UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 June 30, 2003
Commission File Number 0-22280
PHILADELPHIA CONSOLIDATED HOLDING CORP.
| PENNSYLVANIA | 23-2202671 | |
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| (State of Incorporation) | (IRS Employer Identification No.) |
One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900
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 August 8, 2003.
Common Stock, no par value, 21,863,147 shares outstanding
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX
For the Quarterly Period Ended June 30, 2003
Part I - Financial Information |
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Item 1. Financial Statements: |
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Consolidated Balance Sheets – June 30, 2003 and
December 31, 2002 |
3 | |||||
Consolidated Statements of Operations and Comprehensive
Income - For the three and six months ended June 30, 2003 and 2002 |
4 | |||||
Consolidated Statements of Changes in Shareholders’ Equity - For
the six months ended June 30, 2003 and year ended
December 31, 2002 |
5 | |||||
Consolidated Statements of Cash Flows - For the six
months ended June 30, 2003 and 2002 |
6 | |||||
Notes to Consolidated Financial Statements |
7-13 | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
14-23 | |||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
24 | |||||
Item 4. Controls and Procedures |
25 | |||||
Part II - Other Information |
26-27 | |||||
Signatures |
28 | |||||
2
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
| As of | ||||||||||
| June 30, | ||||||||||
| 2003 | December 31, | |||||||||
| (Unaudited) | 2002 | |||||||||
ASSETS |
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INVESTMENTS: |
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FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $976,289 AND $832,701) |
$ | 1,000,641 | $ | 854,513 | ||||||
EQUITY SECURITIES AT MARKET (COST $64,464
AND $51,257) |
71,101 | 54,346 | ||||||||
TOTAL INVESTMENTS |
1,071,742 | 908,859 | ||||||||
CASH AND CASH EQUIVALENTS |
63,986 | 42,002 | ||||||||
ACCRUED INVESTMENT INCOME |
9,703 | 8,571 | ||||||||
PREMIUMS RECEIVABLE |
144,886 | 130,007 | ||||||||
PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES |
233,118 | 151,352 | ||||||||
DEFERRED INCOME TAXES |
13,626 | 7,541 | ||||||||
DEFERRED ACQUISITION COSTS |
45,919 | 61,272 | ||||||||
PROPERTY AND EQUIPMENT, NET |
14,045 | 12,794 | ||||||||
GOODWILL |
25,724 | 25,724 | ||||||||
OTHER ASSETS |
13,678 | 10,212 | ||||||||
TOTAL ASSETS |
$ | 1,636,427 | $ | 1,358,334 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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POLICY LIABILITIES AND ACCRUALS: |
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UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES |
$ | 546,431 | $ | 445,548 | ||||||
UNEARNED PREMIUMS |
357,101 | 306,093 | ||||||||
TOTAL POLICY LIABILITIES AND ACCRUALS |
903,532 | 751,641 | ||||||||
FUNDS HELD PAYABLE TO REINSURER |
61,923 | — | ||||||||
LOANS PAYABLE |
48,111 | 39,113 | ||||||||
PREMIUMS PAYABLE |
41,437 | 33,553 | ||||||||
PAYABLE FOR SECURITY PURCHASES |
22,387 | 6,100 | ||||||||
OTHER LIABILITIES |
59,551 | 50,104 | ||||||||
TOTAL LIABILITIES |
1,136,941 | 880,511 | ||||||||
COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS’ EQUITY: |
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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 |
276,963 | 276,945 | ||||||||
NOTES RECEIVABLE FROM SHAREHOLDERS |
(5,365 | ) | (6,407 | ) | ||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME |
20,143 | 16,185 | ||||||||
RETAINED EARNINGS |
207,960 | 191,100 | ||||||||
LESS COST OF COMMON STOCK HELD IN
TREASURY, 4,042 SHARES |
(215 | ) | — | |||||||
TOTAL SHAREHOLDERS’ EQUITY |
499,486 | 477,823 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,636,427 | $ | 1,358,334 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
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 | For the Six Months | |||||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
REVENUE: |
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NET EARNED PREMIUMS |
$ | 121,449 | $ | 100,273 | $ | 269,811 | $ | 189,517 | ||||||||||
NET INVESTMENT INCOME |
9,370 | 9,375 | 19,175 | 18,230 | ||||||||||||||
NET REALIZED INVESTMENT LOSS |
(650 | ) | (3,181 | ) | (1,783 | ) | (3,134 | ) | ||||||||||
OTHER INCOME |
1,040 | 15 | 1,701 | 16 | ||||||||||||||
TOTAL REVENUE |
131,209 | 106,482 | 288,904 | 204,629 | ||||||||||||||
LOSSES AND EXPENSES: |
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LOSS AND LOSS ADJUSTMENT EXPENSES |
124,293 | 72,067 | 227,378 | 137,678 | ||||||||||||||
NET REINSURANCE RECOVERIES |
(31,267 | ) | (11,235 | ) | (43,992 | ) | (23,797 | ) | ||||||||||
NET LOSS AND LOSS ADJUSTMENT EXPENSES |
93,026 | 60,832 | 183,386 | 113,881 | ||||||||||||||
ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES |
32,158 | 31,057 | 78,578 | 58,878 | ||||||||||||||
OTHER OPERATING EXPENSES |
1,632 | 1,454 | 3,306 | 2,938 | ||||||||||||||
TOTAL LOSSES AND EXPENSES |
126,816 | 93,343 | 265,270 | 175,697 | ||||||||||||||
INCOME BEFORE INCOME TAXES |
4,393 | 13,139 | 23,634 | 28,932 | ||||||||||||||
INCOME TAX EXPENSE (BENEFIT): |
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CURRENT |
7,225 | 5,798 | 14,989 | 12,369 | ||||||||||||||
DEFERRED |
(6,459 | ) | (1,612 | ) | (8,215 | ) | (3,067 | ) | ||||||||||
TOTAL INCOME TAX EXPENSE |
766 | 4,186 | 6,774 | 9,302 | ||||||||||||||
NET INCOME |
$ | 3,627 | $ | 8,953 | $ | 16,860 | $ | 19,630 | ||||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAX: |
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HOLDING GAIN ARISING DURING PERIOD |
6,740 | 5,334 | 2,799 | 1,275 | ||||||||||||||
RECLASSIFICATION ADJUSTMENT |
423 | 2,068 | 1,159 | 2,037 | ||||||||||||||
OTHER COMPREHENSIVE INCOME |
7,163 | 7,402 | 3,958 | 3,312 | ||||||||||||||
COMPREHENSIVE INCOME |
$ | 10,790 | $ | 16,355 | $ | 20,818 | $ | 22,942 | ||||||||||
PER AVERAGE SHARE DATA: |
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BASIC EARNINGS PER SHARE |
$ | 0.17 | $ | 0.41 | $ | 0.77 | $ | 0.91 | ||||||||||
DILUTED EARNINGS PER SHARE |
$ | 0.16 | $ | 0.40 | $ | 0.75 | $ | 0.88 | ||||||||||
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING |
21,860,396 | 21,578,045 | 21,862,819 | 21,553,206 | ||||||||||||||
WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING |
706,608 | 753,575 | 635,107 | 741,742 | ||||||||||||||
WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING |
22,567,004 | 22,331,620 | 22,497,926 | 22,294,948 | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
| For the Six Months | |||||||||||
| Ended | For the Year Ended | ||||||||||
| June 30, 2003 | December 31, | ||||||||||
| (Unaudited) | 2002 | ||||||||||
COMMON SHARES: |
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BALANCE AT BEGINNING OF YEAR |
21,868,877 | 21,509,723 | |||||||||
EXERCISE OF EMPLOYEE STOCK OPTIONS |
— | 107,000 | |||||||||
(FORFEITURES) ISSUANCES 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: |
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BALANCE AT BEGINNING OF YEAR |
— | — | |||||||||
SHARES REPURCHASED PURSUANT TO AUTHORIZATION |
10,000 | 75,000 | |||||||||
EXERCISE OF EMPLOYEE STOCK OPTIONS |
(6,500 | ) | — | ||||||||
FORFEITURES (ISSUANCES) OF SHARES PURSUANT TO STOCK
PURCHASE PLANS |
542 | (75,000 | ) | ||||||||
BALANCE AT END OF PERIOD |
4,042 | — | |||||||||
COMMON STOCK: |
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BALANCE AT BEGINNING OF YEAR |
$ | 276,945 | $ | 268,509 | |||||||
EXERCISE OF EMPLOYEE STOCK OPTIONS |
58 | 2,115 | |||||||||
(FORFEITURES) ISSUANCES OF SHARES PURSUANT TO STOCK
PURCHASE PLANS |
(40 | ) | 6,321 | ||||||||
BALANCE AT END OF PERIOD |
276,963 | 276,945 | |||||||||
NOTES RECEIVABLE FROM SHAREHOLDERS: |
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BALANCE AT BEGINNING OF YEAR |
(6,407 | ) | (3,373 | ) | |||||||
NOTES RECEIVABLE (ISSUED) FORFEITURES PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS |
90 | (4,017 | ) | ||||||||
COLLECTION OF NOTES RECEIVABLE |
952 | 983 | |||||||||
BALANCE AT END OF PERIOD |
(5,365 | ) | (6,407 | ) | |||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES: |
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BALANCE AT BEGINNING OF YEAR |
16,185 | 8,461 | |||||||||
OTHER COMPREHENSIVE INCOME, NET OF TAXES |
3,958 | 7,724 | |||||||||
BALANCE AT END OF PERIOD |
20,143 | 16,185 | |||||||||
RETAINED EARNINGS: |
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BALANCE AT BEGINNING OF YEAR |
191,100 | 155,095 | |||||||||
NET INCOME |
16,860 | 36,005 | |||||||||
BALANCE AT END OF PERIOD |
207,960 | 191,100 | |||||||||
COMMON STOCK HELD IN TREASURY: |
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BALANCE AT BEGINNING OF YEAR |
— | — | |||||||||
EXERCISE OF EMPLOYEE STOCK OPTIONS |
94 | — | |||||||||
COMMON SHARES REPURCHASED |
(300 | ) | (2,023 | ) | |||||||
(FORFEITURES) ISSUANCES OF SHARES PURSUANT TO STOCK
PURCHASE PLANS |
(9 | ) | 2,023 | ||||||||
BALANCE AT END OF PERIOD |
(215 | ) | — | ||||||||
TOTAL SHAREHOLDERS’ EQUITY |
$ | 499,486 | $ | 477,823 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
5
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
| For the Six Months Ended June 30, | ||||||||||
| 2003 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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NET INCOME |
$ | 16,860 | $ | 19,630 | ||||||
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES: |
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NET REALIZED INVESTMENT LOSS |
1,783 | 3,134 | ||||||||
DEPRECIATION AND AMORTIZATION EXPENSE |
3,822 | 738 | ||||||||
DEFERRED INCOME TAX BENEFIT |
(8,215 | ) | (3,067 | ) | ||||||
CHANGE IN PREMIUMS RECEIVABLE |
(14,879 | ) | (13,584 | ) | ||||||
CHANGE IN OTHER RECEIVABLES |
(82,898 | ) | 430 | |||||||
CHANGE IN INCOME TAXES PAYABLE |
(6,675 | ) | (3,078 | ) | ||||||
CHANGE IN DEFERRED ACQUISITION COSTS |
15,353 | (7,310 | ) | |||||||
CHANGE IN OTHER ASSETS |
1,146 | 5 | ||||||||
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT
EXPENSES |
100,883 | 29,156 | ||||||||
CHANGE IN UNEARNED PREMIUMS |
51,008 | 47,066 | ||||||||
CHANGE IN FUNDS HELD PAYABLE TO REINSURER |
61,923 | — | ||||||||
CHANGE IN OTHER LIABILITIES |
20,739 | 10,134 | ||||||||
TAX BENEFIT FROM EXERCISE OF EMPLOYEE
STOCK OPTIONS |
58 | 1,251 | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
160,908 | 84,505 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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PROCEEDS FROM SALES OF INVESTMENTS IN FIXED
MATURITIES |
16,412 | &nbs | ||||||||