Washington, D. C. 20549
| FOR THE QUARTERLY PERIOD ENDED: | Commission File Number: | ||
| June 30, 2004 | 1-13816 | ||
Everest Reinsurance Holdings, Inc.
(Exact
name of registrant as specified in its charter)
| Delaware | 22-3263609 | ||
| (State or other juris- | (IRS Employer Identification | ||
| diction of incorporation | No.) | ||
| or organization) | |||
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
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 the filing requirements for the past 90 days.
YES X NO
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
YES NO X
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Number of Shares Outstanding | |||||
| Class | at August 1, 2004 | ||||
| Common Shares, $.01 par value | 1,000 | ||||
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by General Instruction H of Form 10-Q.
| Page | |||||
| ITEM 1. FINANCIAL STATEMENTS | |||||
| Consolidated Balance Sheets at June 30, 2004 (unaudited) | |||||
| and December 31, 2003 | 3 | ||||
| Consolidated Statements of Operations and Comprehensive Income | |||||
| for the three and six months ended June 30, 2004 | |||||
| and 2003 (unaudited) | 4 | ||||
| Consolidated Statements of Changes in Stockholders’ Equity for the | |||||
| three and six months ended June 30, 2004 and 2003 | |||||
| (unaudited) | 5 | ||||
| Consolidated Statements of Cash Flows for the three and six | |||||
| months ended June 30, 2004 and 2003 (unaudited) | 6 | ||||
| Notes to Consolidated Interim Financial Statements (unaudited) | 7 | ||||
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF | |||||
| FINANCIAL CONDITION AND RESULTS OF OPERATION | 21 | ||||
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES | |||||
| ABOUT MARKET RISK | 43 | ||||
| ITEM 4. CONTROLS AND PROCEDURES | 44 | ||||
| PART II | |||||
| OTHER INFORMATION | |||||
| ITEM 1. LEGAL PROCEEDINGS | 45 | ||||
| ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS | |||||
| AND ISSUER PURCHASES OF EQUITY SECURITIES | 45 | ||||
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 45 | ||||
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF | |||||
| SECURITY HOLDERS | 45 | ||||
| ITEM 5. OTHER INFORMATION | 45 | ||||
| ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K | 46 | ||||
EVEREST REINSURANCE
HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| (Dollars in thousands, except par value per share) | 2004 | 2003 | ||||||
| (unaudited) | ||||||||
| ASSETS: | ||||||||
| Fixed maturities - available for sale, at market value | ||||||||
| (amortized cost: 2004, $5,517,435; 2003, $5,649,269) | $ | 5,618,313 | $ | 5,942,899 | ||||
| Equity securities, at market value (cost: 2004, $355,133; 2003, $146,407) | 375,549 | 154,381 | ||||||
| Short-term investments | 527,142 | 113,186 | ||||||
| Other invested assets (cost: 2004, $81,122; 2003, $59,183) | 81,893 | 59,801 | ||||||
| Cash | 49,188 | 142,094 | ||||||
| Total investments and cash | 6,652,085 | 6,412,361 | ||||||
| Accrued investment income | 77,331 | 83,023 | ||||||
| Premiums receivable | 1,021,419 | 988,039 | ||||||
| Reinsurance receivables - unaffiliated | 1,232,989 | 1,245,891 | ||||||
| Reinsurance receivables - affiliated | 1,302,882 | 1,156,615 | ||||||
| Funds held by reinsureds | 137,370 | 142,775 | ||||||
| Deferred acquisition costs | 213,903 | 220,677 | ||||||
| Prepaid reinsurance premiums | 367,281 | 353,764 | ||||||
| Deferred tax asset | 244,295 | 159,758 | ||||||
| Other assets | 138,314 | 106,462 | ||||||
| TOTAL ASSETS | $ | 11,387,869 | $ | 10,869,365 | ||||
| LIABILITIES: | ||||||||
| Reserve for losses and adjustment expenses | $ | 6,240,420 | $ | 6,227,078 | ||||
| Unearned premium reserve | 1,414,663 | 1,357,671 | ||||||
| Funds held under reinsurance treaties | 418,807 | 450,936 | ||||||
| Losses in the course of payment | 27,990 | 2,577 | ||||||
| Contingent commissions | 6,653 | 3,811 | ||||||
| Other net payable to reinsurers | 419,521 | 370,604 | ||||||
| Current federal income taxes | 63,623 | 40,945 | ||||||
| 8.5% Senior notes due 3/15/2005 | 249,924 | 249,874 | ||||||
| 8.75% Senior notes due 3/15/2010 | 199,292 | 199,245 | ||||||
| Junior subordinated debt securities payable | 546,393 | 216,496 | ||||||
| Revolving credit agreement borrowings | 70,000 | 70,000 | ||||||
| Interest accrued on debt and borrowings | 13,712 | 13,695 | ||||||
| Other liabilities | 142,843 | 119,569 | ||||||
| Total liabilities | 9,813,841 | 9,322,501 | ||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Common stock, par value: $0.01; 200 million shares authorized; | ||||||||
| 1,000 shares issued and outstanding (2004 and 2003) | -- | -- | ||||||
| Additional paid-in capital | 271,014 | 263,290 | ||||||
| Treasury shares, at cost; 0.5 million shares (2004 and 2003) | (22,950 | ) | (22,950 | ) | ||||
| Accumulated other comprehensive income, net of deferred income | ||||||||
| taxes of $46.8 million at 2004 and $112.2 million at 2003 | 86,876 | 208,305 | ||||||
| Retained earnings | 1,239,088 | 1,098,219 | ||||||
| Total stockholders' equity | 1,574,028 | 1,546,864 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 11,387,869 | $ | 10,869,365 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
EVEREST REINSURANCE
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| (Dollars in thousands) | 2004 | 2003 | 2004 | 2003 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||||
| REVENUES: | ||||||||||||||
| Premiums earned | $ | 607,905 | $ | 665,601 | $ | 1,408,624 | $ | 1,197,292 | ||||||
| Net investment income | 95,331 | 72,677 | 161,154 | 140,391 | ||||||||||
| Net realized capital gains (losses) | 77,504 | (2,003 | ) | 50,458 | (12,078 | ) | ||||||||
| Other (expense) income | (26,675 | ) | 221 | (43,935 | ) | 576 | ||||||||
| Total revenues | 754,065 | 736,496 | 1,576,301 | 1,326,181 | ||||||||||
| CLAIMS AND EXPENSES: | ||||||||||||||
| Incurred losses and loss adjustment expenses | 387,983 | 471,208 | 981,206 | 847,398 | ||||||||||
| Commission, brokerage, taxes and fees | 114,530 | 155,516 | 283,204 | 260,222 | ||||||||||
| Other underwriting expenses | 22,315 | 20,821 | 41,578 | 39,039 | ||||||||||
| Interest expense on senior notes | 9,736 | 9,733 | 19,472 | 19,464 | ||||||||||
| Interest expense on junior subordinated debt | 9,248 | 4,249 | 13,667 | 8,498 | ||||||||||
| Interest expense on credit facility | 334 | 348 | 658 | 708 | ||||||||||
| Total claims and expenses | 544,146 | 661,875 | 1,339,785 | 1,175,329 | ||||||||||
| INCOME BEFORE TAXES | 209,919 | 74,621 | 236,516 | 150,852 | ||||||||||
| Income tax expense | 50,128 | 18,690 | 69,385 | 35,333 | ||||||||||
| NET INCOME | $ | 159,791 | $ | 55,931 | $ | 167,131 | $ | 115,519 | ||||||
| Other comprehensive (loss) income, net of tax | (146,374 | ) | 94,378 | (121,429 | ) | 115,506 | ||||||||
| COMPREHENSIVE INCOME | $ | 13,417 | $ | 150,309 | $ | 45,702 | $ | 231,025 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
4
EVEREST REINSURANCE
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| (Dollars in thousands, except share amounts) | 2004 | 2003 | 2004 | 2003 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||||
| COMMON STOCK (shares outstanding): | ||||||||||||||
| Balance, beginning of period | 1,000 | 1,000 | 1,000 | 1,000 | ||||||||||
| Issued during the period | -- | -- | -- | -- | ||||||||||
| Balance, end of period | 1,000 | 1,000 | 1,000 | 1,000 | ||||||||||
| COMMON STOCK (par value): | ||||||||||||||
| Balance, beginning of period | $ | -- | $ | -- | $ | -- | $ | -- | ||||||
| Issued during the period | -- | -- | -- | -- | ||||||||||
| Balance, end of period | -- | -- | -- | -- | ||||||||||
| ADDITIONAL PAID IN CAPITAL: | ||||||||||||||
| Balance, beginning of period | 268,270 | 259,508 | 263,290 | 259,508 | ||||||||||
| Tax benefit from stock options exercised | 2,699 | 203 | 7,634 | 203 | ||||||||||
| Dividend from parent | 45 | -- | 90 | -- | ||||||||||
| Balance, end of period | 271,014 | 259,711 | 271,014 | 259,711 | ||||||||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME, | ||||||||||||||
| NET OF DEFERRED INCOME TAXES: | ||||||||||||||
| Balance, beginning of period | 233,250 | 159,284 | 208,305 | 138,156 | ||||||||||
| Net (decrease) increase during the period | (146,374 | ) | 94,378 | (121,429 | ) | 115,506 | ||||||||
| Balance, end of period | 86,876 | 253,662 | 86,876 | 253,662 | ||||||||||
| RETAINED EARNINGS: | ||||||||||||||
| Balance, beginning of period | 1,079,297 | 951,322 | 1,098,219 | 891,734 | ||||||||||
| Net income | 159,791 | 55,931 | 167,131 | 115,519 | ||||||||||
| Dividends paid | -- | -- | (26,262 | ) | -- | |||||||||
| Balance, end of period | 1,239,088 | 1,007,253 | 1,239,088 | 1,007,253 | ||||||||||
| TREASURY SHARES AT COST: | ||||||||||||||
| Balance, beginning of period | (22,950 | ) | (22,950 | ) | (22,950 | ) | (22,950 | ) | ||||||
| Treasury shares acquired during the period | -- | |||||||||||||