PHILADELPHIA CONSOLIDATED HOLDING CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2003

Commission File Number 0-22280

PHILADELPHIA CONSOLIDATED HOLDING CORP.

(Exact name of registrant as specified in its charter)


PENNSYLVANIA (State of Incorporation)		23-2202671 (IRS Employer Identification No.)

One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900

(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 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: o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES: x NO: o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 9, 2003.

Preferred Stock, $.01 par value, no shares outstanding
Common Stock, no par value, 21,868,046 shares outstanding

TABLE OF CONTENTS


		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II - OTHER INFORMATION
SIGNATURES
CERTIFICATION
CERTIFICATION
CERTIFICATION OF THE COMPANY'S C.E.O.
CERTIFICATION OF THE COMPANY'S C.F.O.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX

For the Quarterly Period Ended March 31, 2003


Part I - Financial Information
	Item 1.	Financial Statements:
		Consolidated Balance Sheets - March 31, 2003 and December 31, 2002	3
		Consolidated Statements of Operations and Comprehensive Income - For the three months ended March 31, 2003 and 2002	4
		Consolidated Statements of Changes in Shareholders’ Equity - For the three months ended March 31, 2003 and year ended December 31, 2002	5
		Consolidated Statements of Cash Flows - For the three months ended March 31, 2003 and 2002	6
		Notes to Consolidated Financial Statements	7-10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11-17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4.	Controls and Procedures	19
Part II - Other Information			20
Signatures			21
Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			22
Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			23

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)


			As of

			March 31,
			2003			December 31,
			(Unaudited)			2002

ASSETS
INVESTMENTS:
	FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $933,319 AND $832,701)		$	950,835		$	854,513
	EQUITY SECURITIES AT MARKET (COST $49,154 AND $51,257)			51,607			54,346

		TOTAL INVESTMENTS		1,002,442			908,859
	CASH AND CASH EQUIVALENTS			38,084			42,002
	ACCRUED INVESTMENT INCOME			9,673			8,571
	PREMIUMS RECEIVABLE			130,297			130,007
	PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES			151,029			151,352
	DEFERRED INCOME TAXES			11,023			7,541
	DEFERRED ACQUISITION COSTS			63,046			61,272
	PROPERTY AND EQUIPMENT, NET			13,150			12,794
	GOODWILL			25,724			25,724
	OTHER ASSETS			14,335			10,212

		TOTAL ASSETS	$	1,458,803		$	1,358,334

LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
	UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		$	487,195		$	445,548
	UNEARNED PREMIUMS			326,390			306,093

		TOTAL POLICY LIABILITIES AND ACCRUALS		813,585			751,641
	LOANS PAYABLE			49,317			39,113
	PREMIUMS PAYABLE			29,850			33,553
	PAYABLE FOR SECURITY PURCHASES			11,481			6,100
	OTHER LIABILITIES			66,604			50,104

		TOTAL LIABILITIES		970,837			880,511

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
	PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NONE ISSUED AND OUTSTANDING			—			—
	COMMON STOCK, NO PAR VALUE, 100,000,000 SHARES AUTHORIZED, 21,866,961 AND 21,868,877 SHARES ISSUED AND OUTSTANDING			276,905			276,945
	NOTES RECEIVABLE FROM SHAREHOLDERS			(5,952	)		(6,407	)
	ACCUMULATED OTHER COMPREHENSIVE INCOME			12,980			16,185
	RETAINED EARNINGS			204,333			191,100
	LESS COST OF COMMON STOCK HELD IN TREASURY, 10,000 SHARES			(300	)		—

		TOTAL SHAREHOLDERS’ EQUITY		487,966			477,823

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,458,803		$	1,358,334

The accompanying notes are an integral part of the consolidated financial statements.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)


			For the Three Months
			Ended March 31,

			2003			2002

REVENUE:
	NET EARNED PREMIUMS		$	148,362		$	89,244
	NET INVESTMENT INCOME			9,805			8,855
	NET REALIZED INVESTMENT GAIN (LOSS)			(1,133	)		47
	OTHER INCOME			661			1

		TOTAL REVENUE		157,695			98,147

LOSSES AND EXPENSES:
	LOSS AND LOSS ADJUSTMENT EXPENSES			103,085			65,611
	NET REINSURANCE RECOVERIES			(12,725	)		(12,562	)

	NET LOSS AND LOSS ADJUSTMENT EXPENSES			90,360			53,049
	ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES			46,420			27,821
	OTHER OPERATING EXPENSES			1,674			1,484

		TOTAL LOSSES AND EXPENSES		138,454			82,354

INCOME BEFORE INCOME TAXES				19,241			15,793

INCOME TAX EXPENSE (BENEFIT):
	CURRENT			7,764			6,571
	DEFERRED			(1,756	)		(1,455	)

		TOTAL INCOME TAX EXPENSE		6,008			5,116

		NET INCOME	$	13,233		$	10,677

OTHER COMPREHENSIVE LOSS, NET OF TAX:
	HOLDING LOSS ARISING DURING PERIOD		$	(3,941	)	$	(4,059	)
	RECLASSIFICATION ADJUSTMENT			736			(31	)

	OTHER COMPREHENSIVE LOSS			(3,205	)		(4,090	)

COMPREHENSIVE INCOME			$	10,028		$	6,587

PER AVERAGE SHARE DATA:
	BASIC EARNINGS PER SHARE		$	0.61		$	0.50

	DILUTED EARNINGS PER SHARE		$	0.59		$	0.48

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING				21,865,269			21,528,091
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING				562,552			724,311

WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING				22,427,821			22,252,402

The accompanying notes are an integral part of the consolidated financial statements.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)


				For the Three
				Months Ended			For the Year Ended
				March 31, 2003			December 31,
				(Unaudited)			2002

COMMON SHARES:
	BALANCE AT BEGINNING OF YEAR				21,868,877			21,509,723
	EXERCISE OF EMPLOYEE STOCK OPTIONS				—			107,000
	ISSUANCE (FORFEITURES) OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET				(1,916	)		252,154

			BALANCE AT END OF PERIOD		21,866,961			21,868,877

TREASURY SHARES:
	BALANCE AT BEGINNING OF YEAR				—			—
	ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET				—			(75,000	)
	SHARES REPURCHASED PURSUANT TO AUTHORIZATION				10,000			75,000

			BALANCE AT END OF PERIOD		10,000			—

COMMON STOCK:
	BALANCE AT BEGINNING OF YEAR			$	276,945		$	268,509
	EXERCISE OF EMPLOYEE STOCK OPTIONS				—			2,115
	ISSUANCE (FORFEITURES) OF SHARES PURSUANT TO STOCK PURCHASE PLANS				(40	)		6,321

			BALANCE AT END OF PERIOD		276,905			276,945

NOTES RECEIVABLE FROM SHAREHOLDERS:
	BALANCE AT BEGINNING OF YEAR				(6,407	)		(3,373	)
	NOTES RECEIVABLE ISSUED (FORFEITURES) PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS				59			(4,017	)
	COLLECTION OF NOTES RECEIVABLE				396			983

			BALANCE AT END OF PERIOD		(5,952	)		(6,407	)

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES:
		BALANCE AT BEGINNING OF YEAR			16,185			8,461
		OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES			(3,205	)		7,724

			BALANCE AT END OF PERIOD		12,980			16,185

RETAINED EARNINGS:
	BALANCE AT BEGINNING OF YEAR				191,100			155,095
	NET INCOME				13,233			36,005

			BALANCE AT END OF PERIOD		204,333			191,100

COMMON STOCK HELD IN TREASURY:
	BALANCE AT BEGINNING OF YEAR				—			—
	COMMON SHARES REPURCHASED				(300	)		(2,023	)
	ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS				—			2,023

			BALANCE AT END OF PERIOD		(300	)		—

			TOTAL SHAREHOLDERS’ EQUITY	$	487,966		$	477,823

The accompanying notes are an integral part of the consolidated financial statements.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)


			For the Three Months Ended March 31,

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	NET INCOME		$	13,233		$	10,677
	ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
	NET REALIZED INVESTMENT (GAIN) LOSS			1,133			(47	)
	DEPRECIATION AND AMORTIZATION EXPENSE			1,724			196
	DEFERRED INCOME TAX BENEFIT			(1,756	)		(1,455	)
	CHANGE IN PREMIUMS RECEIVABLE			(290	)		5,349
	CHANGE IN OTHER RECEIVABLES			(779	)		(1,355	)
	CHANGE IN DEFERRED ACQUISITION COSTS			(1,774	)		(2,414	)
	CHANGE IN INCOME TAXES PAYABLE			5,450			3,719
	CHANGE IN OTHER ASSETS			(4,256	)		494
	CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES			41,647			21,851
	CHANGE IN UNEARNED PREMIUMS			20,297			17,334
	CHANGE IN OTHER LIABILITIES			7,347			(753	)
	TAX BENEFIT FROM EXERCISE OF EMPLOYEE STOCK OPTIONS			—			573

		NET CASH PROVIDED BY OPERATING ACTIVITIES		81,976			54,169

CASH FLOWS FROM INVESTING ACTIVITIES:
	PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES			6,504			13,941
	PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES			47,509			26,807
	PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES			3,053			253
	COST OF FIXED MATURITIES ACQUIRED			(150,325	)		(77,492	)
	COST OF EQUITY SECURITIES ACQUIRED			(1,850	)		(17,955	)
	PURCHASE OF PROPERTY AND EQUIPMENT, NET			(1,104	)		(769	)

		NET CASH USED FOR INVESTING ACTIVITIES		(96,213	)		(55,215	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	PROCEEDS FROM LOANS PAYABLE			15,161			—
	REPAYMENTS ON LOANS PAYABLE			(4,957	)		—
	PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS			—			410
	PROCEEDS FROM SHARES ISSUED PURSUANT TO STOCK PURCHASE PLANS			19			10
	PROCEEDS FROM COLLECTION OF NOTES RECEIVABLE			396			230
	COST OF COMMON STOCK REPURCHASED			(300	)		—

		NET CASH PROVIDED BY FINANCING ACTIVITIES		10,319			650

NET DECREASE IN CASH AND CASH EQUIVALENTS				(3,918	)		(396	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR				42,002			49,910

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	38,084		$	49,514

CASH PAID DURING THE PERIOD FOR:
	INCOME TAXES		$	1,930		$	2,200
	INTEREST		$	134		$	129
NON-CASH TRANSACTIONS:
	ISSUANCE (FORFEITURES) OF SHARES PURSUANT TO EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR NOTES RECEIVABLE		$	(59	)	$	(31	)

The accompanying notes are an integral part of the consolidated financial statements.

PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Notes to Co

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