<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER: 0-22000
TITAN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2289827
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2700 N.E. LOOP 410, SUITE 500
SAN ANTONIO, TEXAS 78217
(Address of principal executive offices)
(Zip Code)
(210) 527-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
On May 2, 1997 there were outstanding 9,570,291 shares of Common
Stock, $.01 par value of the registrant.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PAGE
----
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . 6
-2-
<PAGE> 3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at market value (amortized cost:
$150,691 and $145,990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,299 $145,531
Fixed maturities held to maturity, at amortized cost (market value:
$15,933 and $16,104) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,053 16,114
Equity securities available for sale, at market value (cost: $15,591 and $17,088) . . 15,058 16,479
Short-term investments, at cost which approximates market value . . . . . . . . . . . 270 270
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,649 3,682
Premium finance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,469 23,469
Mortgage notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,424 15,935
Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,305 3,313
----------------------------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,527 224,793
Amounts due from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,079 47,393
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,954 26,765
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,351 4,427
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,590 18,852
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,979 12,498
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,568 6,032
Goodwill & non-competition agreements, net . . . . . . . . . . . . . . . . . . . . . . 21,256 21,195
----------------------------
$395,304 $361,955
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for unpaid losses and loss expenses . . . . . . . . . . . . . . . . . . . . . $150,179 $141,871
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,644 55,333
Notes payable and capitalized lease obligations . . . . . . . . . . . . . . . . . . . 23,694 24,024
Notes payable - premium finance subsidiary . . . . . . . . . . . . . . . . . . . . . 27,195 15,750
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,608 13,109
----------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,320 250,087
----------------------------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 5,000 shares; no shares
issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value. Authorized 40,000 shares; issued and outstanding;
1997 - 9,557 shares; 1996 - 9,521 shares . . . . . . . . . . . . . . . . . . . . . 96 95
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,624 62,141
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,874 50,054
Net unrealized loss on investments, net of deferred tax benefit of $867 and $227 . . (1,610) (422)
----------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 113,984 111,868
----------------------------
$395,304 $361,955
============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<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,
1997 1996
----------------------------
<S> <C> <C>
Revenues and other income:
Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,074 $ 46,653
Premiums ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,397) (2,290)
----------------------------
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,677 44,363
Increase in unearned premiums . . . . . . . . . . . . . . . . . . . . . . . (11,702) (9,547)
----------------------------
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,975 34,816
Fee and ceding commission income . . . . . . . . . . . . . . . . . . . . . . 2,298 1,039
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,690 3,144
Net realized gains on sales of investments . . . . . . . . . . . . . . . . . 207 82
----------------------------
Total revenues and other income . . . . . . . . . . . . . . . . . . . . . 49,170 39,081
----------------------------
Expenses:
Losses and loss expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 27,858 22,475
Agents' commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,723 3,986
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 11,360 8,134
----------------------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,941 34,595
----------------------------
Income before income tax expense . . . . . . . . . . . . . . . . . . . . . 5,229 4,486
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,647 1,400
----------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,582 $ 3,086
============================
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.37 $ 0.32
============================
Weighted average shares outstanding . . . . . . . . . . . . . . . . . . . . . . 9,759 9,577
============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 5
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,582 $ 3,086
Adjustments to reconcile net income to net cash provided
by operating activities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,875) (8,557)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (284) (334)
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . . (2,481) (1,935)
Reserve for unpaid losses and loss expenses . . . . . . . . . . . . . . . . 8,308 6,729
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,311 9,649
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 543 342
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 645 (43)
----------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 13,749 8,937
----------------------------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . (37,595) (22,078)
Proceeds from sales and maturities of investments, available for sale . . . . 33,311 18,661
Contingent consideration paid, related to 1992 purchase transaction . . . . . -- (3,449)
Business acquired in purchase transaction . . . . . . . . . . . . . . . . . . (15,265) (1,744)
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . (2,323) (1,332)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 82
----------------------------
Net cash used by investing activities . . . . . . . . . . . . . . . . . . (21,619) (9,860)
----------------------------
Cash flows from financing activities:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 750 --
Proceeds from borrowings - premium finance subsidiary . . . . . . . . . . . . 11,445 --
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . (1,080) (69)
Proceeds from sale of common stock issued for exercise of stock options . . . 484 --
Payment of dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . (762) (677)
----------------------------
Net cash provided (used) by financing activities . . . . . . . . . . . . . 10,837 (746)
----------------------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 2,967 (1,669)
Cash and cash equivalents:
Beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,682 11,008
----------------------------
End of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,649 $ 9,339
============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE> 6
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(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, 1996 Annual Report on Form 10-K. Certain prior period amounts have
been reclassified for comparative purposes. All intercompany amounts have been
eliminated in consolidation.
(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 and
warrants. On May 13, 1996, the Company effected a 5% stock dividend. Prior year
weighted average shares outstanding and prior year per share amounts have been
restated accordingly. Share and per share amounts have not been restated for
the 5% stock dividend approved on May 1, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128). FAS 128 establishes standards for computing and presenting earnings per
share (EPS). FAS 128 replaces primary EPS, as computed under APB Opinion No.
15, "Earnings per Share," with basic EPS and also requires dual presentation of
basic EPS and diluted EPS on the income statement. FAS 128 is effective for
financial statements ending after December 15, 1997 and requires restatement of
all prior-period EPS data. Basic earnings per share for the three months ended
March 31, 1997 and 1996 are $.38 and $.33, respectively. Dilutive earnings per
share approximate the amounts shown on the Condensed Consolidated Statements of
Income.
(3) NOTE PAYABLE - PREMIUM FINANCE SUBSIDIARY
In February 1997, Westchester Premium Acceptance Corporation ("West-Pac")
executed an agreement to acquire a premium finance company, Elite Premium
Services, Ltd. ("Elite"), for approximately $400,000 in cash and additional
consideration to be determined as a function of future amounts financed through
sources provided by Elite. In connection with the acquisition, West-Pac
increased the limit of its credit facility to $50 million and increased its
borrowings under the credit facility by approximately $11.5 million for finance
contracts acquired in the acquisition.
-6-
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Titan Holdings, Inc. ("Holdings" or "the Company") operates specialty
property and casualty insurance companies and related service companies.
Through its insurance subsidiaries (Titan Indemnity Company and Titan Insurance
Company), Holdings provides personal lines nonstandard automobile insurance in
the midwest and southwest and property and casualty insurance for small to
medium-sized cities, towns, counties and other public entities nationwide.
Another wholly-owned subsidiary, Westchester Premium Acceptance Corporation
("West-Pac"), provides commercial property and casualty premium financing. The
Company refers to its nonstandard automobile insurance program collectively as
"Titan Auto" and the Public Entity program as "Titan Public Entity."
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. Nonstandard automobile insurance does
not tend to be highly seasonal.
The following section contains forward-looking statements regarding premium
growth and other matters, which involve risks and uncertainties that may affect
the Company's actual results of operations.
The following important factors, among others, could cause actual results to
differ materially from those set forth in the forward-looking statements:
claims frequency, claims severity, severe adverse weather conditions,
economics, competitive pricing and the regulatory environment in which the
Company operates.
RESULTS OF OPERATIONS
Premiums by Line
The following table presents the dollar amount and percentage of total
premiums written and premiums earned, by principal line of business for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Titan Auto
Premiums written . . . . . . . . . . . . . . . . . . . $34,885 $25,574
Premiums earned . . . . . . . . . . . . . . . . . . . . 28,871 20,680
Titan Public Entity
Premiums written . . . . . . . . . . . . . . . . . . . 20,921 19,938
Premiums earned . . . . . . . . . . . . . . . . . . . . 14,155 13,114
Total (including other lines)
Premiums written . . . . . . . . . . . . . . . . . . . 57,074 46,653
Premiums earned . . . . . . . . . . . . . . . . . . . . 42,975 34,816
</TABLE>
Premiums Written
Total premiums written for the three months ended March 31, 1997 of $57.1
million represent an increase of 22% over total premiums written during the
same period in 1996 of $46.7 million. This increase primarily relates to Titan
Auto's operations.
Titan Auto premiums written in the first quarter of 1997 increased 36%
over the first quarter of 1996 and aggregated $34.9 million. Growth was
experienced across all distribution channels. Premiums written for Titan Auto
through independent agencies and strategic alliances aggregated $23.0 million
and through its Direct Response Centers ("DRC's") totaled $11.9 million for the
three months ended March 31, 1997. For the three months ended March 31, 1996,
Titan Auto premiums written by independent agencies and strategic alliances
were $20.2 million and DRC's accounted for $5.4 million. The growth experienced
by the DRC's relates to continued expansion in Arizona ($5.1 million premiums
written in 1997 versus $3.7 million in 1996) as well as additional markets for
Titan Auto. In the latter part of 1996, Titan Auto began underwriting in Texas,
Nevada and Colorado which in total accounted for $4.6 million in premiums
written in the three months ended March 31, 1997. Titan Auto began underwriting
in New Mexico in January 1997, and premium writings were approximately $0.5
million for the quarter.
Titan Public Entity's premium writings increased approximately 5% to $20.9
million for the three months ended March 31, 1997 compared to $19.9 million for
the same period a year ago.
Premium growth experienced in the first quarter of 1997 is consistent with
Company expectations and should continue at the current growth rate as Titan
Auto continues its expansion through DRC's, independent agencies and new
strategic alliances as well as geographic expansion. Titan Public Entity's
growth is expected to continue at a moderate pace as the Company continues to
be selective with underwriting decisions in a highly competitive and price
sensitive environment.
-7-
<PAGE> 8
Premiums Earned
Premiums earned for the three months ended March 31, 1997 increased 23% to
$43.0 million from $34.8 million for the three months ended March 31, 1996.
Titan Auto's earned premium increased 40% to $28.9 million for the current
three months ended from $20.7 million in the comparable period of a year ago.
In the three months ended March 31, 1997 versus the same period in 1996, Titan
Public Entity earned premium increased 8% to $14.2 million. Such increases are
primarily attributable to the increases in premiums written and, to a lesser
extent, reduced reinsurance costs.
Fee and Ceding Commission Income
Titan Auto's operations generate policy and billing fee income which
comprises the majority of fee and ceding commission income. Ceding commissions
received from reinsurers represent the reimbursement of policy acquisition
expenses or profit commissions based on loss experience. Fee and ceding
commission income for the three months ended March 31, 1997 compared to the
same three months of 1996, increased twofold to $2.3 million from $1.0 million
in connection with Titan Auto's premium growth.
The Company expects fee income to continue to increase, although not
necessarily at the same rate experienced in the first quarter of 1997, in
conjunction with the growth and expansion of its auto program into additional
states.
Net Investment Income
Net investment income is comprised of both income from the investment
portfolio and the Company's premium finance contracts. For the three months
ended March 31, 1997, net investment income increased 17% to $3.7 million
compared to $3.1 million for the three months ended March 31, 1996. Such
increase stems from the growth in the size of the Company's overall investment
portfolio and, more significantly, from the growth of the Company's premium
finance operation which, in February 1997, acquired Elite Premium Services,
Ltd. Interest income on premium finance contracts increased to $1.0 million for
the three months ended March 31, 1997 versus $0.5 million for the same period
in 1996.
Interest rates have not had a significant impact on investment income for
the first quarter of 1997 relative to the first quarter of 1996, as measured by
the average tax adjusted yield of the investment portfolio. For the three
months ended March 31, 1997, the tax adjusted yield of the investment portfolio
was 6.7% compared to 7.0% of a year ago. The Company continues to maintain
relatively short duration of 3.6 years in its investment portfolio.
Combined Ratios
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") for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Titan Auto
Loss . . . . . . . . . . . . . . . . . . . 62.5% 56.0%
Expense . . . . . . . . . . . . . . . . . . 28.0% 27.9%
-------------------------
Combined . . . . . . . . . . . . . . . . 90.5% 83.9%
=========================
Titan Public Entity
Loss . . . . . . . . . . . . . . . . . . . 67.6% 76.1%
Expense . . . . . . . . . . . . . . . . . . 29.1% 28.4%
-------------------------
Combined . . . . . . . . . . . . . . . . 96.7% 104.5%
=========================
Total (including other lines)
Loss . . . . . . . . . . . . . . . . . . . 64.8% 64.6%
Expense . . . . . . . . . . . . . . . . . . 28.2% 28.1%
-------------------------
Combined . . . . . . . . . . . . . . . . 93.0% 92.7%
=========================
</TABLE>
The Company's overall combined ratio remained consistent at approximately
93% for the three months ended March 31, 1997 and 1996 as both components (the
loss ratio and expense ratio) did not fluctuate significantly for the periods
indicated.
-8-
<PAGE> 9
Titan Auto's loss ratio component increased to 62.5% in the first quarter
of 1997 versus 56.0% in the comparable period of 1996. The Company targets a
combined ratio for Titan Auto in each state. In states with more predominant
fee income (which serves as a reduction to expenses), the Company can price its
product to a higher targeted loss ratio and maintain the same combined ratio as
it experiences in other states. The increase in the loss ratio for Titan Auto
is associated with expansion into states outside of Michigan which are
underwritten at a higher loss ratio and lower expense ratio than the Michigan
business, due to the relative insignificance of fee income in Michigan.
Additionally, in the first quarter of 1996, Titan Auto experienced favorable
loss development which resulted in the lowest loss ratio of 1996 when compared
to the remaining three quarters of 1996. Titan Auto's expense ratio component
remained constant at roughly 28% for the quarters ended March 31, 1997 and
1996. DRC distribution costs associated with relatively immature markets that
the Company entered in 1996 offset the expense ratio benefit associated with
fee income outside of Michigan during the first quarter of 1997.
The Company believes that as Titan Auto expands to additional markets
which, in certain instances, will be underwritten at a higher loss ratio than
its Michigan business, the loss ratio should continue to increase slightly
while the expense ratio improves.
Titan Public Entity's overall combined ratio improved to 96.7% for the
three months ended March 31, 1997 compared to 104.5% for the three months ended
March 31, 1996. The improvement is primarily related to an improvement in the
loss ratio to 67.6% from 76.1% for the first three months of 1997 and 1996,
respectively. In the first quarter of 1996, Titan Public Entity's loss ratio
was affected by unusually high claims frequency in 1996 associated with
property damage losses related to severe winter storms occurring in early 1996.
The improvement in the loss ratio, comparing the first quarter of 1997 to 1996,
was slightly offset by an increase in the expense ratio to 29.1% in the first
three months of 1997 compared to 28.4% for the same three months in 1996.
Agents' Commissions
Commissions paid to independent insurance agents still represent the
Company's most significant acquisition cost. For the three months ended March
31, 1997 agents' commissions were 11.0% of premiums earned compared to 11.4%
for the same period of 1996. The decrease relates primarily to the expansion of
Titan Auto's DRC operations which are not subject to commission expense. The
Company anticipates this trend to continue as DRC production becomes more
material to the overall Titan Auto business.
Net Income
Net income for the three months ended March 31, 1997 increased 16% to $3.6
million from $3.1 million for the three months ended March 31, 1996. Net income
per share increased to $.37 from $.32 for the quarter ended March 31, 1997 and
1996, respectfully. Net income per share amounts have been restated for the May
13, 1996 5% stock dividend. However, they have not been restated for the May 1,
1997 5% stock dividend.
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. Net cash provided by operating activities was $13.7 million
for the three months ended March 31, 1997 versus $8.9 million for the same
three months of 1996. The increase experienced in 1997 primarily relates to the
increase in premiums written.
Cash of $10.8 million provided by financing activities is basically
attributable to borrowings under West-Pac's line of credit concurrent with its
purchase of Elite Premium Services, Ltd. in February 1997. At that time,
West-Pac's credit facility was increased to $50 million and its outstanding
borrowings increased by approximately $11.5 million. The line of credit expires
in July 1997 at which time the Company intends to renegotiate the line of
credit.
Holdings' credit facility consists a $10 million revolving line of credit
($2.8 million outstanding) until July 30, 2001 and a $20 million amortizing
term loan ($19 million outstanding). Management will continue to evaluate the
insurance companies' underwriting leverage ratio and evaluate whether
additional debt financing is appropriate to increase underwriting capacity.
During 1997 management anticipates extending its term loan and utilizing this
facility as a source of additional statutory capital. Subsequent to March 31,
1997, the Company repaid the outstanding balance on its revolving line of
credit, but may utilize a portion of this facility in the future as necessary
for working capital purposes. Debt service on the term loan (payable in $4
million increments annually through 2001, when the term loan will be fully
amortized) would be repaid through dividends from the insurance companies to
Holdings. However, the Company expects to restructure its existing term loan
facility such that the renegotiated facility will not bear principal payments
until 1999.
The Company's insurance subsidiaries are subject to state insurance laws
that restrict their ability to pay dividends. In 1997 Holdings could receive up
to approximately $8.0 million in dividends without regulatory approval. To date
in 1997 Holdings has received $5.5 million in dividends from the insurance
subsidiaries. Based on the current working capital of Holdings, management
expects that the payment of dividends available without regulatory approval
from the insurance companies will be sufficient to meet its current liquidity
needs.
Cash used by investing activities of $21.6 million for the three months
ended March 31, 1997 includes $15.3 million for West-Pac's purchase of Elite
Premium Services, Ltd. In addition, Titan Indemnity Company expended
approximately $2.3 million on EDP equipment, furniture and fixtures and
improvements to its home office building.
During the three months ended March 31, 1997, the net unrealized loss on
investments increased $1.2 million from $0.4 million at December 31, 1996 to
$1.6 million at March 31, 1997 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, 1997, the Company maintained $6.6 million in cash and cash
equivalents to meet payment obligations.
-9-
<PAGE> 10
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, 1996.
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 1, 1997, 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>
Class I (Terms expire at annual meeting in 1998)
Lucius E. Burch III . . . . . . . . . . . . . . . . . . 8,514,042 527,440
Thomas E. Mangold . . . . . . . . . . . . . . . . . . . 8,838,554 202,928
Mark E. Watson III . . . . . . . . . . . . . . . . . . 8,837,921 203,561
Class II (Terms expire at annual meeting in 1999)
Hector DeLeon . . . . . . . . . . . . . . . . . . . . . 8,840,654 200,828
Christopher J. Murphy III . . . . . . . . . . . . . . . 8,838,554 202,928
Toby S. Wilt . . . . . . . . . . . . . . . . . . . . . 8,920,559 120,923
Class III (Terms expire at annual meeting in 2000)
Mark E. Watson Jr. . . . . . . . . . . . . . . . . . . 8,840,759 200,723
E.B. Lyon III . . . . . . . . . . . . . . . . . . . . . 8,840,756 200,726
Gary V. Woods . . . . . . . . . . . . . . . . . . . . . 8,920,019 121,463
</TABLE>
The following proposal was also approved at the meeting:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
<S> <C> <C> <C>
Appointment of KPMG Peat Marwick LLP as auditors for 1997 . . . . . . 9,034,728 861 5,696
</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, 1997
(b) During the quarter ended March 31, 1997, there were no current
reports on Form 8-K filed.
-10-
<PAGE> 11
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 12, 1997 By: /s/ MARK E. WATSON, JR.
---------------------------------
Mark E. Watson, Jr.
President
Chief Executive Officer
Date: May 12, 1997 By: /s/ MICHAEL W. GRANDSTAFF
---------------------------------
Michael W. Grandstaff
Executive Vice President Chief
Financial Officer
-11-
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule - March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 148,299
<DEBT-CARRYING-VALUE> 16,053
<DEBT-MARKET-VALUE> 15,933
<EQUITIES> 15,058
<MORTGAGE> 16,424
<REAL-ESTATE> 0
<TOTAL-INVEST> 245,527
<CASH> 6,649
<RECOVER-REINSURE> 1,318
<DEFERRED-ACQUISITION> 14,979
<TOTAL-ASSETS> 395,304
<POLICY-LOSSES> 150,179
<UNEARNED-PREMIUMS> 66,644
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 50,889
0
0
<COMMON> 96
<OTHER-SE> 113,888
<TOTAL-LIABILITY-AND-EQUITY> 395,304
57,074
<INVESTMENT-INCOME> 3,690
<INVESTMENT-GAINS> 207
<OTHER-INCOME> 2,298
<BENEFITS> 27,858
<UNDERWRITING-AMORTIZATION> 16,083
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 5,229
<INCOME-TAX> 1,647
<INCOME-CONTINUING> 3,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,582
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
