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.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-7461
For the transition period from to
ACCEPTANCE INSURANCE COMPANIES INC.
(Exact name of registrant as specified in its charter)
| Delaware | 31-0742926 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
Suite 1600, 300 West Broadway
Council Bluffs, Iowa 51503
(Address of principal executive offices)
(Zip Code)
(712) 329-3600
Registrant’s Telephone Number, Including Area Code:
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 has been required to file such reports), and (2) has been subject to such 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 Act). Yes ¨ No x
The number of shares of each class of the Registrant’s common stock outstanding on August 9, 2004 was:
| Class of Common Stock |
No. of Shares Outstanding | |
| Common Stock, $.40 Par Value | 14,221,882 |
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
2
Item 1. Financial Statements (unaudited)
The Registrant did not obtain a review of the unaudited interim financial statements included in this Form 10-Q by an independent registered public accounting firm, although that review is required by Form 10-Q, because the Registrant has not yet engaged an independent registered public accounting firm for 2004.
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (dollars in thousands except share data)
| June 30, 2004 |
December 31, 2003 |
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| ASSETS |
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| Cash and cash equivalents - parent company |
$ | 2,223 | $ | 2,660 | ||||
| Restricted cash equivalents |
1,303 | 1,481 | ||||||
| Issue costs of Junior Subordinated Debentures |
3,065 | 3,131 | ||||||
| Investment in common stock of AICI Capital Trust holding solely Junior Subordinated Notes |
3,429 | 3,279 | ||||||
| Other assets |
299 | 35 | ||||||
| 10,319 | 10,586 | |||||||
| Insurance operations: |
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| Investments: |
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| Fixed maturities available-for-sale, at fair value |
63,912 | 74,340 | ||||||
| Marketable equity securities available-for-sale, at fair value |
662 | 1,053 | ||||||
| Real estate |
515 | 1,654 | ||||||
| 65,089 | 77,047 | |||||||
| Cash and cash equivalents |
29,782 | 27,583 | ||||||
| Receivables, net |
21,702 | 29,719 | ||||||
| Reinsurance recoverable on unpaid losses and loss adjustment expenses |
122,658 | 136,527 | ||||||
| Prepaid reinsurance premiums |
41 | 59 | ||||||
| Property and equipment, net of accumulated depreciation |
671 | 907 | ||||||
| Other assets |
577 | 182 | ||||||
| Insurance operations |
240,520 | 272,024 | ||||||
| Total assets |
$ | 250,839 | $ | 282,610 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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| Accounts payable and accrued liabilities |
$ | 5,532 | $ | 5,781 | ||||
| Accrued interest on Junior Subordinated Debentures |
16,485 | 11,510 | ||||||
| Junior Subordinated Debentures |
97,809 | 97,809 | ||||||
| 119,826 | 115,100 | |||||||
| Insurance operations: |
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| Losses and loss adjustment expenses |
219,574 | 246,279 | ||||||
| Unearned premiums |
49 | 73 | ||||||
| Accounts payable and accrued liabilities |
12,214 | 18,518 | ||||||
| Insurance operations |
231,837 | 264,870 | ||||||
| Total liabilities |
351,663 | 379,970 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity (deficit): |
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| Preferred stock, no par value, 5,000,000 shares authorized, none issued |
— | — | ||||||
| Common stock, $.40 par value, 40,000,000 shares authorized; 15,685,473 shares issued |
6,274 | 6,274 | ||||||
| Capital in excess of par value |
199,660 | 199,660 | ||||||
| Accumulated other comprehensive income, net of tax |
(461 | ) | 517 | |||||
| Accumulated deficit |
(276,328 | ) | (273,613 | ) | ||||
| Treasury stock, at cost, 1,463,591 shares |
(29,969 | ) | (29,969 | ) | ||||
| Contingent stock, zero shares and 20,396 shares |
— | (229 | ) | |||||
| Total stockholders’ equity (deficit) |
(100,824 | ) | (97,360 | ) | ||||
| Total liabilities and stockholders’ equity (deficit) |
$ | 250,839 | $ | 282,610 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
3
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
| Three Months |
Six Months |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
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| (As Restated- See Note 2) |
(As Restated- See Note 2) |
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| Revenues: |
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| Net investment income |
$ | 80 | $ | 94 | $ | 158 | $ | 172 | ||||||||
| Net realized capital gains |
— | — | — | 334 | ||||||||||||
| 80 | 94 | 158 | 506 | |||||||||||||
| Insurance operations: |
||||||||||||||||
| Premiums earned |
273 | 102 | 412 | 543 | ||||||||||||
| Net investment income |
590 | 835 | 1,106 | 1,819 | ||||||||||||
| Net realized capital gains |
928 | 264 | 1,823 | 384 | ||||||||||||
| 1,791 | 1,201 | 3,341 | 2,746 | |||||||||||||
| 1,871 | 1,295 | 3,499 | 3,252 | |||||||||||||
| Costs and expenses: |
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| General and administrative expenses |
135 | 484 | 338 | 720 | ||||||||||||
| Insurance operations: |
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| Losses and loss adjustment expenses |
— | 7,664 | — | 8,356 | ||||||||||||
| Expenses |
261 | 1,883 | 835 | 4,207 | ||||||||||||
| 261 | 9,547 | 835 | 12,563 | |||||||||||||
| 396 | 10,031 | 1,173 | 13,283 | |||||||||||||
| Operating income (loss) |
1,475 | (8,736 | ) | 2,326 | (10,031 | ) | ||||||||||
| Interest expense |
(2,548 | ) | (2,332 | ) | (5,041 | ) | (4,617 | ) | ||||||||
| Loss before income taxes |
(1,073 | ) | (11,068 | ) | (2,715 | ) | (14,648 | ) | ||||||||
| Income tax expense (benefit): |
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| Current |
— | — | — | — | ||||||||||||
| Deferred |
— | — | — | — | ||||||||||||
| — | — | — | — | |||||||||||||
| Net loss |
$ | (1,073 | ) | $ | (11,068 | ) | $ | (2,715 | ) | $ | (14,648 | ) | ||||
| Basic and diluted loss per share |
$ | (0.08 | ) | $ | (0.78 | ) | $ | (0.19 | ) | $ | (1.03 | ) | ||||
The accompanying notes are an integral part of the consolidated financial statements.
4
ACCEPTANCE INSURANCE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
| 2004 |
2003 |
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| (As Restated- See Note 2) |
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| Cash flows from operating activities: |
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| Net loss |
$ | (2,715 | ) | $ | (14,648 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities |
(8,101 | ) | (28,350 | ) | ||||
| Net cash from operating activities |
(10,816 | ) | (42,998 | ) | ||||
| Cash flows from investing activities: |
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| Proceeds from sales of investments available-for-sale |
22,571 | 43,027 | ||||||
| Proceeds from maturities of investments available-for-sale |
18,890 | 7,830 | ||||||
| Proceeds from sales of real estate |
2,748 | — | ||||||
| Purchases of investments available-for-sale |
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