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Washington, D.C. 20549
Georgia (prior to reincorporation) Delaware (after reincorporation) (State or Other Jurisdiction of Incorporation or Organization) | 6411 (Primary Standard Industrial Classification Code Number) | 58-1461399 (I.R.S. Employer Identification Number) |
Alexander D. Lynch, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000 (Phone) (212) 310-8007 (Fax) | Michael Groll, Esq. Richard B. Spitzer, Esq. Dewey & LeBoeuf LLP 1301 Avenue of the Americas New York, New York 10019 (212) 259-8000 (Phone) (212) 259-6333 (Fax) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
Proposed Maximum | ||||||
Title of Each Class of | Aggregate | Amount of | ||||
Securities to be Registered | Offering Price(1)(2) | Registration Fee | ||||
Common Stock, $0.01 par value per share | $125,000,000 | $8,913 | ||||
(1) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act of 1933. |
(2) | Includes shares of common stock that may be purchased by the underwriters to cover over-allotments, if any. |
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The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
• Fortegra Financial Corporation is offering shares and the selling stockholders, which consist of certain of our executive officers and entities affiliated with members of our board of directors, are offering shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. | • This is our initial public offering and no public market currently exists for our shares. • Proposed trading symbol: New York Stock Exchange — FRF | |
• We anticipate that the initial public offering price will be between $ and $ per share. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount | $ | $ | ||||||
Proceeds, before expenses, to Fortegra Financial Corporation | $ | $ | ||||||
Proceeds, before expenses, to the selling stockholders | $ | $ | ||||||
Piper Jaffray | SunTrust Robinson Humphrey |
William Blair & Company |
FBR Capital Markets |
Keefe, Bruyette & Woods |
Macquarie Capital |
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• | General economic and financial market conditions may have a material adverse effect on the business, results of operations and financial condition of all of our business segments. | |
• | We face significant competitive pressures in each of our businesses, which could adversely affect our business, results of operations and financial condition. | |
• | Our results of operations may fluctuate significantly, which makes future results of operations difficult to predict. If our results of operations fall below expectations, the price of our common stock could decline. | |
• | Our results of operations could be adversely affected if we fail to retain our existing clients, cannot sell additional services and products to our existing clients, do not introduce new or enhanced services and products or are not able to attract and retain new clients. | |
• | We typically face a long selling cycle to secure new clients in each of our businesses as well as long implementation periods that require significant resource commitments, which result in a long lead time before we receive revenues from new client relationships. | |
• | Acquisitions are a significant part of our growth strategy and we may not be successful in identifying suitable acquisition candidates, completing such acquisitions or integrating the acquired businesses, which could have a material adverse effect on our business, results of operations, financial condition or growth. |
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• | Our business, results of operations, financial condition or liquidity may be materially adversely affected by errors and omissions and the outcome of certain actual and potential claims, lawsuits and proceedings. | |
• | We may lose clients or business as a result of consolidation within the financial services industry. | |
• | Our Payment Protection business relies on independent financial institutions, lenders and retailers to distribute its services and products, and the loss of these distribution sources, or the failure of our distribution sources to sell our Payment Protection products could materially and adversely affect our business and results of operations. | |
• | A significant portion of our BPO revenues are attributable to one client, and any loss of business from, or change in our relationship with this client could have a material adverse effect on our business, results of operations and financial condition. | |
• | We may not be able to accurately forecast our commission revenues because our commissions depend on premiums charged by insurance companies, which historically have varied and, as a result, have been difficult to predict. | |
• | We are subject to extensive governmental laws and regulations, which increase our costs and could restrict the conduct of our business. | |
• | Our indebtedness may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs. | |
• | As a public company, we will become subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy. |
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Common stock offered by us | shares of common stock | |
Common stock offered by the selling stockholders | shares of common stock | |
Total offering | shares of common stock | |
Common stock to be outstanding after this offering | shares of common stock | |
Over-allotment option | The underwriters have an option to purchase a maximum of additional shares of common stock to cover over-allotments. Of the shares subject to the over-allotment option, shares would be sold by the selling stockholders and shares would be sold by us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus. | |
Use of proceeds | We estimate that the net proceeds to us from our sale of shares of common stock in this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes a public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus. We intend to use $ million of the net proceeds from shares that we sell in this offering to redeem all of our outstanding redeemable preferred stock, $ million to repay in full our outstanding subordinated debentures, $ million to repay the $ million outstanding under our revolving credit facility, $ million to pay the conversion amount on our Class A common stock and any remaining proceeds for general corporate purposes. See “Use of Proceeds.” | |
Dividend policy | We do not anticipate paying any dividends on our common stock in the foreseeable future. See “Dividend Policy.” | |
Risk factors | Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 14 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock. | |
Proposed New York Stock Exchange symbol | “FRF” |
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• | excludes shares of our common stock issuable upon exercise of stock options that will be outstanding upon completion of this offering, at a weighted average exercise price of $ per share; and | |
• | excludes shares of our common stock reserved for future grants under our 2010 Omnibus Incentive Plan and shares of our common stock reserved for issuance under our Employee Stock Purchase Plan. |
• | gives effect to the automatic conversion of our outstanding Class A common stock into shares of common stock prior to the consummation of this offering; | |
• | gives effect to the redemption of our outstanding redeemable preferred stock; | |
• | gives effect to a for 1 stock split of our common stock prior to the consummation of this offering; | |
• | gives effect to our amended and restated certificate of incorporation, which will be in effect prior to the consummation of this offering; | |
• | assumes no exercise of the underwriters’ option to purchase up to additional shares from us and shares from the selling stockholders; and | |
• | assumes an initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus. |
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Successor | Predecessor | |||||||||||||||||||||||||||||
Period from | Period from | |||||||||||||||||||||||||||||
Six Months Ended | June 20, 2007 | January 1, | ||||||||||||||||||||||||||||
June 30, | Years Ended December 31, | to December | 2007 to June | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 31, 2007 | 19, 2007 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||||||||||||
Consolidated statement of income data: | ||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||
Service and administrative fees | $ | 16,817 | $ | 14,826 | $ | 31,829 | $ | 24,279 | $ | 10,686 | $ | 8,165 | ||||||||||||||||||
Wholesale brokerage commissions and fees | 13,134 | 5,138 | 16,309 | — | — | — | ||||||||||||||||||||||||
Ceding commissions | 13,013 | 11,973 | 24,075 | 26,215 | 13,733 | 10,753 | ||||||||||||||||||||||||
Net underwriting revenue | 1,870 | 1,168 | 5,101 | 1,694 | 2,620 | 1,044 | ||||||||||||||||||||||||
Net investment income | 1,935 | 2,509 | 4,759 | 5,560 | 3,411 | 2,918 | ||||||||||||||||||||||||
Net realized gains (losses) | 49 | — | 54 | (1,921 | ) | (348 | ) | 516 | ||||||||||||||||||||||
Other income | 126 | 303 | 971 | 178 | 28 | 353 | ||||||||||||||||||||||||
Total net revenues | 46,944 | 35,917 | 83,098 | 56,005 | 30,130 | 23,749 | ||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||
Personnel costs | 18,413 | 13,948 | 31,365 | 21,742 | 10,722 | 9,409 | ||||||||||||||||||||||||
Other operating expenses | 11,027 | 10,339 | 22,291 | 12,225 | 8,508 | 7,118 | ||||||||||||||||||||||||
Depreciation and amortization | 2,117 | 1,504 | 3,507 | 2,629 | 1,292 | 221 | ||||||||||||||||||||||||
Interest expense | 3,876 | 3,807 | 7,800 | 7,255 | 4,130 | 1,169 | ||||||||||||||||||||||||
Total expenses | 35,433 | 29,598 | 64,963 | 43,851 | 24,652 | 17,917 | ||||||||||||||||||||||||
Income before income taxes and non-controlling interest | 11,511 | 6,319 | 18,135 | 12,154 | 5,478 | 5,832 | ||||||||||||||||||||||||
Income taxes | 4,296 | 2,380 | 6,551 | 4,208 | 1,761 | 1,983 | ||||||||||||||||||||||||
Income before non-controlling interest | 7,215 | 3,939 | 11,584 | 7,946 | 3,717 | 3,849 | ||||||||||||||||||||||||
Less: net income (loss) attributable to non-controlling interest | (31 | ) | 7 | 26 | (82 | ) | 64 | 34 | ||||||||||||||||||||||
Net income | $ | 7,246 | $ | 3,932 | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | ||||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||||||||
Basic | $ | 2.42 | $ | 1.37 | $ | 3.94 | $ | 2.90 | $ | 1.32 | $ | 1.00 | ||||||||||||||||||
Diluted | 2.23 | 1.27 | 3.65 | 2.72 | 1.24 | 0.95 | ||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||
Basic | 2,998,540 | 2,865,609 | 2,931,182 | 2,771,372 | 2,766,565 | 3,819,265 | ||||||||||||||||||||||||
Diluted | 3,244,135 | 3,087,862 | 3,170,653 | 2,956,211 | 2,955,381 | 4,028,242 | ||||||||||||||||||||||||
Consolidated statement of cash flows data: | ||||||||||||||||||||||||||||||
Operating activities | $ | 2,349 | $ | 5,120 | $ | 13,393 | $ | 12,998 | $ | 10,265 | $ | 2,518 | ||||||||||||||||||
Investing activities | (20,109 | ) | (40,891 | ) | (26,532 | ) | (26,069 | ) | (10,297 | ) | 22,424 | |||||||||||||||||||
Financing activities | 6,922 | 34,572 | 20,997 | (1,875 | ) | (571 | ) | (474 | ) | |||||||||||||||||||||
Other data: | ||||||||||||||||||||||||||||||
Capital expenditures | $ | (4,192 | ) | $ | (889 | ) | $ | (1,974 | ) | $ | (1,227 | ) | $ | (303 | ) | $ | (433 | ) | ||||||||||||
EBITDA(1) | 17,504 | 11,630 | 29,442 | 22,038 | 10,900 | 7,222 | ||||||||||||||||||||||||
Adjusted EBITDA(1) | 18,328 | 13,164 | 31,519 | 24,076 | 13,825 | 8,966 |
As of June 30, 2010 | ||||||||
Pro Forma | ||||||||
Actual | as Adjusted(2) | |||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Consolidated balance sheet data: | ||||||||
Cash and cash equivalents | $ | 19,102 | ||||||
Total assets | 484,381 | |||||||
Notes payable | 38,509 | |||||||
Preferred trust securities | 35,000 | |||||||
Redeemable preferred stock | 11,440 | |||||||
Total stockholders’ equity | 89,453 |
(1) | We present EBITDA and Adjusted EBITDA in this prospectus to provide investors with a supplemental measure of our operating performance and, in the case of Adjusted EBITDA, information utilized in the calculation of the financial covenants under our revolving credit facility and in the |
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determination of compensation. EBITDA, as used in this prospectus, is defined as net income before interest expense, income taxes, non-controlling interest and depreciation and amortization. Adjusted EBITDA differs from the term “EBITDA” as it is commonly used. Adjusted EBITDA, as used in this prospectus, means “Consolidated Adjusted EBITDA” as that term is defined under our revolving credit facility, which is generally consolidated net income before consolidated interest expense, consolidated amortization expense, consolidated depreciation expense and consolidated tax expense, in each case as defined more fully in the agreement governing our revolving credit facility. The other items excluded in this calculation include, but are not limited to, specified acquisition costs and unusual or non-recurring charges. The calculation below does not give effect to certain additional adjustments that are permitted under our revolving credit facility which, if included, would increase the amount reflected in this table. |
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Successor | Predecessor | |||||||||||||||||||||||||||||
Period from | Period from | |||||||||||||||||||||||||||||
Six Months Ended | June 20, 2007 to | January 1, | ||||||||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | 2007 to June 19, | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||||||||
Net income | $ | 7,246 | $ | 3,932 | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | ||||||||||||||||||
Interest expense | 3,876 | 3,807 | 7,800 | 7,255 | 4,130 | 1,169 | ||||||||||||||||||||||||
Depreciation and amortization | 2,117 | 1,504 | 3,507 | 2,629 | 1,292 | 221 | ||||||||||||||||||||||||
Income taxes | 4,296 | 2,380 | 6,551 | 4,208 | 1,761 | 1,983 | ||||||||||||||||||||||||
Non-controlling interest | (31 | ) | 7 | 26 | (82 | ) | 64 | 34 | ||||||||||||||||||||||
EBITDA | 17,504 | 11,630 | 29,442 | 22,038 | 10,900 | 7,222 | ||||||||||||||||||||||||
Transaction expenses(a) | 374 | 1,534 | 2,077 | 2,038 | 2,289 | — | ||||||||||||||||||||||||
Legacy costs(b) | — | — | — | — | 636 | 1,744 | ||||||||||||||||||||||||
Re-audit expenses | 450 | — | — | — | — | — | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 18,328 | $ | 13,164 | $ | 31,519 | $ | 24,076 | $ | 13,825 | $ | 8,966 | ||||||||||||||||||
(a) | Represents transaction costs associated with acquisitions. | |
(b) | Represents legacy costs that include compensation, insurance, legal and other miscellaneous expenses associated with the historical operation of our business prior to the Summit Partners Transactions. |
(2) | Pro forma information gives effect to (i) the automatic conversion of our outstanding Class A common stock into shares of common stock prior to the consummation of this offering, (ii) a for 1 stock split prior to the consummation of this offering and (iii) the sale of shares of our common stock in this offering by us at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds from this offering as described under “Use of Proceeds.” |
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• | a reduction in the demand for, and availability of, consumer credit, which could result in reduced demand by consumers for our Payment Protection products and our Payment Protection clients opting to no longer make such products available; | |
• | higher than anticipated loss ratios on our Payment Protection products due to rising unemployment or disability claims; | |
• | higher risk of increased fraudulent insurance claims; | |
• | individuals terminating loans or canceling credit insurance policies, thereby reducing our revenues; | |
• | businesses reducing the amount of coverage under surplus lines and specialty admitted insurance policies or allowing such policies to lapse thereby reducing our premium or commission income in our Wholesale Brokerage business; | |
• | a reduction in demand for new surplus lines and specialty insurance policies from retail insurance brokers and agents or retail insurance brokers and agents and insurance companies ceasing to offer our surplus lines and specialty insurance products and related services from our Wholesale Brokerage business; | |
• | our clients being more likely to experience financial distress or declare bankruptcy or liquidation, which could have an adverse impact on demand for our services and products and the remittance of premiums from such customers, as well as the collection of receivables from such clients for items such as unearned premiums, commissions or BPO-related accounts receivable, which could make the collection of receivables from our clients more difficult; | |
• | increased pricing sensitivity or reduced demand for our services and products; |
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• | increased costs associated with, or the inability to obtain, debt financing to fund acquisitions or the expansion of our businesses; and | |
• | defaults in our fixed income investment portfolio or lower than anticipated rates of return as a result of low interest rate environments. |
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• | demand for our services and products; | |
• | the length of our sales cycle; | |
• | the amount of sales to new clients; | |
• | the timing of implementations of our services and products with new clients; | |
• | pricing and availability of surplus lines and other specialty insurance products coverages; | |
• | seasonality; | |
• | the timing of acquisitions; | |
• | competitive factors; | |
• | prevailing interest rates; | |
• | pricing changes by us or our competitors; | |
• | transaction volumes in our clients’ businesses; | |
• | the introduction of new services and products by us and our competitors; | |
• | changes in regulatory and accounting standards; and | |
• | our ability to control costs. |
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• | the quality and perceived value of our product and service offerings by existing and new clients; | |
• | the effectiveness of our sales and marketing efforts; | |
• | the speed with which our Wholesale Brokerage business can respond to requests for price quotes from retail insurance agents and brokers, and the availability of competitive services and products from our carriers; | |
• | the successful installation and implementation of our services and products for new and existing Payment Protection and BPO clients; | |
• | availability of capital to complete investments in new or complementary products, services and technologies; | |
• | the availability of adequate reinsurance for us and our clients, including the ability of our clients to form, capitalize and operate captive reinsurance companies; | |
• | our ability to find suitable acquisition candidates, successfully complete such acquisitions and effectively integrate such acquisitions; | |
• | our ability to integrate technology into our services and products to avoid obsolescence and provide scalability; | |
• | the reliability, execution and accuracy of our services, particularly our BPO services; and | |
• | client willingness to accept any price increases for our services and products. |
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• | failure to achieve anticipated revenues, earnings or cash flow; | |
• | increased expenses; | |
• | diversion of management time and attention; | |
• | failure to retain customers or personnel; | |
• | difficulties in realizing projected efficiencies, |
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• | ability to realize synergies and cost savings; | |
• | difficulties in integrating systems and personnel; and | |
• | inaccurate assessment of liabilities. |
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• | licensing and authorizing companies and agents to transact business; | |
• | regulating capital and surplus and dividend requirements; | |
• | regulating underwriting limitations; | |
• | regulating the ability of companies to enter and exit markets; | |
• | imposing statutory accounting requirements and annual statement disclosures; | |
• | approving changes in control of insurance companies; |
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• | regulating premium rates, including the ability to increase or maintain premium rates; | |
• | regulating trade and claims practices; | |
• | regulating certain transactions between affiliates; | |
• | regulating reinsurance arrangements, including the balance sheet credit that may be taken by the ceding or direct insurer; | |
• | mandating certain insurance benefits; | |
• | regulating the content of disclosures to consumers; | |
• | regulating the type, amounts and valuation of investments; | |
• | mandating assessments or other surcharges for guaranty funds and the ability to recover such assessments in the future through premium increases; | |
• | regulating market conduct and sales practices of insurers and agents, including compensation arrangements; and | |
• | regulating a variety of other financial and non-financial components of an insurer’s business. |
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• | prohibiting retailers from providing debt cancellation policies; | |
• | prohibiting insurers from fronting captive reinsurance arrangements; | |
• | placing or reducing interest rate caps on the consumer finance products our clients offer; | |
• | limitations or imposed reductions on premium levels or the ability to raise premiums on existing policies; | |
• | increases in minimum capital, reserves and other financial viability requirements; | |
• | impositions of increased fines, taxes or other penalties for improper licensing, the failure to promptly pay claims, however defined, or other regulatory violations; | |
• | increased licensing requirements; | |
• | restrictions on the ability to offer certain types of products; | |
• | new or different disclosure requirements on certain types of products; and | |
• | imposition of new or different requirements for coverage determinations. |
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• | disputes over coverage or claims adjudication; | |
• | disputes over claim payment amounts and compliance with individual state regulatory requirements; | |
• | disputes regarding sales practices, disclosures, premium refunds, licensing, regulatory compliance, underwriting and compensation arrangements; | |
• | disputes with taxation and insurance authorities regarding our tax liabilities; | |
• | periodic examinations of compliance with applicable federal and state laws; and | |
• | industry-wide investigations regarding business practices including, but not limited to, the use of finite reinsurance and the marketing and refunding of insurance policies or certificates of insurance. |
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• | make it more difficult for us to satisfy our obligations with respect to our indebtedness, including financial and other restrictive covenants, which could result in an event of default under the agreements governing our indebtedness; | |
• | make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; | |
• | require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes; | |
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; | |
• | place us at a competitive disadvantage compared to competitors that have less debt; and | |
• | limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes. |
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• | incur or guarantee additional debt; | |
• | incur liens; | |
• | complete mergers, consolidations and dissolutions; | |
• | sell certain of our assets that have been pledged as collateral; and | |
• | undergo a change in control. |
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• | the inability to effectively market and price our services and products and make underwriting and reserving decisions; | |
• | the loss of existing clients; | |
• | difficulty attracting new clients; | |
• | regulatory problems such as a failure to meet prompt payment obligations; | |
• | internal control problems; | |
• | exposure to litigation; | |
• | security breaches resulting in loss of data; and | |
• | increases in administrative expenses. |
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• | prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and New York Stock Exchange rules; | |
• | create or expand the roles and duties of our board of directors and committees of the board; |
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• | institute more comprehensive financial reporting and disclosure compliance functions; | |
• | supplement our internal accounting and auditing function, including hiring additional staff with expertise in accounting and financial reporting for a public company; | |
• | enhance and formalize closing procedures at the end of our accounting periods; | |
• | enhance our internal audit and tax functions; | |
• | enhance our investor relations function; | |
• | establish new internal policies, including those relating to disclosure controls and procedures; and | |
• | involve and retain to a greater degree outside counsel and accountants in the activities listed above. |
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• | market conditions in the broader stock market; | |
• | actual or anticipated fluctuations in our quarterly financial and operating results; | |
• | introduction of new products or services by us or our competitors; | |
• | issuance of new or changed securities analysts’ reports or recommendations; | |
• | investor perceptions of us and the industries in which we operate; | |
• | sales, or anticipated sales, of large blocks of our stock; | |
• | additions or departures of key personnel; | |
• | regulatory or political developments; | |
• | litigation and governmental investigations; and | |
• | changing economic conditions. |
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• | restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting; | |
• | restrictions on the ability of our stockholders to remove a director or fill a vacancy on the board of directors; | |
• | our ability to issue preferred stock with terms that the board of directors may determine, without stockholder approval; | |
• | the absence of cumulative voting in the election of directors; |
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• | a prohibition of action by written consent of stockholders unless such action is recommended by all directors then in office; and | |
• | advance notice requirements for stockholder proposals and nominations. |
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• | restrictions in our debt instruments; | |
• | general economic business conditions; | |
• | our financial condition and results of operations; | |
• | the ability of our operating subsidiaries to pay dividends and make distributions to us; and | |
• | such other factors as our board of directors may deem relevant. |
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• | the automatic conversion of our outstanding Class A common stock into shares of common stock prior to the consummation of this offering; | |
• | a for 1 stock split of our common stock prior to the consummation of this offering; and | |
• | the sale of shares of our common stock in this offering by us at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds from this offering as described under “Use of Proceeds.” |
As of June 30, 2010 | ||||||||
(unaudited) | ||||||||
Pro Forma | ||||||||
Actual | As Adjusted(1) | |||||||
(in thousands, except share and per share data) | ||||||||
Cash and cash equivalents | $ | 19,102 | $ | |||||
Debt: | ||||||||
SunTrust line of credit for $35.0 million(2) | $ | 18,509 | $ | |||||
Preferred trust securities | 35,000 | |||||||
Subordinated debentures(3) | 20,000 | |||||||
Series A redeemable preferred stock due 2034, Series B redeemable preferred stock due 2034 and Series C redeemable preferred stock due 2035 | 11,440 | |||||||
Total debt | 84,949 | |||||||
Stockholders’ equity: | ||||||||
Common stock, par value $0.331/3 per share (6,000,000 authorized and 3,007,031 outstanding shares) | 1,002 | |||||||
Treasury stock (8,491 shares) | (176 | ) | ||||||
Additional paid-in capital | 53,747 | |||||||
Accumulated other comprehensive income, net of tax (expense) of $(1,599) | 2,896 | |||||||
Retained earnings | 30,456 | |||||||
Non-controlling interest | 1,528 | |||||||
Total stockholders’ equity | 89,453 | |||||||
Total capitalization | $ | 174,402 | $ | |||||
(1) | Assuming the number of shares sold by us in this offering remains the same as set forth on the cover page, a $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) our total capitalization by approximately $ million. |
(2) | We entered into a $35.0 million revolving credit facility with SunTrust Bank in June 2010. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Revolving Credit Facilities — SunTrust Revolving Credit Facility.” |
(3) | On June 16, 2010, we amended the maturity date for our subordinated debentures from June 20, 2012 to December 13, 2013. |
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FOR THE YEAR ENDED DECEMBER 31, 2009
Period from | ||||||||||||||||
January 1, 2009 | ||||||||||||||||
to April 14, 2009 | Adjustments for | |||||||||||||||
Fortegra | Bliss & Glennon | Bliss & Glennon | Pro Forma | |||||||||||||
(audited) | (unaudited) | |||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Service and administrative fees | $ | 31,829 | $ | — | $ | — | $ | 31,829 | ||||||||
Wholesale brokerage commissions and fees | 16,309 | 8,104 | — | 24,413 | ||||||||||||
Ceding commissions | 24,075 | — | — | 24,075 | ||||||||||||
Net underwriting revenue | 5,101 | — | — | 5,101 | ||||||||||||
Net investment income | 4,759 | 22 | — | 4,781 | ||||||||||||
Net realized gains | 54 | — | — | 54 | ||||||||||||
Other income | 971 | 7 | — | 978 | ||||||||||||
Total net revenues | 83,098 | 8,133 | — | 91,231 | ||||||||||||
Expenses: | ||||||||||||||||
Personnel costs | 31,365 | 4,170 | (363 | )(1) | 35,172 | |||||||||||
Other operating expenses | 22,291 | 2,762 | (1,714 | )(2) | 23,339 | |||||||||||
Depreciation and amortization | 3,507 | 88 | 3,595 | |||||||||||||
Interest expense | 7,800 | — | 7,800 | |||||||||||||
Total expenses | 64,963 | 7,020 | (2,077 | ) | 69,906 | |||||||||||
Income before income taxes and non-controlling interest | 18,135 | 1,113 | 2,077 | 21,325 | ||||||||||||
Income taxes | 6,551 | 436 | 273 | (3) | 7,260 | |||||||||||
Income before non-controlling interest | 11,584 | 677 | 1,804 | 14,065 | ||||||||||||
Less: net income attributable to the non-controlling interest | 26 | — | — | 26 | ||||||||||||
Net income | $ | 11,558 | $ | 677 | $ | 1,804 | $ | 14,039 | ||||||||
Net income per common share | ||||||||||||||||
Basic | $ | 3.94 | $ | 4.67 | ||||||||||||
Diluted | 3.65 | 4.32 | ||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 2,931,182 | 2,995,614 | ||||||||||||||
Diluted | 3,170,653 | 3,235,085 |
(1) | Represents personnel costs associated with our hiring of a group of insurance brokers after the acquisition of Bliss & Glennon, who were only retained for a limited period of time. |
(2) | Represents transaction expenses, including professional fees, incurred in connection with the acquisition of Bliss & Glennon. |
(3) | Represents the increase in income tax expense associated with the increase in income before income taxes and non-controlling interest. |
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Assumed initial public offering price per share | $ | |||||||
Pro forma net tangible book value per share as of June 30, 2010 | $ | |||||||
Increase in pro forma net tangible book value per share attributable to the sale of shares in this offering | ||||||||
Pro forma as adjusted net tangible book value per share after this offering | ||||||||
Dilution per share to new investors | $ | |||||||
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Shares Purchased | Total Consideration | Average Price | ||||||||||||||||||
Number | Percent | Amount | Percent | Per Share | ||||||||||||||||
Existing stockholders | % | $ | % | $ | ||||||||||||||||
New investors | $ | |||||||||||||||||||
Total | 100 | % | $ | 100 | % | $ | ||||||||||||||
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Successor | Predecessor | ||||||||||||||||||||||||||||||||
Period | |||||||||||||||||||||||||||||||||
Period | from | ||||||||||||||||||||||||||||||||
from June 20, | January 1, | ||||||||||||||||||||||||||||||||
Years Ended | 2007 to | 2007 to | |||||||||||||||||||||||||||||||
Six Months Ended June 30, | December 31, | December 31, | June 19, | Years Ended December 31, | |||||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||||||||||||
(in thousands, except share data and per share data) | |||||||||||||||||||||||||||||||||
Consolidated statement of income data: | |||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||
Service and administrative fees | $ | 16,817 | $ | 14,826 | $ | 31,829 | $ | 24,279 | $ | 10,686 | $ | 8,165 | $ | 16,708 | $ | 15,521 | |||||||||||||||||
Wholesale brokerage commissions and fees | 13,134 | 5,138 | 16,309 | — | — | — | — | — | |||||||||||||||||||||||||
Ceding commissions | 13,013 | 11,973 | 24,075 | 26,215 | 13,733 | 10,753 | 19,538 | 13,190 | |||||||||||||||||||||||||
Net underwriting revenue | 1,870 | 1,168 | 5,101 | 1,694 | 2,620 | 1,044 | 5,067 | 8,680 | |||||||||||||||||||||||||
Net investment income | 1,935 | 2,509 | 4,759 | 5,560 | 3,411 | 2,918 | 5,308 | 3,899 | |||||||||||||||||||||||||
Net realized gains (losses) | 49 | — | 54 | (1,921 | ) | (348 | ) | 516 | 962 | 110 | |||||||||||||||||||||||
Other income | 126 | 303 | 971 | 178 | 28 | 353 | 1,587 | 1,228 | |||||||||||||||||||||||||
Total net revenues | 46,944 | 35,917 | 83,098 | 56,005 | 30,130 | 23,749 | 49,168 | 42,628 | |||||||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||||||||
Personnel costs | 18,413 | 13,948 | 31,365 | 21,742 | 10,722 | 9,409 | 20,834 | 17,963 | |||||||||||||||||||||||||
Other operating expenses | 11,027 | 10,339 | 22,291 | 12,225 | 8,508 | 7,118 | 15,093 | 15,548 | |||||||||||||||||||||||||
Depreciation and amortization | 2,117 | 1,504 | 3,507 | 2,629 | 1,292 | 221 | 513 | 461 | |||||||||||||||||||||||||
Interest expense | 3,876 | 3,807 | 7,800 | 7,255 | 4,130 | 1,169 | 1,973 | 1,597 | |||||||||||||||||||||||||
Total expenses | 35,433 | 29,598 | 64,963 | 43,851 | 24,652 | 17,917 | 38,413 | 35,569 | |||||||||||||||||||||||||
Income before income taxes and non-controlling interest | 11,511 | 6,319 | 18,135 | 12,154 | 5,478 | 5,832 | 10,755 | 7,059 | |||||||||||||||||||||||||
Income taxes | 4,296 | 2,380 | 6,551 | 4,208 | 1,761 | 1,983 | 3,530 | 2,173 | |||||||||||||||||||||||||
Income before non-controlling interest | 7,215 | 3,939 | 11,584 | 7,946 | 3,717 | 3,849 | 7,225 | 4,886 | |||||||||||||||||||||||||
Less: net income (loss) attributable to non-controlling interest | (31 | ) | 7 | 26 | (82 | ) | 64 | 34 | 161 | 385 | |||||||||||||||||||||||
Net income | $ | 7,246 | $ | 3,932 | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | $ | 7,064 | $ | 4,501 | |||||||||||||||||
Net income per common share: | |||||||||||||||||||||||||||||||||
Basic | $ | 2.42 | $ | 1.37 | $ | 3.94 | $ | 2.90 | $ | 1.32 | $ | 1.00 | $ | 1.87 | $ | 1.22 | |||||||||||||||||
Diluted | 2.23 | 1.27 | 3.65 | 2.72 | 1.24 | 0.95 | 1.73 | 1.11 | |||||||||||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||||||||||||
Basic | 2,998,540 | 2,865,609 | 2,931,182 | 2,771,372 | 2,766,565 | 3,819,265 | 3,777,345 | 3,701,148 | |||||||||||||||||||||||||
Diluted | 3,244,135 | 3,087,862 | 3,170,653 | 2,956,211 | 2,955,381 | 4,028,242 | 4,077,936 | 4,047,162 | |||||||||||||||||||||||||
Consolidated statement of cash flows data: | |||||||||||||||||||||||||||||||||
Operating activities | $ | 2,349 | $ | 5,120 | $ | 13,393 | $ | 12,998 | $ | 10,265 | $ | 2,518 | $ | 8,592 | $ | 11,806 | |||||||||||||||||
Investing activities | (20,109 | ) | (40,891 | ) | (26,532 | ) | (26,069 | ) | (10,297 | ) | 22,424 | (8,208 | ) | (19,150 | ) | ||||||||||||||||||
Financing activities | 6,992 | 34,572 | 20,997 | (1,875 | ) | (571 | ) | (474 | ) | (1,925 | ) | 8,865 |
Successor | Predecessor | ||||||||||||||||||||||||
As of | |||||||||||||||||||||||||
June 30, | As of December 31, | As of December 31, | |||||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Consolidated balance sheet data: | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 19,102 | $ | 29,940 | $ | 22,082 | $ | 43,495 | $ | 16,836 | $ | 18,377 | |||||||||||||
Total assets | 484,381 | 478,626 | 442,369 | 416,300 | 297,317 | 248,731 | |||||||||||||||||||
Notes payable | 38,509 | 31,487 | 20,000 | 21,079 | 7,400 | 2,200 | |||||||||||||||||||
Preferred trust securities | 35,000 | 35,000 | 35,000 | 35,000 | — | — | |||||||||||||||||||
Redeemable preferred securities | 11,440 | 11,540 | 11,540 | 11,540 | 21,740 | 20,340 | |||||||||||||||||||
Total stockholders’ equity | 89,453 | 80,793 | 57,021 | 51,473 | 35,747 | 29,426 |
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RESULTS OF OPERATIONS
• | Our Payment Protection segment, marketed under our Life of the South brand, delivers credit insurance, debt protection, warranty, service contract and car club solutions, along with administrative services to consumer finance companies, regional banks, community banks, retailers, small loan companies, warranty administrators, automobile dealers, vacation ownership developers and credit unions. Our Payment Protection segment specializes in providing products that protect consumer lenders and their borrowers from death, disability or other events that could otherwise impair their borrowers’ ability to repay a debt. | |
• | Our BPO segment, marketed under our Consecta brand, provides a broad range of administrative services tailored to insurance and other financial services companies. Our BPO segment is our most technology-driven segment. Through our operating platform, which utilizes our proprietary technology, we provide ongoing sales and marketing support, electronic underwriting, premium billing and collections, policy administration, claims adjudication and call center management services on behalf of our clients. In 2009, our platform and technology enabled our insurance administration team of 35 individuals on a |
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daily basis to bill approximately 38,000 customers, process and deliver approximately 5,500 policies, fulfill approximately 900 customer service calls and process approximately 900 claims. Our BPO segment also includes our asset recovery business. |
• | Our Wholesale Brokerage segment, marketed under our Bliss & Glennon brand, is one of the largest wholesale insurance brokers in California and ranked in the top 20 in the United States in 2009 by premium volume. This business segment uses a wholesale model to sell specialty property and casualty (P&C) and surplus lines insurance through retail insurance brokers and agents and insurance companies. We believe that our emphasis on customer service, rapid responsiveness to submissions and underwriting integrity in this segment has resulted in high customer satisfaction among retail insurance brokers and agents and insurance companies. |
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Six Months Ended | Years Ended December 31, | |||||||||||||||
June 30, 2010 | 2009 | 2008 | 2007 | |||||||||||||
(in thousands, except number of acquisitions closed) | ||||||||||||||||
Number of acquisitions closed(1) | 2 | 1 | 3 | 2 | ||||||||||||
Total cash consideration(1) | $ | 12,744 | $ | 40,500 | $ | 2,265 | $ | 7,366 |
(1) | Includes the purchase of three shell insurance companies, American Guaranty Insurance Company and Triangle Life Insurance Company in 2007, and Gulfco Life Insurance Company in 2008. Each of these companies was acquired for cash consideration equal to its statutory surplus and the value of the single state licenses. As of December 31, 2009, each company had been merged into one of our other subsidiaries. |
• | Payment Protection. Our Payment Protection products are sold as complementary products to consumer retail and credit transactions and are thus subject to the volatility of volume of consumer purchase and credit activities. We receive service and administrative fees for administering Payment Protection products that are sold by our clients, such as credit insurance, debt protection, car club and warranty solutions. We earn administrative fees for administering debt cancellation plans, facilitating the distribution and administration of warranty or extended service contracts, providing car club membership benefits and providing related services for our clients. For credit insurance products, our clients typically retain the revenue and risk associated with credit insurance products that they sell to their customers through economic arrangements with us. Our Payment Protection revenue includes revenue earned from reinsurance arrangements with producer owned reinsurance companies (PORCs) owned by our clients. Our clients own PORCs that assume the credit insurance premiums |
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and associated risk that they originate in exchange for fees paid to us for ceding the premiums. In addition, our Payment Protection revenue includes administrative fees charged by us under retrospective commission arrangements with producers. Under these arrangements, our insurance companies receive the insurance premiums and administer the policies that are distributed by our clients. The producer of the credit insurance policies receives a variable commission that is equal to the profits from the insurance policies after the payment of claims and our administrative fee. Revenues in our Payment Protection business may fluctuate seasonally based on consumer spending trends, where consumer spending has historically been higher in April, September and December, corresponding to Easter,back-to-school and the holiday season. Accordingly, our Payment Protection revenues may reflect higher second, third and fourth quarters than in the first quarter. For the years ended December 31, 2009, 2008 and 2007, Payment Protection contributed 26.1%, 42.7% and 50.0% of overall service and administrative fees, respectively. |
• | BPO. Our BPO revenues consist exclusively of service and administrative fees for providing a broad set of administrative services tailored to insurance and other financial services companies including ongoing sales and marketing support, electronic underwriting, premium billing and collections, policy administration, claims adjudication and call center management services. Our BPO revenues are based on the volume of business that we manage on behalf of our clients. Our BPO segment typically charges fees on aper-unit of service basis as a percentage of our client’s insurance premiums. For the years ended December 31, 2009, 2008 and 2007, BPO contributed 73.9%, 57.3% and 50.0% of overall service and administrative fees, respectively. |
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Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | Years Ended | 2007 to | 2007 to | ||||||||||||||||||||||
June 30, | December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
Personnel costs | 39.2 | % | 38.8 | % | 37.7 | % | 38.8 | % | 35.6 | % | 39.6 | % | |||||||||||||
Other operating expenses | 23.5 | % | 28.8 | % | 26.8 | % | 21.8 | % | 28.2 | % | 30.0 | % | |||||||||||||
Depreciation and amortization | 4.5 | % | 4.2 | % | 4.2 | % | 4.7 | % | 4.3 | % | 0.9 | % | |||||||||||||
Interest expense | 8.3 | % | 10.6 | % | 9.4 | % | 13.0 | % | 13.7 | % | 4.9 | % | |||||||||||||
Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | 2007 to | 2007 to | |||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Service and administrative fees | $ | 16,817 | $ | 14,826 | $ | 31,829 | $ | 24,279 | $ | 10,686 | $ | 8,165 | |||||||||||||
Wholesale brokerage commissions and fees | 13,134 | 5,138 | 16,309 | — | — | — | |||||||||||||||||||
Ceding commissions | 13,013 | 11,973 | 24,075 | 26,215 | 13,733 | 10,753 | |||||||||||||||||||
Net underwriting revenue | 1,870 | 1,168 | 5,101 | 1,694 | 2,620 | 1,044 | |||||||||||||||||||
Net investment income | 1,935 | 2,509 | 4,759 | 5,560 | 3,411 | 2,918 | |||||||||||||||||||
Net realized gains (losses) | 49 | — | 54 | (1,921 | ) | (348 | ) | 516 | |||||||||||||||||
Other income | 126 | 303 | 971 | 178 | 28 | 353 | |||||||||||||||||||
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Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | 2007 to | 2007 to | |||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Total net revenues | 46,944 | 35,917 | 83,098 | 56,005 | 30,130 | 23,749 | |||||||||||||||||||
Expenses | |||||||||||||||||||||||||
Personnel costs | 18,413 | 13,948 | 31,365 | 21,742 | 10,722 | 9,409 | |||||||||||||||||||
Other operating expenses | 11,027 | 10,339 | 22,291 | 12,225 | 8,508 | 7,118 | |||||||||||||||||||
Depreciation and amortization | 2,117 | 1,504 | 3,507 | 2,629 | 1,292 | 221 | |||||||||||||||||||
Interest expense | 3,876 | 3,807 | 7,800 | 7,255 | 4,130 | 1,169 | |||||||||||||||||||
Total expenses | 35,433 | 29,598 | 64,963 | 43,851 | 24,652 | 17,917 | |||||||||||||||||||
Income before income taxes andnon-controlling interest | 11,511 | 6,319 | 18,135 | 12,154 | 5,478 | 5,832 | |||||||||||||||||||
Income taxes | 4,296 | 2,380 | 6,551 | 4,208 | 1,761 | 1,983 | |||||||||||||||||||
Income before non-controlling interest | 7,215 | 3,939 | 11,584 | 7,946 | 3,717 | 3,849 | |||||||||||||||||||
Less: net income (loss) attributable to non-controlling interest | (31 | ) | 7 | 26 | (82 | ) | 64 | 34 | |||||||||||||||||
Net income | $ | 7,246 | $ | 3,932 | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||||||
Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | 2007 to | 2007 to | |||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||
Service and administrative fees | 35.8 | % | 41.3 | % | 38.3 | % | 43.4 | % | 35.5 | % | 34.4 | % | |||||||||||||
Wholesale brokerage commissions and fees | 28.0 | % | 14.3 | % | 19.6 | % | — | — | — | ||||||||||||||||
Ceding commissions | 27.8 | % | 33.3 | % | 29.0 | % | 46.8 | % | 45.6 | % | 45.3 | % | |||||||||||||
Net underwriting revenue | 4.0 | % | 3.2 | % | 6.1 | % | 3.0 | % | 8.7 | % | 4.4 | % | |||||||||||||
Net investment income | 4.1 | % | 7.0 | % | 5.7 | % | 9.9 | % | 11.3 | % | 12.3 | % | |||||||||||||
Net realized gains (losses) | — | — | 0.1 | % | (3.4 | )% | (1.2 | )% | 2.2 | % | |||||||||||||||
Other income | 0.3 | % | 0.9 | % | 1.2 | % | 0.3 | % | 0.1 | % | 1.4 | % | |||||||||||||
Total net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100 | % | |||||||||||||
Expenses: | |||||||||||||||||||||||||
Personnel costs | 39.2 | % | 38.8 | % | 37.8 | % | 38.8 | % | 35.6 | % | 39.6 | % | |||||||||||||
Other operating expenses | 23.5 | % | 28.8 | % | 26.8 | % | 21.8 | % | 28.2 | % | 30.0 | % | |||||||||||||
Depreciation and amortization | 4.5 | % | 4.2 | % | 4.2 | % | 4.7 | % | 4.3 | % | 0.9 | % | |||||||||||||
Interest expense | 8.3 | % | 10.6 | % | 9.4 | % | 13.0 | % | 13.7 | % | 4.9 | % | |||||||||||||
Total expenses | 75.5 | % | 82.4 | % | 78.2 | % | 78.3 | % | 81.8 | % | 75.4 | % | |||||||||||||
Income before income taxes and non-controlling interest | 24.5 | % | 17.6 | % | 21.8 | % | 21.7 | % | 18.2 | % | 24.6 | % | |||||||||||||
Income taxes | 9.1 | % | 6.6 | % | 7.9 | % | 7.5 | % | 5.8 | % | 8.3 | % | |||||||||||||
Income before non-controlling interest | 15.4 | % | 11.0 | % | 13.9 | % | 14.2 | % | 12.4 | % | 16.3 | % | |||||||||||||
Less: net income (loss) attributable to non-controlling interest | — | — | — | (0.1 | )% | 0.2 | % | 0.1 | % | ||||||||||||||||
Net income | 15.4 | % | 11.0 | % | 13.9 | % | 14.3 | % | 12.2 | % | 16.2 | % | |||||||||||||
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Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | 2007 to | 2007 to | |||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Payment Protection: | |||||||||||||||||||||||||
Net revenues | $ | 22,115 | $ | 20,108 | $ | 42,806 | $ | 44,052 | $ | 25,366 | $ | 19,442 | |||||||||||||
Operating expenses | 11,285 | 12,780 | 23,814 | 24,676 | 14,443 | 12,287 | |||||||||||||||||||
EBITDA | 10,830 | 7,328 | 18,992 | 19,376 | 10,923 | 7,155 | |||||||||||||||||||
EBITDA margin | 49.0 | % | 36.4 | % | 44.4 | % | 44.0 | % | 43.1 | % | 36.8 | % | |||||||||||||
Depreciation and amortization | 1,055 | 953 | 1,815 | 2,164 | 994 | 170 | |||||||||||||||||||
Interest | 3,365 | 3,359 | 6,709 | 6,252 | 3,577 | 979 | |||||||||||||||||||
Income before income taxes and non-controlling interest | 6,410 | 3,016 | 10,468 | 10,960 | 6,352 | 6,006 | |||||||||||||||||||
BPO: | |||||||||||||||||||||||||
Net revenues | 11,282 | 10,638 | 23,521 | 13,904 | 5,112 | 4,307 | |||||||||||||||||||
Operating expenses | 7,511 | 6,110 | 13,753 | 7,136 | 2,128 | 2,496 | |||||||||||||||||||
EBITDA | 3,771 | 4,528 | 9,768 | 6,768 | 2,984 | 1,811 | |||||||||||||||||||
EBITDA margin | 33.4 | % | 42.6 | % | 41.5 | % | 48.7 | % | 58.4 | % | 42.0 | % | |||||||||||||
Depreciation and amortization | 265 | 220 | 566 | 465 | 298 | 51 | |||||||||||||||||||
Interest | 198 | 214 | 428 | 1,003 | 553 | 190 | |||||||||||||||||||
Income before income taxes and non-controlling interest | 3,308 | 4,094 | 8,774 | 5,300 | 2,133 | 1,570 | |||||||||||||||||||
Wholesale Brokerage: | |||||||||||||||||||||||||
Net revenues | 13,547 | 5,171 | 16,820 | — | — | — | |||||||||||||||||||
Operating expenses | 9,802 | 3,563 | 12,890 | — | — | — | |||||||||||||||||||
EBITDA | 3,745 | 1,608 | 3,930 | — | — | — | |||||||||||||||||||
EBITDA margin | 27.6 | % | 31.1 | % | 23.4 | % | — | — | — | ||||||||||||||||
Depreciation and amortization | 797 | 331 | 1,126 | — | — | — | |||||||||||||||||||
Interest | 313 | 234 | 663 | — | — | — | |||||||||||||||||||
Income before income taxes and non-controlling interest | 2,635 | 1,043 | 2,141 | — | — | — | |||||||||||||||||||
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Successor | Predecessor | ||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||
June 20, | January 1, | ||||||||||||||||||||||||
Six Months Ended | 2007 to | 2007 to | |||||||||||||||||||||||
June 30, | Years Ended December 31, | December 31, | June 19, | ||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||
Corporate: | |||||||||||||||||||||||||
Net revenues | — | — | (49 | ) | (1,951 | ) | (348 | ) | — | ||||||||||||||||
Operating expenses | 842 | 1,834 | 3,199 | 2,155 | 2,659 | 1,744 | |||||||||||||||||||
EBITDA | (842 | ) | (1,834 | ) | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | |||||||||||||
Depreciation and amortization | — | — | — | — | — | — | |||||||||||||||||||
Interest | — | — | — | — | — | — | |||||||||||||||||||
Income before income taxes and non-controlling interest | (842 | ) | (1,834 | ) | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | |||||||||||||
Total income before taxes and non-controlling interest | 11,511 | 6,319 | 18,135 | 12,154 | 5,478 | 5,832 | |||||||||||||||||||
Income taxes | (4,296 | ) | (2,380 | ) | (6,551 | ) | (4,208 | ) | (1,761 | ) | (1,983 | ) | |||||||||||||
Less: non-controlling interest | (31 | ) | 7 | 26 | (82 | ) | 64 | 34 | |||||||||||||||||
Net income | $ | 7,246 | $ | 3,932 | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||||||
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• | the length of time and the extent to which fair value has been less than cost; |
• | issuer-specific considerations, including an issuer’s short-term prospects and financial condition, recent news that may have an adverse impact on its results, and an event of missed or late payment or default; |
• | the occurrence of a significant economic event that may affect the industry in which an issuer participates; and |
• | for loan-backed and structured securities, the undiscounted estimated future cash flows as compared to the current book value. |
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Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(in thousands) | ||||||||||||
Ceded unearned premiums: | ||||||||||||
Life | $ | 60,281 | $ | 82,358 | $ | 92,157 | ||||||
Accident and health | 29,844 | 32,980 | 25,155 | |||||||||
Property | 57,379 | 53,160 | 45,687 | |||||||||
Total ceded unearned premiums | 147,504 | 168,498 | 162,999 | |||||||||
Ceded claim reserves: | ||||||||||||
Life | 1,929 | 2,089 | 2,050 | |||||||||
Accident and health | 9,981 | 8,616 | 7,767 | |||||||||
Property | 10,608 | 12,697 | 11,528 | |||||||||
Total ceded claim reserves recoverable | 22,518 | 23,402 | 21,345 | |||||||||
Other reinsurance settlements recoverable | 3,776 | 7,123 | 3,634 | |||||||||
Reinsurance receivables | $ | 173,798 | $ | 199,023 | $ | 187,978 | ||||||
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Goodwill Assigned | ||||
by Segment | ||||
(in thousands) | ||||
Payment Protection: | ||||
Summit Partners Transactions | $ | 22,763 | ||
Darby & Associates | 642 | |||
Total Payment Protection | 23,405 | |||
BPO: | ||||
Summit Partners Transactions | 8,902 | |||
CIRG | 1,337 | |||
Total BPO | 10,239 | |||
Wholesale Brokerage: | ||||
Bliss & Glennon | 29,917 | |||
Total Wholesale Brokerage | 29,917 | |||
Total Goodwill | $ | 63,561 | ||
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Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
2007 to | 2007 to | ||||||||||||||||
Years Ended | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
Expected term (years) | * | 5.0 | 5.0 | * | |||||||||||||
Expected volatility | * | 32.87 | % | 22.43 | % | * | |||||||||||
Expected dividends | * | $ | — | $ | — | * | |||||||||||
Risk-free rate | * | 4.96 | % | 5.24 | % | * |
* | No options were granted during 2009 or the period of January 1, 2007 to June 19, 2007. |
Options | Exercise | Options | ||||||||||||||
Outstanding | Price | Exercisable | Exercise Price | |||||||||||||
Balance, December 31, 2007 | 472,135 | $ | 13.64 | 220,200 | $ | 10.21 | ||||||||||
Granted | 7,972 | 23.11 | — | — | ||||||||||||
Vested | — | — | 90,220 | 16.69 | ||||||||||||
Exercised | (105,000 | ) | 7.99 | (105,000 | ) | 7.99 | ||||||||||
Cancelled | — | — | — | — | ||||||||||||
Balance, December 31, 2008 | 375,107 | 15.42 | 205,420 | 14.16 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Vested | — | — | 73,639 | 16.86 | ||||||||||||
Exercised | (3,000 | ) | 8.12 | (3,000 | ) | 8.12 | ||||||||||
Cancelled | — | — | — | — | ||||||||||||
Balance, December 31, 2009 | 372,107 | $ | 15.48 | 276,059 | $ | 14.95 | ||||||||||
Weighted-average remaining contractual term at December 31, 2009 (years) | 6.12 | 5.73 |
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Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
Years Ended | 2007 to | 2007 to | |||||||||||||||
December 31, | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
(in thousands except weighted-average fair values) | |||||||||||||||||
Weighted-average grant date fair value of options granted | * | $ | 7.90 | $ | 4.69 | * | |||||||||||
Total fair value of options vested during the year | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
Total intrinsic value of options exercised | $ | 112 | $ | 1,327 | $ | — | $ | 1,890 | |||||||||
Cash received from option exercises | $ | 24 | $ | 846 | $ | — | $ | 1,044 | |||||||||
Tax benefits realized from exercised stock options | $ | — | $ | — | $ | — | $ | — | |||||||||
Cash used to settle equity instruments granted under stock-based compensation awards | $ | — | $ | 2,069 | $ | 1,400 | $ | — |
* | No options were granted during 2009 or the period of January 1, 2007 to June 19, 2007. |
Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
2007 to | 2007 to | ||||||||||||||||
Years Ended | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
(in thousands) | |||||||||||||||||
Other operating expenses | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
Income tax benefit | — | — | — | — | |||||||||||||
Net share-based compensation | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
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Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
2007 to | 2007 to | ||||||||||||||||
Years Ended December 31, | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
(in thousands) | |||||||||||||||||
Ordinary dividends | $ | 2,432 | $ | 3,124 | $ | — | $ | — | |||||||||
Extraordinary dividends | 16,293 | 8,000 | — | — | |||||||||||||
Total dividends | $ | 18,725 | $ | 11,124 | $ | — | $ | — | |||||||||
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Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
Years Ended | 2007 to | 2007 to | |||||||||||||||
December 31, | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
(in thousands) | |||||||||||||||||
Fixed income securities | $ | 4,520 | $ | 4,600 | $ | 1,757 | $ | 1,412 | |||||||||
Cash on hand and on deposit | 557 | 1,035 | 1,631 | 947 | |||||||||||||
Common and preferred stock dividends | 28 | 77 | 40 | 135 | |||||||||||||
Debenture interest | 162 | 247 | 206 | 302 | |||||||||||||
Other income | 2 | 124 | (101 | ) | 223 | ||||||||||||
Investment expenses | (510 | ) | (523 | ) | (122 | ) | (101 | ) | |||||||||
Net investment income | $ | 4,759 | $ | 5,560 | $ | 3,411 | $ | 2,918 | |||||||||
�� | ||||||||||||
Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(in thousands) | ||||||||||||
Obligations of the U.S. Treasury and other U.S. Government agencies | $ | 19,480 | $ | 27,809 | $ | 30,256 | ||||||
Municipal securities | 14,582 | 16,048 | 10,626 | |||||||||
Corporate securities | 36,511 | 36,848 | 18,882 | |||||||||
Mortgage-backed securities | 5,691 | 7,496 | 13,607 | |||||||||
Asset-backed securities | 4,684 | 8,204 | — | |||||||||
Total fixed maturity securities | $ | 80,948 | $ | 96,405 | $ | 73,370 | ||||||
Common stock — publicly traded | $ | 369 | $ | 423 | $ | 1,298 | ||||||
Preferred stock — publicly traded | 177 | 155 | 50 | |||||||||
Common stock — non-publicly traded | 662 | 586 | 706 | |||||||||
Preferred stock — non-publicly traded | 1,002 | 10 | 10 | |||||||||
Total equity securities | $ | 2,210 | $ | 1,174 | $ | 2,064 | ||||||
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Years Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Due in one year or less | $ | 2,384 | $ | 7,058 | $ | 17,140 | ||||||
Due after one year through five years | 19,290 | 16,800 | 24,229 | |||||||||
Due after five years through ten years | 30,973 | 34,517 | 16,381 | |||||||||
Due after ten years through twenty years | 3,898 | 4,020 | 2,013 | |||||||||
Due after twenty years | 14,028 | 18,310 | — | |||||||||
Mortgage-backed securities | 5,691 | 7,496 | 13,607 | |||||||||
Asset-backed securities | 4,684 | 8,204 | — | |||||||||
Total fixed maturity securities | $ | 80,948 | $ | 96,405 | $ | 73,370 | ||||||
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
Years Ended | 2007 to | 2007 to | |||||||||||||||
December 31, | December 31, | June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
(in thousands) | |||||||||||||||||
Realized gains on sales of fixed maturity securities | $ | 824 | $ | 30 | $ | — | $ | 23 | |||||||||
Realized losses on sales of fixed maturity securities | (787 | ) | (14 | ) | — | — | |||||||||||
Realized gains on sales of equity securities | 70 | 14 | — | 493 | |||||||||||||
Realized losses on sales of equity securities | (53 | ) | — | — | — | ||||||||||||
Impairment write-downs(Other-than-temporarily impaired) | — | (1,951 | ) | (348 | ) | — | |||||||||||
Total realized investment gains (losses) | $ | 54 | $ | (1,921 | ) | $ | (348 | ) | $ | 516 | |||||||
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Total | Level 1 | Level 2 | Level 3 | |||||||||||||
(in thousands) | ||||||||||||||||
Fixed maturity securities | $ | 80,948 | $ | — | $ | 79,440 | $ | 1,508 | ||||||||
Common stock, marketable | 369 | 369 | — | — | ||||||||||||
Preferred stock, marketable | 177 | 177 | — | — | ||||||||||||
Common stock, other | 662 | — | — | 662 | ||||||||||||
Preferred stock, other | 1,002 | — | — | 1,002 | ||||||||||||
Short-term investments | 1,220 | 1,220 | — | — | ||||||||||||
Total | $ | 84,378 | $ | 1,766 | $ | 79,440 | $ | 3,172 | ||||||||
Type of Security (Fair Value) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Fixed maturity securities | $ | 96,405 | $ | — | $ | 96,405 | — | |||||||||
Common stock, marketable | 423 | 423 | — | — | ||||||||||||
Preferred stock, marketable | 155 | 155 | — | — | ||||||||||||
Common stock, other | 586 | — | — | 586 | ||||||||||||
Preferred stock, other | 10 | — | — | 10 | ||||||||||||
Short-term investments | 2,180 | 2,180 | — | — | ||||||||||||
Total | $ | 99,759 | $ | 2,758 | $ | 96,405 | $ | 596 | ||||||||
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Years Ended December 31, | ||||||||
2009 | 2008 | |||||||
(in thousands) | ||||||||
Beginning balance | $ | 596 | $ | 608 | ||||
Total gains or losses (realized/unrealized): | ||||||||
Included in net income | 16 | — | ||||||
Included in comprehensive loss | 367 | (163 | ) | |||||
Amortization/accretion | — | 7 | ||||||
Purchases, issuance and settlements | 862 | 39 | ||||||
Net transfers into Level 3 | 1,331 | 105 | ||||||
Ending balance | $ | 3,172 | $ | 596 | ||||
Successor | Predecessor | |||||||||||||||||||||||||||||
Period from | Period from | |||||||||||||||||||||||||||||
Six Months | Years Ended | June 20 to | January 1, 2007 | |||||||||||||||||||||||||||
Ended June 30, | December 31, | December 31, | to June 19, | |||||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2007 | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||||||||||||
Operating activities | $ | 2,349 | $ | 5,120 | $ | 13,393 | $ | 12,998 | $ | 10,265 | $ | 2,518 | ||||||||||||||||||
Investing activities | (20,109 | ) | (40,891 | ) | (26,532 | ) | (26,069 | ) | (10,297 | ) | 22,424 | |||||||||||||||||||
Financing activities | 6,922 | 34,572 | 20,997 | (1,875 | ) | (571 | ) | (474 | ) | |||||||||||||||||||||
Net change in cash and cash equivalents | $ | (10,838 | ) | $ | (1,199 | ) | $ | 7,858 | $ | (14,946 | ) | $ | (603 | ) | $ | 24,468 | ||||||||||||||
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Payments Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Long-term debt | $ | 78,027 | $ | 5,087 | $ | 26,400 | $ | — | $ | 46,540 | ||||||||||
Operating leases | 7,694 | 2,924 | 4,760 | 10 | — | |||||||||||||||
Total contractual obligations | $ | 85,721 | $ | 8,011 | $ | 31,160 | $ | 10 | $ | 46,540 | ||||||||||
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• | product engineering; | |
• | new product development; | |
• | direct and mass marketing; | |
• | data management and analysis; | |
• | claims processing; | |
• | policy administration and billing; | |
• | customer service and technical support; | |
• | call center management; | |
• | payment and settlement management; | |
• | collection of receivables; | |
• | finance and accounting; and | |
• | document management. |
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• | acceptance of unfamiliar and new business risks; | |
• | availability of coverage when the standard market declines the risk; | |
• | flexibility to tailor coverage to meet the needs of policyholders; | |
• | a stable market with new products to cover specialized risk exposures; | |
• | a competitive and voluntary alternative to residual insurance markets; | |
• | additional capacity for property and casualty exposures; and | |
• | insurance products that are responsive to market needs. |
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Products | Services | |
• Credit Property | • Policy and Claims Administration | |
• Credit Life & Credit Disability | • Captive Reinsurance Management | |
• Debt Cancellation | • Training — Products, Sales, Compliance | |
• Accidental Death & Dismemberment (AD&D) | • Transition Management • Policy Tracking Services | |
• Car Club Membership | ||
• Warranty & Extended Service Plans | ||
• Involuntary Unemployment | ||
• Collateral Protection | ||
• Single Interest Auto |
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(PORCs)
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Products and Services | ||||||||||||
Professional & | ||||||||||||
Management | Personal | Premium | ||||||||||
Commercial Property | Casualty | Construction | Liability | Transportation | Lines | Finance | ||||||
• Earthquake/DIC | • Construction | • Business Owners Policies (BOPs) | • Errors & Omissions | • Commercial Auto | • Property | • Commercial Property & Casualty | ||||||
• Wind | • Environmental & Pollution | • Multi-line Policies | • Directors & Officers | • Truck Liability | • Umbrella | • Personal Lines | ||||||
• Flood | • General Liability | • Employment Practices Liability | • Cargo | |||||||||
• Large Layered | • Product Liability | • Fiduciary | • Garage | |||||||||
• Inland Marine | • Liquor Liability | |||||||||||
• Umbrella & Excess |
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Name | Domicile | Licensed States | ||
Life of the South Insurance Company | Georgia | 45 states | ||
Southern Financial Life Insurance Company | Kentucky | Kentucky | ||
Bankers Life of Louisiana | Louisiana | Louisiana | ||
Lyndon Southern Insurance Company | Delaware | 41 states | ||
Insurance Company of the South | Georgia | Georgia and North Carolina |
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Name | Age | Position | ||||
Richard S. Kahlbaugh* | 50 | Chairman, President and Chief Executive Officer | ||||
Michael Vrban | 51 | Executive Vice President, Chief Accounting Officer, Treasurer and Acting Chief Financial Officer | ||||
Daniel A. Reppert | 50 | Executive Vice President and President, Bliss & Glennon | ||||
W. Dale Bullard | 51 | Executive Vice President and Chief Marketing Officer | ||||
Alan E. Kaliski | 62 | Senior Vice President and Chief Risk Officer | ||||
Joseph R. McCaw | 58 | Executive Vice President and President, Life of the South | ||||
Robert S. Fullington | 63 | Executive Vice President and President, Consecta | ||||
Paul S. Romano | 50 | Senior Vice President, Corporate Development | ||||
John G. Short* | 47 | Senior Vice President, General Counsel and Secretary | ||||
John R. Carroll | 42 | Director | ||||
J.J. Kardwell | 34 | Director | ||||
Alfred R. Berkeley, III | 66 | Director nominee | ||||
Francis M. Colalucci | 65 | Director nominee | ||||
Frank P. Filipps | 63 | Director nominee | ||||
Ted W. Rollins | 48 | Director nominee |
* | Richard S. Kahlbaugh and John G. Short arebrothers-in-law. |
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• | the integrity of our financial statements; | |
• | our systems of control over financial reporting and disclosure controls and procedures; | |
• | our compliance with legal and regulatory requirements; | |
• | our independent auditors’ qualifications and independence; | |
• | the performance of our independent auditors and our internal audit function; | |
• | all related person transactions for potential conflict of interest situations on an ongoing basis; and | |
• | the preparation of the report required to be prepared by the committee pursuant to Securities and Exchange Commission rules. |
• | recommend to our board of directors for consideration, the compensation and benefits of our executive officers and key employees; | |
• | monitor and review our compensation and benefit plans; | |
• | administer our stock and other incentive compensation plans and programs and prepare recommendations and periodic reports to the board of directors concerning such matters; | |
• | prepare the compensation committee report required by Securities and Exchange Commission rules to be included in our annual report; | |
• | prepare recommendations and periodic reports to the board of directors as appropriate; and | |
• | handle such other matters that are specifically delegated to the compensation committee by our board of directors from time to time. |
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• | identify and recommend to the board individuals qualified to serve as directors of our company and on committees of the board; | |
• | advise the board with respect to the board composition, procedures and committees; | |
• | develop and recommend to the board a set of corporate governance guidelines and principles applicable to us; and | |
• | review the overall corporate governance of our company and recommend improvements when necessary. |
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• | Richard S. Kahlbaugh, President and Chief Executive Officer; | |
• | Michael Vrban, Executive Vice President and Chief Accounting Officer and our Chief Financial Officer in 2009; | |
• | W. Dale Bullard, Executive Vice President and Chief Marketing Officer; | |
• | Robert S. Fullington, Executive Vice President and President, Consecta; and | |
• | Daniel A. Reppert, Executive Vice President and President, Bliss & Glennon. |
• | attract and retain talented and experienced executives in the competitive insurance and other financial services industries; |
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• | motivate and reward executives whose knowledge, skills and performance are critical to our success; | |
• | align the interests of our named executive officers and stockholders by motivating named executive officers to increase stockholder value and rewarding named executive officers when stockholder value increases; | |
• | ensure fairness among the executive management team by recognizing the contributions each executive makes to our success; | |
• | foster a shared commitment among executives by aligning their individual goals with the goals of the executive management team and our company; and | |
• | compensate our executives in a manner that incentivizes them to manage our business to meet our long-range objectives. |
• | Competition. Compensation should reflect the competitive marketplace, so we can retain, attract and motivate talented executives. | |
• | Accountability for Business Performance. Compensation should be tied to our financial performance to hold executives accountable for their contributions to our performance as a whole through the performance of aspects of our business for which they are responsible. | |
• | Accountability for Individual Performance. Compensation should be tied to the individual’s performance to encourage and reflect individual contributions to our performance. We consider individual performance as well as performance of the businesses and responsibility areas that an individual oversees, and we weigh these factors as we consider appropriate in assessing a particular individual’s performance. | |
• | Alignment with Stockholder Interests. Compensation should be tied to our financial performance through equity awards to align the interests of our named executive officers and key employees with those of our stockholders. |
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• | Fair and Equitable Compensation. The total compensation program should be fair and equitable to both our named executive officers and our stockholders and should be fair relative to the compensation paid to other professionals in our organization. |
• | base salary; | |
• | cash incentive awards linked to corporate performance as set forth by the compensation committee or board of directors; | |
• | deferred compensation provided to certain executives; | |
• | periodic grants of stock options under our equity incentive plans; | |
• | other executive benefits and perquisites; and | |
• | employment agreements, which contain termination and change of control benefits. |
• | our performance relative to the annual financial objectives set for us; | |
• | our expectations as to the performance and contribution of such named executive officer and our judgment as to his potential future value to us; | |
• | our knowledge of the competitive factors within the industries in which we operate; | |
• | the job responsibilities of the named executive officer; and | |
• | the background and circumstances of the named executive officers, including experience and skill. |
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Bonus Available as Percent of | ||
Percent of Target Adjusted EBITDA | Base Salary | |
Less than 100% | 0% | |
100% | 50% | |
At or above 150% | 100% |
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Non-Equity | ||||||||||||||||||||||||
Incentive Plan | All Other | |||||||||||||||||||||||
Salary | Bonus | Compensation | Compensation | Total | ||||||||||||||||||||
Name and Principal Position | Year | ($)(1) | ($)(2) | ($)(3) | ($)(4) | ($) | ||||||||||||||||||
Richard S. Kahlbaugh | 2009 | $ | 379,615 | $ | 76,346 | $ | 230,000 | $ | 45,458 | $ | 731,419 | |||||||||||||
Chairman, President and Chief Executive Officer | ||||||||||||||||||||||||
Michael Vrban | 2009 | $ | 223,269 | $ | 24,261 | $ | 47,085 | $ | 33,882 | $ | 328,497 | |||||||||||||
Executive Vice President, Chief Accounting Officer and Treasurer(5) | ||||||||||||||||||||||||
W. Dale Bullard | 2009 | $ | 264,807 | $ | 1,552 | $ | 52,294 | $ | 42,809 | $ | 361,464 | |||||||||||||
Executive Vice President and Chief Marketing Officer | ||||||||||||||||||||||||
Robert Fullington | 2009 | $ | 264,807 | $ | 4,217 | $ | 82,129 | $ | 36,007 | $ | 387,161 | |||||||||||||
Executive Vice President and President, Consecta | ||||||||||||||||||||||||
Daniel A. Reppert | 2009 | $ | 259,615 | $ | 12,565 | $ | 38,781 | $ | 37,807 | $ | 348,768 | |||||||||||||
Executive Vice President and President, Bliss & Glennon |
(1) | The amounts reported in this column reflect the base salaries paid in 2009 to each named executive officer. Forecasted annual salaries are generally based on 26 bi-weekly pay periods. In the year ended December 31, 2009, our named executive officer’s were paid their normal bi-weekly pay for 27 pay periods. |
(2) | “Bonus” represents discretionary cash amounts awarded by our board of directors to named executive officers. Messrs. Kahlbaugh, Vrban, Bullard, Fullington and Reppert earned $50,000, $2,915, $206, $2,871 and $11,219, respectively, as a discretionary bonus above the amounts they earned under our non-equity incentive plan compensation. See “— Compensation Discussion and Analysis — Components of our Executive Compensation Program — Cash Incentive Awards.” Messrs. Kahlbaugh and Vrban earned a one-time 2009 payment of $25,000 and $20,000, respectively, in connection with a significant financial transaction. Each of Messrs. Kahlbaugh, Vrban, Bullard, Fullington and Reppert earned additional bonus compensation of $1,346 for the holidays. Other bonus amounts paid in 2009 were made under each executive’s employment agreement and are included in the column “Non-Equity Incentive Plan Compensation.” |
(3) | Reflects annual performance bonuses earned by the named executive officers for the year ended December 31, 2009 based upon the named executive officers’ respective base salaries as of December 31, 2009. For Messrs. Kahlbaugh, Bullard and Fullington, such amount includes $40,000, $15,000 and $15,000, respectively, earned in 2009, pursuant to the deferred compensation arrangements. Such amounts are payable in the following year once the respective year’s financial statements have been audited. See “— Compensation Discussion and Analysis — Components of our Executive Compensation Program — Deferred Compensation.” Mr. Kahlbaugh elected to take his $40,000 bonus as a cash payment rather than as deferred compensation. |
(4) | This column includes the following: |
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Medical | Other Health and | |||||||||||||||
Automobile | Reimbursement | Wellness | ||||||||||||||
Name | 401(k) Match(a) | Allowance(b) | Plan(c) | Benefits(d) | ||||||||||||
Richard S. Kahlbaugh | $ | 9,846 | $ | 13,200 | $ | 13,317 | $ | 9,095 | ||||||||
Michael Vrban | $ | 6,202 | $ | 12,000 | $ | 6,543 | $ | 9,137 | ||||||||
W. Dale Bullard | $ | 7,356 | $ | 13,200 | $ | 13,187 | $ | 9,066 | ||||||||
Robert S. Fullington | $ | 7,356 | $ | 13,200 | $ | 11,051 | $ | 4,400 | ||||||||
Daniel A. Reppert | $ | 7,212 | $ | 12,000 | $ | 9,514 | $ | 9,081 |
(a) | Reflects amounts of contributions paid to such executive under 401(k) matching for eligible employees. | |
(b) | Represents the automobile allowance payable under such executive’s employment agreement | |
(c) | Represents the amount of reimbursement for eligible expenses not covered by available group health, dental or vision plans. | |
(d) | Reflects amounts paid to various vendors on behalf of our named executive officer’s for insurance coverage such as health, dental, vision, life, accidental death and dismemberment, long term care, and short term and long term disability. |
(5) | Mr. Vrban served as our Chief Financial Officer in 2009 and is currently our Acting Chief Financial Officer. |
Estimated Future Payouts Under | ||||||||||||||||
Non-Equity Incentive Plan Awards | ||||||||||||||||
Threshold | Target | Maximum | ||||||||||||||
Name | Grant Date | ($) | ($) | ($) | ||||||||||||
Richard S. Kahlbaugh | ||||||||||||||||
Deferred Bonus(1) | n/a | — | $ | 20,000 | $ | 40,000 | ||||||||||
Cash Incentive Award(2) | n/a | — | $ | 190,000 | $ | 380,000 | ||||||||||
Michael Vrban | ||||||||||||||||
Cash Incentive Award(2) | n/a | — | $ | 78,475 | $ | 78,475 | ||||||||||
W. Dale Bullard | ||||||||||||||||
Deferred Bonus(1) | n/a | — | $ | 15,000 | $ | 30,000 | ||||||||||
Cash Incentive Award(2) | n/a | — | $ | 82,875 | $ | 82,875 | ||||||||||
Robert S. Fullington | ||||||||||||||||
Deferred Bonus(1) | n/a | — | $ | 15,000 | $ | 30,000 | ||||||||||
Cash Incentive Award(2) | n/a | — | $ | 82,875 | $ | 82,875 | ||||||||||
Daniel A. Reppert | ||||||||||||||||
Cash Incentive Award(2) | n/a | — | $ | 91,250 | $ | 91,250 |
(1) | Reflects annual deferred compensation awards as estimated payments to Messrs. Kahlbaugh, Bullard and Fullington under deferred compensation arrangements. The amounts in the “threshold,” “target” and “maximum” columns reflect a certain bonus award amount based on the achievement of certain adjusted EBITDA targets, which we discussed above under “— Compensation Discussion and Analysis — Components of our Executive Compensation Program — Deferred Compensation.” If actual performance in any fiscal year does not exceed the “target,” then no deferred bonus is granted to a named executive officer for that fiscal year. |
(2) | Reflects annual cash performance awards as estimated payments to the named executive officers under our non-equity incentive plan. The amounts in the “threshold,” “target” and “maximum” columns reflect a percentage of base salary for such named executive officer, which we discussed above under “— Compensation Discussion and Analysis — Components of our Executive Compensation Program — Cash Incentive Awards.” Any level of our performance which falls between two specific points shall entitle the named executive to receive a percentage of base salary determined on a straight-line basis between two such points. If actual performance in any fiscal year does not exceed the “target,” then no cash award is granted to a named executive officer for that fiscal year, except for the Chief Executive Officer who may be awarded a discretionary bonus if such target is not met. |
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Option Awards(1) | ||||||||||||||||
Number of | Number of | |||||||||||||||
Securities | Securities | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | Option | ||||||||||||||
Options | Options | Exercise | Option | |||||||||||||
(#) | (#) | Price | Expiration | |||||||||||||
Name | Exercisable | Unexercisable | ($) | Date | ||||||||||||
Richard S. Kahlbaugh | ||||||||||||||||
Options | 50,000.00 | — | $ | 15.92 | 11/17/2015 | |||||||||||
Options(2) | 32,386.88 | 19,432.12 | $ | 17.07 | 10/24/2017 | |||||||||||
Michael Vrban | ||||||||||||||||
Options(3) | 7,337.60 | 4,807.40 | $ | 17.07 | 10/24/2017 | |||||||||||
W. Dale Bullard | ||||||||||||||||
Options | 5,200.00 | — | $ | 8.12 | 3/8/2011 | |||||||||||
Options | 50,000.00 | — | $ | 15.92 | 11/17/2015 | |||||||||||
Options(2) | 26,820.63 | 16,092.237 | $ | 17.07 | 10/24/2017 | |||||||||||
Robert S. Fullington | ||||||||||||||||
Options | 47,000.00 | — | $ | 8.12 | 3/8/2011 | |||||||||||
Options | 50,000.00 | — | $ | 15.92 | 11/17/2015 | |||||||||||
Options(2) | 26,820.63 | 16,092.237 | $ | 17.07 | 10/24/2017 | |||||||||||
Daniel A. Reppert | ||||||||||||||||
Options(3) | 7,337.60 | 4,807.40 | $ | 17.07 | 10/24/2017 |
(1) | Does not give effect to the conversion of our Class A common stock or stock split of our common stock that will occur prior to the consummation of this offering. |
(2) | Of the shares subject to the option, 25% vested on June 20, 2008. The remaining shares subject to the option vested ratably on a monthly basis over the 36 months thereafter and will vest in full as of June 30, 2011. |
(3) | Of the shares subject to the option, 25% vested on July 25, 2008. The remaining shares subject to the option vested ratably on a monthly basis over the 36 months thereafter and will vest in full as of July 31, 2011. |
Option Awards | ||||||||
Value | ||||||||
Number of | Realized | |||||||
Shares | on | |||||||
Acquired on Exercise | Exercise | |||||||
Name | (#)(1) | ($)(2) | ||||||
Robert S. Fullington | 3,000 | $ | 111,960 |
(1) | Does not give effect to the conversion of our Class A common stock or stock split of our common stock that will occur prior to the consummation of this offering. |
(2) | The aggregate dollar value realized on exercise is the difference between the fair market value of shares of common stock on December 31, 2009 based upon an internal valuation model and the $8.12 per share exercise price of the options, multiplied by the number of shares subject to the option exercised. |
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Registrant | Aggregate | Aggregate | Aggregate | |||||||||||||
Contributions | Earnings | Withdrawals/ | Balance as Last | |||||||||||||
in Last FY | in Last FY | Distributions | FYE | |||||||||||||
Name | ($)(1) | ($)(2) | ($) | ($) | ||||||||||||
Richard S. Kahlbaugh | $ | 27,000 | $ | 9,585 | n/a | $ | 76,302 | |||||||||
W. Dale Bullard | $ | 17,000 | $ | 3,206 | n/a | $ | 291,287 | |||||||||
Robert S. Fullington | $ | 17,000 | $ | 12,923 | n/a | $ | 95,927 |
(1) | Amounts in this column reflect deferrals of annual cash awards earned in 2008 and deferred in 2009. For Mr. Kahlbaugh, the amount includes $5,000 previously earned but not deferred from the prior year. |
(2) | Each participating named executive officer credits his investment gains and/or losses against the “Vanguard Index — Trust 500 Portfolio” or a similar index fund. We may provide alternative “deemed” investment vehicles from time to time and permit the named executive officers to select which “deemed” investment vehicle against which they will credit their investments. Gains and/or losses are based on the actual investment experience of the underlying investment. In addition, all or a portion of a named executive officer’s plan assets may be held in our common stock. The fair market values of such shares has been determined as of December 31, 2009 based upon an internal valuation model. |
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Deferred | Deferred | Accelerated | ||||||||||||||||||||||||||||||
Severance | Compensation | Compensation | Paid | Vesting of | Benefit | |||||||||||||||||||||||||||
Amounts | Bonus | Bonus(1) | Account(1)(2) | Vacation | Options | Continuation | Total | |||||||||||||||||||||||||
($) | ($) | ($) | ($) | ($)(3) | ($)(4) | ($) | ($) | |||||||||||||||||||||||||
Richard S. Kahlbaugh | ||||||||||||||||||||||||||||||||
Termination with cause or without good reason | — | 190,000 | 40,000 | — | 29,231 | — | — | 259,231 | ||||||||||||||||||||||||
Termination without cause or for good reason | 380,000 | 190,000 | 40,000 | — | 29,231 | — | 22,412 | 661,643 | ||||||||||||||||||||||||
Termination upon death or disability | — | 190,000 | 40,000 | 76,302 | 29,231 | — | 22,412 | 357,945 | ||||||||||||||||||||||||
Termination upon change of control(5) | 380,000 | 190,000 | 40,000 | 76,302 | 29,231 | 551,260 | 22,412 | 1,289,205 | ||||||||||||||||||||||||
Michael Vrban | ||||||||||||||||||||||||||||||||
Termination with cause or without good reason | — | 47,085 | — | — | 16,538 | — | — | 63,623 | ||||||||||||||||||||||||
Termination without cause or for good reason | 215,000 | 47,085 | — | — | 16,538 | — | 15,680 | 294,303 | ||||||||||||||||||||||||
Termination upon death or disability | — | 47,085 | — | — | 16,538 | — | 15,680 | 79,303 | ||||||||||||||||||||||||
Termination upon change of control(5) | 215,000 | 47,085 | — | — | 16,538 | 136,379 | 15,680 | 430,682 | ||||||||||||||||||||||||
W. Dale Bullard | ||||||||||||||||||||||||||||||||
Termination with cause or without good reason | — | 37,294 | 15,000 | — | 19,615 | — | — | 71,909 | ||||||||||||||||||||||||
Termination without cause or for good reason | 382,500 | 37,294 | 15,000 | — | 19,615 | — | 33,380 | 487,789 | ||||||||||||||||||||||||
Termination upon death or disability | — | 37,294 | 15,000 | 291,287 | 19,615 | — | — | 363,196 | ||||||||||||||||||||||||
Termination upon change of control(5) | 382,500 | 37,294 | 15,000 | 291,287 | 19,615 | 456,512 | 33,380 | 1,235,588 | ||||||||||||||||||||||||
Robert S. Fullington | ||||||||||||||||||||||||||||||||
Termination with cause or without good reason | — | 67,129 | 15,000 | — | 19,615 | — | — | 101,744 | ||||||||||||||||||||||||
Termination without cause or for good reason | 382,500 | 67,129 | 15,000 | — | 19,615 | — | 23,177 | 507,421 | ||||||||||||||||||||||||
Termination upon death or disability | — | 67,129 | 15,000 | 95,927 | 19,615 | — | — | 197,671 | ||||||||||||||||||||||||
Termination upon change of control(5) | 382,500 | 67,129 | 15,000 | 95,927 | 19,615 | 456,512 | 23,177 | 1,059,860 |
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Deferred | Deferred | Accelerated | ||||||||||||||||||||||||||||||
Severance | Compensation | Compensation | Paid | Vesting of | Benefit | |||||||||||||||||||||||||||
Amounts | Bonus | Bonus(1) | Account(1)(2) | Vacation | Options | Continuation | Total | |||||||||||||||||||||||||
($) | ($) | ($) | ($) | ($)(3) | ($)(4) | ($) | ($) | |||||||||||||||||||||||||
Daniel A. Reppert | ||||||||||||||||||||||||||||||||
Termination with cause or without good reason | — | 38,781 | — | — | 19,231 | — | — | 58,012 | ||||||||||||||||||||||||
Termination without cause or for good reason | 250,000 | 38,781 | — | — | 19,231 | — | 18,595 | 326,607 | ||||||||||||||||||||||||
Termination upon death or disability | — | 38,781 | — | — | 19,231 | — | 18,595 | 76,607 | ||||||||||||||||||||||||
Termination upon change of control(5) | 250,000 | 38,781 | — | — | 19,231 | 136,379 | 18,595 | 462,986 |
(1) | The amounts reported in the Deferred Compensation Bonus column reflect the deferred bonus award earned by such executive in 2009. See “— Compensation Discussion and Analysis — Components of Our Executive Compensation Program — Deferred Compensation.” The amounts reported in the Deferred Compensation Account column reflect a lump sum payment of the balance of such executive’s deferred compensation trust account. |
(2) | The amounts reported in this column for termination upon a change of control are only applicable if, after a change of control, such executive was terminated without cause or by the executive for good reason. If such executive is terminated for any other reason, his deferred compensation account is paid out at his normal retirement date. |
(3) | The amounts reported in this column assume that no vacation by such executive has been taken for the year ended December 31, 2009. |
(4) | The amounts reported in this column reflect the aggregate dollar value of unvested stock options held by such executive on December 31, 2009 that would accelerate upon such change of control. The aggregate dollar value is the difference between the fair market value of shares of common stock on December 31, 2009 based upon an internal valuation model and the $17.07 per share exercise price of the options, multiplied by the number of shares subject to the unvested option. |
(5) | Assumes the executive is terminated without cause or for good reason in connection with such change of control. |
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Fees Earned | ||||||||
or Paid in Cash | Total | |||||||
Name | ($) | ($) | ||||||
Kenneth N. Hamil(1) | $ | 10,000 | $ | 10,000 | ||||
John R. Carroll | — | — | ||||||
J.J. Kardwell | — | — | ||||||
Robert M. Clements(2) | $ | 15,000 | $ | 15,000 | ||||
Dean Jacobson(3) | — | — |
(1) | Mr. Hamil decided not to stand for election at our 2010 annual meeting of stockholders and resigned as chairman of our board of directors effective May 15, 2010. |
(2) | Mr. Clements resigned as a member of our board of directors effective February 24, 2010. As of December 31, 2009, Mr. Clements had an option to purchase 7,972 shares of our common stock. This option terminated upon Mr. Clements’ resignation. |
(3) | Mr. Jacobson resigned as a member of our board of directors effective February 1, 2009. |
• | a base annual retainer of $25,000 in cash; | |
• | an additional annual retainer of $10,000 in cash to the director who is the chair of the audit committee and an additional annual retainer of $10,000 in cash to each director who is the chair of a committee other than the audit committee; and | |
• | a fee of $2,500 for each board and committee meeting attended or $1,000 for meetings attended telephonically. |
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EBITDA Target | Bonus Pool | |||
Less than $36,500,000 | — | |||
$36,500,000 | $1,000,000 | |||
$36,500,000 — $47,500,000 | Pro-rata, using a straight line interpolation | |||
$47,500,000 or greater | $3,000,000 |
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• | the nature of the related person’s interest in the transaction; | |
• | the availability of other sources of comparable products or services; |
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• | the material terms of the transaction, including, without limitation, the amount and type of transaction; and | |
• | the importance of the transaction to us. |
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• | each person or group who is known by us to own beneficially more than 5% of our common stock; | |
• | each member of our board of directors and each of our named executive officers; | |
• | all members of our board of directors and our named executive officers as a group; and | |
• | the selling stockholders. |
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Shares Beneficially Owned | ||||||||||||||||||||||||||||
After this Offering | ||||||||||||||||||||||||||||
Shares Beneficially | Assuming Full Exercise of | |||||||||||||||||||||||||||
Owned Before this | Shares Beneficially Owned | the Option to Purchase | ||||||||||||||||||||||||||
Offering | After this Offering | Additional Shares | ||||||||||||||||||||||||||
Number of | Shares | Number of | Number of | |||||||||||||||||||||||||
Name of Beneficial Owner | Shares | Percentage | Offered | Shares | Percentage | Shares | Percentage | |||||||||||||||||||||
5% Stockholders: | ||||||||||||||||||||||||||||
Summit Partners(1) | ||||||||||||||||||||||||||||
Named Executive Officers, Directors and Director Nominees: | ||||||||||||||||||||||||||||
Richard S. Kahlbaugh(2) | ||||||||||||||||||||||||||||
Michael Vrban(3) | ||||||||||||||||||||||||||||
W. Dale Bullard(4) | ||||||||||||||||||||||||||||
Robert S. Fullington(5) | ||||||||||||||||||||||||||||
Daniel A. Reppert(6) | ||||||||||||||||||||||||||||
John R. Carroll(7) | ||||||||||||||||||||||||||||
J.J. Kardwell(8) | ||||||||||||||||||||||||||||
Alfred R. Berkeley, III | ||||||||||||||||||||||||||||
Francis M. Colalucci | ||||||||||||||||||||||||||||
Frank P. Filipps | ||||||||||||||||||||||||||||
Ted W. Rollins | ||||||||||||||||||||||||||||
All named executive officers, directors and director nominees as a group (11 persons) | ||||||||||||||||||||||||||||
Other Selling Stockholders: |
* | Represents beneficial ownership of less than 1% of our outstanding common stock. |
(1) | Includes shares held by Summit Partners Private Equity Fund VII-A, L.P., shares held by Summit Partners Private EquityFund VII-B, L.P., shares held by Summit Subordinated DebtFund III-A, L.P., shares held by Summit Subordinated DebtFund III-B, L.P. and shares held by Summit Investors VI, L.P. (such entities are collectively referred to as “Summit Partners”). |
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(2) | Includes shares that are subject to options that are currently exercisable or exercisable within 60 days of the date of this prospectus. |
(3) | Includes shares that are subject to option that are exercisable or exercisable within 60 days of the date of this prospectus and shares of common stock held by Mr. Vrban’s wife. |
(4) | Includes shares that are subject to option that are exercisable or exercisable within 60 days of the date of this prospectus and shares of common stock held by Mr. Bullard’s wife. |
(5) | Includes shares that are subject to option that are exercisable or exercisable within 60 days of the date of this prospectus and shares of common stock held by Robert Fullington Annuity Trust. |
(6) | Includes shares that are subject to options that are currently exercisable or exercisable within 60 days of the date of this prospectus. |
(7) | Excludes shares held by Summit Partners. Mr. Carroll is a member of the general partner of Summit Partners L.P. and as a result may be deemed to beneficially own the shares owned by Summit Partners. Mr. Carroll disclaims ownership of the shares held by Summit Partners, except to the extent of his pecuniary interest therein. |
(8) | Excludes shares held by Summit Partners. Mr. Kardwell is a principal of Summit Partners L.P. and as a result may be deemed to beneficially own the shares owned by Summit Partners. Mr. Kardwell disclaims ownership of the shares held by Summit Partners, except to the extent of his pecuniary interest therein. |
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• | one percent of the total number of shares of our common stock outstanding; or | |
• | the average weekly reported trading volume of our common stock for the four calendar weeks prior to the sale. |
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• | the gain is considered effectively connected with the conduct of a trade or business by you within the United States and, where a tax treaty applies, is attributable to a U.S. permanent establishment of yours (in which case you will be taxed in the same manner as a U.S. person, and if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% or a lower rate as may be specified by an applicable income tax treaty); | |
• | you are an individual who is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions are met (in which case you will be subject to a 30% (or a lower rate as may be specified by an applicable income tax treaty) tax on the amount by which your capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of the sale or other disposition); or | |
• | we are or become a U.S. real property holding corporation (“USRPHC”). We believe that we are not currently, and are not likely to become, a USRPHC. Even if we were to become a USRPHC, gain on the sale or other disposition of common stock by you generally would not be subject to U.S. federal income tax provided: |
• | the common stock is “regularly traded on an established securities market”; and | |
• | you do not actually or constructively own more than 5% of the common stock during the shorter of (i) the five-year period ending on the date of such disposition or (ii) the period of time during which you held such shares. |
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Number of | ||||
Underwriters | Shares | |||
Piper Jaffray & Co. | ||||
SunTrust Robinson Humphrey, Inc. | ||||
William Blair & Company, L.L.C. | ||||
FBR Capital Markets & Co. | ||||
Keefe, Bruyette & Woods, Inc. | ||||
Macquarie Capital (USA) Inc. | ||||
Total | ||||
No | Full | |||||||
Exercise | Exercise | |||||||
Per share underwriting discounts and commissions paid by us | $ | $ | ||||||
Per share underwriting discounts and commissions paid by the selling stockholders | $ | $ | ||||||
Total underwriting discounts and commissions paid by us | $ | $ | ||||||
Total underwriting discounts and commissions paid by the selling stockholders | $ | $ |
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100 West Bay Street
Jacksonville, Florida 32202
Attn: General Counsel
(866) 961-9529
180
Page | ||||
Fortegra Financial Corporation | ||||
Audited Consolidated Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Unaudited Consolidated Financial Statements | ||||
F-50 | ||||
F-51 | ||||
F-52 | ||||
F-53 | ||||
F-54 | ||||
Bliss and Glennon, Inc. | ||||
Audited Financial Statements | ||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
F-74 | ||||
F-75 | ||||
F-76 | ||||
Unaudited Financial Statements | ||||
F-85 | ||||
F-86 | ||||
F-87 | ||||
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F-89 |
F-1
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(the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended, for the period from June 20, 2007 to December 31, 2007 (Successor) and for the period from January 1, 2007 to June 19, 2007 (Predecessor). Our audits also included the financial statement schedule of condensed financial information of registrant appearing under Item 16(b). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
F-2
Table of Contents
December 31, | ||||||||
2009 | 2008 | |||||||
Assets: | ||||||||
Invested assets and cash: | ||||||||
Fixed maturity securities available for sale, at fair value (amortized cost of $78,548 and $97,926 at December 31, 2009 and 2008, respectively) | $ | 80,948 | $ | 96,405 | ||||
Equity securities available for sale (cost of $2,155 and $1,276 at December 31, 2009 and 2008, respectively) | 2,210 | 1,174 | ||||||
Short-term investments | 1,220 | 2,180 | ||||||
Cash and cash equivalents | 29,940 | 22,082 | ||||||
Restricted cash | 18,090 | 5,170 | ||||||
Total invested assets and cash | 132,408 | 127,011 | ||||||
Accrued investment income | 910 | 1,195 | ||||||
Notes receivable | 2,138 | 2,159 | ||||||
Other receivables | 28,116 | 11,446 | ||||||
Reinsurance receivables | 173,798 | 199,023 | ||||||
Deferred policy acquisition costs | 41,083 | 38,987 | ||||||
Property and equipment | 4,140 | 2,574 | ||||||
Goodwill and other intangible assets | 93,558 | 57,686 | ||||||
Other assets | 2,475 | 2,288 | ||||||
Total assets | $ | 478,626 | $ | 442,369 | ||||
Liabilities: | ||||||||
Unpaid claims | $ | 36,152 | $ | 36,363 | ||||
Unearned premiums | 215,652 | 242,535 | ||||||
Accrued expenses and accounts payable | 45,117 | 16,901 | ||||||
Commissions payable | 2,157 | 7,231 | ||||||
Notes payable | 31,487 | 20,000 | ||||||
Preferred trust securities | 35,000 | 35,000 | ||||||
Redeemable preferred stock | 11,540 | 11,540 | ||||||
Guaranteed investment contract | — | 1,010 | ||||||
Deferred income taxes | 20,728 | 14,768 | ||||||
Total liabilities | 397,833 | 385,348 | ||||||
Commitments and Contingencies (Note 16) | ||||||||
Stockholders’ Equity: | ||||||||
Common stock, par value $0.331/3 per share (6,000,000 shares authorized and 3,007,031 and 2,871,563 shares issued at December 31, 2009 and 2008, respectively) | 1,002 | 957 | ||||||
Treasury stock (8,491 and 100,000 shares at December 31, 2009 and 2008, respectively) | (176 | ) | (2,069 | ) | ||||
Additional paid-in capital | 53,675 | 45,894 | ||||||
Accumulated other comprehensive income (loss), net of tax (provision) benefit of $(865) and $552 at December 31, 2009 and 2008, respectively | 1,607 | (1,072 | ) | |||||
Retained earnings | 23,210 | 11,652 | ||||||
Stockholders’ equity before non-controlling interest | 79,318 | 55,362 | ||||||
Non-controlling interest | 1,475 | 1,659 | ||||||
Total stockholders’ equity | 80,793 | 57,021 | ||||||
Total liabilities and stockholders’ equity | $ | 478,626 | $ | 442,369 | ||||
F-3
Table of Contents
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 20, 2007 | January 1, 2007 | ||||||||||||||||
Years Ended December 31, | to December | to June 19, | |||||||||||||||
2009 | 2008 | 31, 2007 | 2007 | ||||||||||||||
Revenues: | |||||||||||||||||
Service and administrative fees | $ | 31,829 | $ | 24,279 | $ | 10,686 | $ | 8,165 | |||||||||
Wholesale brokerage commissions and fees | 16,309 | — | — | — | |||||||||||||
Ceding commission | 24,075 | 26,215 | 13,733 | 10,753 | |||||||||||||
Net underwriting revenue | 5,101 | 1,694 | 2,620 | 1,044 | |||||||||||||
Net investment income | 4,759 | 5,560 | 3,411 | 2,918 | |||||||||||||
Net realized gains (losses) | 54 | (1,921 | ) | (348 | ) | 516 | |||||||||||
Other income | 971 | 178 | 28 | 353 | |||||||||||||
Total net revenues | 83,098 | 56,005 | 30,130 | 23,749 | |||||||||||||
Expenses: | |||||||||||||||||
Personnel costs | 31,365 | 21,742 | 10,722 | 9,409 | |||||||||||||
Other operating expenses | 22,291 | 12,225 | 8,508 | 7,118 | |||||||||||||
Depreciation and amortization | 3,507 | 2,629 | 1,292 | 221 | |||||||||||||
Interest expense | 7,800 | 7,255 | 4,130 | 1,169 | |||||||||||||
Total expenses | 64,963 | 43,851 | 24,652 | 17,917 | |||||||||||||
Income before income taxes andnon-controlling interest | 18,135 | 12,154 | 5,478 | 5,832 | |||||||||||||
Income taxes | 6,551 | 4,208 | 1,761 | 1,983 | |||||||||||||
Income beforenon-controlling interest | 11,584 | 7,946 | 3,717 | 3,849 | |||||||||||||
Less: net income (loss) attributable tonon-controlling interest | 26 | (82 | ) | 64 | 34 | ||||||||||||
Net income | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||
Net income per common share: | |||||||||||||||||
Basic | $ | 3.94 | $ | 2.90 | $ | 1.32 | $ | 1.00 | |||||||||
Diluted | 3.65 | 2.72 | 1.24 | 0.95 | |||||||||||||
Weighted average common shares outstanding | |||||||||||||||||
Basic | 2,931,182 | 2,771,372 | 2,766,565 | 3,819,265 | |||||||||||||
Diluted | 3,170,653 | 2,956,211 | 2,955,381 | 4,028,242 |
F-4
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Shares | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
Common | Treasury | Common | Paid-In | Treasury | Receivables | Comprehensive | Retained | Non-controlling | Stockholders’ | |||||||||||||||||||||||||||||||
Stock | Stock | Stock | Capital | Stock | from Officers | Income (Loss) | Earnings | Interest | Equity | |||||||||||||||||||||||||||||||
Predecessor | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2006 | 3,840,488 | (36,464 | ) | $ | 1,280 | $ | 5,756 | $ | (590 | ) | $ | (5,272 | ) | $ | (16 | ) | $ | 32,591 | $ | 1,998 | $ | 35,747 | ||||||||||||||||||
Net income for the period from January 1, 2007 to June 19, 2007 | — | — | — | — | — | — | — | 3,815 | 34 | 3,849 | ||||||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax benefit of $50 | — | — | — | — | — | — | (98 | ) | — | — | (98 | ) | ||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | — | (98 | ) | 3,815 | 34 | 3,751 | |||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | — | — | (428 | ) | — | (428 | ) | ||||||||||||||||||||||||||||
Options exercised | 33,650 | — | 11 | 262 | — | — | — | — | — | 273 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | 2 | — | — | — | — | — | 2 | ||||||||||||||||||||||||||||||
Balance, June 19, 2007 prior to Acquisition Transactions | 3,874,138 | (36,464 | ) | 1,291 | 6,020 | (590 | ) | (5,272 | ) | (114 | ) | 35,978 | 2,032 | 39,345 | ||||||||||||||||||||||||||
Effect of acquisition by Summit | (1,107,575 | ) | 36,464 | (369 | ) | 38,336 | 590 | 5,272 | 114 | (35,978 | ) | — | 7,965 | |||||||||||||||||||||||||||
Successor | ||||||||||||||||||||||||||||||||||||||||
Balance, June 20, 2007 | 2,766,563 | — | 922 | 44,356 | — | — | — | — | 2,032 | 47,310 | ||||||||||||||||||||||||||||||
Net income for the period from June 20, 2007 to December 31, 2007 | — | — | — | — | — | — | — | 3,653 | 64 | 3,717 | ||||||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax expense of $(288) | — | — | — | — | — | — | 446 | — | (56 | ) | 390 | |||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | — | — | 446 | 3,653 | 8 | 4,107 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | 56 | — | — | — | — | — | 56 | ||||||||||||||||||||||||||||||
Balance, December 31, 2007 | 2,766,563 | — | 922 | 44,412 | — | — | 446 | 3,653 | 2,040 | 51,473 | ||||||||||||||||||||||||||||||
Net income for the year ended December 31, 2008 | — | — | — | — | — | — | — | 8,028 | (82 | ) | 7,946 | |||||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax benefit of $764 | — | — | — | — | — | — | (1,518 | ) | — | 9 | (1,509 | ) | ||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | — | — | — | (1,518 | ) | 8,028 | (73 | ) | 6,437 | ||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | — | — | (29 | ) | (308 | ) | (337 | ) | |||||||||||||||||||||||||||
Stock based compensation | — | — | — | 244 | — | — | — | — | — | 244 | ||||||||||||||||||||||||||||||
Options exercised | 105,000 | — | 35 | 1,238 | — | — | — | — | — | 1,273 | ||||||||||||||||||||||||||||||
Repurchased stock | — | (100,000 | ) | — | — | (2,069 | ) | — | — | — | — | (2,069 | ) | |||||||||||||||||||||||||||
Balance, December 31, 2008 | 2,871,563 | (100,000 | ) | 957 | 45,894 | (2,069 | ) | — | (1,072 | ) | 11,652 | 1,659 | 57,021 | |||||||||||||||||||||||||||
Net income for the year ended December 31, 2009 | — | — | — | — | — | — | — | 11,558 | 26 | 11,584 | ||||||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax expense of $(1,400) | — | — | — | — | — | — | 2,679 | — | 1 | 2,680 | ||||||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | — | — | �� | 2,679 | 11,558 | 27 | 14,264 | |||||||||||||||||||||||||||||
Dividends | — | — | — | — | — | — | — | — | (211 | ) | (211 | ) | ||||||||||||||||||||||||||||
Stock based compensation | — | — | — | 209 | — | — | — | — | — | 209 | ||||||||||||||||||||||||||||||
Treasury stock sold | — | 91,509 | — | 1,982 | 1,893 | — | — | — | — | 3,875 | ||||||||||||||||||||||||||||||
Options exercised | 3,000 | — | 1 | 23 | — | — | — | — | — | 24 | ||||||||||||||||||||||||||||||
Issuance of common stock | 132,468 | — | 44 | 5,567 | — | — | — | — | — | 5,611 | ||||||||||||||||||||||||||||||
Balance, December 31, 2009 | 3,007,031 | (8,491 | ) | $ | 1,002 | $ | 53,675 | $ | (176 | ) | $ | — | $ | 1,607 | $ | 23,210 | $ | 1,475 | $ | 80,793 | ||||||||||||||||||||
F-5
Table of Contents
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
Years Ended | June 20, 2007 | January 1, 2007 | |||||||||||||||
December 31, | to December 31, | to June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
Operating Activities: | |||||||||||||||||
Net income | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||||||||
Change in deferred policy acquisition costs | (2,096 | ) | (11,218 | ) | (3,841 | ) | (559 | ) | |||||||||
Depreciation and amortization | 3,507 | 2,629 | 1,292 | 221 | |||||||||||||
Deferred income taxes (benefit) | 3,411 | 144 | (90 | ) | (394 | ) | |||||||||||
Net realized gains (losses) | (54 | ) | 1,921 | 348 | (516 | ) | |||||||||||
Stock based compensation expense | 209 | 244 | 56 | 2 | |||||||||||||
Amortization of premiums and discounts on investments, net | 197 | (11 | ) | (75 | ) | (55 | ) | ||||||||||
Non-controlling interest | (184 | ) | (380 | ) | 8 | 34 | |||||||||||
Change in allowance for doubtful accounts | (100 | ) | (425 | ) | (80 | ) | — | ||||||||||
Changes in operating assets and liabilities, net of the effect of acquisitions: | |||||||||||||||||
Accrued investment income | 285 | (262 | ) | 544 | (485 | ) | |||||||||||
Other receivables | 1,148 | 624 | 5,639 | (926 | ) | ||||||||||||
Reinsurance receivables | 25,225 | (11,046 | ) | (21,216 | ) | (26,168 | ) | ||||||||||
Other assets | (109 | ) | 185 | 530 | 650 | ||||||||||||
Unpaid claims | (211 | ) | (1,918 | ) | 3,794 | 4,892 | |||||||||||
Unearned premiums | (27,894 | ) | 21,959 | 19,913 | 25,782 | ||||||||||||
Accrued expenses and accounts payable | 3,724 | 4,010 | (154 | ) | (4,664 | ) | |||||||||||
Commissions payable | (5,223 | ) | (1,486 | ) | (56 | ) | 889 | ||||||||||
Net cash flows provided by operating activities | 13,393 | 12,998 | 10,265 | 2,518 | |||||||||||||
Investing Activities: | |||||||||||||||||
Proceeds from maturities of investments | 12,323 | 26,113 | 25,497 | 17,125 | |||||||||||||
Proceeds from sales of investments | 14,376 | 8,210 | 310 | 3,645 | |||||||||||||
Proceeds from maturities of short term investments | 960 | 350 | 1,701 | 160 | |||||||||||||
Purchases of investments | (8,326 | ) | (60,131 | ) | (38,763 | ) | (10,985 | ) | |||||||||
Purchases of short term investments | — | (5 | ) | — | (50 | ) | |||||||||||
Repayments on mortgage loans | — | — | 39 | 9,589 | |||||||||||||
Proceeds from sales of property and equipment | — | — | (7 | ) | 283 | ||||||||||||
Purchases of property and equipment | (1,974 | ) | (1,227 | ) | (303 | ) | (433 | ) | |||||||||
Net (paid) received for acquisitions of subsidiaries | (38,577 | ) | (1,936 | ) | — | 2,706 | |||||||||||
Proceeds from notes receivable | 120 | 1,259 | 1,711 | 2,696 | |||||||||||||
Change in restricted cash | (5,434 | ) | 1,298 | (482 | ) | (2,312 | ) | ||||||||||
Net cash flows (used in) provided by investing activities | (26,532 | ) | (26,069 | ) | (10,297 | ) | 22,424 | ||||||||||
Financing Activities: | |||||||||||||||||
Repayment of notes payable and capitalized lease obligations | (13,600 | ) | (1,079 | ) | (16,202 | ) | (319 | ) | |||||||||
Additional borrowings under notes payable | 25,087 | — | 20,000 | — | |||||||||||||
Net proceeds from issuance of common stock and preferred trust securities | 5,611 | — | 34,122 | — | |||||||||||||
Dividends paid on common stock | — | — | — | (428 | ) | ||||||||||||
Net proceeds from exercise of stock options | 24 | 846 | 771 | 273 | |||||||||||||
Excess tax benefits from shared based compensation | — | 427 | — | — | |||||||||||||
Issuance (purchase) of treasury stock | 3,875 | (2,069 | ) | — | — | ||||||||||||
Stockholder funds disbursed at purchase | — | — | (39,262 | ) | — | ||||||||||||
Net cash flows provided by (used in) financing activities | 20,997 | (1,875 | ) | (571 | ) | (474 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | 7,858 | (14,946 | ) | (603 | ) | 24,468 | |||||||||||
Cash and cash equivalents, beginning of period | 22,082 | 37,028 | 37,631 | 13,163 | |||||||||||||
Cash and cash equivalents, end of period | $ | 29,940 | $ | 22,082 | $ | 37,028 | $ | 37,631 | |||||||||
Supplemental disclosures of cash payments for: | |||||||||||||||||
Interest | $ | 7,728 | $ | 7,184 | $ | 4,521 | $ | 727 | |||||||||
Income taxes | $ | 3,806 | $ | 1,212 | $ | 1,709 | $ | 3,142 |
F-6
Table of Contents
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
1. | Basis of Presentation and Organization |
• | Bliss and Glennon, Inc. | |
• | Creative Investigations Recovery Group, LLC | |
• | CRC Reassurance Company, Ltd. | |
• | Insurance Company of the South | |
• | LOTS Intermediate Co. | |
• | Life of the South Insurance Company and its subsidiary, Bankers Life of Louisiana | |
• | LOTS Reassurance Company | |
• | LOTSolutions, Inc. |
F-7
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
• | Lyndon Southern Insurance Company | |
• | Southern Financial Life Insurance Company |
Assets: | ||||
Cash | $ | 374 | ||
Investments | 615 | |||
Other receivables | 38 | |||
Property and equipment | 57 | |||
Liabilities: | ||||
Accrued expenses and accounts payable | (622 | ) | ||
Net deferred tax liability | (25 | ) | ||
Net assets acquired | 437 | |||
Purchase consideration | 437 | |||
Goodwill | $ | — | ||
F-8
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Assets: | ||||
Cash | $ | 1 | ||
Other receivables | 343 | |||
Property and equipment | 14 | |||
Liabilities: | ||||
Accrued expenses and accounts payable | (490 | ) | ||
Net deferred tax liability | (5 | ) | ||
Net assets acquired | (137 | ) | ||
Purchase consideration | 1,200 | |||
Goodwill | $ | 1,337 | ||
Assets: | ||||
Cash | $ | 10,966 | ||
Other receivables | 17,818 | |||
Property and equipment | 393 | |||
Other intangible assets | 8,661 | |||
Other assets | 77 | |||
Liabilities: | ||||
Accrued expenses and accounts payable | (641 | ) | ||
Brokered insurance payable | (23,851 | ) | ||
Commissions payable | (149 | ) | ||
Net deferred tax liability | (1,133 | ) | ||
Net assets acquired | 12,141 | |||
Purchase consideration | 42,058 | |||
Goodwill | $ | 29,917 | ||
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
2009 | 2008 | |||||||
Total assets, as previously reported | $ | 474,686 | $ | 439,321 | ||||
Adjustment to correct the classification of investments fromheld-to-maturity toavailable-for-sale | — | (1,791 | ) | |||||
Adjustment to correct the classification of reinsurance receivables | — | 1,800 | ||||||
Adjustment to correct goodwill | 3,543 | 2,795 | ||||||
Other adjustments | 397 | 244 | ||||||
Total assets, as reported herein | $ | 478,626 | $ | 442,369 | ||||
Total stockholders’ equity, as previously reported | $ | 80,278 | $ | 57,421 | ||||
Adjustment to correct the classification of investments fromheld-to-maturity toavailable-for-sale | — | (1,110 | ) | |||||
Adjustment to correct goodwill | 402 | 402 | ||||||
Other adjustments | 113 | 308 | ||||||
Total stockholders’ equity, as reported herein | $ | 80,793 | $ | 57,021 | ||||
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
Years Ended December 31, | June 20, 2007 to | January 1, 2007 to | |||||||||||||||
2009 | 2008 | December 31, 2007 | June 19, 2007 | ||||||||||||||
Net income, as previously reported | $ | 12,034 | $ | 8,764 | $ | 3,731 | $ | 3,680 | |||||||||
Adjustment to record stock based compensation | (209 | ) | (244 | ) | (56 | ) | (2 | ) | |||||||||
Adjustment to record other-than-temporary impairments of investments | — | (521 | ) | (237 | ) | — | |||||||||||
Other adjustments | (267 | ) | 29 | 215 | 137 | ||||||||||||
Net income, as reported herein | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||
2. | Summary of Significant Accounting Policies |
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
• | the length of time and the extent to which fair value has been less than cost; |
• | if an investment’s fair value declines below cost, we determine if there is adequate evidence to overcome the presumption that the decline isother-than-temporary. Supporting evidence could include a recovery in the investment’s fair value subsequent to the date of the statement of financial position, a return of the investee to profitability and the investee’s improved financial performance and future prospects (such as earnings trends or recent dividend payments), or the improvement of financial condition and prospects for the investee’s geographic region and industry. |
• | issuer-specific considerations, including an event of missed or late payment or default, adverse changes in key financial ratios, an increase in nonperforming loans, a decline in earnings substantially below that of the investee’s peers, downgrading of the investee’s debt rating or suspension of trading in the security; |
• | the occurrence of a significant economic event that may affect the industry in which an issuer participates, including a change that might adversely impact the investee’s ability to achieve profitability in its operations; |
• | the Company’s intent and ability to hold the investment for a sufficient period to allow for any anticipated recovery in fair value; and |
• | with regards to commercial mortgage-backed securities (“CMBS”), the Company also evaluates key statistics such as breakeven constant default rates and credit enhancement levels. The breakeven constant default rate indicates the percentage of the pool’s outstanding loans that must default each and every year with 40 percent loss severity (i.e., a recovery rate of 60 percent) for a CMBS class/tranche to experience its first dollar of principal loss. Credit enhancements indicate how much protection, or “cushion,” there is to absorb losses in a particular deal before an actual loss would impact a specific security. |
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
3. | Investments |
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of the U.S. Treasury and U.S. Government agencies | $ | 18,832 | $ | 674 | $ | (26 | ) | $ | 19,480 | |||||||
Municipal securities | 14,343 | 336 | (97 | ) | 14,582 | |||||||||||
Corporate securities | 35,276 | 1,506 | (271 | ) | 36,511 | |||||||||||
Mortgage-backed securities | 5,594 | 97 | — | 5,691 | ||||||||||||
Asset-backed securities | 4,503 | 181 | — | 4,684 | ||||||||||||
Total fixed maturity securities | $ | 78,548 | $ | 2,794 | $ | (394 | ) | $ | 80,948 | |||||||
Common stock — publicly traded | $ | 423 | $ | 100 | $ | (154 | ) | $ | 369 | |||||||
Preferred stock — publicly traded | 199 | 1 | (23 | ) | 177 | |||||||||||
Common stock — non-publicly traded | 528 | 179 | (45 | ) | 662 | |||||||||||
Preferred stock — non-publicly traded | 1,005 | — | (3 | ) | 1,002 | |||||||||||
Total equity securities | $ | 2,155 | $ | 280 | $ | (225 | ) | $ | 2,210 | |||||||
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of the U.S. Treasury and U.S. Government agencies | $ | 26,860 | $ | 949 | $ | — | $ | 27,809 | ||||||||
Municipal securities | 16,084 | 270 | (306 | ) | 16,048 | |||||||||||
Corporate securities | 38,273 | 267 | (1,692 | ) | 36,848 | |||||||||||
Mortgage-backed securities | 8,096 | — | (600 | ) | 7,496 | |||||||||||
Asset-backed securities | 8,613 | — | (409 | ) | 8,204 | |||||||||||
Total fixed maturity securities | $ | 97,926 | $ | 1,486 | $ | (3,007 | ) | $ | 96,405 | |||||||
Common stock — publicly traded | $ | 423 | $ | — | $ | — | $ | 423 | ||||||||
Preferred stock — publicly traded | 199 | — | (44 | ) | 155 | |||||||||||
Common stock — non-publicly traded | 651 | 63 | (128 | ) | 586 | |||||||||||
Preferred stock — non-publicly traded | 3 | 7 | — | 10 | ||||||||||||
Total equity securities | $ | 1,276 | $ | 70 | $ | (172 | ) | $ | 1,174 | |||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | 2,358 | $ | 2,384 | ||||
Due after one year through five years | 18,552 | 19,290 | ||||||
Due after five years through ten years | 29,966 | 30,973 | ||||||
Due after ten years through twenty years | 3,944 | 3,898 | ||||||
Due after twenty years | 13,631 | 14,028 | ||||||
Mortgage-backed securities | 5,594 | 5,691 | ||||||
Asset-backed securities | 4,503 | 4,684 | ||||||
Total fixed maturity securities | $ | 78,548 | $ | 80,948 | ||||
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
December 31, 2009 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Security | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Obligations of the U.S. Treasury and U.S. government agencies | $ | 4,510 | $ | (26 | ) | $ | — | $ | — | $ | 4,510 | $ | (26 | ) | ||||||||||
Municipal securities | 4,226 | (81 | ) | 544 | (16 | ) | 4,770 | (97 | ) | |||||||||||||||
Corporate securities | — | — | 1,894 | (271 | ) | 1,894 | (271 | ) | ||||||||||||||||
Total fixed maturity securities | $ | 8,736 | $ | (107 | ) | $ | 2,438 | $ | (287 | ) | $ | 11,174 | $ | (394 | ) | |||||||||
Common stock — publicly traded | $ | — | $ | — | $ | 186 | $ | (154 | ) | $ | 186 | $ | (154 | ) | ||||||||||
Preferred stock — publicly traded | — | — | 126 | (23 | ) | 126 | (23 | ) | ||||||||||||||||
Common stock — non-publicly traded | 42 | (3 | ) | 78 | (42 | ) | 120 | (45 | ) | |||||||||||||||
Preferred stock — non-publicly traded | — | (3 | ) | — | — | — | (3 | ) | ||||||||||||||||
Total equity securities | $ | 42 | $ | (6 | ) | $ | 390 | $ | (219 | ) | $ | 432 | $ | (225 | ) | |||||||||
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
December 31, 2008 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Security | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Obligations of the U.S. Treasury and U.S. government agencies | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Municipal securities | 4,141 | (306 | ) | — | — | 4,141 | (306 | ) | ||||||||||||||||
Corporate securities | 21,757 | (1,692 | ) | — | — | 21,757 | (1,692 | ) | ||||||||||||||||
Mortgage-backed securities | 7,496 | (600 | ) | — | — | 7,496 | (600 | ) | ||||||||||||||||
Asset backed securities | 8,204 | (409 | ) | — | — | 8,204 | (409 | ) | ||||||||||||||||
Total fixed maturity securities | $ | 41,598 | $ | (3,007 | ) | $ | — | $ | — | $ | 41,598 | $ | (3,007 | ) | ||||||||||
Preferred stock — publicly traded | $ | 155 | $ | (44 | ) | — | — | $ | 155 | $ | (44 | ) | ||||||||||||
Common stock — non-publicly traded | 166 | (93 | ) | 85 | (35 | ) | 251 | (128 | ) | |||||||||||||||
Total equity securities | $ | 321 | $ | (137 | ) | $ | 85 | $ | (35 | ) | $ | 406 | $ | (172 | ) | |||||||||
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | |||||||||||||||
Years Ended | Period from | Period from | ||||||||||||||
December 31, | June 20, 2007 to | January 1, 2007 to | ||||||||||||||
2009 | 2008 | December 31, 2007 | June 19, 2007 | |||||||||||||
Fixed maturity securities | $ | 4,520 | $ | 4,600 | $ | 1,757 | $ | 1,412 | ||||||||
Cash on hand and on deposit | 557 | 1,035 | 1,631 | 947 | ||||||||||||
Common and preferred stock dividends | 28 | 77 | 40 | 135 | ||||||||||||
Debenture interest | 162 | 247 | 206 | 302 | ||||||||||||
Other income | 2 | 124 | (101 | ) | 223 | |||||||||||
Investment expenses | (510 | ) | (523 | ) | (122 | ) | (101 | ) | ||||||||
Net investment income | $ | 4,759 | $ | 5,560 | $ | 3,411 | $ | 2,918 | ||||||||
4. | Other Receivables |
At | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Wholesale brokerage agent balances (premium receivable) | $ | 15,691 | $ | — | ||||
Allowance for doubtful accounts | (139 | ) | — | |||||
Advanced commissions | 10,334 | 11,061 | ||||||
Insurance agent balances (premium receivable) | 1,115 | — | ||||||
Notes receivable | 356 | — | ||||||
Accounts receivable asset recovery | 487 | 370 | ||||||
Reimbursable expenses asset recovery | 158 | — | ||||||
Other receivables | 114 | 15 | ||||||
Total | $ | 28,116 | $ | 11,446 | ||||
5. | Reinsurance |
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
Years Ended December 31, | June 20, 2007 to | January 1, 2007 to | |||||||||||||||
2009 | 2008 | December 31, 2007 | June 19, 2007 | ||||||||||||||
Net earned premium: | |||||||||||||||||
Direct | $ | 273,849 | $ | 277,102 | $ | 138,868 | $ | 107,400 | |||||||||
Assumed | 26,370 | 38,464 | 21,046 | 23,443 | |||||||||||||
Ceded | (192,103 | ) | (202,792 | ) | (91,695 | ) | (65,937 | ) | |||||||||
Total net earned premium | 108,116 | 112,774 | 68,219 | 64,906 | |||||||||||||
Net incurred claims | (32,566 | ) | (29,854 | ) | (20,324 | ) | (21,224 | ) | |||||||||
Commissions | (70,449 | ) | (81,226 | ) | (45,275 | ) | (42,638 | ) | |||||||||
Total net underwriting revenue | $ | 5,101 | $ | 1,694 | $ | 2,620 | $ | 1,044 | |||||||||
Successor | Predecessor | ||||||||||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||||||||||
Years Ended December 31, | June 20, 2007 to | January 1, 2007 to | |||||||||||||||||||||||||||||||
2009 | 2008 | December 31, 2007 | June 19, 2007 | ||||||||||||||||||||||||||||||
Written | Earned | Written | Earned | Written | Earned | Written | Earned | ||||||||||||||||||||||||||
Direct and assumed | $ | 273,276 | $ | 300,219 | $ | 337,341 | $ | 315,566 | $ | 181,773 | $ | 159,914 | $ | 141,240 | $ | 130,843 | |||||||||||||||||
Ceded | (172,638 | ) | (192,103 | ) | (208,235 | ) | (202,792 | ) | (106,493 | ) | (91,695 | ) | (73,296 | ) | (65,937 | ) | |||||||||||||||||
Net | $ | 100,638 | $ | 108,116 | $ | 129,106 | $ | 112,774 | $ | 75,280 | $ | 68,219 | $ | 67,944 | $ | 64,906 | |||||||||||||||||
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
Years Ended December 31, | June 20, 2007 to | January 1, 2007 to | |||||||||||||||
2009 | 2008 | December 31,2007 | June 19, 2007 | ||||||||||||||
Direct and assumed | $ | 80,383 | $ | 76,067 | $ | 48,477 | $ | 42,640 | |||||||||
Ceded | (47,817 | ) | (46,213 | ) | (28,153 | ) | (21,416 | ) | |||||||||
Net losses and LAE incurred | $ | 32,566 | $ | 29,854 | $ | 20,324 | $ | 21,224 | |||||||||
At December 31, | ||||||||
2009 | 2008 | |||||||
Ceded unearned premiums: | ||||||||
Life | $ | 60,281 | $ | 82,358 | ||||
Accident and health | 29,844 | 32,980 | ||||||
Property | 57,379 | 53,160 | ||||||
Total ceded unearned premiums | 147,504 | 168,498 | ||||||
Ceded claim reserves: | ||||||||
Life | 1,929 | 2,089 | ||||||
Accident and health | 9,981 | 8,616 | ||||||
Property | 10,608 | 12,697 | ||||||
Total ceded claim reserves recoverable | 22,518 | 23,402 | ||||||
Other reinsurance settlements recoverable | 3,776 | 7,123 | ||||||
Reinsurance receivables | $ | 173,798 | $ | 199,023 | ||||
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
6. | Property and Equipment |
At December 31, | ||||||||
2009 | 2008 | |||||||
Furniture, fixtures and equipment | $ | 745 | $ | 403 | ||||
Computer equipment | 1,058 | 248 | ||||||
Software | 2,937 | 1,779 | ||||||
Leasehold improvements | 513 | 462 | ||||||
5,253 | 2,892 | |||||||
Less: accumulated depreciation and amortization | (1,113 | ) | (318 | ) | ||||
$ | 4,140 | $ | 2,574 | |||||
7. | Goodwill and Other Intangible Assets |
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Revenue | $ | 16,820 | ||
Net income* | $ | (156 | ) | |
* | This result included $1,245 of transaction expenses. |
Revenue | $ | 91,231 | ||
Net income | $ | 14,039 | ||
Payment | Wholesale | |||||||||||||||||||
Protection | BPO | Brokerage | Total | |||||||||||||||||
Balance at January 1, 2008 | $ | 23,587 | $ | 9,223 | $ | — | $ | 32,810 | ||||||||||||
Measurement period purchase accounting adjustments | (824 | ) | (321 | ) | — | (1,145 | ) | |||||||||||||
Goodwill acquired during 2008 | 642 | 1,337 | — | 1,979 | ||||||||||||||||
Balance at December 31, 2008 | 23,405 | 10,239 | — | 33,644 | ||||||||||||||||
Goodwill acquired during 2009 | — | — | 29,917 | 29,917 | ||||||||||||||||
Balance at December 31, 2009 | $ | 23,405 | $ | 10,239 | $ | 29,917 | $ | 63,561 | ||||||||||||
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||||||||||||||||||||||
Amortization | Gross | Net | Gross | Net | ||||||||||||||||||||||||
Period | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
(Years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
Customer and agent relationships | 7 - 10 | $ | 18,457 | $ | (3,822 | ) | $ | 14,635 | $ | 13,131 | $ | (1,969 | ) | $ | 11,162 | |||||||||||||
Tradename | Indefinite | 10,910 | — | 10,910 | 9,505 | — | 9,505 | |||||||||||||||||||||
Software | 10 | 3,971 | (993 | ) | 2,978 | 3,971 | (596 | ) | 3,375 | |||||||||||||||||||
Non-compete agreements | 1.5 - 3 | 2,511 | (1,037 | ) | 1,474 | 581 | (581 | ) | — | |||||||||||||||||||
Total | $ | 35,849 | $ | (5,852 | ) | $ | 29,997 | $ | 27,188 | $ | (3,146 | ) | $ | 24,042 | ||||||||||||||
December 31, 2007 | $ | 26,139 | ||
Amortization | (2,097 | ) | ||
December 31, 2008 | 24,042 | |||
Intangible assets of acquired businesses | 8,661 | |||
Amortization | (2,706 | ) | ||
December 31, 2009 | $ | 29,997 | ||
2010 | $ | 3,114 | ||
2011 | 3,114 | |||
2012 | 2,659 | |||
2013 | 2,471 | |||
2014 | 2,471 | |||
Thereafter | 5,257 | |||
Total | $ | 19,086 | ||
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
8. | Accrued Expenses and Accounts Payable |
At December 31, | ||||||||
2009 | 2008 | |||||||
Wholesale brokerage premiums payable to insurance carriers | $ | 24,404 | $ | — | ||||
Premiums collected on behalf of administered clients | 9,823 | 7,543 | ||||||
Reinsurance payable | 6,069 | 4,521 | ||||||
Income taxes payable | 769 | 1,228 | ||||||
Premium tax payable | 2,267 | 2,051 | ||||||
Unclaimed property | 798 | 737 | ||||||
Deferred compensation | 458 | — | ||||||
Interest payable — Preferred Trust Funds | 140 | 140 | ||||||
Other accrued expenses and accounts payable | 389 | 681 | ||||||
Total | $ | 45,117 | $ | 16,901 | ||||
9. | Indebtedness |
At December 31, | ||||||||
2009 | 2008 | |||||||
Line of credit — Columbus Bank & Trust at effective rate of 3.25%. Credit line of $15 million. Matures 2012. Repaid June 2010 | $ | 6,400 | $ | — | ||||
Line of credit — Columbus Bank & Trust — effective interest rate of 5% floor. Credit line of $15 million. Repaid June 2010 | 5,087 | — | ||||||
Subordinated debentures — Summit Partners — fixed rate of 14%. Matures 2012 | 20,000 | 20,000 | ||||||
Total notes payable | $ | 31,487 | $ | 20,000 | ||||
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
At December 31, | ||||||||
2009 | 2008 | |||||||
Preferred trust securities — FTN Financial — interest rate of 9.61%. Matures 2037 | $ | 35,000 | $ | 35,000 | ||||
Redeemable preferred stock — dividends paid quarterly: | ||||||||
Series A — fixed rate of 8.25%. Matures 2034 | 7,440 | 7,440 | ||||||
Series B — floating rate at 90 day LIBOR plus 4%. Matures 2034 | 2,100 | 2,100 | ||||||
Series C — fixed rate of 8.25%. Matures 2035 | 2,000 | 2,000 | ||||||
$ | 46,540 | $ | 46,540 | |||||
At December | ||||
31, 2009 | ||||
2010 | $ | 5,087 | ||
2011 | — | |||
2012 | 26,400 | |||
2013 | — | |||
2014 | — | |||
Thereafter | 46,540 | |||
$ | 78,027 | |||
As of December 31, | ||||||||
2009 | 2008 | |||||||
Prime Rate — Columbus Bank & Trust | 3.25 | % | 3.25 | % | ||||
Subordinated Debentures — Summit Partners | 14.00 | % | 14.00 | % | ||||
Preferred Trust Securities — FTN Financial | 9.61 | % | 9.61 | % | ||||
Redeemable Preferred Stock — Series A & C | 8.25 | % | 8.25 | % | ||||
Redeemable Preferred Stock — Series B | 4.29 | % | 7.88 | % |
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Covenant | At December 31, 2009 | |||||||
Minimum debt service charge ratio | 2.25 | 4.44 | ||||||
Maximum debt to EBITDA ratio | 4.75 | 2.25 | ||||||
Minimum audited net worth | $ | 50.0 million | $ | 80.8 million |
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Year | Redemption Price | |||
2010 | 103 | % | ||
2011 | 102 | % | ||
2012 | 101 | % | ||
2013 and thereafter | 100 | % |
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Year | Redemption Price | |||
2011 | 103 | % | ||
2012 | 102 | % | ||
2013 | 101 | % | ||
2014 and thereafter | 100 | % |
10. | Leases |
2010 | $ | 2,924 | ||
2011 | 2,698 | |||
2012 | 1,413 | |||
2013 | 649 | |||
2014 | 10 | |||
Thereafter | — | |||
$ | 7,694 | |||
11. | Fair Value of Financial Instruments |
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fixed maturity securities | $ | 80,948 | $ | — | $ | 79,440 | $ | 1,508 | ||||||||
Common stock, marketable | 369 | 369 | — | — | ||||||||||||
Preferred stock, marketable | 177 | 177 | — | — | ||||||||||||
Common stock, other | 662 | — | — | 662 | ||||||||||||
Preferred stock, other | 1,002 | — | — | 1,002 | ||||||||||||
Short-term investments | 1,220 | 1,220 | — | — | ||||||||||||
Total | $ | 84,378 | $ | 1,766 | $ | 79,440 | $ | 3,172 | ||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fixed maturity securities | $ | 96,405 | $ | — | $ | 96,405 | $ | — | ||||||||
Common stock, marketable | 423 | 423 | — | — | ||||||||||||
Preferred stock, marketable | 155 | 155 | — | — | ||||||||||||
Common stock, other | 586 | — | — | 586 | ||||||||||||
Preferred stock, other | 10 | — | — | 10 | ||||||||||||
Short-term investments | 2,180 | 2,180 | — | — | ||||||||||||
Total | $ | 99,759 | $ | 2,758 | 96,405 | $ | 596 | |||||||||
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Years Ended December 31, | ||||||||
2009 | 2008 | |||||||
Beginning balance | $ | 596 | $ | 608 | ||||
Total gains or losses (realized/unrealized): | ||||||||
Included in net income | 16 | — | ||||||
Included in comprehensive loss | 367 | (163 | ) | |||||
Amortization/accretion | — | 7 | ||||||
Purchases, issuance and settlements | 862 | 39 | ||||||
Net transfers into Level 3 | 1,331 | 105 | ||||||
Ending balance | $ | 3,172 | $ | 596 | ||||
As of December 31, 2009 | As of December 31, 2008 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 29,940 | $ | 29,940 | $ | 22,082 | $ | 22,082 | ||||||||
Fixed maturity securities | 80,948 | 80,948 | 96,405 | 96,405 | ||||||||||||
Common stock, marketable | 369 | 369 | 423 | 423 | ||||||||||||
Preferred stock, marketable | 177 | 177 | 155 | 155 | ||||||||||||
Common stock, other | 662 | 662 | 586 | 586 | ||||||||||||
Preferred stock, other | 1,002 | 1,002 | 10 | 10 | ||||||||||||
Notes receivable | 2,138 | 2,138 | 2,159 | 2,159 | ||||||||||||
Other receivables | 28,116 | 28,116 | 11,446 | 11,446 | ||||||||||||
Short term investments | 1,220 | 1,220 | 2,180 | 2,180 | ||||||||||||
Total financial assets | $ | 144,572 | $ | 144,572 | $ | 135,446 | $ | 135,446 | ||||||||
Financial liabilities: | ||||||||||||||||
Notes payable | $ | 31,487 | $ | 31,487 | $ | 20,000 | $ | 20,000 | ||||||||
Preferred trust securities | 35,000 | 35,000 | 35,000 | 35,000 | ||||||||||||
Redeemable preferred stock | 11,540 | 11,540 | 11,540 | 11,540 | ||||||||||||
Guaranteed investment contract | — | — | 1,010 | 1,010 | ||||||||||||
Total financial liabilities | $ | 78,027 | $ | 78,027 | $ | 67,550 | $ | 67,550 | ||||||||
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
12. | Income Taxes |
Successor | Predecessor | |||||||||||||||
Years Ended | Period from June 20, | Period from | ||||||||||||||
December 31, | 2007 to December | January 1, 2007 | ||||||||||||||
2009 | 2008 | 31, 2007 | to June 19, 2007 | |||||||||||||
Current | $ | 3,140 | $ | 4,064 | $ | 1,851 | $ | 2,377 | ||||||||
Deferred | 3,411 | 144 | (90 | ) | (394 | ) | ||||||||||
$ | 6,551 | $ | 4,208 | $ | 1,761 | $ | 1,983 | |||||||||
Successor | Predecessor | ||||||||||||||||||||||||||||||||
Period from | Period from | ||||||||||||||||||||||||||||||||
Years Ended December 31, | June 20, 2007 | January 1, 2007 to | |||||||||||||||||||||||||||||||
2009 | 2008 | to December 31, 2007 | June 19, 2007 | ||||||||||||||||||||||||||||||
Percent of | Percent of | Percent of | Percent of | ||||||||||||||||||||||||||||||
Pre-Tax | Pre-Tax | Pre-Tax | Pre-Tax | ||||||||||||||||||||||||||||||
Amount | Income | Amount | Income | Amount | Income | Amount | Income | ||||||||||||||||||||||||||
Income taxes at federal income tax rate | $ | 6,347 | 35.00 | % | $ | 4,132 | 34.00 | % | $ | 1,862 | 34.00 | % | $ | 1,983 | 34.00 | % | |||||||||||||||||
Effect of: | |||||||||||||||||||||||||||||||||
Small life deduction | (489 | ) | (2.70 | ) | (414 | ) | (3.41 | ) | (259 | ) | (4.73 | ) | (259 | ) | (4.44 | ) | |||||||||||||||||
Non deductible expenses | 602 | 3.32 | 175 | 1.44 | 58 | 1.06 | 604 | 10.36 | |||||||||||||||||||||||||
Non deductible preferred dividends | 308 | 1.70 | 319 | 2.62 | 212 | 3.87 | 126 | 2.16 | |||||||||||||||||||||||||
Tax exempt interest | (99 | ) | (0.55 | ) | (190 | ) | (1.56 | ) | (44 | ) | (0.80 | ) | (44 | ) | (0.75 | ) | |||||||||||||||||
State taxes | 314 | 1.73 | 49 | 0.40 | 8 | 0.15 | 9 | 0.15 | |||||||||||||||||||||||||
Prior year tax true up | (324 | ) | (1.79 | ) | 145 | 1.19 | (28 | ) | (0.51 | ) | (362 | ) | (6.21 | ) | |||||||||||||||||||
Other, net | (108 | ) | (0.59 | ) | (8 | ) | (0.06 | ) | (48 | ) | (0.89 | ) | (74 | ) | (1.27 | ) | |||||||||||||||||
Income tax expense | $ | 6,551 | 36.12 | % | $ | 4,208 | 34.62 | % | $ | 1,761 | 32.15 | % | $ | 1,983 | 34.00 | % | |||||||||||||||||
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
At December 31, | ||||||||
2009 | 2008 | |||||||
Gross deferred tax assets | ||||||||
Reinsurance funds payable | $ | — | $ | 225 | ||||
Unearned premiums | 5,128 | 5,565 | ||||||
Retro reserves | — | 119 | ||||||
Unpaid claims | 146 | 90 | ||||||
Deferred compensation | 236 | 225 | ||||||
General expense reserves | — | 139 | ||||||
Bad debt allowance | 135 | 114 | ||||||
Unrealized losses on investments | — | 552 | ||||||
Other basis differences in investments | 161 | 551 | ||||||
Total gross deferred tax assets | 5,806 | 7,580 | ||||||
Gross deferred tax liabilities | ||||||||
Deferred policy acquisition costs | 13,567 | 12,457 | ||||||
Intangible assets | 9,776 | 9,126 | ||||||
Advanced commissions | 1,465 | 216 | ||||||
Depreciation on fixed assets | 466 | 273 | ||||||
Unrealized gains on investments | 865 | — | ||||||
Other | 395 | 276 | ||||||
Total gross deferred tax liabilities | 26,534 | 22,348 | ||||||
Net deferred tax liability | $ | 20,728 | $ | 14,768 | ||||
13. | Stock Options |
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
June 20, | January 1, | ||||||||||||||||
Year Ended | 2007 to | 2007 | |||||||||||||||
December 31, | December 31, | to June 19, | |||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
Expected term (years) | * | 5.0 | 5.0 | * | |||||||||||||
Expected volatility | * | 32.87 | % | 22.43 | % | * | |||||||||||
Expected dividends | * | $ | — | $ | — | * | |||||||||||
Risk-free rate | * | 4.96 | % | 5.24 | % | * |
* | No options were granted during 2009 or the period from January 1, 2007 to June 19, 2007. |
F-41
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Options | Exercise | Options | Exercise | |||||||||||||
Outstanding | Price | Exercisable | Price | |||||||||||||
Balance, December 31, 2007 | 472,135 | $ | 13.64 | 220,200 | $ | 10.21 | ||||||||||
Granted | 7,972 | 23.11 | — | — | ||||||||||||
Vested | — | — | 90,220 | 16.69 | ||||||||||||
Exercised | (105,000 | ) | 7.99 | (105,000 | ) | 7.99 | ||||||||||
Cancelled | — | — | — | — | ||||||||||||
Balance, December 31, 2008 | 375,107 | 15.42 | 205,420 | 14.16 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Vested | — | — | 73,639 | 16.86 | ||||||||||||
Exercised | (3,000 | ) | 8.12 | (3,000 | ) | 8.12 | ||||||||||
Cancelled | — | — | — | — | ||||||||||||
Balance, December 31, 2009 | 372,107 | $ | 15.48 | 276,059 | $ | 14.95 | ||||||||||
Weighted average remaining contractual term at December 31, 2009 (years) | 6.12 | — | 5.73 | — |
Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
Years Ended | June 20, | January 1, 2007 | |||||||||||||||
December 31, | 2007 to | to June 19, | |||||||||||||||
2009 | 2008 | December 31, 2007 | 2007 | ||||||||||||||
Weighted-average grant date fair value of options granted (in dollars) | * | $ | 7.90 | $ | 4.69 | * | |||||||||||
Total fair value of options vested during the year | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
Total intrinsic value of options exercised | $ | 112 | $ | 1,327 | $ | — | $ | 1,890 | |||||||||
Cash received from option exercises | $ | 24 | $ | 846 | $ | — | $ | 1,044 | |||||||||
Tax benefits realized from exercised stock options | $ | — | $ | — | $ | — | $ | — | |||||||||
Cash used to settle equity instruments granted under stock-based compensation awards | $ | — | $ | 2,069 | $ | 1,400 | $ | — |
* | No options were granted during 2009 or the period from January 1, 2007 to June 19, 2007. |
F-42
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||||||||||
Period of | Period of | ||||||||||||||||
June 20, | January 1, 2007 | ||||||||||||||||
Years Ended | 2007 to | to June 19, | |||||||||||||||
2009 | 2008 | December 31, 2007 | 2007 | ||||||||||||||
Other operating expenses | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
Income tax benefit | — | — | — | — | |||||||||||||
Net share-based compensation | $ | 209 | $ | 244 | $ | 56 | $ | 2 | |||||||||
14. | Deferred Compensation Plan |
15. | Statutory Reporting and Dividend Restrictions |
F-43
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
16. | Commitments and Contingencies |
17. | Unpaid Claims |
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Years Ended December 31, | ||||||||
2009 | 2008 | |||||||
Balance at January 1 | $ | 36,363 | $ | 38,279 | ||||
Less reinsurance recoverable | (23,402 | ) | (21,344 | ) | ||||
Net balance at January 1 | 12,961 | 16,935 | ||||||
Incurred related to | ||||||||
Current year | 33,186 | 32,155 | ||||||
Prior years | (620 | ) | (2,301 | ) | ||||
Total incurred | 32,566 | 29,854 | ||||||
Paid related to | ||||||||
Current year | 26,083 | 26,394 | ||||||
Prior years | 5,810 | 7,434 | ||||||
Total paid | 31,893 | 33,828 | ||||||
Net balance at December 31 | 13,634 | 12,961 | ||||||
Plus reinsurance receivables | 22,518 | 23,402 | ||||||
Balance at December 31 | $ | 36,152 | $ | 36,363 | ||||
18. | Segment Results |
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | |||||||||||||||
Period from | Period from | |||||||||||||||
June 19 to | January 1 to | |||||||||||||||
Years Ended December 31, | December 31, | June 19, | ||||||||||||||
2009 | 2008 | 2007 | 2007 | |||||||||||||
Net Revenue | ||||||||||||||||
Payment Protection | $ | 42,806 | $ | 44,052 | $ | 25,366 | $ | 19,442 | ||||||||
BPO | 23,521 | 13,904 | 5,112 | 4,307 | ||||||||||||
Wholesale Brokerage | 16,820 | — | — | — | ||||||||||||
Corporate | (49 | ) | (1,951 | ) | (348 | ) | — | |||||||||
Total | 83,098 | 56,005 | 30,130 | 23,749 | ||||||||||||
Operating Expenses | ||||||||||||||||
Payment Protection | 23,814 | 24,676 | 14,443 | 12,287 | ||||||||||||
BPO | 13,753 | 7,136 | 2,128 | 2,496 | ||||||||||||
Wholesale Brokerage | 12,890 | — | — | — | ||||||||||||
Corporate | 3,199 | 2,155 | 2,659 | 1,744 | ||||||||||||
Total | 53,656 | 33,967 | 19,230 | 16,527 | ||||||||||||
EBITDA | ||||||||||||||||
Payment Protection | 18,992 | 19,376 | 10,923 | 7,155 | ||||||||||||
BPO | 9,768 | 6,768 | 2,984 | 1,811 | ||||||||||||
Wholesale Brokerage | 3,930 | — | — | — | ||||||||||||
Corporate | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | ||||||||
Total | 29,442 | 22,038 | 10,900 | 7,222 | ||||||||||||
Depreciation and amortization | ||||||||||||||||
Payment Protection | 1,815 | 2,164 | 994 | 170 | ||||||||||||
BPO | 566 | 465 | 298 | 51 | ||||||||||||
Wholesale Brokerage | 1,126 | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
Total | 3,507 | 2,629 | 1,292 | 221 | ||||||||||||
Interest | ||||||||||||||||
Payment Protection | 6,709 | 6,252 | 3,577 | 979 | ||||||||||||
BPO | 428 | 1,003 | 553 | 190 | ||||||||||||
Wholesale Brokerage | 663 | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
Total | 7,800 | 7,255 | 4,130 | 1,169 | ||||||||||||
Income before income taxes and non-controlling interest | ||||||||||||||||
Payment Protection | 10,468 | 10,960 | 6,352 | 6,006 | ||||||||||||
BPO | 8,774 | 5,300 | 2,133 | 1,570 | ||||||||||||
Wholesale Brokerage | 2,141 | — | — | — | ||||||||||||
Corporate | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | ||||||||
Total | $ | 18,135 | $ | 12,154 | $ | 5,478 | $ | 5,832 | ||||||||
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | |||||||||||||||
Years Ended | June 20 to | January 1 to | ||||||||||||||
December 31, | December 31, | June 19, | ||||||||||||||
2009 | 2008 | 2007 | 2007 | |||||||||||||
EBITDA: | ||||||||||||||||
Payment Protection | $ | 18,992 | $ | 19,376 | $ | 10,923 | $ | 7,155 | ||||||||
BPO | 9,768 | 6,768 | 2,984 | 1,811 | ||||||||||||
Wholesale Brokerage | 3,930 | — | — | — | ||||||||||||
Corporate | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | ||||||||
Total EBITDA | 29,442 | 22,038 | 10,900 | 7,222 | ||||||||||||
Depreciation and amortization: | ||||||||||||||||
Payment Protection | 1,815 | 2,164 | 994 | 170 | ||||||||||||
BPO | 566 | 465 | 298 | 51 | ||||||||||||
Wholesale Brokerage | 1,126 | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
Total depreciation and amortization | 3,507 | 2,629 | 1,292 | 221 | ||||||||||||
Interest: | ||||||||||||||||
Payment Protection | 6,709 | 6,252 | 3,577 | 979 | ||||||||||||
BPO | 428 | 1,003 | 553 | 190 | ||||||||||||
Wholesale Brokerage | 663 | — | — | — | ||||||||||||
Corporate | — | — | — | — | ||||||||||||
Total interest | 7,800 | 7,255 | 4,130 | 1,169 | ||||||||||||
Income before income taxes and non-controlling interest: | ||||||||||||||||
Payment Protection | 10,468 | 10,960 | 6,352 | 6,006 | ||||||||||||
BPO | 8,774 | 5,300 | 2,133 | 1,570 | ||||||||||||
Wholesale Brokerage | 2,141 | — | — | — | ||||||||||||
Corporate | (3,248 | ) | (4,106 | ) | (3,007 | ) | (1,744 | ) | ||||||||
Income before income taxes and non-controlling interest | 18,135 | 12,154 | 5,478 | 5,832 | ||||||||||||
Income taxes | (6,551 | ) | (4,208 | ) | (1,761 | ) | (1,983 | ) | ||||||||
Less: net income (loss) attributable to non-controlling interest | 26 | (82 | ) | 64 | 34 | |||||||||||
Net income | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | ||||||||
19. | Related Party Transactions |
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
20. | 401(k) Profit Sharing Plan |
21. | Subsequent Events |
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM JUNE 20, 2007
THROUGH DECEMBER 31, 2007 (SUCCESSOR) AND FOR THE PERIOD FROM JANUARY 1, 2007
THROUGH JUNE 19, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-49
Table of Contents
CONSOLIDATED BALANCE SHEETS
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets: | ||||||||
Invested assets and cash: | ||||||||
Fixed maturity securities available for sale at fair value (amortized cost of $78,005 and $78,548 at June 30, 2010 and December 31, 2009), respectively | $ | 82,478 | $ | 80,948 | ||||
Equity securities available for sale (cost of $2,151 and $2,155 at June 30, 2010 and December 31, 2009, respectively) | 2,248 | 2,210 | ||||||
Short-term investments | 1,170 | 1,220 | ||||||
Cash and cash equivalents | 19,102 | 29,940 | ||||||
Restricted cash | 23,187 | 18,090 | ||||||
Total invested assets and cash | 128,185 | 132,408 | ||||||
Accrued investment income | 838 | 910 | ||||||
Notes receivable | 1,713 | 2,138 | ||||||
Other receivables | 31,835 | 28,116 | ||||||
Reinsurance receivables | 162,502 | 173,798 | ||||||
Deferred policy acquisition costs | 41,972 | 41,083 | ||||||
Property and equipment | 7,863 | 4,140 | ||||||
Goodwill and other intangible assets | 104,046 | 93,558 | ||||||
Other assets | 5,427 | 2,475 | ||||||
Total assets | $ | 484,381 | $ | 478,626 | ||||
Liabilities: | ||||||||
Unpaid claims | $ | 33,015 | $ | 36,152 | ||||
Unearned premiums | 204,079 | 215,652 | ||||||
Accrued expenses and accounts payable | 49,491 | 45,117 | ||||||
Commissions payable | 1,197 | 2,157 | ||||||
Notes payable | 38,509 | 31,487 | ||||||
Preferred trust securities | 35,000 | 35,000 | ||||||
Redeemable preferred securities | 11,440 | 11,540 | ||||||
Deferred income taxes | 22,197 | 20,728 | ||||||
Total liabilities | 394,928 | 397,833 | ||||||
Commitments and Contingencies (Note 16) | ||||||||
Stockholders’ Equity: | ||||||||
Common stock, par value $0.331/3 per share (6,000,000 shares authorized and 3,007,031 and 3,007,031 issued at June 30, 2010 and December 31, 2009, respectively) | 1,002 | 1,002 | ||||||
Treasury stock (8,491 shares at June 30, 2010 and December 31, 2009, respectively) | (176 | ) | (176 | ) | ||||
Additional paid-in capital | 53,747 | 53,675 | ||||||
Accumulated other comprehensive income, net of tax (provision) of $(1,599) and $(865) at June 30, 2010 and December 31, 2009, respectively | 2,896 | 1,607 | ||||||
Retained earnings | 30,456 | 23,210 | ||||||
Stockholders’ equity before non-controlling interest | 87,925 | 79,318 | ||||||
Non-controlling interest | 1,528 | 1,475 | ||||||
Total stockholders’ equity | 89,453 | 80,793 | ||||||
Total liabilities and stockholders’ equity | $ | 484,381 | $ | 478,626 | ||||
F-50
Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
(All Amounts in Thousands Except Share and Per Share Amounts)
(Unaudited)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Revenues: | ||||||||
Service and administrative fees | $ | 16,817 | $ | 14,826 | ||||
Wholesale brokerage commissions and fees | 13,134 | 5,138 | ||||||
Ceding commissions | 13,013 | 11,973 | ||||||
Net underwriting revenue | 1,870 | 1,168 | ||||||
Net investment income | 1,935 | 2,509 | ||||||
Net realized gains | 49 | — | ||||||
Other income | 126 | 303 | ||||||
Total net revenues | 46,944 | 35,917 | ||||||
Expenses: | ||||||||
Personnel costs | 18,413 | 13,948 | ||||||
Other operating expenses | 11,027 | 10,339 | ||||||
Depreciation and amortization | 2,117 | 1,504 | ||||||
Interest expense | 3,876 | 3,807 | ||||||
Total expenses | 35,433 | 29,598 | ||||||
Income before income taxes and non-controlling interest | 11,511 | 6,319 | ||||||
Income taxes | 4,296 | 2,380 | ||||||
Income before non-controlling interest | 7,215 | 3,939 | ||||||
Less: net income(loss)attributable to the non-controlling interest | (31 | ) | 7 | |||||
Net income | $ | 7,246 | $ | 3,932 | ||||
Net income per common share: | ||||||||
Basic | $ | 2.42 | $ | 1.37 | ||||
Diluted | 2.23 | 1.27 | ||||||
Weighted average common shares outstanding | ||||||||
Basic | 2,998,540 | 2,865,609 | ||||||
Diluted | 3,244,135 | 3,087,862 |
F-51
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(All Amounts in Thousands Except Share Amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||
Shares | Additional | Other | Total | |||||||||||||||||||||||||||||||||
Common | Treasury | Common | Paid-In | Treasury | Comprehensive | Retained | Non-controlling | Stockholders’ | ||||||||||||||||||||||||||||
Stock | Stock | Stock | Capital | Stock | Income (Loss) | Earnings | Interest | Equity | ||||||||||||||||||||||||||||
Balances, December 31, 2009 | 3,007,031 | (8,491 | ) | $ | 1,002 | $ | 53,675 | $ | (176 | ) | $ | 1,607 | $ | 23,210 | $ | 1,475 | $ | 80,793 | ||||||||||||||||||
Net income for the six months ended June 30, 2010 | — | — | — | — | — | — | 7,246 | (31 | ) | 7,215 | ||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax expense of $694 | — | — | — | — | — | 1,289 | — | 84 | 1,373 | |||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 1,289 | 7,246 | 53 | 8,588 | |||||||||||||||||||||||||||
Stock based compensation | — | — | — | 72 | — | — | — | — | 72 | |||||||||||||||||||||||||||
Balances, June 30, 2010 | 3,007,031 | (8,491 | ) | $ | 1,002 | $ | 53,747 | $ | (176 | ) | $ | 2,896 | $ | 30,456 | $ | 1,528 | $ | 89,453 | ||||||||||||||||||
Balance, December 31, 2008 | 2,871,563 | (100,000 | ) | $ | 957 | $ | 45,894 | $ | (2,069 | ) | $ | (1,072 | ) | $ | 11,652 | $ | 1,659 | $ | 57,021 | |||||||||||||||||
Net income for the six months ended June 30, 2009 | — | — | — | — | — | — | 3,932 | 7 | 3,939 | |||||||||||||||||||||||||||
Change in unrealized gains and losses, net of tax expense of $628 | — | — | — | — | — | 1,166 | — | 15 | 1,181 | |||||||||||||||||||||||||||
Comprehensive income | — | — | — | — | — | 1,166 | 3,932 | 22 | 5,120 | |||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | (210 | ) | (210 | ) | |||||||||||||||||||||||||
Treasury stock sold | — | 91,509 | — | 1,982 | 1,893 | — | — | — | 3,875 | |||||||||||||||||||||||||||
Issuance of common stock | 132,468 | — | 44 | 5,567 | — | — | — | — | 5,611 | |||||||||||||||||||||||||||
Stock based compensation | — | — | — | 105 | — | — | — | — | 105 | |||||||||||||||||||||||||||
Balance, June 30, 2009 | 3,004,031 | (8,491 | ) | $ | 1,001 | $ | 53,548 | $ | (176 | ) | $ | 94 | $ | 15,584 | $ | 1,471 | $ | 71,522 | ||||||||||||||||||
F-52
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Operating Activities: | ||||||||
Net income | $ | 7,246 | $ | 3,932 | ||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||
Change in deferred policy acquisition costs | (889 | ) | (1,030 | ) | ||||
Depreciation and amortization | 2,117 | 1,504 | ||||||
Deferred income taxes | 942 | 686 | ||||||
Net realized (gains) losses | (49 | ) | — | |||||
Stock based compensation expense | 72 | 105 | ||||||
Amortization of premiums and discounts on investments, net | 147 | 51 | ||||||
Non-controlling interest | 53 | (188 | ) | |||||
Change in allowance for doubtful accounts | — | (50 | ) | |||||
Changes in operating assets and liabilities, net of the effect of acquisition: | ||||||||
Accrued investment income | 72 | 152 | ||||||
Other receivables | (3,360 | ) | (4,984 | ) | ||||
Reinsurance receivables | 11,296 | 21,792 | ||||||
Other assets | (2,887 | ) | (702 | ) | ||||
Unpaid claims | (3,136 | ) | (2,622 | ) | ||||
Unearned premiums | (11,573 | ) | (23,495 | ) | ||||
Accrued expenses and accounts payable | 3,257 | 12,484 | ||||||
Commissions payable | (959 | ) | (2,515 | ) | ||||
Net cash flows provided by operating activities | 2,349 | 5,120 | ||||||
Investing Activities: | ||||||||
Proceeds from maturities of investments | 6,372 | 7,429 | ||||||
Proceeds from sales of investments | 4,299 | — | ||||||
Proceeds from maturities of short term investments | 50 | 660 | ||||||
Purchase of investments | (10,262 | ) | — | |||||
Purchase of property and equipment | (4,192 | ) | (889 | ) | ||||
Acquisitions | (11,704 | ) | (38,577 | ) | ||||
Proceeds from notes receivable | 425 | 445 | ||||||
Change in restricted cash | (5,097 | ) | (9,959 | ) | ||||
Net cash flows used in investing activities | (20,109 | ) | (40,891 | ) | ||||
Financing Activities: | ||||||||
Additional borrowings under notes payable | 25,531 | 25,088 | ||||||
Repayment of notes payable | (18,509 | ) | ||||||
Net proceeds from issuance of common stock | — | 5,610 | ||||||
Repayment of preferred securities | (100 | ) | — | |||||
Issuance of treasury stock | — | 3,874 | ||||||
Net cash flows provided by financing activities | 6,922 | 34,572 | ||||||
Net decrease in cash and cash equivalents | (10,838 | ) | (1,199 | ) | ||||
Cash and cash equivalents, beginning of period | 29,940 | 22,082 | ||||||
Cash and cash equivalents, end of period | $ | 19,102 | $ | 20,883 | ||||
Supplemental disclosures of cash payments for interest | $ | 3,742 | $ | 3,725 | ||||
Income taxes | 4,076 | 1,330 |
F-53
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
1. | Organization and Basis of Presentation |
Assets: | ||||
Cash | $ | 79 | ||
Other receivables | 360 | |||
Other assets | 21 | |||
Net deferred tax asset | 167 | |||
Accrued expenses and accounts payable | (305 | ) | ||
Net assets acquired | 322 | |||
Purchase consideration | 800 | |||
Goodwill | $ | 478 | ||
F-54
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Assets: | ||||
Cash | $ | 961 | ||
Property and equipment | 181 | |||
Other intangible assets | 50 | |||
Other assets | 44 | |||
Accrued expenses and accounts payable | (811 | ) | ||
Net assets acquired | 425 | |||
Purchase consideration | 11,944 | |||
Goodwill | $ | 11,519 | ||
2. | Summary of Significant Accounting Policies |
F-55
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
3. | Investments |
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of the U.S. Treasury and U.S. Government agencies | $ | 20,661 | $ | 1,031 | $ | (2 | ) | $ | 21,690 | |||||||
Municipal securities | 12,487 | 336 | (19 | ) | 12,804 | |||||||||||
Corporate securities | 37,463 | 2,910 | (210 | ) | 40,163 | |||||||||||
Mortgage-backed securities | 3,919 | 145 | — | 4,064 | ||||||||||||
Asset-backed securities | 3,475 | 282 | — | 3,757 | ||||||||||||
Total fixed maturity securities | $ | 78,005 | $ | 4,704 | $ | (231 | ) | $ | 82,478 | |||||||
Common stock — publicly traded | $ | 492 | $ | 2 | $ | (79 | ) | $ | 415 | |||||||
Preferred stock — publicly traded | 199 | 9 | — | 208 | ||||||||||||
Common stock — non-publicly traded | 456 | 179 | (11 | ) | 624 | |||||||||||
Preferred stock — non-publicly traded | 1,004 | — | (3 | ) | 1,001 | |||||||||||
Total equity securities | $ | 2,151 | $ | 190 | $ | (93 | ) | $ | 2,248 | |||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Obligations of the U.S. Treasury and U.S. Government agencies | $ | 18,832 | $ | 674 | $ | (26 | ) | $ | 19,480 | |||||||
Municipal securities | 14,343 | 336 | (97 | ) | 14,582 | |||||||||||
Corporate securities | 35,276 | 1,506 | (271 | ) | 36,511 | |||||||||||
Mortgage-backed securities | 5,594 | 97 | — | 5,691 | ||||||||||||
Asset-backed securities | 4,503 | 181 | — | 4,684 | ||||||||||||
Total fixed maturity securities | $ | 78,548 | $ | 2,794 | $ | (394 | ) | $ | 80,948 | |||||||
Common stock — publicly traded | $ | 423 | $ | 100 | $ | (154 | ) | $ | 369 | |||||||
Preferred stock — publicly traded | 199 | 1 | (23 | ) | 177 | |||||||||||
Common stock — non-publicly traded | 528 | 179 | (45 | ) | 662 | |||||||||||
Preferred stock — non-publicly traded | 1,005 | — | (3 | ) | 1,002 | |||||||||||
Total equity securities | $ | 2,155 | $ | 280 | $ | (225 | ) | $ | 2,210 | |||||||
F-56
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | 5,217 | $ | 5,316 | ||||
Due after one year through five years | 21,855 | 22,809 | ||||||
Due after five years through ten years | 26,325 | 28,541 | ||||||
Due after ten years through twenty years | 4,351 | 4,404 | ||||||
Due after twenty years | 12,863 | 13,587 | ||||||
Mortgage-backed securities | 3,919 | 4,064 | ||||||
Asset backed securities | 3,475 | 3,757 | ||||||
Total fixed maturity securities | $ | 78,005 | $ | 82,478 | ||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | 2,358 | $ | 2,384 | ||||
Due after one year through five years | 18,552 | 19,290 | ||||||
Due after five years through ten years | 29,966 | 30,973 | ||||||
Due after ten years through twenty years | 3,944 | 3,898 | ||||||
Due after twenty years | 13,631 | 14,028 | ||||||
Mortgage-backed securities | 5,594 | 5,691 | ||||||
Asset backed securities | 4,503 | 4,684 | ||||||
Total fixed maturity securities | $ | 78,548 | $ | 80,948 | ||||
F-57
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
June 30, 2010 | ||||||||||||||||||||||||
Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Security | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Obligations of the U.S. Treasury and U.S. government agencies | $ | 1,653 | $ | (2 | ) | $ | — | $ | — | $ | 1,653 | $ | (2 | ) | ||||||||||
Municipal securities | 479 | (6 | ) | 1,039 | (13 | ) | 1,518 | (19 | ) | |||||||||||||||
Corporate securities | 1,808 | (203 | ) | 408 | (7 | ) | 2,216 | (210 | ) | |||||||||||||||
Total fixed maturity securities | $ | 3,940 | $ | (211 | ) | $ | 1,447 | $ | (20 | ) | $ | 5,387 | $ | (231 | ) | |||||||||
Common stock — publicly traded | $ | — | $ | — | $ | 412 | $ | (79 | ) | $ | 412 | $ | (79 | ) | ||||||||||
Preferred stock — publicly traded | — | — | — | — | — | — | ||||||||||||||||||
Common stock — non-publicly traded | 42 | (3 | ) | 42 | (8 | ) | 84 | (11 | ) | |||||||||||||||
Preferred stock — non-publicly traded | — | — | — | (3 | ) | — | (3 | ) | ||||||||||||||||
Total equity securities | $ | 42 | $ | (3 | ) | $ | 454 | $ | (90 | ) | $ | 496 | $ | (93 | ) | |||||||||
December 31, 2009 | ||||||||||||||||||||||||
Less Than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Security | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Obligations of the U.S. Treasury and U.S. government agencies | $ | 4,510 | $ | (26 | ) | $ | — | $ | — | $ | 4,510 | $ | (26 | ) | ||||||||||
Municipal securities | 4,226 | (81 | ) | 544 | (16 | ) | 4,770 | (97 | ) | |||||||||||||||
Corporate securities | — | — | 1,894 | (271 | ) | 1,894 | (271 | ) | ||||||||||||||||
Total fixed maturity securities | $ | 8,736 | $ | (107 | ) | $ | 2,438 | $ | (287 | ) | $ | 11,174 | $ | (394 | ) | |||||||||
Common stock — publicly traded | $ | — | $ | — | $ | 186 | $ | (154 | ) | $ | 186 | $ | (154 | ) | ||||||||||
Preferred stock — publicly traded | — | — | 126 | (23 | ) | 126 | (23 | ) | ||||||||||||||||
Common stock — non-publicly traded | 42 | (3 | ) | 78 | (42 | ) | 120 | (45 | ) | |||||||||||||||
Preferred stock — non-publicly traded | — | (3 | ) | — | — | — | (3 | ) | ||||||||||||||||
Total equity securities | $ | 42 | $ | (6 | ) | $ | 390 | $ | (219 | ) | $ | 432 | $ | (225 | ) | |||||||||
F-58
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Fixed maturity securities | $ | 1,885 | $ | 2,357 | ||||
Cash on hand and on deposit | 189 | 330 | ||||||
Common and preferred stock dividends | 28 | 10 | ||||||
Debenture interest | 80 | 75 | ||||||
Investment expenses | (247 | ) | (263 | ) | ||||
Net investment income | $ | 1,935 | $ | 2,509 | ||||
4. | Reinsurance |
F-59
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct and assumed | $ | 138,646 | $ | 150,590 | $ | 124,371 | $ | 147,964 | ||||||||
Ceded | (85,815 | ) | (95,429 | ) | (76,076 | ) | (93,704 | ) | ||||||||
Net | $ | 52,831 | $ | 55,161 | $ | 48,295 | $ | 54,260 | ||||||||
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Direct and assumed | $ | 37,626 | $ | 39,361 | ||||
Ceded | (21,533 | ) | (22,382 | ) | ||||
Incurred claims | $ | 16,093 | $ | 16,979 | ||||
F-60
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Net earned premiums | ||||||||
Direct | $ | 139,152 | $ | 134,571 | ||||
Assumed | 11,439 | 13,393 | ||||||
Ceded | (95,429 | ) | (93,704 | ) | ||||
Total net earned premiums | 55,162 | 54,260 | ||||||
Incurred claims | (16,093 | ) | (16,979 | ) | ||||
Commissions | (37,199 | ) | (36,113 | ) | ||||
Total net underwriting revenue | $ | 1,870 | $ | 1,168 | ||||
At June 30, | At December 31, | |||||||
2010 | 2009 | |||||||
Ceded unearned premium: | ||||||||
Life | $ | 53,066 | $ | 60,281 | ||||
Accident and health | 28,484 | 29,844 | ||||||
Property | 56,461 | 57,379 | ||||||
Total ceded unearned premium | 138,011 | 147,504 | ||||||
Ceded claim reserves: | ||||||||
Life | 1,674 | 1,929 | ||||||
Accident and health | 9,644 | 9,981 | ||||||
Property | 9,992 | 10,608 | ||||||
Total ceded claim reserves recoverable | 21,310 | 22,518 | ||||||
Other reinsurance settlements recoverable | 3,181 | 3,776 | ||||||
Reinsurance receivables | $ | 162,502 | $ | 173,798 | ||||
F-61
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
5. | Goodwill and Other Intangible Assets |
December 31, 2009 | $ | 63,561 | ||
Goodwill of South Bay Acceptance Corporation acquisition | 478 | |||
Goodwill of Continental Car Club acquisition | 11,519 | |||
June 30, 2010 | $ | 75,558 | ||
Payment Protection: | ||||
Summit Transaction | $ | 22,763 | ||
Darby & Associates | 642 | |||
Continental Car Club | 11,519 | |||
Total Payment Protection | 34,924 | |||
BPO: | ||||
Summit Transaction | 8,902 | |||
CIRG | 1,337 | |||
Total BPO | 10,239 | |||
Wholesale Brokerage: | ||||
Bliss & Glennon | 29,917 | |||
South Bay Acceptance Corporation | 478 | |||
Total Wholesale Brokerage | 30,395 | |||
Total goodwill | $ | 75,558 | ||
December 31, 2009 | $ | 29,997 | ||
Intangible assets Continental Car Club | 50 | |||
Intangible assets amortized | (1,559 | ) | ||
June 30, 2010 | $ | 28,488 | ||
6. | Fair Value of Financial Instruments |
F-62
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fixed maturity securities | $ | 82,478 | $ | — | $ | 80,850 | $ | 1,628 | ||||||||
Common stock, marketable | 415 | 378 | — | 37 | ||||||||||||
Preferred stock, marketable | 208 | 208 | — | |||||||||||||
Common stock, other | 624 | — | — | 624 | ||||||||||||
Preferred stock, other | 1,001 | — | — | 1,001 | ||||||||||||
Short-term investments | 1,170 | 1,170 | — | — | ||||||||||||
Total | $ | 85,896 | $ | 1,548 | $ | 81,058 | $ | 3,290 | ||||||||
F-63
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Fixed maturity securities | $ | 80,948 | $ | — | $ | 79,440 | $ | 1,508 | ||||||||
Common stock, marketable | 369 | 369 | — | — | ||||||||||||
Preferred stock, marketable | 177 | 177 | — | — | ||||||||||||
Common stock, other | 662 | — | — | 662 | ||||||||||||
Preferred stock, other | 1,002 | — | — | 1,002 | ||||||||||||
Short-term investments | 1,220 | 1,220 | — | — | ||||||||||||
Total | $ | 84,378 | $ | 1,766 | $ | 79,440 | $ | 3,172 | ||||||||
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Beginning balance | $ | 3,172 | $ | 596 | ||||
Total gains or losses (realized/unrealized): | ||||||||
Included in net income | (2 | ) | — | |||||
Included in comprehensive loss | 120 | 254 | ||||||
Purchases, issuance and settlements | — | — | ||||||
Net transfers (out of) into Level 3 | — | 1,331 | ||||||
Ending balance | $ | 3,290 | $ | 2,181 | ||||
F-64
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
As of June 30, 2010 | As of December 31, 2009 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 19,102 | $ | 19,102 | $ | 29,940 | $ | 29,940 | ||||||||
Short-term investments | 1,170 | 1,170 | 1,220 | 1,220 | ||||||||||||
Restricted cash | 23,187 | 23,187 | 18,090 | 18,090 | ||||||||||||
Notes receivable | 1,713 | 1,713 | 2,138 | 2,138 | ||||||||||||
Other receivables | 31,835 | 31,835 | 28,116 | 28,116 | ||||||||||||
Total financial assets | $ | 77,007 | $ | 77,007 | $ | 79,504 | $ | 79,504 | ||||||||
Financial liabilities: | ||||||||||||||||
Notes payable | $ | 38,509 | $ | 38,509 | $ | 31,487 | $ | 31,487 | ||||||||
Preferred trust securities | 35,000 | 35,000 | 35,000 | 35,000 | ||||||||||||
Redeemable preferred stock | 11,440 | 11,440 | 11,540 | 11,540 | ||||||||||||
Total financial liabilities | $ | 84,949 | $ | 84,949 | $ | 78,027 | $ | 78,027 | ||||||||
7. | Income Taxes |
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Current income tax | $ | 3,401 | $ | 1,568 | ||||
Deferred income tax | 895 | 812 | ||||||
Total income taxes | $ | 4,296 | $ | 2,380 | ||||
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Percent | Percent | |||||||||||||||
of Pre-Tax | of Pre-Tax | |||||||||||||||
Amount | Income | Amount | Income | |||||||||||||
Income taxes at federal income tax rate | $ | 4,029 | 35.00 | % | $ | 2,212 | 35.00 | % | ||||||||
Effect of: | ||||||||||||||||
Small life deduction | (208 | ) | (1.81 | ) | (202 | ) | (3.20 | ) | ||||||||
Non deductible preferred dividends | 149 | 1.29 | 150 | 2.37 | ||||||||||||
Tax exempt interest | (64 | ) | (0.56 | ) | (96 | ) | (1.52 | ) | ||||||||
State income taxes | 291 | 2.53 | 115 | 1.82 | ||||||||||||
Other, net | 99 | 0.87 | 201 | 3.16 | ||||||||||||
Income tax expense | $ | 4,296 | 37.32 | % | $ | 2,380 | 37.66 | % | ||||||||
At June 30, | At December 31, | |||||||
2010 | 2009 | |||||||
Gross deferred tax assets: | ||||||||
Unearned premiums | $ | 4,892 | $ | 5,128 | ||||
Unpaid claims | 133 | 146 | ||||||
Basis difference in investments | 129 | 161 | ||||||
Deferred compensation | 251 | 236 | ||||||
Bad debt allowance | 135 | 135 | ||||||
Net operating loss carryforward | 153 | — | ||||||
Total gross deferred tax assets | 5,693 | 5,806 | ||||||
Gross deferred tax liabilities: | ||||||||
Deferred policy acquisition costs | 13,969 | 13,567 | ||||||
Intangible assets | 9,316 | 9,776 | ||||||
Advanced commissions | 1,528 | 1,465 | ||||||
Depreciation on fixed assets | 1,071 | 466 | ||||||
Unrealized gains on investments | 1,599 | 865 | ||||||
Other deferred tax liabilities | 407 | 395 | ||||||
Total gross deferred tax liabilities | 27,890 | 26,534 | ||||||
Net deferred tax liability | $ | 22,197 | $ | 20,728 | ||||
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
8. | Commitments and Contingencies |
9. | Unpaid Claims |
10. | Segment Results |
F-67
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Net Revenue: | ||||||||
Payment Protection | $ | 22,115 | $ | 20,108 | ||||
BPO | 11,282 | 10,638 | ||||||
Wholesale Brokerage | 13,547 | 5,171 | ||||||
Corporate | — | — | ||||||
Total | 46,944 | 35,917 | ||||||
Operating Expenses: | ||||||||
Payment Protection | 11,285 | 12,780 | ||||||
BPO | 7,511 | 6,110 | ||||||
Wholesale Brokerage | 9,802 | 3,563 | ||||||
Corporate | 842 | 1,834 | ||||||
Total | 29,440 | 24,287 | ||||||
EBITDA: | ||||||||
Payment Protection | 10,830 | 7,328 | ||||||
BPO | 3,771 | 4,528 | ||||||
Wholesale Brokerage | 3,745 | 1,608 | ||||||
Corporate | (842 | ) | (1,834 | ) | ||||
Total | 17,504 | 11,630 | ||||||
Depreciation and amortization: | ||||||||
Payment Protection | 1,055 | 953 | ||||||
BPO | 265 | 220 | ||||||
Wholesale Brokerage | 797 | 331 | ||||||
Corporate | — | — | ||||||
Total | 2,117 | 1,504 | ||||||
Interest: | ||||||||
Payment Protection | 3,365 | 3,359 | ||||||
BPO | 198 | 214 | ||||||
Wholesale Brokerage | 313 | 234 | ||||||
Corporate | — | — | ||||||
Total | 3,876 | 3,807 | ||||||
Income before income taxes and non-controlling interest: | ||||||||
Payment Protection | 6,410 | 3,016 | ||||||
BPO | 3,308 | 4,094 | ||||||
Wholesale Brokerage | 2,635 | 1,043 | ||||||
Corporate | (842 | ) | (1,834 | ) | ||||
Total income before income taxes and non-controlling interest | 11,511 | 6,319 | ||||||
Income Taxes | (4,296 | ) | (2,380 | ) | ||||
Less: net income (loss) attributable to non-controlling interest | (31 | ) | 7 | |||||
Net income | $ | 7,246 | $ | 3,932 | ||||
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
EBITDA: | ||||||||
Payment Protection | $ | 10,830 | $ | 7,328 | ||||
BPO | 3,771 | 4,528 | ||||||
Wholesale Brokerage | 3,745 | 1,608 | ||||||
Corporate | (842 | ) | (1,834 | ) | ||||
Total EBITDA | 17,504 | 11,630 | ||||||
Depreciation and amortization: | ||||||||
Payment Protection | 1,055 | 953 | ||||||
BPO | 265 | 220 | ||||||
Wholesale Brokerage | 797 | 331 | ||||||
Corporate | — | — | ||||||
Total depreciation and amortization | 2,117 | 1,504 | ||||||
Interest: | ||||||||
Payment Protection | 3,365 | 3,359 | ||||||
BPO | 198 | 214 | ||||||
Wholesale Brokerage | 313 | 234 | ||||||
Corporate | — | — | ||||||
Total interest | 3,876 | 3,807 | ||||||
Income before income taxes and non-controlling interest: | ||||||||
Payment Protection | 6,410 | 3,016 | ||||||
BPO | 3,308 | 4,094 | ||||||
Wholesale Brokerage | 2,635 | 1,043 | ||||||
Corporate | (842 | ) | (1,834 | ) | ||||
Total income before income taxes and non-controlling interest | 11,511 | 6,319 | ||||||
Income Taxes | (4,296 | ) | (2,380 | ) | ||||
Less: net income (loss) attributable to non-controlling interest | (31 | ) | 7 | |||||
Net income | $ | 7,246 | $ | 3,932 | ||||
11. | Related Party Transactions |
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
12. | 401(k) Profit Sharing Plan |
13. | Subsequent Events |
F-70
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F-71
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Successor | Predecessor | ||||||||
December 31, | December 31, | ||||||||
2008 | 2007 | ||||||||
Assets: | |||||||||
Cash and cash equivalents | $ | 9,809 | $ | 12,879 | |||||
Restricted cash | 7,806 | 9,473 | |||||||
Subtotal invested assets and cash | 17,615 | 22,352 | |||||||
Other receivables, net of allowance of $93 and $140 as of December 31, 2008 and 2007, respectively | 16,204 | 15,009 | |||||||
Other assets | 76 | 207 | |||||||
Property and equipment | 1,373 | 974 | |||||||
Goodwill and other intangible assets | 25,042 | 45,103 | |||||||
Total assets | $ | 60,310 | $ | 83,645 | |||||
Liabilities: | |||||||||
Accrued expenses and accounts payable | $ | 26,597 | $ | 26,330 | |||||
Commissions payable | 166 | 172 | |||||||
Deferred income taxes | 1,059 | 3,667 | |||||||
Total liabilities | 27,822 | 30,169 | |||||||
Commitments and Contingencies (Note 10) | |||||||||
Stockholder’s Equity: | |||||||||
Additional paid-in capital | 32,118 | 50,399 | |||||||
Retained earnings | 370 | 3,077 | |||||||
Total stockholders’ equity | 32,488 | 53,476 | |||||||
Total liabilities and stockholders’ equity | $ | 60,310 | $ | 83,645 | |||||
F-72
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Successor | Predecessor | ||||||||||||
Period from | Period from | ||||||||||||
October 1, | January 1, | Year | |||||||||||
2008 to | 2008 to | Ended | |||||||||||
December 31, | September 30, | December 31, | |||||||||||
2008 | 2008 | 2007 | |||||||||||
Revenues: | |||||||||||||
Wholesale brokerage commissions | $ | 5,829 | $ | 22,981 | $ | 29,516 | |||||||
Net investment income | 173 | 632 | 788 | ||||||||||
Other income | 37 | 50 | 98 | ||||||||||
Total net revenues | 6,039 | 23,663 | 30,402 | ||||||||||
Expenses: | |||||||||||||
Personnel costs | 3,583 | 11,423 | 14,663 | ||||||||||
Other operating expenses | 1,680 | 4,854 | 7,907 | ||||||||||
Depreciation and amortization | 127 | 1,806 | 2,481 | ||||||||||
Interest expense | — | 6 | 55 | ||||||||||
Total expenses | 5,390 | 18,089 | 25,106 | ||||||||||
Income before income taxes | 649 | 5,574 | 5,296 | ||||||||||
Income taxes | 279 | 2,399 | 2,130 | ||||||||||
Net income | $ | 370 | $ | 3,175 | $ | 3,166 | |||||||
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Additional Paid-In | Retained | Total Stockholders’ | ||||||||||
Capital | Earnings | Equity | ||||||||||
Balances, January 1, 2007 (Predecessor) | $ | 51,798 | $ | 4,039 | $ | 55,837 | ||||||
Net income | — | 3,166 | 3,166 | |||||||||
Additional contribution to paid in capital | 4,601 | — | 4,601 | |||||||||
Dividends | — | (4,128 | ) | (4,128 | ) | |||||||
Return of capital | (6,000 | ) | — | (6,000 | ) | |||||||
Balances, December 31, 2007 (Predecessor) | 50,399 | 3,077 | 53,476 | |||||||||
Net income for the period from January 1, 2008 to September 30, 2008 | — | 3,175 | 3,175 | |||||||||
Dividends | — | (3,138 | ) | (3,138 | ) | |||||||
Balances, September 30, 2008 (Predecessor) | 50,399 | 3,114 | 53,513 | |||||||||
Acquisition transactions | (17,368 | ) | (3,114 | ) | (20,482 | ) | ||||||
Balance, October 1, 2008 (Successor) | 33,031 | — | 33,031 | |||||||||
Net income for the period from October 1, 2008 to December 31, 2008 | — | 370 | 370 | |||||||||
Return of capital | (913 | ) | — | (913 | ) | |||||||
Balances at December 31, 2008 (Successor) | $ | 32,118 | $ | 370 | $ | 32,488 | ||||||
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Successor | Predecessor | ||||||||||||||
Period from | Period from | ||||||||||||||
October 1, 2008 to | January 1, 2008 to | Year Ended | |||||||||||||
December 31, | September 30, | December 31, | |||||||||||||
2008 | 2008 | 2007 | |||||||||||||
Operating Activities: | |||||||||||||||
Net income | $ | 370 | $ | 3,175 | $ | 3,166 | |||||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | |||||||||||||||
Depreciation and amortization | 135 | 1,806 | 2,481 | ||||||||||||
Deferred income taxes benefit | 114 | (274 | ) | (410 | ) | ||||||||||
Change in allowance for doubtful accounts | 15 | (62 | ) | 57 | |||||||||||
Changes in operating assets and liabilities, net of effect of acquisition: | |||||||||||||||
Other receivables | 1,959 | (3,107 | ) | 3,017 | |||||||||||
Other assets | 70 | 61 | (95 | ) | |||||||||||
Accrued expenses and accounts payable | (1,871 | ) | 2,138 | (1,992 | ) | ||||||||||
Commissions payable | (23 | ) | 17 | 44 | |||||||||||
Net cash flows provided by operating activities | 769 | 3,754 | 6,268 | ||||||||||||
Investing Activities: | |||||||||||||||
Purchase of property, equipment and other non-operating assets | (61 | ) | (730 | ) | (314 | ) | |||||||||
Change in restricted cash | 1,602 | 65 | 2 | ||||||||||||
Net cash flows provided by (used in) investing activities | 1,541 | (665 | ) | (312 | ) | ||||||||||
Financing Activities: | |||||||||||||||
Dividends paid on common stock | — | (3,138 | ) | (4,128 | ) | ||||||||||
Return of capital | (913 | ) | — | (6,000 | ) | ||||||||||
Contributed capital | — | — | 4,601 | ||||||||||||
Acquisitions | (4,418 | ) | — | — | |||||||||||
Net cash flows used in financing activities | (5,331 | ) | (3,138 | ) | (5,527 | ) | |||||||||
Net change in cash and cash equivalents | (3,021 | ) | (49 | ) | 429 | ||||||||||
Cash and cash equivalents, beginning of period | 12,830 | 12,879 | 12,450 | ||||||||||||
Cash and cash equivalents, end of period | $ | 9,809 | $ | 12,830 | $ | 12,879 | |||||||||
Supplemental disclosures of cash payments for: | |||||||||||||||
Interest | $ | — | $ | 6 | $ | 55 | |||||||||
Income taxes | (1,568 | ) | 3,640 | 2,957 |
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Table of Contents
NOTES TO FINANCIAL STATEMENTS
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
1. | Organization and Basis of Presentation |
Assets: | ||||
Cash | $ | 12,830 | ||
Restricted cash | 9,408 | |||
Other receivables | 18,178 | |||
Property and equipment | 1,447 | |||
Other intangible assets | 8,661 | |||
Other assets | 146 | |||
Liabilities: | ||||
Accrued expenses and accounts payable | (644 | ) | ||
Brokered insurance payable | (27,822 | ) | ||
Commissions payable | (189 | ) | ||
Net deferred tax liability | (945 | ) | ||
Net assets acquired | 21,070 | |||
Purchase consideration | 37,500 | |||
Goodwill | $ | 16,430 | ||
F-76
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
2. | Summary of Significant Accounting Policies |
F-77
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-78
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
F-79
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
3. | Net Investment Income |
Successor | Predecessor | ||||||||||||
Period from | Period from | ||||||||||||
October 1, | January 1, | ||||||||||||
2008 to | 2008 to | Year Ended | |||||||||||
December 31, | September 30, | December 31, | |||||||||||
2008 | 2008 | 2007 | |||||||||||
Cash on hand and on deposit | $ | 173 | $ | 632 | $ | 788 | |||||||
Net investment income | $ | 173 | $ | 632 | $ | 788 | |||||||
4. | Property and Equipment |
Successor | Predecessor | ||||||||
At December 31, | At December 31, | ||||||||
2008 | 2007 | ||||||||
Furniture, fixtures, and equipment | $ | 352 | $ | 795 | |||||
Computer equipment | 440 | 1,432 | |||||||
Software | 640 | — | |||||||
Leasehold improvements | 19 | 96 | |||||||
1,451 | 2,323 | ||||||||
Less: accumulated depreciation and amortization | (78 | ) | (1,349 | ) | |||||
$ | 1,373 | $ | 974 | ||||||
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Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
5. | Goodwill and Other Intangible Assets |
December 31, 2006 (Predecessor) | $ | 35,275 | ||
December 31, 2007 (Predecessor) | 35,275 | |||
Elimination of purchased goodwill | (35,275 | ) | ||
Purchase price allocation | 16,430 | |||
December 31, 2008 (Successor) | $ | 16,430 | ||
December 31, 2006 (Predecessor) | $ | 11,976 | ||
Amortization | (2,148 | ) | ||
December 31, 2007 (Predecessor) | 9,828 | |||
Amortization for the period January 1, 2008 to October 1, 2008 | (672 | ) | ||
Elimination of purchase intangible assets | (9,156 | ) | ||
Purchase price allocation | 8,661 | |||
Amortization for the period October 1, 2008 to December 31, 2008 | (49 | ) | ||
December 31, 2008 (Successor) | $ | 8,612 | ||
6. | Accrued Expenses and Accounts Payable |
Successor | Predecessor | ||||||||
At December 31, | At December 31, | ||||||||
2008 | 2007 | ||||||||
Premiums payable to insurance carriers | $ | 24,658 | $ | 24,540 | |||||
Accrued bonuses | 543 | 551 | |||||||
Other accrued expenses and accounts payable | 1,396 | 1,239 | |||||||
Total accrued expenses and accounts payable | $ | 26,597 | $ | 26,330 | |||||
7. | Leases |
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NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
2010 | $ | 1,312 | ||
2011 | 1,244 | |||
2012 | 1,039 | |||
2013 | 649 | |||
2014 | 10 | |||
Thereafter | — | |||
$ | 4,254 | |||
8. | Income Taxes |
Successor | Predecessor | ||||||||||||
Period from | Period from | ||||||||||||
October 1, 2008 to | January 1, 2008 to | Year Ended | |||||||||||
December 31, 2008 | September 30, 2008 | December 31, 2007 | |||||||||||
Current income tax | $ | 165 | $ | 2,673 | $ | 2,540 | |||||||
Deferred income tax (benefit) | 114 | (274 | ) | (410 | ) | ||||||||
Total income taxes | $ | 279 | $ | 2,399 | $ | 2,130 | |||||||
Predecessor | |||||||||||||||||||||||||
Successor | Period from | ||||||||||||||||||||||||
Period from October 1, 2008 to | January 1, 2008 to | Year Ended | |||||||||||||||||||||||
December 31, 2008 | September 30, 2008 | December 31, 2007 | |||||||||||||||||||||||
Percent | Percent | Percent | |||||||||||||||||||||||
of Pre- | of Pre- | of Pre- | |||||||||||||||||||||||
Tax | Tax | Tax | |||||||||||||||||||||||
Amount | Income | Amount | Income | Amount | Income | ||||||||||||||||||||
Income tax expense at 35% of pretax income | $ | 228 | 35.00 | % | $ | 1,951 | 35.00 | % | $ | 1,854 | 35.00 | % | |||||||||||||
Effect of: | |||||||||||||||||||||||||
State income taxes | 38 | 5.91 | 329 | 5.91 | 313 | 5.91 | |||||||||||||||||||
Non deductible expenses | 6 | 0.90 | 28 | 0.51 | 42 | 0.79 | |||||||||||||||||||
Other, net | 7 | 1.08 | 91 | 1.62 | (79 | ) | (1.49 | ) | |||||||||||||||||
Income tax expense | $ | 279 | 42.99 | % | $ | 2,399 | 43.04 | % | $ | 2,130 | 40.21 | % | |||||||||||||
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Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
Successor | Predecessor | ||||||||
At December 31, | At December 31, | ||||||||
2008 | 2007 | ||||||||
Gross deferred tax asset | |||||||||
Reserves | $ | 370 | $ | 351 | |||||
Total gross deferred tax assets | 370 | 351 | |||||||
Gross deferred tax liabilities | |||||||||
Amortization of intangible assets | 1,415 | 3,943 | |||||||
Depreciation on fixed assets | 14 | 75 | |||||||
Total gross deferred tax liabilities | 1,429 | 4,018 | |||||||
Net deferred tax liability | $ | 1,059 | $ | 3,667 | |||||
9. Commitments and Contingencies |
10. | Related Party Transactions |
F-83
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
THE PERIOD FROM OCTOBER 1, 2008 THROUGH DECEMBER 31, 2008
(SUCCESSOR) AND THE PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008
AND THE YEAR ENDED DECEMBER 31, 2007 (PREDECESSOR)
(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)
11. | Subsequent Events |
F-84
Table of Contents
Successor | ||||||||
March 31, | December 31, | |||||||
2009 | 2008 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 4,827 | $ | 9,809 | ||||
Restricted cash | 7,486 | 7,806 | ||||||
Subtotal invested assets and cash | 12,313 | 17,615 | ||||||
Other receivables, net of allowance of $187 and $93 as of March 31, 2009 and December 31, 2008, respectively | 17,841 | 16,204 | ||||||
Other assets | 196 | 76 | ||||||
Property and equipment | 1,298 | 1,373 | ||||||
Goodwill and other intangible assets | 24,993 | 25,042 | ||||||
Total assets | $ | 56,641 | $ | 60,310 | ||||
Liabilities: | ||||||||
Accrued expenses and accounts payable | $ | 27,065 | $ | 26,597 | ||||
Commissions payable | 120 | 166 | ||||||
Deferred income taxes | 1,160 | 1,059 | ||||||
Total liabilities | 28,345 | 27,822 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
Stockholders’ Equity: | ||||||||
Additional paid-in capital | 27,287 | 32,118 | ||||||
Retained earnings | 1,009 | 370 | ||||||
Total stockholders’ equity | 28,296 | 32,488 | ||||||
Total liabilities and stockholders’ equity | $ | 56,641 | $ | 60,310 | ||||
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Successor | Predecessor | ||||||||
Three Months Ended | Three Months Ended | ||||||||
March 31, | March 31, | ||||||||
2009 | 2008 | ||||||||
Revenues: | |||||||||
Wholesale brokerage commissions | $ | 6,500 | $ | 8,748 | |||||
Net investment income | 83 | 246 | |||||||
Other income | 29 | 17 | |||||||
Total net revenues | 6,612 | 9,011 | |||||||
Expenses: | |||||||||
Personnel costs | 3,523 | 4,122 | |||||||
Other operating expenses | 1,854 | 1,707 | |||||||
Depreciation and amortization | 125 | 602 | |||||||
Interest expense | — | 2 | |||||||
Total expenses | 5,502 | 6,433 | |||||||
Income before income taxes | 1,110 | 2,578 | |||||||
Income taxes | 471 | 1,037 | |||||||
Net income | $ | 639 | $ | 1,541 | |||||
F-86
Table of Contents
STATEMENTS OF STOCKHOLDERS EQUITY
THREE MONTHS ENDED MARCH 31, 2009 (SUCCESSOR) AND 2008 (PREDECESSOR)
(Unaudited)
Additional Paid-In | Retained (Deficit) | Total Stockholders’ | ||||||||||
Capital | Earnings | Equity | ||||||||||
Balances, January 1, 2009 (Successor) | $ | 32,118 | $ | 370 | $ | 32,488 | ||||||
Net income for the three months ended March 31, 2009 | — | 639 | 639 | |||||||||
Return of capital | (4,831 | ) | — | (4,831 | ) | |||||||
Balances, March 31, 2009 (Successor) | $ | 27,287 | $ | 1,009 | $ | 28,296 | ||||||
Balances, January 1, 2008 (Predecessor) | $ | 50,399 | $ | 3,077 | $ | 53,476 | ||||||
Net income for the three months ended March 31, 2008 | — | 1,541 | 1,541 | |||||||||
Return of capital | (844 | ) | — | (844 | ) | |||||||
Dividends | — | (4,618 | ) | (4,618 | ) | |||||||
Balances, March 31, 2008 (Predecessor) | $ | 49,555 | $ | — | $ | 49,555 | ||||||
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Predecessor | |||||||||
Successor | |||||||||
Three Months Ended | Three Months Ended | ||||||||
March 31, 2009 | March 31, 2008 | ||||||||
Operating Activities: | |||||||||
Net income | $ | 639 | $ | 1,541 | |||||
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: | |||||||||
Depreciation and amortization | 125 | 602 | |||||||
Deferred income taxes | 101 | 275 | |||||||
Changes in operating assets and liabilities, net effect of acquisition: | |||||||||
Other receivables, net of allowance | (1,637 | ) | (5,181 | ) | |||||
Other assets | (120 | ) | (60 | ) | |||||
Accrued expenses and accounts payable | 467 | 5,841 | |||||||
Commissions payable | (46 | ) | 97 | ||||||
Net cash flows (used in) provided by operating activities | (471 | ) | 3,115 | ||||||
Investing Activities: | |||||||||
Purchase of property, equipment | — | (529 | ) | ||||||
Change in restricted cash | 320 | 348 | |||||||
Net cash flows provided by (used in) investing activities | 320 | (181 | ) | ||||||
Financing Activities: | |||||||||
Dividends paid on common stock | — | (4,618 | ) | ||||||
Return of capital | (4,831 | ) | (844 | ) | |||||
Net cash flows used in financing activities | (4,831 | ) | (5,462 | ) | |||||
Net decrease in cash and cash equivalents | (4,982 | ) | (2,528 | ) | |||||
Cash and cash equivalents, beginning of period | 9,809 | 12,879 | |||||||
Cash and cash equivalents, end of period | $ | 4,827 | $ | 10,351 | |||||
Supplemental disclosures of cash payments for: | |||||||||
Interest | $ | — | $ | 2 | |||||
Income taxes | $ | 568 | $ | 383 |
F-88
Table of Contents
1. | Organization and Basis of Presentation |
2. | Summary of Significant Accounting Policies |
F-89
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3. | Net Investment Income |
Successor | Predecessor | ||||||||
Three Months | Three Months | ||||||||
Ended March 31, | Ended March 31, | ||||||||
2009 | 2008 | ||||||||
Cash on hand and on deposit | $ | 83 | $ | 246 | |||||
Net investment income | $ | 83 | $ | 246 | |||||
4. | Goodwill and Other Intangible Assets |
December 31, 2008 | $ | 16,430 | ||
Adjustments | — | |||
March 31, 2009 | $ | 16,430 | ||
December 31, 2008 | $ | 8,612 | ||
Amortization | (49 | ) | ||
March 31, 2009 | $ | 8,563 | ||
5. | Leases |
6. | Income Taxes |
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Successor | Predecessor | ||||||||
Three Months | Three Months | ||||||||
Ended | Ended | ||||||||
March 31, 2009 | March 31, 2008 | ||||||||
Current income tax | $ | 370 | $ | 762 | |||||
Deferred income tax | 101 | 275 | |||||||
Total income tax | $ | 471 | $ | 1,037 | |||||
Successor | Predecessor | ||||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||
2009 | 2008 | ||||||||||||||||
Percent | Percent | ||||||||||||||||
of Pre-Tax | of Pre-Tax | ||||||||||||||||
Amount | Income | Amount | Income | ||||||||||||||
Income tax expense at 35% of pre-tax income | $ | 389 | 35.00 | % | $ | 903 | 35.00 | % | |||||||||
Effect of: | |||||||||||||||||
State income taxes | 69 | 6.22 | 152 | 5.91 | |||||||||||||
Non-deductible expenses | 7 | 0.63 | 6 | 0.23 | |||||||||||||
Other, net | 6 | 0.54 | (24 | ) | (0.93 | ) | |||||||||||
Income tax expense | $ | 471 | 42.43 | % | $ | 1,037 | 40.22 | % | |||||||||
F-91
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Successor | ||||||||
At March 31, | At December 31, | |||||||
2009 | 2008 | |||||||
Gross deferred tax assets | ||||||||
Reserves | $ | 419 | $ | 370 | ||||
Total gross deferred tax assets | 419 | 370 | ||||||
Gross deferred tax liabilities | ||||||||
Intangible assets | 1,555 | 1,415 | ||||||
Depreciation on fixed assets | 24 | 14 | ||||||
Total gross deferred tax liabilities | 1,579 | 1,429 | ||||||
Net deferred tax liability | $ | 1,160 | $ | 1,059 | ||||
7. | Commitments and Contingencies |
8. | Related Party Transactions |
9. | Subsequent Events |
F-92
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Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
Securities and Exchange Commission Registration Fee | $ | 8,913 | ||
Financial Industry Regulatory Authority, Inc. Filing Fee | 13,000 | |||
New York Stock Exchange Listing Fee | * | |||
Printing and Engraving | * | |||
Legal Fees and Expenses | * | |||
Accounting Fees and Expenses | * | |||
Transfer Agent and Registrar Fees | * | |||
Miscellaneous | * | |||
Total | $ | * | ||
* | To be completed by amendment. |
Item 14. | Indemnification of Directors and Officers. |
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Table of Contents
Item 15. | Recent Sales of Unregistered Securities. |
II-2
Table of Contents
Item 16. | Exhibits and Financial Statement Schedules |
Exhibit | ||||
Number | Description of Exhibits | |||
1 | .1* | Form of Underwriting Agreement. | ||
2 | .1 | Agreement and Plan of Merger, dated as of March 7, 2007, by and among, Summit Partners Private EquityFund VII-A, L.P., Summit Partners Private EquityFund VII-B, L.P., Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co., the signing stockholders and Life of the South Corporation and N.G. Houston III, as Stockholder Representative. | ||
2 | .2 | First Amendment to Merger Agreement, dated as of June 20, 2007 by and among Summit Partners Private EquityFund VII-A, L.P., Summit Partners Private EquityFund VII-B, L.P., Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co. and N.G. Houston, III, as Stockholder Representative. | ||
2 | .3 | Stock Purchase Agreement, dated as of April 15, 2009, by and among Willis HRH, Inc., Bliss and Glennon, Inc., LOTS Intermediate Co., Willis North America Inc. and Fortegra Financial Corporation. | ||
3 | .1* | Certificate of Incorporation Fortegra Financial Corporation. | ||
3 | .2* | Bylaws of Fortegra Financial Corporation. | ||
3 | .3* | Form of Amended and Restated Certificate of Incorporation of Fortegra Financial Corporation to be in effect prior to the offering made under this Registration Statement. | ||
3 | .4* | Form of Amended and Restated Bylaws of Fortegra Financial Corporation to be in effect prior to the offering made under this Registration Statement. | ||
4 | .1* | Form of Common Stock Certificate. |
II-3
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
4 | .2* | Stockholders Agreement, dated as of March 7, 2007, among Life of the South Corporation, the Rollover Stockholders (as defined therein), Employee Stockholders (as defined therein) and Investors (as defined therein). | ||
5 | .1* | Opinion of Weil, Gotshal & Manges LLP. | ||
10 | .1 | Indenture, dated as of June 20, 2007, between LOTS Intermediate Co. and Wilmington Trust Company. | ||
10 | .2 | Form of Fixed/Floating Rate Senior Debenture (included in Exhibit 10.1). | ||
10 | .3 | Subordinated Debenture Purchase Agreement, dated as of June 20, 2007, among Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co. | ||
10 | .4 | Form of Subordinated Debenture (included in Exhibit 10.3). | ||
10 | .5 | Amended Subordinated Debenture Purchase Agreement, dated June 16, 2010, among Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co. | ||
10 | .6 | Revolving Credit Agreement, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and the lenders from time to time a party thereto and SunTrust Bank, as administrative agent. | ||
10 | .7 | Revolving Credit Note, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and SunTrust Bank, as lender. | ||
10 | .8 | Subsidiary Guaranty Agreement, dated June 16, 2010, among Bliss and Glennon, Inc., LOTSolutions, Inc., as guarantors and SunTrust Bank, as administrative agent. | ||
10 | .9 | Security Agreement, dated June 16, 2010, by Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers and SunTrust Bank, as administrative agent. | ||
10 | .10 | Pledge Agreement, dated June 16, 2010 by and among Fortegra Financial Corporation, as pledgor and SunTrust Bank, as administrative agent. | ||
10 | .11 | Line of Credit Note of Fortegra Financial Corporation, dated April 6, 2009, issued to Columbus Bank and Trust Company. | ||
10 | .12 | Stock Pledge and Security Agreement, dated as of April 6, 2009, by and between Fortegra Financial Corporation and Columbus Bank and Trust Company. | ||
10 | .13 | Loan and Security Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, as borrower and Wells Fargo Capital Finance, LLC, as lender. | ||
10 | .14 | General Continuing Guaranty, dated as of June 10, 2010, by Fortegra Financial Corporation, as guarantor, in favor of Wells Fargo Capital Finance, LLC | ||
10 | .15 | Servicing and Management Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, and Wells Fargo Capital Finance, LLC. | ||
10 | .16 | Line of Credit Agreement, dated as of April 6, 2009, by and among Columbus Bank and Trust Company, Fortegra Financial Corporation and LOTS Intermediate Co. | ||
10 | .17 | Modification Agreement, dated as of April 27, 2010, by and among Fortegra Financial Corporation, LOTS Intermediate Co. and Columbus Bank and Trust Company. | ||
10 | .18* | Form of Fortegra Financial Corporation Director Indemnification Agreement for John R. Carroll and J.J. Kardwell. | ||
10 | .19* | Form of Fortegra Financial Corporation Director Indemnification Agreement for Alfred R. Berkeley, III, Francis M. Colalucci, Frank P. Filipps and Ted W. Rollins. | ||
10 | .20* | Form of Fortegra Financial Corporation Officer Indemnification Agreement. | ||
10 | .21* | Form of Indemnity Agreement between Fortegra Financial Corporation and the executive officers serving as plan committee members for the Fortegra Financial Corporation 401(k) Savings Plan. | ||
10 | .22*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Richard S. Kahlbaugh. |
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Exhibit | ||||
Number | Description of Exhibits | |||
10 | .23*† | Executive Employment and Non-Competition Agreement, dated as of January 1, 2009, by and between Life of the South Corporation and Michael Vrban. | ||
10 | .24*† | Executive Employment and Non-Competition Agreement, dated as of January 1, 2009, by and between Life of the South Corporation and Daniel A. Reppert. | ||
10 | .25*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and W. Dale Bullard. | ||
10 | .26*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Robert S. Fullington. | ||
10 | .27*† | 2005 Equity Incentive Plan. | ||
10 | .28*† | Key Employee Stock Option Plan (1995) Agreement. | ||
10 | .29*† | Form of 2005 Equity Incentive Plan Stock Option Agreement. | ||
10 | .30*† | Form of Key Employee Stock Option Plan (1995). | ||
10 | .31*† | Form of 2010 Omnibus Incentive Plan. | ||
10 | .32*† | Form of Employee Stock Purchase Plan. | ||
10 | .33*† | Deferred Compensation Agreement, dated as of May 1, 2005 between Life of the South Corporation and W. Dale Bullard. | ||
10 | .34*† | Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Richard S. Kahlbaugh. | ||
10 | .35*† | Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Robert S. Fullington. | ||
11 | .1 | Statement Regarding Computation of Per Share Earnings (incorporated by reference to Notes to Consolidated Financial Statements in Part I of this Registration Statement). | ||
16 | .1 | Letter re change in certifying accountant. | ||
16 | .2 | Letter re change in certifying accountant. | ||
21 | .1 | List of Subsidiaries of Fortegra Financial Corporation. | ||
23 | .1 | Consent of Johnson Lambert & Co. LLP, Independent Registered Public Accounting Firm. | ||
23 | .2 | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | ||
23 | .3* | Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1 hereto). | ||
24 | .1 | Power of Attorney (included on signature page). | ||
99 | .1 | Consent of Alfred R. Berkeley, III. | ||
99 | .2 | Consent of Francis M. Colalucci. | ||
99 | .3 | Consent of Frank P. Filipps. | ||
99 | .4 | Consent of Ted W. Rollins. |
* | To be filed by amendment |
† | Management contract or compensatory plan or arrangement |
(b) | Financial Statement Schedules |
Item 17. | Undertakings. |
II-5
Table of Contents
II-6
Table of Contents
By: | /s/ Richard S. Kahlbaugh |
Title: | President and Chief Executive Officer |
Signature | Title | |||
/s/ Richard S. Kahlbaugh Richard S. Kahlbaugh | Chairman, President and Chief Executive Officer (Principal Executive Officer) | |||
/s/ Michael Vrban Michael Vrban | Executive Vice President and Chief Accounting Officer (Principal Financial and Accounting Officer) | |||
/s/ John R. Carroll John R. Carroll | Director | |||
/s/ J.J. Kardwell J.J. Kardwell | Director |
II-7
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
1 | .1* | Form of Underwriting Agreement. | ||
2 | .1 | Agreement and Plan of Merger, dated as of March 7, 2007, by and among, Summit Partners Private EquityFund VII-A, L.P., Summit Partners Private EquityFund VII-B, L.P., Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co., the signing stockholders and Life of the South Corporation and N.G. Houston III, as Stockholder Representative. | ||
2 | .2 | First Amendment to Merger Agreement, dated as of June 20, 2007 by and among Summit Partners Private EquityFund VII-A, L.P., Summit Partners Private EquityFund VII-B, L.P., Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co. and N.G. Houston, III, as Stockholder Representative. | ||
2 | .3 | Stock Purchase Agreement, dated as of April 15, 2009, by and among Willis HRH, Inc., Bliss and Glennon, Inc., LOTS Intermediate Co., Willis North America Inc. and Fortegra Financial Corporation. | ||
3 | .1* | Certificate of Incorporation Fortegra Financial Corporation. | ||
3 | .2* | Bylaws of Fortegra Financial Corporation. | ||
3 | .3* | Form of Amended and Restated Certificate of Incorporation of Fortegra Financial Corporation to be in effect prior to the offering made under this Registration Statement. | ||
3 | .4* | Form of Amended and Restated Bylaws of Fortegra Financial Corporation to be in effect prior to the offering made under this Registration Statement. | ||
4 | .1* | Form of Common Stock Certificate. | ||
4 | .2* | Stockholders Agreement, dated as of March 7, 2007, among Life of the South Corporation, the Rollover Stockholders (as defined therein), Employee Stockholders (as defined therein) and Investors (as defined therein). | ||
5 | .1* | Opinion of Weil, Gotshal & Manges LLP. | ||
10 | .1 | Indenture, dated as of June 20, 2007, between LOTS Intermediate Co. and Wilmington Trust Company. | ||
10 | .2 | Form of Fixed/Floating Rate Senior Debenture (included in Exhibit 10.1). | ||
10 | .3 | Subordinated Debenture Purchase Agreement, dated as of June 20, 2007, among Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co. | ||
10 | .4 | Form of Subordinated Debenture (included in Exhibit 10.3). | ||
10 | .5 | Amended Subordinated Debenture Purchase Agreement, dated June 16, 2010, among Summit Subordinated DebtFund III-A, L.P., Summit Subordinated DebtFund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co. | ||
10 | .6 | Revolving Credit Agreement, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and the lenders from time to time a party thereto and SunTrust Bank, as administrative agent. | ||
10 | .7 | Revolving Credit Note, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and SunTrust Bank, as lender. | ||
10 | .8 | Subsidiary Guaranty Agreement, dated June 16, 2010, among Bliss and Glennon, Inc., LOTSolutions, Inc., as guarantors and SunTrust Bank, as administrative agent. | ||
10 | .9 | Security Agreement, dated June 16, 2010, by Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers and SunTrust Bank, as administrative agent. | ||
10 | .10 | Pledge Agreement, dated June 16, 2010 by and among Fortegra Financial Corporation, as pledgor and SunTrust Bank, as administrative agent. | ||
10 | .11 | Line of Credit Note of Fortegra Financial Corporation, dated April 6, 2009, issued to Columbus Bank and Trust Company. | ||
10 | .12 | Stock Pledge and Security Agreement, dated as of April 6, 2009, by and between Fortegra Financial Corporation and Columbus Bank and Trust Company. |
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
10 | .13 | Loan and Security Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, as borrower and Wells Fargo Capital Finance, LLC, as lender. | ||
10 | .14 | General Continuing Guaranty, dated as of June 10, 2010, by Fortegra Financial Corporation, as guarantor, in favor of Wells Fargo Capital Finance, LLC | ||
10 | .15 | Servicing and Management Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, and Wells Fargo Capital Finance, LLC. | ||
10 | .16 | Line of Credit Agreement, dated as of April 6, 2009, by and among Columbus Bank and Trust Company, Fortegra Financial Corporation and LOTS Intermediate Co. | ||
10 | .17 | Modification Agreement, dated as of April 27, 2010, by and among Fortegra Financial Corporation, LOTS Intermediate Co. and Columbus Bank and Trust Company. | ||
10 | .18* | Form of Fortegra Financial Corporation Director Indemnification Agreement for John R. Carroll and J.J. Kardwell. | ||
10 | .19* | Form of Fortegra Financial Corporation Director Indemnification Agreement for Alfred R. Berkeley, III, Francis M. Colalucci, Frank P. Filipps and Ted W. Rollins. | ||
10 | .20* | Form of Fortegra Financial Corporation Officer Indemnification Agreement. | ||
10 | .21* | Form of Indemnity Agreement between Fortegra Financial Corporation and the executive officers serving as plan committee members for the Fortegra Financial Corporation 401(k) Savings Plan. | ||
10 | .22*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Richard S. Kahlbaugh. | ||
10 | .23*† | Executive Employment and Non-Competition Agreement, dated as of January 1, 2009, by and between Life of the South Corporation and Michael Vrban. | ||
10 | .24*† | Executive Employment and Non-Competition Agreement, dated as of January 1, 2009, by and between Life of the South Corporation and Daniel A. Reppert. | ||
10 | .25*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and W. Dale Bullard. | ||
10 | .26*† | Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Robert S. Fullington. | ||
10 | .27*† | 2005 Equity Incentive Plan. | ||
10 | .28*† | Key Employee Stock Option Plan (1995) Agreement. | ||
10 | .29*† | Form of 2005 Equity Incentive Plan Stock Option Agreement. | ||
10 | .30*† | Form of Key Employee Stock Option Plan (1995). | ||
10 | .31*† | Form of 2010 Omnibus Incentive Plan. | ||
10 | .32*† | Form of Employee Stock Purchase Plan. | ||
10 | .33*† | Deferred Compensation Agreement, dated as of May 1, 2005 between Life of the South Corporation and W. Dale Bullard. | ||
10 | .34*† | Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Richard S. Kahlbaugh. | ||
10 | .35*† | Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Robert S. Fullington. | ||
11 | .1 | Statement Regarding Computation of Per Share Earnings (incorporated by reference to Notes to Consolidated Financial Statements in Part I of this Registration Statement). | ||
16 | .1 | Letter re change in certifying accountant. | ||
16 | .2 | Letter re change in certifying accountant. | ||
21 | .1 | List of Subsidiaries of Fortegra Financial Corporation. | ||
23 | .1 | Consent of Johnson Lambert & Co. LLP, Independent Registered Public Accounting Firm. | ||
23 | .2 | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | ||
23 | .3* | Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5.1 hereto). | ||
24 | .1 | Power of Attorney (included on signature page). |
Table of Contents
Exhibit | ||||
Number | Description of Exhibits | |||
99 | .1 | Consent of Alfred R. Berkeley, III. | ||
99 | .2 | Consent of Francis M. Colalucci. | ||
99 | .3 | Consent of Frank P. Filipps. | ||
99 | .4 | Consent of Ted W. Rollins. |
* | To be filed by amendment | |
† | Management contract or compensatory plan or arrangement |
Table of Contents
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 20 | June 1 | ||||||||||||||||
through | through | ||||||||||||||||
December 31, | June 19, | ||||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
Revenues | |||||||||||||||||
Management fee from subsidiaries* | $ | — | $ | 23,702 | $ | 9,845 | $ | 10,073 | |||||||||
Net investment income | 294 | 343 | 311 | 429 | |||||||||||||
Other income | 84 | — | — | — | |||||||||||||
Total net revenue | 378 | 24,045 | 10,156 | 10,502 | |||||||||||||
Expenses | |||||||||||||||||
Personnel costs* | — | 20,376 | 9,840 | 9,409 | |||||||||||||
Other operating expenses | 139 | (26 | ) | 241 | 2,559 | ||||||||||||
Interest expense | 926 | 1,022 | 679 | 798 | |||||||||||||
Total expenses | 1,065 | 21,372 | 10,760 | 12,766 | |||||||||||||
Income before interest and income taxes interest | (687 | ) | 2,673 | (604 | ) | (2,264 | ) | ||||||||||
Income taxes | (267 | ) | 1,015 | (229 | ) | (859 | ) | ||||||||||
Income before equity in net income in subsidiaries | (420 | ) | 1,658 | (375 | ) | (1,405 | ) | ||||||||||
Equity in net income of subsidiaries* | 11,978 | �� | 6,370 | 4,028 | 5,220 | ||||||||||||
Net income | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||
* | Eliminated in consolidation |
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Table of Contents
2009 | 2008 | |||||||
Assets: | ||||||||
Investment in subsidiaries | $ | 78,315 | $ | 53,961 | ||||
Cash and cash equivalents | — | — | ||||||
Due from subsidiaries, net* | 17,820 | 6,170 | ||||||
Notes receivable* | 4,138 | 5,159 | ||||||
Other assets | 2,525 | 3,931 | ||||||
Total assets | $ | 102,798 | $ | 69,221 | ||||
Liabilities: | ||||||||
Long-term debt | $ | 23,027 | $ | 11,540 | ||||
Other liabilities | 453 | 2,319 | ||||||
Total liabilities | 23,480 | 13,859 | ||||||
Stockholder’s equity: | ||||||||
Common stock, par value $0.331/3 per share (6.000,000 shares authorized and $3,007,031 and 2,871,563 shares issued at December 31, 2009 and 2008, respectively) | 1,002 | 957 | ||||||
Treasury stock (8,491 and 100,000 shares at December 31, 2009 and 2008, respectively) | (176 | ) | (2,069 | ) | ||||
Additionalpaid-in-capital | 53,675 | 45,894 | ||||||
Accumulated other comprehensive income (loss), net of tax (provision) benefit of $(865) and $552 at December 31, 2009 and 2008, respectively | 1,607 | (1,072 | ) | |||||
Retained earnings | 23,210 | 11,652 | ||||||
Total stockholder’s equity | 79,318 | 55,362 | ||||||
Total liabilities and stockholder’s equity | $ | 102,798 | $ | 69,221 | ||||
* | Eliminated in consolidation |
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Table of Contents
Successor | Predecessor | ||||||||||||||||
Period from | Period from | ||||||||||||||||
June 19 | June 1 | ||||||||||||||||
through | through | ||||||||||||||||
December 31, | June 19, | ||||||||||||||||
2009 | 2008 | 2007 | 2007 | ||||||||||||||
Operating Activities: | |||||||||||||||||
Net income | $ | 11,558 | $ | 8,028 | $ | 3,653 | $ | 3,815 | |||||||||
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities | |||||||||||||||||
Equity in net income of subsidiaries* | (11,978 | ) | (6,370 | ) | (4,028 | ) | (5,220 | ) | |||||||||
Cash dividend from subsidiaries | — | 10,481 | — | — | |||||||||||||
Deferred income tax (benefit) expense | 36 | 738 | 595 | (592 | ) | ||||||||||||
Stock based compensation | 209 | 244 | 56 | 2 | |||||||||||||
Other changes in assets and liabilities | �� | ||||||||||||||||
Net due (to) from subsidiaries | (11,650 | ) | (7,587 | ) | (477 | ) | 939 | ||||||||||
Other assets and other liabilities | (2,487 | ) | (1,435 | ) | 1,572 | (1,431 | ) | ||||||||||
Net cash flows provided by (used in) operating activities | (14,312 | ) | 4,099 | 1,371 | (2,487 | ) | |||||||||||
Investing Activities: | |||||||||||||||||
Proceeds from maturities of investments | 2,139 | (1,518 | ) | 559 | (485 | ) | |||||||||||
Net (paid) received for acquisition of subsidiaries | (9,845 | ) | — | — | 6,277 | ||||||||||||
Proceeds from notes receivable | 1,021 | (741 | ) | 711 | 2,390 | ||||||||||||
Net cash flows (used in) provided by investing activities | (6,685 | ) | (2,259 | ) | 1,270 | 8,182 | |||||||||||
Financing Activities: | |||||||||||||||||
Repayments of notes payable and capitalized lease obligations | — | (1,079 | ) | (16,201 | ) | (320 | ) | ||||||||||
Additional borrowings under notes payable | 11,487 | — | — | — | |||||||||||||
Net proceeds from issuance of common stock | 5,610 | — | — | — | |||||||||||||
Dividends paid on common stock | — | (29 | ) | — | (428 | ) | |||||||||||
Net proceeds from exercise of stock options | 24 | 1,273 | 771 | 273 | |||||||||||||
Issuance (purchase) of treasury stock | 3,876 | (2,069 | ) | — | — | ||||||||||||
Shareholder funds disbursed at purchase | — | — | 7,080 | — | |||||||||||||
Net cash flows provided by (used in) financing activities | 20,997 | (1,904 | ) | (8,350 | ) | (475 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | — | (64 | ) | (5,709 | ) | 5,220 | |||||||||||
Cash and cash equivalents at beginning of period | — | 64 | 5,773 | 553 | |||||||||||||
Cash and cash equivalents at end of period | $ | — | $ | — | $ | 64 | $ | 5,773 | |||||||||
* | Eliminated in Consolidation |
S-3