PHILADELPHIA CONSOLIDATED HOLDING CORP - 10-Q Quarterly Report

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

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.

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of November 10, 2003.


Part I — Financial Information
	Item 1. Financial Statements:
		Consolidated Balance Sheets — September 30, 2003 and December 31, 2002	3
		Consolidated Statements of Operations and Comprehensive Income — For the three and nine months ended September 30, 2003 and 2002	4
		Consolidated Statements of Changes in Shareholders’ Equity — For the nine months ended September 30, 2003 and year ended December 31, 2002	5
		Consolidated Statements of Cash Flows — For the nine months ended September 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


			As of

			September 30,			December 31,
			2003			2002
			(Unaudited)

ASSETS
INVESTMENTS:
	FIXED MATURITIES AVAILABLE FOR SALE AT MARKET (AMORTIZED COST $1,054,193 AND $832,701)		$	1,074,520		$	854,513
	EQUITY SECURITIES AT MARKET (COST $78,665 AND $51,257)			86,441			54,346

		TOTAL INVESTMENTS		1,160,961			908,859
	CASH AND CASH EQUIVALENTS			90,891			42,002
	ACCRUED INVESTMENT INCOME			10,512			8,571
	PREMIUMS RECEIVABLE			181,861			130,007
	PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES			275,328			151,352
	DEFERRED INCOME TAXES			15,313			7,541
	DEFERRED ACQUISITION COSTS			54,161			61,272
	PROPERTY AND EQUIPMENT, NET			15,182			12,794
	GOODWILL			25,724			25,724
	OTHER ASSETS			8,767			10,212

		TOTAL ASSETS	$	1,838,700		$	1,358,334

LIABILITIES AND SHAREHOLDERS’ EQUITY
POLICY LIABILITIES AND ACCRUALS:
	UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES		$	593,527		$	445,548
	UNEARNED PREMIUMS			431,791			306,093

		TOTAL POLICY LIABILITIES AND ACCRUALS		1,025,318			751,641
	FUNDS HELD PAYABLE TO REINSURER			90,587			—
	LOANS PAYABLE			49,750			39,113
	PREMIUMS PAYABLE			32,489			33,553
	PAYABLE FOR SECURITIES PURCHASE			46,690			6,100
	OTHER LIABILITIES			72,567			50,104

		TOTAL LIABILITIES		1,317,401			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, 21,984,492 AND 21,868,877 SHARES ISSUED AND OUTSTANDING			280,286			276,945
	NOTES RECEIVABLE FROM SHAREHOLDERS			(6,197	)		(6,407	)
	ACCUMULATED OTHER COMPREHENSIVE INCOME			18,267			16,185
	RETAINED EARNINGS			228,943			191,100

		TOTAL SHAREHOLDERS’ EQUITY		521,299			477,823

		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,838,700		$	1,358,334

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

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


			For the Three Months						For the Nine Months
			Ended September 30,						Ended September 30,

			2003			2002			2003			2002

REVENUE:
	NET EARNED PREMIUMS		$	142,688		$	106,146		$	412,499		$	295,663
	NET INVESTMENT INCOME			9,173			9,497			28,348			27,727
	NET REALIZED INVESTMENT GAIN (LOSS)			474			199			(1,309	)		(2,935	)
	OTHER INCOME			1,988			419			3,689			435

		TOTAL REVENUE		154,323			116,261			443,227			320,890

LOSSES AND EXPENSES:
	LOSS AND LOSS ADJUSTMENT EXPENSES			100,645			114,325			328,023			252,003
	NET REINSURANCE RECOVERIES			(21,240	)		(35,976	)		(65,232	)		(59,773	)

	NET LOSS AND LOSS ADJUSTMENT EXPENSES			79,405			78,349			262,791			192,230
	ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES			41,542			32,343			120,120			91,221
	OTHER OPERATING EXPENSES			2,668			1,632			5,974			4,570

		TOTAL LOSSES AND EXPENSES		123,615			112,324			388,885			288,021

INCOME BEFORE INCOME TAXES				30,708			3,937			54,342			32,869

INCOME TAX EXPENSE (BENEFIT):
	CURRENT			10,403			2,044			25,392			14,413
	DEFERRED			(678	)		(999	)		(8,893	)		(4,066	)

		TOTAL INCOME TAX EXPENSE		9,725			1,045			16,499			10,347

		NET INCOME	$	20,983		$	2,892		$	37,843		$	22,522

OTHER COMPREHENSIVE INCOME, NET OF TAX:
	HOLDING GAIN (LOSS) ARISING DURING PERIOD			(1,568	)		6,364			1,231			7,639
	RECLASSIFICATION ADJUSTMENT			(308	)		(129	)		851			1,908

	OTHER COMPREHENSIVE INCOME (LOSS)			(1,876	)		6,235			2,082			9,547

COMPREHENSIVE INCOME			$	19,107		$	9,127		$	39,925		$	32,069

PER AVERAGE SHARE DATA:
	BASIC EARNINGS PER SHARE		$	0.96		$	0.13		$	1.73		$	1.04

	DILUTED EARNINGS PER SHARE		$	0.92		$	0.13		$	1.68		$	1.01

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING				21,913,053			21,625,799			21,879,748			21,577,670
WEIGHTED-AVERAGE SHARE EQUIVALENTS OUTSTANDING				787,627			636,828			681,716			716,017

WEIGHTED-AVERAGE SHARES AND SHARE EQUIVALENTS OUTSTANDING				22,700,680			22,262,627			22,561,464			22,293,687

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

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


				For the Nine Months
				Ended
				September 30,			For the Year Ended
				2003			December 31,
				(Unaudited)			2002

COMMON SHARES:
	BALANCE AT BEGINNING OF YEAR				21,868,877			21,509,723
	EXERCISE OF EMPLOYEE STOCK OPTIONS				75,125			107,000
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET				40,490			252,154

			BALANCE AT END OF PERIOD		21,984,492			21,868,877

TREASURY SHARES:
	BALANCE AT BEGINNING OF YEAR				—			—
	SHARES REPURCHASED PURSUANT TO AUTHORIZATION				10,000			75,000
	EXERCISE OF EMPLOYEE STOCK OPTIONS				(6,500	)		—
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				(3,500	)		(75,000	)

			BALANCE AT END OF PERIOD		—			—

COMMON STOCK:
	BALANCE AT BEGINNING OF YEAR			$	276,945		$	268,509
	EXERCISE OF EMPLOYEE STOCK OPTIONS				1,991			2,115
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				1,350			6,321

			BALANCE AT END OF PERIOD		280,286			276,945

NOTES RECEIVABLE FROM SHAREHOLDERS:
	BALANCE AT BEGINNING OF YEAR				(6,407	)		(3,373	)
	NOTES RECEIVABLE ISSUED PURSUANT TO EMPLOYEE STOCK PURCHASE PLANS				(1,154	)		(4,017	)
	COLLECTION OF NOTES RECEIVABLE				1,364			983

			BALANCE AT END OF PERIOD		(6,197	)		(6,407	)

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF DEFERRED INCOME TAXES:
		BALANCE AT BEGINNING OF YEAR			16,185			8,461
		OTHER COMPREHENSIVE INCOME, NET OF TAXES			2,082			7,724

			BALANCE AT END OF PERIOD		18,267			16,185

RETAINED EARNINGS:
	BALANCE AT BEGINNING OF YEAR				191,100			155,095
	NET INCOME				37,843			36,005

			BALANCE AT END OF PERIOD		228,943			191,100

COMMON STOCK HELD IN TREASURY:
	BALANCE AT BEGINNING OF YEAR				—			—
	EXERCISE OF EMPLOYEE STOCK OPTIONS				94			—
	COMMON SHARES REPURCHASED				(300	)		(2,023	)
	ISSUANCES OF SHARES PURSUANT TO STOCK PURCHASE PLANS				206			2,023

			BALANCE AT END OF PERIOD		—			—

			TOTAL SHAREHOLDERS’ EQUITY	$	521,299		$	477,823

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


			For the Nine Months Ended September 30,

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	NET INCOME		$	37,843		$	22,522
	ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
	NET REALIZED INVESTMENT LOSS			1,309			2,935
	DEPRECIATION AND AMORTIZATION EXPENSE			6,148			1,345
	DEFERRED INCOME TAX BENEFIT			(8,893	)		(4,066	)
	CHANGE IN PREMIUMS RECEIVABLE			(51,854	)		(36,720	)
	CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER			(33,389	)		(35,759	)
	CHANGE IN OTHER RECEIVABLES			(1,941	)		(1,013	)
	CHANGE IN INCOME TAXES PAYABLE			636			(5,520	)
	CHANGE IN DEFERRED ACQUISITION COSTS			7,111			(18,686	)
	CHANGE IN OTHER ASSETS			1,138			(458	)
	CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES			147,979			96,769
	CHANGE IN UNEARNED PREMIUMS			125,698			108,443
	CHANGE IN OTHER LIABILITIES			20,763			32,490
	TAX BENEFIT FROM EXERCISE OF EMPLOYEE STOCK OPTIONS			495			1,251

		NET CASH PROVIDED BY OPERATING ACTIVITIES		253,043			163,533

CASH FLOWS FROM INVESTING ACTIVITIES:


PENNSYLVANIA		23-2202671

(State of Incorporation)		(IRS Employer Identification No.)