<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 MARCH 31, 1996
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 0-22000
TITAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-2289827
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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<TABLE>
<S> <C>
1020 N.E. LOOP 410, SUITE 700 78209
SAN ANTONIO, TEXAS
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (210) 824-4546
(Former name, former address and former fiscal year, if change 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.
On May 10, 1996 there were outstanding 9,026,511 shares of Common Stock,
$.01 par value of the registrant.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets................................................. 2
Condensed Consolidated Statements of Income........................................... 3
Condensed Consolidated Statements of Shareholders' Equity............................. 4
Condensed Consolidated Statements of Cash Flows....................................... 5
Notes to Condensed Consolidated Financial Statements.................................. 6
</TABLE>
1
<PAGE> 3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at market value (amortized
cost: $114,346 and $112,309)................................... $113,870 $112,990
Fixed maturities held to maturity, at amortized cost (market
value: $18,780 and $19,982).................................... 18,808 19,871
Equity securities, at market value (cost: $13,853 and $15,489).... 12,960 14,679
Short-term investments, at cost which approximates market value... 4,263 4,898
Cash and cash equivalents......................................... 9,339 11,008
Premium finance contracts......................................... 15,351 12,858
Mortgage notes receivable......................................... 14,251 12,281
Other invested assets............................................. 5,498 5,273
-------- --------
Total investments......................................... 194,340 193,858
Amounts due from reinsurers......................................... 46,785 42,589
Receivables......................................................... 23,303 18,942
Deferred income taxes recoverable................................... 5,372 4,586
Property and equipment, net......................................... 12,073 11,083
Deferred policy acquisition costs................................... 12,021 10,086
Other assets........................................................ 5,818 5,174
Intangible assets................................................... 22,019 20,769
-------- --------
$321,731 $307,087
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for unpaid losses and loss expenses....................... $129,540 $122,811
Unearned premiums................................................. 54,827 45,178
Notes payable and capitalized lease obligations................... 19,250 19,319
Other liabilities................................................. 16,058 19,295
-------- --------
Total liabilities......................................... 219,675 206,603
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares; no
shares issued or outstanding................................... -- --
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding; 9,026,511 shares.............................. 90 90
Additional paid-in capital........................................ 54,274 54,274
Retained earnings................................................. 48,546 46,137
Net unrealized loss on investments, net of deferred tax benefit of
$460 and $9.................................................... (854) (17)
-------- --------
Total shareholders' equity................................ 102,056 100,484
-------- --------
$321,731 $307,087
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Revenues and other income:
Premiums written........................................................ $46,653 $36,732
Premiums ceded.......................................................... (2,290) (2,837)
------- -------
Net premiums written............................................ 44,363 33,895
Increase in unearned premiums........................................... (9,547) (7,058)
------- -------
Premiums earned................................................. 34,816 26,837
Ceding commission and fee income........................................ 1,039 682
Net investment income................................................... 3,144 2,236
Net realized gains on sales of investments.............................. 82 102
------- -------
Total revenues and other income................................. 39,081 29,857
------- -------
Expenses:
Losses and loss expenses................................................ 22,475 16,664
Agents' commissions..................................................... 3,986 4,247
Other operating expenses................................................ 8,134 5,581
------- -------
Total expenses.................................................. 34,595 26,492
------- -------
Income before income tax expense................................ 4,486 3,365
Income tax expense...................................................... 1,400 973
------- -------
Net income...................................................... $ 3,086 $ 2,392
======= =======
Net income per share.................................................... $ .34 $ .32
======= =======
Weighted average shares outstanding..................................... 9,121 7,363
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NET
COMMON STOCK ADDITIONAL UNREALIZED TOTAL
------------------- PAID-IN RETAINED GAIN (LOSS) SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ON INVESTMENTS EQUITY
--------- ------ ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995.... 9,026,511 $90 $54,274 $46,137 $ (17) $100,484
Net income..................... -- -- -- 3,086 -- 3,086
Net unrealized loss............ -- -- -- -- (837) (837)
Dividends to shareholders
($.075 per share)........... -- -- -- (677) -- (677)
--------- --- ------- ------- ------ --------
Balances at March 31, 1996....... 9,026,511 $90 $54,274 $48,546 $ (854) $102,056
========= === ======= ======= ====== ========
Balances at December 31, 1994.... 7,012,382 $70 $29,808 $41,468 $(4,791) $ 66,555
Net income..................... -- -- -- 2,392 -- 2,392
Net unrealized gain............ -- -- -- -- 2,047 2,047
Dividends to shareholders
($.0667 per share).......... -- -- -- (491) -- (491)
--------- --- ------- ------- ------ --------
Balances at March 31, 1995....... 7,012,382 $70 $29,808 $43,369 $(2,744) $ 70,503
========= === ======= ======= ====== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 3,086 $ 2,392
Adjustments to reconcile net income to net cash provided by operating
activities:
Receivables....................................................... (8,557) (5,196)
Deferred income taxes............................................. (334) 30
Deferred acquisition costs........................................ (1,935) (1,138)
Reserve for unpaid losses and loss expenses....................... 6,729 7,358
Unearned premiums................................................. 9,649 7,457
Depreciation and amortization..................................... 342 255
Other............................................................. (43) 356
-------- --------
Net cash provided by operating activities.................. 8,937 11,514
-------- --------
Cash flows from investing activities:
Purchases of investments.......................................... (22,078) (20,967)
Proceeds from sales and maturities of investments, available for
sale............................................................. 18,661 14,584
Payable for securities............................................ -- (2,785)
Contingent consideration paid, related to 1992 purchase
transaction...................................................... (3,449) (1,703)
Net assets acquired in purchase transaction....................... (1,744) --
Purchases of property and equipment............................... (1,332) (469)
Other............................................................. 82 191
-------- --------
Net cash used by investing activities...................... (9,860) (11,149)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings.......................................... -- 2,000
Repayments of borrowings.......................................... (69) (65)
Payment of dividends.............................................. (677) (491)
-------- --------
Net cash (used) provided by financing activities........... (746) 1,444
-------- --------
Net (decrease) increase in cash and cash equivalents....... (1,669) 1,809
Cash and cash equivalents:
Beginning of the period........................................... 11,008 9,449
-------- --------
End of the period................................................. $ 9,339 $ 11,258
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Titan Holdings, Inc. and subsidiaries ("the Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
In management's opinion, all adjustments, consisting of normal recurring
adjustments, which are necessary for a fair presentation of financial position
and results of operations have been made. It is recommended that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes related thereto included in the December 31, 1995
Annual Report on Form 10-K. Certain prior period amounts have been reclassified
for comparative purposes.
(2) NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period,
calculated on a daily basis. The weighted average shares outstanding include
common stock equivalents relating to dilutive outstanding stock options.
Outstanding warrants are not dilutive and therefore, do not impact the weighted
average shares outstanding. On June 1, 1995 the Company effected a 5% stock
dividend. Prior year weighted average shares outstanding and per share amounts
have been restated accordingly. Share and per share amounts have not been
restated for the 5% stock dividend approved on May 2, 1996.
6
<PAGE> 8
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Titan Holdings, Inc. ("Holdings") is a property and casualty insurance
holding company with two insurance subsidiaries, Titan Insurance Company ("Titan
Auto") and Titan Indemnity Company ("Indemnity"). Titan Auto underwrites a
non-standard personal lines automobile insurance program in Michigan, Arizona
and Nevada, and a program for small to medium-sized public entities is
underwritten nationwide through Indemnity. Holdings also offers premium
financing through another subsidiary, Westchester Premium Acceptance Corporation
("WestPac").
The property and casualty insurance industry historically has been cyclical
whereby premium rates and the extent of competition have fluctuated. The
commercial segment of the industry, however, has been in a period of low premium
rates and severe competition since the beginning of 1987 and, although the
industry has faced significant underwriting losses in recent years, there have
been no indications of any significant change in market conditions. The
Company's non-standard automobile rates are not significantly affected by
changes in insurance cycles. The Company's public entity insurance, on the other
hand, is subject to fluctuations due to industry conditions although the
Company's focus on small to medium-sized public entities tends to offset the
negative implications of recent market conditions.
Public entity insurance is somewhat seasonal in that public entities tend
to purchase insurance to coincide with the start of their fiscal years
(typically January, July or October). Therefore, these months have historically
produced the most premium volume for the Company. Non-standard automobile
insurance does not tend to be highly seasonal.
Premiums written and premiums earned for the three months ended March 31,
1995 have been restated to reflect a change in the Company's presentation of
amounts collected from insureds and paid to the Michigan Catastrophic Claims
Association ("the MCCA") (a state-mandated and operated reinsurer) for
reinsurance on "no-fault" personal injury losses. Such amounts have been
reclassified to premiums written and ceded as opposed to a net reduction in
agents' commissions, with no effect on net income.
Earnings per share data for the three months ended March 31, 1995 have been
restated for the effects of a 5% stock dividend effective June 1, 1995.
RESULTS OF OPERATIONS
Premiums by Line
The following table presents the dollar amount and percentage of total
premiums written, net premiums written and premiums earned, by principal line of
business for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1996 1995
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-standard Automobile
Premiums written................................... $25,574 54.82% $18,520 50.42%
Net premiums written............................... 24,705 55.69% 17,286 51.00%
Premiums earned.................................... 20,680 59.40% 14,663 54.64%
Public Entity
Premiums written................................... $19,938 42.74% $17,303 47.11%
Net premiums written............................... 18,681 42.11% 15,906 46.93%
Premiums earned.................................... 13,114 37.67% 10,945 40.78%
Total (including miscellaneous lines)
Premiums written................................... $46,653 100.00% $36,732 100.00%
Net premiums written............................... 44,363 100.00% 33,895 100.00%
Premiums earned.................................... 34,816 100.00% 26,837 100.00%
</TABLE>
7
<PAGE> 9
Premiums Written
Total premiums written for the three months ended March 31, 1996 ($46.7
million) represent an increase of 27% over total premiums written during the
same period a year ago ($36.7 million). This increase is primarily attributable
to Titan Auto's operations in Michigan and Arizona as non-standard automobile
premiums written for the three months ended March 31, 1996 increased $7.1
million (or 38%) to $25.6 million compared to $18.5 million for the same period
a year earlier. Titan Auto's Arizona operations, purchased in September 1994,
accounted for $5.3 million in premiums written for the three months ended March
31, 1996, which is more than twice the amount of Arizona non-standard auto
premiums written in the first quarter of 1995. Titan Auto's growth in Arizona is
attributed in part to a rate increase effected in mid-1995 and in part to the
continued success of marketing through Titan's customer service centers in
Phoenix. Titan Auto's Michigan operations in the first quarter of 1996
experienced an increase in premiums written of $4.4 million (or 27%) over the
three months ended March 31, 1995. The public entity program also contributed to
the Company's growth in premiums written by producing its largest quarter since
the program began ($19.9 million), increasing its first quarter volume by $2.6
million (or 15%) over the comparable period of 1995.
The Company is currently expanding its non-standard automobile operations
into additional states, principally through the acquisition of existing
non-standard automobile agency distribution systems. On April 15, 1996, the
Company commenced underwriting in Nevada. The Company is in the process of
implementing underwriting operations in Texas (expected to commence early in the
third quarter) and has a definitive agreement to acquire an existing agency
distribution system in Colorado.
As an enhancement to its public entity program, in the second quarter of
1996, the Company will commence a program to offer workers' compensation
insurance to its public entity insureds. The program will initially be written
in Pennsylvania and expanded to other states in the near future. This line of
business is not expected to be material to the Company's 1996 operations, as its
risk exposure is limited by the participation of its reinsurer, Munich American
Reinsurance Company, who will absorb 85% of the risk exposure.
Premiums Ceded
Premiums ceded represent the cost of reinsurance purchased by the Company
which generally is a function of the amount of premiums written and the level of
risk transferred to the reinsurer. For the first three months of 1996, premiums
ceded were approximately 4.9% of premiums written versus 7.7% for the comparable
period in 1995. Such decrease is primarily attributable to a benefit from the
annual MCCA premium adjustment which was recorded in the first quarter of 1996.
Also, at the renewal of the public entity program's casualty reinsurance
contract effective January 1, 1996, the reinsurance premium rate was reduced and
the Company increased its net retention from $500,000 to $750,000 per occurrence
for casualty risks.
Premiums Earned
Premiums earned are the result of net premiums written which are recognized
as income on a pro rata basis over the terms of the respective insurance
policies issued. Premiums earned for the three months ended March 31, 1996
increased $8.0 million (or 30%) to $34.8 million from $26.8 million for the
three months ended March 31, 1995. Titan Auto's premiums earned increased $6.0
million (or 41%) while public entity premiums earned increased $2.2 million (or
20%) for the first quarter of 1996 compared to the first quarter of 1995. Such
increases were primarily attributable to the increases in premiums written and
the overall reduction in premiums ceded referred to above.
Ceding Commission and Fee Income
Ceding commissions represent the reimbursement of policy acquisition
expenses or profit commissions based on loss experience received from
reinsurers. In addition, the non-standard automobile operations generate certain
installment billing fees and policy fees. Ceding commission and fee income
increased $357,000 (or 52%) to $1,039,000 for the three months ended March 31,
1996 compared to the same period
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<PAGE> 10
ended March 31, 1995. This increase stems primarily from increased policy fee
income resulting from the growth of Titan Auto's Arizona operations.
Net Investment Income
Net investment income increased $908,000 (or 41%) to $3.1 million for the
three months ended March 31, 1996 from $2.2 million in the same period of 1995.
This increase in the Company's net investment income correlates with the
increase in the Company's cash and invested assets from the proceeds of its
secondary stock offering in late 1995 and additional cash provided by
operations. Also, the average yield of the investment portfolio has increased
through reinvestment. At March 31, 1996, the average yield of the investment
portfolio was 6.6% compared to 6.2% at March 31, 1995. The Company continues to
maintain a relatively short average duration of 3.0 years in its investment
portfolio.
Interest income on premium finance contracts increased to $466,000 for the
three months ended March 31, 1996 versus $338,000 for the same period in 1995.
For the three months ended March 31, 1996, premiums financed were $10.4 million
compared to $8.1 million for the three months ended March 31, 1995.
Net Realized Gains On Investments
Although for accounting purposes the Company considers a significant
portion of its investment portfolio to be available for sale, the Company's
operating plan does not generally contemplate investment gains as a component of
net income. For the three months ended March 31, 1996, net gains of $82,000 were
realized versus $102,000 for the comparable period of 1995.
Combined Ratio
The following table sets forth the Company's combined ratio and the
components thereof by principal line of business under generally accepted
accounting principles ("GAAP") and statutory accounting principles ("SAP") for
the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1996 1995
----- ----
<S> <C> <C>
GAAP
Non-Standard Automobile
Loss................................................................... 56.0% 63.5%
Expense*............................................................... 27.9% 27.8%
----- ----
Combined.......................................................... 83.9% 91.3%
===== ====
Public Entity
Loss................................................................... 76.1% 60.8%
Expense................................................................ 28.4% 31.6%
----- ----
Combined.......................................................... 104.5% 92.4%
===== ====
Total (including miscellaneous lines)
Loss................................................................... 64.6% 62.1%
Expense*............................................................... 28.9% 31.5%
----- ----
Combined.......................................................... 93.5% 93.6%
===== ====
</TABLE>
- ---------------
* 1995 Restated to exclude amortization of intangible assets.
9
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1996 1995
----- ----
<S> <C> <C>
SAP
Non-Standard Automobile
Loss................................................................... 56.0% 63.5%
Expense*............................................................... 26.3% 26.0%
----- ----
Combined.......................................................... 82.3% 89.5%
===== ====
Public Entity
Loss................................................................... 76.1% 60.8%
Expense................................................................ 26.6% 28.6%
----- ----
Combined.......................................................... 102.7% 89.4%
===== ====
Total (including miscellaneous lines)
Loss................................................................... 64.6% 62.7%
Expense*............................................................... 27.1% 28.5%
----- ----
Combined.......................................................... 91.7% 91.2%
===== ====
</TABLE>
- ---------------
* 1995 Restated to exclude amortization of intangible assets.
For the three months ended March 31, 1996, the Company's overall statutory
combined ratio increased to 91.7% from 91.2% for the same period of 1995. The
increase is attributable to a higher loss ratio component which was partially
offset by improvement in the expense ratio component. The Company's GAAP ratios
experienced the same trends as the SAP ratios.
Titan Auto's statutory combined ratio for the three months ended March 31,
1996 improved to 82.3% from 89.5% for the same period in 1995, substantially due
to a decrease in the loss ratio. Titan Auto's loss ratio decrease was
principally attributable to a rate increase implemented in the summer of 1995
for its Arizona policies, as well as to favorable loss experience in Michigan.
The Company's Arizona non-standard automobile insurance business, consistent
with the Arizona insurance market in general, is underwritten at a higher loss
ratio than Titan Auto's Michigan business. However, the Company's approach in
Arizona allows it to operate at a lower expense ratio relative to its Michigan
non-standard automobile insurance business. Titan Auto's expense ratio for the
three month periods ended March 31, 1996 and March 31, 1995 remained relatively
stable.
The public entity program's statutory combined ratio for the three months
ended March 31, 1996 increased to 102.7% from 89.4% for the same period in 1995.
Unusually high public entity claims frequency in the first quarter gave rise to
a 76.1% loss ratio for the three months ended March 31, 1996, compared to 60.8%
for the same period in 1995. Property damage losses associated with the severe
winter storms occurring in early 1996 were the primary cause of the increased
loss ratio for the quarter, although the Company did also experience
approximately $750,000 in adverse loss development on prior accident years. The
public entity program's statutory expense ratio for the three months ended March
31, 1996 decreased to 26.6% compared to 28.6% for the same period in 1995,
primarily due to economies of scale realized on the increased volume of net
premiums written.
Agents' Commissions
Commissions paid to independent insurance agents currently represent the
Company's most significant policy acquisition cost. For the three months ended
March 31, 1996, agents' commissions were 11.5% of premiums earned, versus 15.8%
of premiums earned for the comparable period of 1995. Such decrease is primarily
attributable to the increased portion of Titan Auto's premium which is written
through its Company-owned customer service centers, and Titan Auto's
discontinuation in February 1995 of an override commission paid to a
non-standard automobile agency.
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<PAGE> 12
Other Lines
During the three months ended March 31, 1996, the Company's program to
offer personal lines automobile insurance to educators in the State of Minnesota
wrote approximately $1.0 million in premiums, compared to $539,000 during the
first quarter of 1995. The results of this program were not significant to the
Company's results of operations.
Effective March 1, 1996, the Company discontinued its miscellaneous surety
program, the effect of which was not material to the Company's operations.
Amortization of Intangible Assets
In connection with its acquisitions of non-standard automobile insurance
operations, the Company has capitalized intangible assets to be amortized in
future periods. For the three months ended March 31, 1996, $493,000 of such
costs were amortized compared to $190,000 for the same period in 1995.
Net Income
Net income for the three months ended March 31, 1996 increased 29% over net
income for the first quarter of 1995, rising to $3.1 million versus $2.4 million
for the same period of 1995. Earnings per share for the first quarter of 1996
were $0.34, up from $0.32 for the first quarter of 1995, based on a 24% increase
in weighted average shares. The increase in shares was a result of the Company's
stock offering completed in November 1995. Net realized gains on sales of
investments were insignificant (less than $0.01 per share) for both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries receive substantial cash from premiums
and, to a lesser extent, investment income. The principal cash outflows are for
the payment of claims, reinsurance premiums, policy acquisition costs and other
operating expenses. Holdings' principal source of cash is dividends from its
insurance subsidiaries.
Net cash provided by operating activities was $8.9 million for the three
months ended March 31, 1996, compared with $11.5 million for the same period in
1995. This decrease of $2.6 million (or 22%) is primarily attributable to an
elevated level of losses paid during the first quarter of 1996 as compared to
the first quarter of 1995.
The Company's liquidity depends largely on its investment portfolio. At
March 31, 1996, cash and cash equivalents and short-term investments comprised
7% of total investments, and fixed maturities, excluding collateralized mortgage
obligations, comprised 65% of total investments.
For the three months ended March 31, 1996, the net unrealized loss on
investments increased by $837,000 from $17,000 at December 31, 1995 to $854,000
at March 31, 1996 as interest rates rose. Although a significant portion of the
Company's investment portfolio is considered to be available for sale,
management does not intend to liquidate the fixed maturity portfolio. At March
31, 1996, the Company maintained cash and cash equivalents of $9.3 million to
meet payment obligations.
Cash used by investing activities during the first quarter of 1996 include
the Company's February 1996 purchase of the assets of a Texas non-standard
automobile insurance distribution system for approximately $1.7 million. Also,
Indemnity expended approximately $600,000 on capital improvements to its future
home office facilities in San Antonio, Texas, during the three months ended
March 31, 1996. Future capital improvements to the building and adjacent retail
center are not expected to be material to the working capital of Indemnity. A
portion of these facilities will be utilized by the Company and the remainder
will be leased.
Holdings and WestPac have access to a credit facility with Dresdner Bank AG
as agent which includes: a $10 million revolving credit facility which can be
utilized until June 30, 2000 for working capital purposes by Holdings (no
borrowings currently outstanding), a $20 million term loan ($20 million borrowed
with
11
<PAGE> 13
$10 million repaid in 1995 and no longer available), and a $15 million revolving
credit facility which can be utilized until August 7, 1996 by WestPac ($7
million outstanding).
The Company's insurance subsidiaries are subject to state insurance laws
that restrict their ability to pay dividends. In 1996, Holdings could receive up
to $5.9 million in dividends from Indemnity without prior regulatory approval.
Based upon the current working capital of Holdings and its $10 million revolving
credit facility, Holdings currently does not anticipate that any payment of
dividends in 1996 from the insurance subsidiaries will be necessary to meet its
current liquidity requirements, including its obligations under the credit
facility (approximately $4 million of principal and interest) and to pay
dividends to its shareholders.
In April, 1996, the Company concluded its acquisition of an existing agency
distribution system in Nevada. The Company also has a definitive agreement to
acquire an existing agency distribution system in Colorado, although there can
be no assurance that this transaction will be consummated. Neither of these
transactions are significant to the Company's financial resources.
12
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
There have been no material developments to the legal proceedings as
reported in the Company's Form 10-K for the year ended December 31, 1995.
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
On May 2, 1996, at the Company's Annual Meeting of Shareholders, the
following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
AFFIRMATIVE VOTES
VOTES WITHHELD
----------- --------
<S> <C> <C>
Michael J. Bodayle........................................... 7,804,968 222,053
Lucius E. Burch, III......................................... 7,804,968 222,053
Hector DeLeon................................................ 7,804,868 222,153
E.B. Lyon, III............................................... 7,804,816 222,205
Thomas E. Mangold............................................ 7,804,916 222,105
Christopher J. Murphy, III................................... 7,804,568 222,453
Mark E. Watson, Jr. ......................................... 7,804,868 222,153
Toby S. Wilt................................................. 7,804,968 222,053
Gary V. Woods................................................ 7,804,968 222,053
</TABLE>
The following proposals were also approved at the meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES
VOTES VOTES WITHHELD
----------- -------- --------
<S> <C> <C> <C> <C>
1. Amendment to Articles of Incorporation which
increases the authorized shares from 10,000,000 to
40,000,000 shares.................................. 7,423,185 594,963 8,646
2. Amendment to 1993 Stock Option Plan................ 7,775,995 189,407 61,392
3. Appointment of KPMG Peat Marwick LLP as auditors
for 1996........................................... 8,017,069 3,780 5,945
</TABLE>
ITEM 5 -- OTHER INFORMATION
Not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
27.1 -- Financial Data Schedule -- March 31, 1996
(b) During the quarter ended March 31, 1996, there were no current reports
on Form 8-K filed.
13
<PAGE> 15
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.
TITAN HOLDINGS, INC.
(Registrant)
Date: May 10, 1996 By: /s/ MARK E. WATSON, JR.
-------------------------------
Mark E. Watson, Jr.
President
Chief Executive Officer
Date: May 10, 1996 By: /s/ MIKE BODAYLE
--------------------------------
Mike Bodayle
Executive Vice President
Chief Financial Officer
14
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
27.1 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 113,870
<DEBT-CARRYING-VALUE> 18,808
<DEBT-MARKET-VALUE> 18,780
<EQUITIES> 12,960
<MORTGAGE> 14,251
<REAL-ESTATE> 0
<TOTAL-INVEST> 194,340
<CASH> 9,339
<RECOVER-REINSURE> 844
<DEFERRED-ACQUISITION> 12,021
<TOTAL-ASSETS> 321,731
<POLICY-LOSSES> 129,540
<UNEARNED-PREMIUMS> 54,827
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 19,250
<COMMON> 90
0
0
<OTHER-SE> 101,966
<TOTAL-LIABILITY-AND-EQUITY> 102,056
46,653
<INVESTMENT-INCOME> 3,144
<INVESTMENT-GAINS> 82
<OTHER-INCOME> 0
<BENEFITS> 22,475
<UNDERWRITING-AMORTIZATION> 12,120
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4,486
<INCOME-TAX> 1,400
<INCOME-CONTINUING> 3,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,086
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
