997 the Company added a financial
reinsurance line of business. This line consists of structured
financial transactions involving the reinsurance of annuity and
accident and health reserves. The following table shows gross
premiums written by line of business for the three months ended
March 31, 1998 and March 31, 1997.
Gross Premiums Written
Three Months Ended
March 31,
1998 1997
----- -----
(dollars in millions)
Municipal $22.2 $17.9
Non-Municipal 6.0 3.3
Financial Lines 4.1 0.0
Mortgage 20.2 15.7
Title 1.1 0.8
Credit and Specialty 8.5 6.4
Lloyd's 31.1 20.4
----- -----
$93.2 $64.5
Net premiums written increased by 38.4% to $77.9 million for the
three months ended March 31, 1998 from $56.3 million for the same
period in 1997. This increase is commensurate with the increase in
gross premiums written explained above. The following table shows
net premiums written by line of business for the three months ended
March 31, 1998 and March 31, 1997.
Net Premiums Written
Three Months Ended
March 31,
1998 1997
----- -----
(dollars in millions)
Municipal $21.4 $15.6
Non-Municipal 6.0 3.3
Financial Lines 4.1 0.0
Mortgage 20.1 15.7
Title 1.1 0.8
Credit and Specialty 8.4 6.4
Lloyd's 16.8 14.5
----- -----
$77.9 $56.3
For the three months ended March 31, 1998, net premiums earned
increased 72.8% to $52.7 million from $30.5 million for the
comparable 1997 period. This increase was primarily due to growth
in net premiums earned across all product lines of business. For
the three months ended March 31, 1998, net refunded earned premium
increased to $3.6 from $0.5 million for the comparable period in
1997. Excluding the effects of net refunded earned premium, net
premiums earned increased 63.7% to $49.1 million for the three
months ended March 31, 1998 from $30.0 million for the three months
ended March 31, 1997. A refunding extinguishes the Corporation's
reinsurance liability for the refunded obligation and the
Corporation then recognizes revenue equal to the remaining related
deferred premium revenue. For the three months ended March 31, 1998
and 1997, ceded earned premium was $6.3 million and $3.8 million,
respectively. The following table shows net premiums earned by line
of business for the three months ended March 31, 1998 and March 31,
1997.
Net Premiums Earned
Three Months Ended
March 31,
1998 1997
----- -----
(dollars in millions)
Municipal $9.4 $7.1
Non-Municipal 3.9 3.0
Financial Lines 4.1 0.0
Mortgage 17.9 13.5
Title 1.2 0.7
Credit and Specialty 7.2 4.5
Lloyd's 9.0 1.7
----- -----
$52.7 $30.5
For the three months ended March 31, 1998, net investment income
increased 16.7% to $16.1 million from $13.8 million for the
comparable period in 1997. Growth in investment income was
primarily attributable to a larger investment portfolio caused by an
increase in invested assets from positive operating cash flows
during the twelve months ended March 31, 1998 as well as
approximately $0.5 million in positive amortization adjustments from
the mortgage backed security portfolio. In addition, the
Corporation recognized net realized gains of $1.2 million for the
three months ended March 31, 1998 compared to $2.8 million for same
period in 1997.
Loss and loss adjustment expenses increased to $15.7 million from
$4.8 million for the three months ended March 31, 1998 and 1997,
respectively. Losses recorded for the three months ended March 31,
1998 were primarily attributable to the expected loss recognition
associated with the Lloyd's line of business and the addition of the
financial line of business, as well as normal loss development in
the mortgage guaranty reinsurance and credit reinsurance lines of
business. Ceded losses for the three months ended March 31, 1998
and 1997 were $1.2 million and $0.9 million, respectively.
Total expenses, including loss and loss adjustment expenses,
increased 81.7% to $43.6 million for the year ended March 31, 1998
from $24.0 million for the same period of 1997. This increase was
primarily attributable to commissions associated with the increased
level of premiums written and normal loss development from the
mortgage, credit and financial lines of business. In addition, the
increase in expenses was attributable to an increase in overhead to
support growth in the Company's lines of businesses as well as
operating and loss expenses associated with the consolidation, for
accounting purposes, of the Company's Lloyd's operations with the
Company's reinsurance operations. Furthermore, the combined ratio,
excluding expenses associated with non-insurance operations,
increased to 76.1% for the three months ended March 31, 1998 from
64.2% for the comparable 1997 period. This increase is an expected
result of the Corporation's diversification strategy, which is
producing more business from lines with relatively higher combined
ratios than that of the financial guaranty reinsurance business.
For the three months ended March 31, 1998, the total federal tax
provision increased to $7.4 million from $6.7 million for the same
period in 1997. In addition, the effective tax rate decreased to
27.1% for the three months ended March 31, 1998 from 28.2% for the
same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation relies on dividends from Capital Reinsurance to fund
its payment of dividends on its capital stock and interest on its
outstanding debt. The major sources of liquidity for Capital
Reinsurance are funds generated from reinsurance premiums, net
investment income and maturing investments. Capital Reinsurance is
domiciled in the State of Maryland, and, under Maryland insurance
law, the amount of the surplus of Capital Reinsurance available for
distribution as dividends is subject to certain statutory
restrictions. The amount available for distribution from Capital
Reinsurance during 1998 with notice to, but without prior approval
of, the Maryland Insurance Commissioner is limited to 10% of Capital
Reinsurance's policyholders' surplus as of December 31, 1997, or
approximately $34.6 million. For the three months ended March 31,
1998, Capital Reinsurance paid $2.0 million in dividends to the
Corporation.
Credit Re Corporation, a wholly owned subsidiary of the Corporation,
relies on dividends from its wholly owned subsidiary, Capital
Credit, for funds to be provided to the Corporation. Capital
Credit's major sources of liquidity are funds generated from
reinsurance premiums, net investment income and maturing
investments. Capital Credit is a Bermuda domiciled insurer whose
distributions are governed by Bermuda law. Under Bermuda law and the
by-laws of Capital Credit, dividends may be paid out of the profits
of the company (defined as accumulated realized profits less
accumulated realized losses). Distributions to shareholders may
also be paid out of Capital Credit's surplus limited by requirements
that such company must at all times (i) maintain the minimum share
capital required under Bermuda law, and (ii) have relevant assets in
an amount equal to or greater than 75% of relevant liabilities, all
as defined under Bermuda law. Since its organization, Capital Credit
has not declared nor paid any dividends.
Capital Mortgage is subject to the dividend restrictions imposed
under New York insurance law. Accordingly, dividends may only be
declared and distributed out of earned surplus (as defined under New
York insurance law). Additionally, no dividend may be declared or
distributed by Capital Mortgage in an amount which, together with
all dividends declared or distributed by Capital Mortgage, during
the preceding twelve months, exceeds the lesser of 10% of such
company's surplus to policyholders as shown by its last Annual
Statutory Statement on file with the New York insurance department,
or 100% of adjusted net investment income (as defined under New York
insurance law) during such period, unless, upon prior application,
the New York Superintendent of Insurance approves a greater dividend
distribution based upon his finding that Capital Mortgage, will
retain sufficient surplus to support its obligations and writings.
KRE's dividends and distributions to its sole shareholder, Capital
Mortgage, are governed by Bermuda law, and are subject to the same
restrictions as those for Capital Credit described in the preceding
paragraph. To date, Capital Mortgage and KRE have not declared nor
paid any dividends. The maximum dividend payable by Capital
Mortgage during 1998 is $0 since its earned surplus was ($0.4)
million as of December 31, 1997.
Capital Title is subject to the New York insurance laws and
regulations governing title insurers. Accordingly, dividends may
only be declared and distributed out of earned surplus as defined
under New York insurance law and only if such dividends do not
reduce the company's surplus to less than 50% of its outstanding
capital shares, i.e., the value of its outstanding common equity.
Additionally, no dividend may be declared or distributed in an
amount which, together with all dividends declared or distributed by
the company during the preceding twelve months, exceeds 10% of the
company's outstanding capital shares, unless, after deducting such
dividends, it has a surplus at least equal to 50% of its statutory
reinsurance reserve or a surplus at least equal to $250,000,
whichever is greater. During 1997, Capital Title paid a dividend in
the amount of $1.1 million to its immediate parent, KRE. As of
December 31, 1997, Capital Title's maximum amount payable as a
dividend during 1998 is approximately $1.3 million.
In January 1994, the Corporation formed and capitalized, through the
purchase of common shares, Capital Re LLC. Capital Re LLC exists
solely for the purpose of issuing preferred and common shares and
lending the proceeds of such issuance to the Corporation to fund its
business operations. In January 1994, Capital Re LLC issued $75.0
million of company obligated mandatorily redeemable preferred
securities, the proceeds of which were loaned to the Corporation.
The Corporation has, among other undertakings, unconditionally
guaranteed all legally declared and unpaid dividends of Capital Re
LLC. The company obligated mandatorily redeemable preferred
securities were issued at $25 par value per share and pay monthly
dividends at a rate of 7.65% per annum. Also in January 1994,
Capital Reinsurance and Capital Credit invested an aggregate of
$120.0 million to capitalize Capital Mortgage. Of the total original
contribution of $120.0 million, Capital Reinsurance invested $94.8
million and Capital Credit invested $25.2 million.
On February 12, 1996, the Corporation completed a public offering of
approximately 3.5 million shares of common stock. Of the 3.5
million shares, an institutional shareholder sold 2.6 million shares
and the Corporation sold 853,120 shares in the public offering
generating net proceeds to the Corporation of approximately $25.9
million of which $21.5 million was used to complete the $25 million
capitalization of Capital Title. The remaining $4.4 million was
used for Corporation expenses associated with the public offering
and general corporate purposes. The Corporation received no
proceeds from the institutional shareholder's sale of shares.
In June 1997, Capital Reinsurance invested approximately $10.9
million in CGA Group, Ltd. ("CGA"). CGA was formed to provide
financial guaranty insurance of structured securities, including
commercial real estate and asset backed transactions. Capital
Reinsurance also has a commitment to invest an additional $7.5
million in CGA to the extent that such investment would be necessary
in order for CGA's operating subsidiary, Commercial Guaranty
Assurance, Ltd, to maintain a triple-A rating from Duff & Phelps.
Also, Capital Reinsurance invested $0.1 million in St. George
Holdings Ltd. ("St. George"). Through its operating subsidiary, St.
George Investments Ltd., St. George will purchase securities to be
held to maturity, selectively resold, or repackaged with CGA
insurance and then resold.
In December 1997, the Corporation's Board of Directors authorized an
increase of the quarterly common stock dividend rate to $0.08 per
share, or $0.32 annually. For the three months ended March 31,
1998, common dividends were declared and paid in the amount of $1.3
million or $0.08 per share.
Cash flows from operations for the three months ended March 31, 1998
and 1997, consisting of reinsurance premiums collected net of
expenses, investment income and income taxes, were $43.6 million and
$31.7 million, respectively. The Corporation believes that current
levels of cash flow from operations provide the Corporation with
sufficient liquidity to meet its operating needs. The Corporation's
non-operating cash outflows are primarily dedicated to (i) fixed-
income investment activity, (ii) the payment of dividends on its
common shares, (iii) payments of interest on long-term debt and (iv)
the payment of its loan obligations to Capital Re LLC.
At March 31, 1998, cash and investments approximated $1.07 billion,
an increase of $40.0 million, or 3.9%, from $1.03 billion at
December 31, 1997. In managing its investment portfolio, the
Corporation places a high priority on quality and liquidity. As of
March 31, 1998, the entire investment portfolio was invested in
highly rated fixed income securities.
At March 31, 1998, approximately $153.3 million, or 14.6%, of the
Corporation's investment portfolio was comprised of mortgage-backed
securities ("MBS"). Of the MBS portfolio, approximately $134.7
million, or 87.9%, is backed by agencies or entities sponsored by
the U.S. government as to the full amount of principal and interest.
As of March 31, 1998, the entire MBS portfolio was invested in
triple A rated securities.
Prepayment risk is an inherent risk of holding MBS. However, the
degree of prepayment risk is particular to the type of MBS held.
The Corporation limits its exposure to prepayments by purchasing
less volatile types of MBS. As of March 31, 1998, $3.6 million, or
approximately 2.4%, of the MBS portfolio was invested in
collateralized mortgage obligations ("CMOs") which are characterized
as planned amortization class CMOs (''PACs''). PACs are securities
whose cash flows are designed to remain constant over a variety of
mortgage prepayment environments. Other classes in the CMO security
are structured to accept the volatility of mortgage prepayment
changes, thereby insulating the PAC class. Of the remaining MBS
portfolio, $149.7 million, or 97.6%, was invested in mortgage-backed
pass-throughs or sequential CMOs. Pass-throughs are securities in
which the monthly cash flows of principal and interest (both
scheduled and prepayments) generated by the underlying mortgages are
distributed on a pro-rata basis to the holders of securities. A
sequential MBS is structured to divide the CMO security into
sequentially ordered classes. Receipt of principal payments within
classes is contingent on the retirement of all previously paying
classes. Generally, interest payments are made currently on all
classes. While these securities are more sensitive to prepayment
risk than PACs, they are not considered highly volatile securities.
While the Corporation may consider investing in any tranche of a
sequential MBS, the individual security's characteristics (duration,
relative value, underlying collateral, etc.) along with aggregate
portfolio risk management determine which tranche of sequential MBS
will be purchased. At March 31, 1998, the Corporation had no
securities such as interest only securities, principal only
securities, or MBS purchased at a substantial premium to par that
have the potential for loss of a significant portion of the original
investment due to changes in the prepayment rate of the underlying
loans supporting the security.
On January 22, 1998, the Corporation extended its existing agreement
with Deutsche Bank AG for the provision of a $25.0 million liquidity
facility (the ''DB Liquidity Facility'') which is available for
general corporate purposes. The DB Liquidity Facility was extended
for one year and is scheduled to expire on January 22, 1999. Capital
Reinsurance also renewed an agreement on January 27, 1998 with
Deutsche Bank AG for a credit facility (the "DB Credit Facility") of
up to $75.0 million specifically designed to provide rating agency
qualified capital to further support Capital Reinsurance's claims-
paying resources. This agreement expires January 27, 2005. The
Corporation has not borrowed under either the DB Liquidity Facility
or the DB Credit Facility.
In addition, on August 20, 1996, the Corporation entered into a
credit agreement with Chase Manhattan Bank for the provision of a
$25.0 million credit facility (the "Chase Facility") which is
available for general corporate purposes. Furthermore, on August
26, 1996, the Corporation utilized $16 million of the Chase Facility
for purposes of paying subordinated notes which came due. Interest
on the bank note issued under the Chase Facility is payable
quarterly based upon the Corporation's chosen interest rate option
under the terms of the Chase Facility. In November 1996, the
Corporation utilized the remaining $9 million of the Chase Facility
for purposes of acquiring RGB.
The Corporation is addressing the Year 2000 issue. The Company has
initiated a plan to review its internal computer systems. It also
has initiated discussions with its significant clients and other
entities to ensure that those parties have appropriate plans to
correct Year 2000 issues where their systems interface with the
Corporation's systems or otherwise impact its operations. While the
Corporation believes its planning efforts are adequate to address
its Year 2000 concerns, there can be no guarantee that the systems
of other companies on which the Corporation's systems and operations
rely will be converted on a timely basis. In conclusion, the
Corporation does not expect that there will be any major Year 2000
impact to its computer systems, nor does it expect that the cost of
the Year 2000 initiative will be material.
PART II - OTHER INFORMATION
ITEM 3 - EXHIBITS AND REPORTS ON FORM 8-K
(A) THE FOLLOWING IS ANNEXED AS AN EXHIBIT:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
11 STATEMENT RE: COMPUTATION OF PER
SHARE EARNINGS (UNAUDITED)
(B) REPORTS ON FORM 8-K: NONE
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----- ----------- ----
11 STATEMENT RE: COMPUTATION OF PER
SHARE EARNINGS (UNAUDITED) 19
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.
CAPITAL RE CORPORATION
DATE: MAY 11, 1998 BY: /S/ DAVID A. BUZEN
------------------
DAVID A. BUZEN
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
DATE: MAY 11, 1998 BY: /S/ ALAN S. ROSEMAN
-------------------
ALAN S. ROSEMAN
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
<TABLE>
CAPITAL RE CORPORATION AND SUBSIDIARIES
Exhibit 11 Statement Re: Computation of Per Share Earnings
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended
March 31,
---------------------
1998 1997
---------------------
<S> <C> <C>
Earnings per common share
(Basic and Diluted)
Net Income 19,793 17,136
Basic weighted average shares
outstanding during the period 15,917 15,582
Potentially dilutive employee
stock options 455 334
Diluted weighted average shares
outstanding during the period 16,372 16,196
Basic earnings per common share $1.24 $1.08
Diluted earnings per common share $1.21 $1.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,052,266
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,052,266
<CASH> 18,122
<RECOVER-REINSURE> 737
<DEFERRED-ACQUISITION> 145,220
<TOTAL-ASSETS> 1,452,158
<POLICY-LOSSES> 45,041
<UNEARNED-PREMIUMS> 436,702
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 99,828
75,000
0
<COMMON> 161
<OTHER-SE> 585,180
<TOTAL-LIABILITY-AND-EQUITY> 1,452,158
52,743
<INVESTMENT-INCOME> 16,130
<INVESTMENT-GAINS> 1,180
<OTHER-INCOME> 679
<BENEFITS> 15,658
<UNDERWRITING-AMORTIZATION> 16,406
<UNDERWRITING-OTHER> 5,512
<INCOME-PRETAX> 27,143
<INCOME-TAX> 7,350
<INCOME-CONTINUING> 19,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,793
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.21
<RESERVE-OPEN> 30,644
<PROVISION-CURRENT> 1,436
<PROVISION-PRIOR> 14,222
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 7,587
<RESERVE-CLOSE> 38,715
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1>Not Applicable for mortgage guaranty and specialty reinsurer
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997
<DEBT-HELD-FOR-SALE> 937,858 987,867
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 937,858 987,867
<CASH> 20,775 6,812
<RECOVER-REINSURE> 269 732
<DEFERRED-ACQUISITION> 118,482 123,966
<TOTAL-ASSETS> 1,220,000 1,315,617
<POLICY-LOSSES> 19,924 23,012
<UNEARNED-PREMIUMS> 367,424 391,746
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 99,791 99,800
75,000 75,000
0 0
<COMMON> 161 161
<OTHER-SE> 492,036 518,354
<TOTAL-LIABILITY-AND-EQUITY> 1,220 1,315,617
30,549 62,423
<INVESTMENT-INCOME> 13,815 27,805
<INVESTMENT-GAINS> 2,785 2,593
<OTHER-INCOME> 703 1,922
<BENEFITS> 4,818 9,848
<UNDERWRITING-AMORTIZATION> 10,240 20,912
<UNDERWRITING-OTHER> 3,047 5,916
<INCOME-PRETAX> 23,878 46,933
<INCOME-TAX> 6,742 13,689
<INCOME-CONTINUING> 17,136 33,245
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,136 33,245
<EPS-PRIMARY> 1.08 2.10
<EPS-DILUTED> 1.06 2.05
<RESERVE-OPEN> 17,759 17,759
<PROVISION-CURRENT> 1,743 6,464
<PROVISION-PRIOR> 3,075 3,384
<PAYMENTS-CURRENT> 16 391
<PAYMENTS-PRIOR> 5,022 7,391
<RESERVE-CLOSE> 17,538 19,825
<CUMULATIVE-DEFICIENCY> 0<F1> 0<F1>
<FN>
<F1>
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,029,242
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,029,242
<CASH> 8,169
<RECOVER-REINSURE> 1,074
<DEFERRED-ACQUISITION> 126,974
<TOTAL-ASSETS> 1,387,166
<POLICY-LOSSES> 27,420
<UNEARNED-PREMIUMS> 395,026
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 99,809
75,000
0
<COMMON> 161
<OTHER-SE> 542,503
<TOTAL-LIABILITY-AND-EQUITY> 1,387,166
98,508
<INVESTMENT-INCOME> 41,774
<INVESTMENT-GAINS> 5,543
<OTHER-INCOME> 2,850
<BENEFITS> 17,431
<UNDERWRITING-AMORTIZATION> 32,091
<UNDERWRITING-OTHER> 11,279
<INCOME-PRETAX> 71,741
<INCOME-TAX> 20,240
<INCOME-CONTINUING> 51,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,501
<EPS-PRIMARY> 3.25
<EPS-DILUTED> 3.17
<RESERVE-OPEN> 17,759
<PROVISION-CURRENT> 14,763
<PROVISION-PRIOR> 2,667
<PAYMENTS-CURRENT> 1,697
<PAYMENTS-PRIOR> 9,900
<RESERVE-CLOSE> 23,592
<CUMULATIVE-DEFICIENCY> 0<F1>
<FN>
<F1>Not Applicable for mortgage guaranty and specialty reinsurer
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<DEBT-HELD-FOR-SALE> 800,404 828,699
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 800,404 828,699
<CASH> 5,016 3,717
<RECOVER-REINSURE> 753 753
<DEFERRED-ACQUISITION> 9,184 10,856
<TOTAL-ASSETS> 1,033,739 1,059,019
<POLICY-LOSSES> 14,781 18,538
<UNEARNED-PREMIUMS> 325,619 330,381
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 90,753 90,762
75,000 75,000
0 0
<COMMON> 158 159
<OTHER-SE> 436,335 448,428
<TOTAL-LIABILITY-AND-EQUITY> 1,033,739 1,059,019
20,104 42,426
<INVESTMENT-INCOME> 12,286 24,782
<INVESTMENT-GAINS> (95) (811)
<OTHER-INCOME> 244 763
<BENEFITS> 1,409 3,766
<UNDERWRITING-AMORTIZATION> 6,636 13,786
<UNDERWRITING-OTHER> 3,147 5,504
<INCOME-PRETAX> 17,193 35,400
<INCOME-TAX> 4,426 9,348
<INCOME-CONTINUING> 12,767 26,052
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12,767 26,052
<EPS-PRIMARY> 0.84 1.68
<EPS-DILUTED> 0.83 1.65
<RESERVE-OPEN> 10,245 10,245
<PROVISION-CURRENT> 10 167
<PROVISION-PRIOR> 1,398 3,598
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> (454) 244
<RESERVE-CLOSE> 12,108 13,767
<CUMULATIVE-DEFICIENCY> 0<F1> 0<F1>
<FN>
<F1>Not Applicable for mortgage guaranty and specialty reinsurer
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996
<DEBT-HELD-FOR-SALE> 880,726 901,102
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 0 0
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 880,726 901,102
<CASH> 1,922 15,285
<RECOVER-REINSURE> 1,360,611 691,415
<DEFERRED-ACQUISITION> 112,709 111,364
<TOTAL-ASSETS> 1,114,361 1,156,401
<POLICY-LOSSES> 19,629 19,902
<UNEARNED-PREMIUMS> 347,436 337,104
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 90,772 99,782
75,000 75,000
0 0
<COMMON> 160 160
<OTHER-SE> 467,774 489,186
<TOTAL-LIABILITY-AND-EQUITY> 1,114,361 1,156,401
64,431 92,436
<INVESTMENT-INCOME> 37,792 51,558
<INVESTMENT-GAINS> (1,039) 1,471
<OTHER-INCOME> 788 951
<BENEFITS> 5,621 9,483
<UNDERWRITING-AMORTIZATION> 21,264 30,714
<UNDERWRITING-OTHER> 7,253 10,796
<INCOME-PRETAX> 54,208 77,159
<INCOME-TAX> 14,201 20,635
<INCOME-CONTINUING> 40,007 56,524
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 40,007 56,524
<EPS-PRIMARY> 2.57 3.61
<EPS-DILUTED> 2.51 3.54
<RESERVE-OPEN> 10,880 10,245
<PROVISION-CURRENT> 688 8,370
<PROVISION-PRIOR> 4,933 1,113
<PAYMENTS-CURRENT> 55 10
<PAYMENTS-PRIOR> 2,105 1,959
<RESERVE-CLOSE> 14,341 17,759
<CUMULATIVE-DEFICIENCY> 0<F1> 0<F1>
<FN>
<F1>Not Applicable for mortgage guaranty and specialty reinsurer
</FN>
</TABLE>
