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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 June 30, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-6964

21ST CENTURY INSURANCE GROUP
(Exact name of registrant as specified in its charter)


Delaware
95-1935264
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
6301 Owensmouth Avenue
 
Woodland Hills, California
91367
(Address of principal executive offices)
(Zip Code)
 
 
(818) 704-3700
www.21st.com
(Registrant’s telephone number, including area code)
(Registrant’s web site)

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 Act). Yes x  No o

The number of shares outstanding of the registrant’s common stock as of July 15, 2004 was 85,470,364.

 
     
 

TABLE OF CONTENTS

Description
Page Number
Part I – Financial Information
 
Item 1. Financial Statements
2
Condensed Consolidated Balance Sheets
2
Condensed Consolidated Statements of Operations
3
Condensed Consolidated Statement of Stockholders’ Equity
4
Condensed Consolidated Statements of Cash Flows
5
Notes to Condensed Consolidated Financial Statements
6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
26
Item 4. Controls and Procedures
27
Part II – Other Information
28
Item 1. Legal Proceedings
28
Item 2. Changes in Securities and Use of Proceeds
28
Item 3. Defaults Upon Senior Securities
28
Item 4. Submission of Matters to a Vote of Security Holders
28
Item 5. Other Information
28
Item 6. Exhibits and Reports on Form 8-K
29
Signatures
30
Exhibit Index
31
31.1 Certification of President and Chief Executive Officer
 
31.2 Certification of Chief Financial Officer
 
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 

 
     
 

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

21ST CENTURY INSURANCE GROUP
  
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
  
 
 
Unaudited
  
 
 
 
  

June 30,

  

December 31,

  
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
  

2004

  

2003

  
 
Assets
    
 
    
 
  
Fixed maturity investments available-for-sale, at fair value
(amortized cost: $1,243,240 and $1,183,526)
  
$
1,229,413
  
$
1,219,676
  
Cash and cash equivalents
    
98,686
    
65,010
  
Accrued investment income
    
14,732
    
14,746
  
Premiums receivable
    
107,606
    
104,638
  
Reinsurance receivables and recoverables
    
7,350
    
12,135
  
Prepaid reinsurance premiums
    
1,705
    
1,719
  
Deferred income taxes
    
79,827
    
76,611
  
Deferred policy acquisition costs
    
56,122
    
53,079
  
Leased property under capital lease, net of deferred gain of
   
 
    
 
  
$3,907 and $4,698 and net of accumulated amortization of
   
 
    
 
  
$18,596 and $12,397
    
37,126
    
42,534
  
Property and equipment, at cost less accumulated depreciation of
    
 
    
 
  
$62,663 and $60,070
    
114,248
    
101,237
  
Other assets
    
32,075
    
46,747
  
 
Total assets
  
$
1,778,890
  
$
1,738,132
  
 
Liabilities and stockholders’ equity
    
 
    
 
  
Unpaid losses and loss adjustment expenses
  
$
461,949
  
$
438,323
  
Unearned premiums
    
330,127
    
312,254
  
Debt
    
144,069
    
149,686
  
Claim checks payable
    
42,124
    
45,702
  
Reinsurance payable
    
594
    
1,761
  
Other liabilities
    
93,435
    
89,716
  
 
Total liabilities
    
1,072,298
    
1,037,442
  
 
 
    
 
    
 
  
Commitments and contingencies
    
 
    
 
  
 
    
 
    
 
  
Stockholders’ equity:
    
 
    
 
  
Common stock, par value $0.001 per share; 110,000,000 shares authorized 110,000,000 authorized; shares issued and outstanding 85,470,364 and 85,435,505
    
85
    
85
  
Additional paid-in capital
    
419,850
    
419,245
  
Retained earnings
    
297,589
    
259,808
  
Accumulated other comprehensive (loss) income:
    
 
    
 
  
Unrealized (losses) gains on available-for-sale investments, net of deferred income taxes of ($4,839) and $12,653
    
(8,987
)
  
23,497
  
Minimum pension liability in excess of unamortized prior service
    
 
    
 
  
cost, net of deferred income taxes of $1,047 and $1,047
    
(1,945
)
  
(1,945
)
 
Total stockholders’ equity
    
706,592
    
700,690
  
 
Total liabilities and stockholders’ equity
  
$
1,778,890
  
$
1,738,132
  
 

See accompanying notes to condensed consolidated financial statements.
 
 
2   
 
 
21ST CENTURY INSURANCE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
 
 
  

Three Months Ended June 30,

  

Six Months Ended June 30,

  
AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
  

2004

  

2003

  

2004

  

2003

  
 
Revenues
    
 
    
 
    
 
    
 
  
Net premiums earned
  
$
327,021
  
$
287,231
  
$
645,241
 
$
558,672
  
Net investment income
    
14,315
    
11,673
    
27,461
    
23,311
  
Other
    
—
   
14,065
    
—
    
14,065
  
Net realized investment gains
   
1,337
    
7,700
    
8,983
    
12,280
  
 
Total revenues
    
342,673
    
320,669
    
681,685
    
608,328
  
 
Losses and expenses
    
 
    
 
    
 
    
 
  
Net losses and loss adjustment expenses
    
244,556
    
228,182
    
492,070
    
481,525
  
Policy acquisition costs
    
54,782
    
47,766
    
108,472
    
91,209
  
Other operating expenses
    
9,844
    
390
    
16,244
    
4,033
  
Interest and fees expense
    
2,185
    
833
    
4,411
    
1,540
  
 
Total losses and expenses
    
311,367
    
277,171
    
621,197
    
578,307
  
 
Income before provision for income taxes
    
31,306
    
43,498
    
60,488
    
30,021
  
Provision for income taxes
    
9,932
    
14,347
    
19,289
    
7,580
  
 
Net income
 
$
21,374
  
$
29,151
  
$
41,199
  
$
22,441
  
 
 
    
 
    
 
    
 
    
 
  
Earnings per common share
    
 
    
 
    
 
    
 
  
Basic and diluted
  
$
0.25
 
$
0.34
  
$
0.48
  
$
0.26
  
 
Weighted average shares outstanding ¾ basic
    
85,462,774
    
85,431,505
    
85,452,194
    
85,431,505
  
 
Weighted average shares outstanding ¾ diluted
    
85,611,192
    
85,725,925
    
85,614,711
    
85,567,620
  
 

See accompanying notes to condensed consolidated financial statements.
 
 
3   
 

21ST CENTURY INSURANCE GROUP
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Unaudited

 
  

Common Stock

    
 
    
 
    
 
    
 
  
   
                         
 
  
 
  
$ 0.001 par value
    
 
    
 
    
 
    
 
  
   
 
                         
AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA
  

Shares

  

Amount

  

Additional
Paid-in Capital

  

Retained Earnings

  

Accumulated Other Comprehensive
(Loss) Income

 

Total

  
  
Balance – January 1, 2004
    
85,435,505
  
$
85
  
$
419,245
  
$
259,808
  
$
21,552
  
$
700,690
  
Comprehensive income
    
—
   
—
   
—
   
41,199
(1)
  
(32,484
)(2)
  
8,715
  
Cash dividends declared on common stock ($0.04 per share)
    
—
   
—
   
—
   
(3,418
)
  
—
   
(3,418
)
Other
    
34,859
    
—
   
605
    
—
    
—
   
605
  
  
Balance – June 30, 2004
    
85,470,364
  
$
85
 
$
419,850
  
$
297,589
  
$