SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 19, 1996
----------------
Chartwell Re Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-12502 41-1652573
- --------------------------------------------------------------------------------
State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4 Stamford Plaza, P. O. Box 120043, Stamford, CT 06912-0043
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 705-2500
--------------
Page 1 of 41 pages.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its report on Form 8-K as set forth
in the pages attached hereto:
Item 7. Financial Statements, Proforma Financial
Information and Exhibits.
(a) Financial Statement of business acquired.
Page
----
Consolidated financial statements for the years ended
September 30, 1995 and 1994.
Report of KPMG Chartered Accounts A-1
Consolidated Profit and Loss Account for the years
ended September 30, 1995 and 1994. A-2
Consolidated Balance Sheet as at September 30, 1995
and 1994. A-3
Company Balance Sheet as at September 30, 1995 and 1994. A-4
Consolidated Cash Flow Statement for the years ended
September 30, 1995 and 1994. A-5
Notes to the Consolidated Financial Statements for the
years ended September 30, 1995 and 1994. A-6
Interim financial statements for the nine months ended
June 30, 1996 (unaudited).
Consolidated Profit and Loss Account for the nine months
ended June 30, 1996 (unaudited). A-24
Consolidated Balance Sheet as at June 30, 1996 (unaudited). A-25
Summarised Consolidated Cash Flow Statement for the nine
months ended June 30, 1996 (unaudited). A-26
Notes to the Consolidated Financial Statements for the
nine months ended June 30, 1996 (unaudited). A-27
(b) Pro forma financial information.
Condensed Consolidated ProForma Balance Sheet as at
September 30, 1996. B-1
Condensed Consolidated Pro Forma Statement of Operations
for the nine months ended September 30, 1996. B-2
Condensed Consolidated Pro Forma Statement of Operations
for the year ended December 31, 1995. B-3
Notes to Condensed Consolidated Pro Forma financial Statements. B-4
Auditors' Report
Auditors' report to the members of Archer Group Holdings plc
We have audited the accompanying consolidated balance sheet of Archer Group
Holdings plc and subsidiaries as of 30 September 1995, and the related
consolidated profit and loss account and cashflow statement for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United Kingdom, which standards are substantially equivalent to auditing
standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Archer Group
Holdings pls and subsidiaries as of 30 September 1995 and the results of their
operations and their cashflows for the year then ended, in conformity with
generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations for the year ended 30 September
1995 and shareholders' funds as of 30 September 1995, to the extent summarised
in Note 34 to the consolidated financial statements.
KPMG
London, United Kingdom Chartered Accountants
12 December 1995 Registered Auditors
A-1
Consolidated Profit and Loss Account
For the year ended 30 September, 1995
1995 1994
Note (pound)'000 (pound)'000
Turnover 3 11,817 10,723
Operating expenses 3&4 (11,675) (11,238)
-------- --------
Operating profit/(loss) 3 142 (515)
Share of profits of
associated undertaking 125 -
Net interest and other income
receivable 7 332 272
-------- --------
Profit /(loss) on ordinary
activities before taxation 3 599 (243)
Taxation on profit/(loss) on
ordinary activities 8 (216) (98)
-------- --------
Profit/(loss) on ordinary
activities after taxation 383 (341)
Minority interest 11 (1)
-------- --------
Profit/(loss) for the
financial year 9 394 (342)
Dividends 10 (366) (366)
-------- --------
Retained profit/(loss)
for the year 28 (708)
========= ========
Earnings/(losses) per
ordinary share (pence) 11 1.1p (0.9)p
========= ========
All operating profits and losses derive from continuing operations.
The only recognised gains and losses for the current and prior years are those
dealt with in the profit and loss account above.
Movements in reserves are set out in note 22.
The notes on pages A-6 to A-23 form an integral part of these statements.
A-2
Consolidated Balance Sheet
at 30 September, 1995
1995 1994
Note (pound)'000 (pound)'000
Fixed assets
Tangible 12 1,786 1,821
Investments 13 1,330 5
-------- --------
3,116 1,826
-------- --------
Current assets
Work in progress 162 82
Deferred tax
recoverable(due
after one year) 14 210 209
Debtors 15&16 12,298 12,216
Investments 17 570 30
Cash at bank 16 4,203 4,674
-------- --------
17,443 17,211
======== ========
Creditors - amounts
falling due within
one year 16&18 (16,802) (15,641)
--------- --------
Net current assets 641 1,570
--------- --------
Total assets less
current liabilities 3,757 3,396
Creditors - amounts falling
due after more
than one year 19 (981) (505)
Provisions for liabilities
and charges 20 (220) (220)
--------- --------
Net assets 2,556 2,671
========= ========
Capital and reserves
Called-up share capital 21 366 366
Share premium account 2,667 2,665
Other reserves 22 (2,951) (3,007)
Profit and loss account 22 2,467 2,634
--------- --------
Shareholders' funds 23 2,549 2,658
Minority interests 7 13
--------- --------
2,556 2,671
========= ========
All capital and reserves including minority interests represent equity
shareholders' interests.
The financial statements were approved by the board of directors on 12 December,
1995 and are signed on its behalf by:
B.P.D. Kellett T. Shenton
Chairman Director
The notes on pages A-6 to A-23 form an integral part of these statements.
A-3
Company Balance Sheet
at 30 September, 1995
1995 1994
Note (pound)'000 (pound)'000
Fixed assets
Investments 13 8,341 7,246
-------- --------
Current assets
Debtors 15 1,487 10,446
Cash at bank 448 520
-------- --------
1,935 10,966
Creditors - amounts falling
due within one year 18 (5,991) (14,205)
--------- --------
Net current liabilities (4,056) (3,239)
--------- --------
Total assets less current
liabilities 4,285 4,007
Creditors - amounts falling
due after more than 19 (10) (10)
one year
--------- --------
Net assets 4,275 3,997
========= ========
Capital and reserves
Called-up share capital 21 366 366
Share premium account 2,667 2,665
Profit and loss account 22 1,242 966
--------- --------
4,275 3,997
========= ========
All capital and reserves represent equity shareholders' interests.
The financial statements were approved by the board of directors on 12 December,
1995 and are signed on its behalf by:
B.P.D. Kellett T. Shenton
Chairman Director
The notes on pages A-6 to A-23 form an integral part of these statements.
A-4
Consolidated Cash Flow Statement
For the year ended 30 September, 1995
1995 1994
Note (pound)'000 (pound)'000
Net cash inflow from
operating activities 26 2,369 2,637
--------- --------
Returns on investments and
servicing of finance
Interest received 518 275
Interest paid (79) (101)
Interest element of
finance leases (28) (13)
Rent received - 44
Dividends paid (366) (366)
--------- --------
Net cash inflow/(outflow)from
returns on investments and
servicing of finance 45 (161)
--------- --------
Taxation
U.K. Corporation tax (paid)/received (116) 574
Overseas tax paid (5) (7)
--------- --------
Tax (paid)/received (121) 567
--------- --------
Investing activities
Purchase of tangible fixed assets (486) (475)
Purchase of subsidiary undertakings
(net of cash) 27 70 -
Purchase of associated undertaking (1,260) -
Purchase of current asset investment (530) -
Sale of tangible fixed assets 214 228
Disposal of subsidiary undertakings
(net of cash) 28 (170) -
Expenses of Castle acquisition - (220)
Purchase of business undertakings (50) (85)
--------- --------
Net cash outflow from investing activities (2,212) (552)
--------- --------
Net cash inflow before financing 81 2,491
========= ========
Financing
Issue of shares (2) -
Repayment of bank loan - 140
Capital element of finance
lease payments 456 620
Expenses of share issues - 44
Repayment of loan stock 128 498
--------- --------
Net cash outflow from financing 29 582 1,302
(Decrease)/increase in cash and
cash equivalents 30 (501) 1,189
--------- --------
81 2,491
========= ========
The notes on pages A-6 to A-23 form an integral part of these statements.
A-5
Notes to the Consolidated Financial Statements
1. Basis of Presentation
The financial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom.
The consolidated financial statements represent the consolidation of the
company and its subsidiaries.
No profit and loss account is presented for the company as permitted by
Section 230, Companies Act 1985.
2. Accounting Policies
(a) Accounting convention
The financial statements are drawn up in accordance with the
historical cost convention.
(b) Turnover
Turnover represents agency fees, profit commission, winding up fees,
insurance commissions and loss adjusting fees receivable for
insurance services which are accounted for on the following bases:-
(i) agency fees and loss adjusting fees are accounted for in
the year in which they are receivable;
(ii) profit commission and winding up fees are accounted for in
the year in which they are received which, in the case of
profit commission, is three years after the underwriting
year to which it relates;
(iii) insurance commissions are stated net of rebates and are
accounted for at the later of inception of the policy or
debiting to the client.
(c) Work in progress
Work in progress is valued at the lower of cost and estimated net
realisable value. Cost includes labour charges and an appropriate
proportion of overhead costs.
(d) Operating expenses
Operating expenses are charged when incurred and stated after
recharging expenses borne by the Archer Group on behalf of
syndicates.
(e) Leases
Where the group has substantially all the risks and rewards of
ownership of an asset subject to a lease, the lease is treated as a
finance lease. Other leases are treated as operating leases.
Future instalments payable under finance leases, net of financial
charges, are included in creditors with the corresponding asset
values recorded in fixed tangible assets and depreciated over the
shorter of their estimated useful lives or their lease terms.
Payments are apportioned between the finance element, which is
charged to the profit and loss account, net of amounts recharged to
syndicates as interest, and the capital element, which reduces the
outstanding obligation for future instalments.
Operating lease payments, net of recharges to syndicates are taken to
the profit and loss account on a straight line basis over the life of
the lease.
(f) Depreciation
Tangible fixed assets are written off in equal instalments over
their useful lives, at the following annual rates:
Fixtures and fittings - 15%-33 1/3% per annum
Motor vehicles - 20%-33 1/3% per annum
A-6
2. Accounting Policies (Continued)
(g) Pensions
The cost of providing pensions for all staff is charged in the profit
and loss account of the year to which they relate. Pension costs
arising from staff remuneration which is ultimately borne by group
undertakings or the group's managed syndicates are charged to those
companies or syndicates as incurred.
(h) Taxation
Taxation is provided at rates of corporation tax ruling during the
accounting period.
Deferred taxation is provided using the liability method in respect
of the taxation effect of all timing differences when there is
reasonable probability of a liability crystallising or a recovery
being made in the foreseeable future.
(i) Goodwill
Goodwill arising on the acquisition of subsidiaries is written off
directly to reserves in the year of acquisition.
(j) Investments
Fixed asset investments (including investments in subsidiaries) are
stated at the lower of cost and net realisable value. Current asset
investments are stated at market value.
(k) Foreign Currency
Assets and liabilities in foreign currencies are translated into
sterling at the financial year end exchange rates. Profits and losses
of overseas subsidiaries are translated into sterling at the average
rate of exchange during the year. The adjustment to financial year
end rates is taken to reserves.
3. Segmental Analysis
Group Group
1995 1994
(pound)'000 (pound)'000
a) Turnover
Lloyd's underwriting agencies
Profit commission 1,479 1,107
Agency fees 3,396 3,789
Winding up fees 460 149
Other 150 123
----------- --------
5,485 5,168
Insurance services 6,332 5,555
----------- --------
11,817 10,723
=========== ========
Turnover includes(pound)404,000 (1994(pound)249,000)from operations in
Australia; all other turnover is derived wholly within the United
Kingdom.
b) Operating expenses
Lloyd's underwriting agencies 5,026 5,588
Insurance services 6,649 5,650
----------- --------
11,675 11,238
=========== ========
A-7
3. Segmental Analysis (Continued)
Group Group
1995 1994
(pound)'000 (pound)'000
c) Operating profit/(loss)
Lloyd's underwriting agencies 459 (420)
Insurance services (317) (95)
------- --------
142 (515)
======= ========
d) Profit/(loss) on ordinary activities
before taxation
Lloyd's underwriting agencies 639 (302)
Insurance services (165) 59
Share of profits of associated
undertaking 125 -
-------- --------
599 (243)
======== ========
e) Net assets employed
Lloyd's underwriting agencies 2,542 2,480
Insurance services 14 191
-------- --------
2,556 2,671
======== ========
4. Operating Expenses
Operating expenses include the following:-
Group Group
1995 1994
(pound)'000 (pound)'000
Staff costs (see note 6) 6,570 6,193
Depreciation (see note 12) 150 83
Auditors' remuneration:
- audit 120 115
- non-audit 43 88
Exceptional charges (see note 5) - 342
Operating lease rentals (see note 25) 554 503
======= =======
The auditors' remuneration for 1995 includes (pound)30,000 in respect of
the previous year.
5. Exceptional charges
Group Group
1995 1994
(pound)'000 (pound)'000
Costs associated with fund raising
for managed syndicates - 342
======= ========
6. Staff Costs
(a) The average number of people (including directors)
employed was:-
Group Group
1995 1994
Underwriting 363 395
Members' agency 37 34
Other agency, accounting and
administration 98 97
Insurance services 164 146
------- -------
662 672
======= =======
A-8
(b) The employment costs of the above were as follows:-
Group Group
1995 1994
(pound)'000 (pound)'000
Salaries and wages 19,092 18,614
Social security costs 1,877 1,929
Other pension costs 1,930 2,090
------ -------
22,899 22,633
Charged to syndicates (16,329) (16,440)
------- -------
6,570 6,193
======= =======
This can be split as follows:
Lloyd's underwriting agencies 2,745 3,037
Insurance services 3,825 3,156
------- -------
6,570 6,193
======= =======
(c) Pensions
From 1 January 1994 the group has only operated contributory defined
contribution schemes for its United Kingdom employees. The level of
the contribution varies between 5% and 20% dependent upon the age of
each participant at the beginning of each calendar year. The assets
of the scheme are held separately from those of the company in
independently administered funds. The pension costs charge includes
contributions payable by the group to the funds during the period. No
contributions were outstanding at the year end.
Since 1 January 1994 no further contributions have been or will be
made to the other schemes previously operated by the group.
The total pension cost for the group was (pound)1,930,000 (1994:
(pound)2,090,000) of which (pound)1,389,000 (1994: (pound)1,668,000)
has been recharged to managed syndicates.
(d) Directors' emoluments (including (pound)197,000 (1994:(pound)217,000)
of pension contributions) amounted to (pound)1,493,000 (1994: pound)
1,776,000) of which (pound)1,108,000 (1994: (pound)1,313,000) has
been charged to managed syndicates. The total of (pound)1,493,000
includes (pound)205,000 ( 1994: (pound)196,000) for the Chairman and
(pound)238,000 (1994: (pound)382,000) for the highest paid director.
The total of (pound)1,493,000 also includes (pound)42,000 (1994:
(pound)208,000) (of which (pound)42,000 (1994: (pound)155,000)relates
to the highest paid director)of profit related remuneration which was
based on the performance of certain of our managed syndicates.
A-9
6. Staff Costs (Continued)
(e) The emoluments of directors, excluding pension contributions, are set
out below:-
Chairman (pound)172,898 (1994:(pound)164,361)
Highest paid director (pound)213,918 (1994:(pound)347,350)
Directors including Chairman
and highest paid director
1995 1994
(pound) 1 - (pound) 5,000 1 -
(pound) 15,001 - (pound) 20,000 2 2
(pound) 90,001 - (pound) 95,000 - 1
(pound)120,001 - (pound)125,000 2 1
(pound)125,001 - (pound)130,000 - 2
(pound)130,001 - (pound)135,000 1 -
(pound)135,001 - (pound)140,000 - 1
(pound)140,001 - (pound)145,000 1 -
(pound)160,001 - (pound)165,000 - 1
(pound)165,001 - (pound)170,000 - 1
(pound)170,001 - (pound)175,000 3 -
(pound)210,001 - (pound)215,000 1 -
(pound)230,001 - (pound)235,000 - 1
(pound)345,001 - (pound)350,000 - 1
(f) In addition one director received a payment of (pound)214,951 as
compensation for loss of office made up as follows: (pound)200,000
for loss of office; (pound)8,176 for legal fees; and (pound)6,775 for
life cover for the twelve month period following the termination of
his employment.
7. Net interest and other income receivable Group Group
1995 1994
(pound)'000 (pound)'000
Interest receivable 448 337
Interest payable
Bank loans and overdrafts (62) (82)
Finance charges (28) (13)
Other (36) (14)
Other income 10 44
-------- -------
332 272
======== =======
This can be split as follows:
Lloyd's underwriting agencies 180 118
Insurance services 152 154
-------- -------
332 272
======== =======
8. Taxation on profit on ordinary activities Group Group
1995 1994
(pound)'000 (pound)'000
U.K. Corporation tax on:-
Result of the year at 33% 262 198
Adjustments in respect of prior years (98) (67)
------- -------
164 131
======= =======
Deferred taxation 6 (37)
Overseas taxation 5 4
Share of associated undertaking's taxation 41 -
------- -------
216 98
======= =======
A-10
9. Profit/(loss) for the financial year
The profit for the financial year is (pound)394,000 (1994: loss (pound
342,000) of which a profit of (pound)276,000. (1994: (pound)1,054,000) has
been dealt with in the financial statements of Archer Group Holdings plc.
10. Dividends Group Group
1995 1994
(pound)'000 (pound)'000
Interim dividend 0.5p (1994: 0.5p)
net per share 183 183
Proposed final dividend of 0.5p per
share (1994: 0.5p) net per share 183 183
------- -------
366 366
======= =======
11. Earnings/(losses) per share
The calculation of earnings/(losses) per share is based on the profit for
the financial year of (pound)394,000 (1994: loss (pound)342,000) and the
weighted average number of shares in issue throughout the year ended 30
September,1995 of 36,576,962 (1994:36,576,439). The fully diluted earnings
per share is not materially different.
12. Tangible Fixed Assets Motor Fixtures and
vehicles fittings Total
(pound)'000 (pound)'000 (pound)'000
Group
Cost at 1.10.94 846 5,040 5,886
Exchange adjustments - 1 1
Additions 1,052 473 1,525
Disposals (889) (521) (1,410)
------ ------ ------
At 30.9.95 1,009 4,993 6,002
====== ====== ======
Depreciation at 1.10.94 559 3,506 4,065
Exchange adjustments - - -
Charge for the year 273 827 1,100
Eliminated in respect of disposals (577) (372) (949)
------ ------ ------
At 30.9.95 255 3,961 4,216
====== ====== ======
Net book value at 30.9.95 754 1,032 1,786
====== ====== ======
Net book value at 30.9.94 287 1,534 1,821
====== ====== ======
The net book value at 30 September, 1995 includes (pound)233,000 (1994:
(pound)412,000) of fixtures and fittings and (pound)749,000 (1994:
(pound)240,000)of cars acquired under finance leases. The gross depreciation
charge includes (pound)557,000 in respect of these assets.
Of the total charge to depreciation of (pound)1,100,000, (pound)950,000 has
been recharged to managed syndicates in respect of assets used by them.
13. Fixed Asset Investments Associated Unlisted
Undertaking Investments Total
(pound)'000 (pound)'000 (pound)'000
Group
Balance at 1.10.94 - 5 5
Acquisitions 1,260 52 1,312
Goodwill adjustment (71) - (71)
Share of profits for the year
after tax 84 - 84
------- ------ ------
At 30.9.95 1,273 57 1,330
======= ====== ======
A-11
Subsidiary Associated Unlisted
Undertakings Undertaking Investments Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Company
Balance 1.10.94 7,246 - - 7,246
Acquisitions 84 1,260 52 1,396
Disposals (301) - - (301)
------ ----- ------ ------
Balance at 30.9.95 7,029 1,260 52 8,341
====== ===== ====== ======
The Archer Group includes the following principal subsidiaries, all of
which other than Resource Underwriting Pacific Pty Ltd and Target
Insurance Company (Guernsey) Ltd operate in the United Kingdom and are
registered in England and Wales.
Subsidiary Principal Activity Proportion of issued
ordinary shares held
by the Company or
its nominees
%
Tower Managing Agents Ltd. Managing Agent at Lloyd's 100
Castle Members Agents Ltd. Members Agent at Lloyd's 100
Archer Group Management
Services Ltd. Group Service Company 100
Bowman Loss Adjusters Ltd. Loss Adjuster 100
Halford Motor Insurance
Services Ltd. Insurance Intermediary 100
Archer Underwriting Ltd. Insurance Intermediary 100
(formerly Resource
Underwriting Ltd)
Resource Underwriting Pacific
Pty Ltd. (registered and
operating in Australia Insurance Intermediary 75
Bowman Investigations Ltd. Investigative Services 100
Target Insurance Company
(Guernsey) Ltd. Insurance Captive 100
registered and operating
in Guernsey
Associate
Archer Dedicated plc Corporate Member at Lloyd's 31
14. Deferred Tax Recoverable Advance
Timing Corporation
Differences Tax Total
(pound)'000 (pound)'000 (pound)'000
Group
Balance at 1.10.94 42 167 209
Transfer to current taxation - 7 7
Profit and loss account 69 (75) (6)
------- ------- ------
Balance at 30.9.95 111 99 210
======= ======= ======
The balance at 30.9.95 is due after one year.
15. Debtors Group Group Company Company
1995 1994 1995 1994
pound)'000 (pound)'000 (pound)'000 (pound)'000
Trade debtors 10,095 7,985 - -
Due from subsidiary
undertakings - - 1,179 10,162
Corporation tax - 40 - -
Other debtors 1,978 4,118 308 284
Prepayments and accrued
income 225 73 - -
------- ------- ------ -------
12,298 12,216 1,487 10,446
======= ======= ====== =======
A-12
Included in other debtors are:-
(a) (pound)109,000(1994:(pound)50,000) in respect of loans to 8(1994: 5)
directors of subsidiary companies regarding their underwriting
membership of Lloyd's. The amount at 30 September 1995 includes
(pound)26,000 (1994: (pound)27,000) in respect of one officer of the
company.
(b) (pound)0.7m 1994: (pound)1.8m)in respect of amounts due from
syndicates.
Included in company amounts due from subsidiary undertakings is an amount
of (pound)150,000 due after one year.
16. Insurance Broking Assets and Liabilities
A number of companies in the group act as agents in placing the insurable
risks of their clients and generally are not liable as principal for
premiums due to underwriters or for claims payable to clients.
Notwithstanding the legal relationship with clients and underwriters and
since in practice premium and claims monies are usually accounted for by
insurance intermediaries, these companies have followed generally accepted
accounting practice by showing cash, debtors and creditors relating to
insurance business as assets and liabilities to the companies themselves.
In so doing advantage has been taken of the amendment to Financial
Reporting Standard 5 issued in December 1994, by the Accounting Standards
Board, deferring the application of that reporting standards prohibition
on offsetting insurance broking debtor and creditor balances. It is not
practical to quantify the effect of the offset occurring at 30 September
1994 or 1995.
Included in the consolidated balance sheet headings listed below are
these amounts:
Group Group
1995 1994
(pound)'000 (pound)'000
Cash at bank 2,405 1,993
Debtors 8,145 5,092
Creditors: amounts falling due within
one year (10,550) (7,085)
======== =======
17. Current Asset Investments
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Listed investments 540 - - -
Certificates of tax
deposit 30 30 - -
------ ------ ------ ------
570 30 - -
====== ====== ====== ======
All the listed investments are quoted on the London Stock Exchange.
18. Creditors - amounts falling due within one year
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Trade creditors 10,709 8,572 - -
Due to group
undertakings - - 5,610 13,758
Other creditors 3,321 4,059 91 33
Corporation tax 1 12 27 -
Social security 534 594 - -
Finance lease obligations
(see note 24) 288 342 - -
Loan stock 139 146 - -
Bank loans and overdrafts 26 4 - -
Accruals and deferred
income 1,601 1,729 80 231
Proposed final dividend 183 183 183 183
------ ------ ------ -------
16,802 15,641 5,991 14,205
====== ====== ====== =======
A-13
19. Creditors - amounts falling due after more than one year
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Other creditors - 100 - -
Finance lease obligations
(see note 24) 697 272 - -
Loan stock 12 133 10 10
Accruals and deferred income 272 - - -
------ ------- ------ ------
981 505 10 10
====== ======= ====== ======
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Analysis of loan
stock repayment:
Repayable within
one to two years 12 123 10 -
Repayable within
two to five years - 10 - 10
----- ----- ----- -----
12 133 10 10
===== ===== ===== =====
20. Provisions for liabilities and charges
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Provision for terminating
subsidiaries 220 220 - -
===== ===== ==== =====
21. Share Capital
Group Group Company Company
1995 1994 1995 1994
(pound)'000 (pound)'000 (pound)'000 (pound)'000
Authorised 50,000,000
ordinary shares of
1p each 500 500 500 500
===== ===== ==== =====
Allotted, issued and
fully paid 36,640,117
(1.10.94 36,576,439)
ordinary shares of
1p each 366 366 366 366
===== ===== ==== =====
At 30 September, 1995, a total of 2,234,765 options comprising 1,031,249
options granted under the Archer Group Holdings plc share option scheme
and 1,203,516 granted under Castle Underwriting Holdings Limited share
option scheme (1994: 2,250,611) on ordinary shares of the company had been
granted and remained outstanding as follows:-
Price per share at Period during which
Number of shares which option exercisable options are exercisable
120,499 130p 23.02.1991 to 22.02.1998
5,000 132p 15.06.1992 to 14.06.1999
6,000 119p 21.06.1993 to 20.06.2000
45,000 100p 12.12.1993 to 11.12.2000
86,500 35.5p 06.07.1995 to 05.07.2002
272,750 38.4p 23.07.1996 to 22.07.2003
395,500 77.67p 27.01.1997 to 26.01.2004
100,000 54.17p 03.07.1998 to 02.07.2005
---------
1,031,249
=========
A-14
In addition to these options granted on ordinary shares of the company,
employees of Castle Underwriting Holdings Limited ('Castle') who held options
over 10,000 Castle shares rolled over these options into options, which remain
outstanding, over 1,203,516 ordinary shares in the company as part of the
acquisition. The exercise price, being the equivalent of the (pound)6.00
exercise price over Castle shares, is 4.71p per share; these options are
exercisable between 9.5.96 and 8.5.2001.
22. Profit and Loss Account and Other Reserves
Group Group Company
profit & other profit &
loss account reserves loss account
(pound)'000 (pound)'000 (pound)'000
Balance at 1.10.94 2,634 (3,007) 966
Retained profit for the year 28 - 276
Goodwill adjustments - (139) -
Transfer (195) 195 -
------- ------- ------
Balance at 30.9.95 2,467 (2,951) 1,242
======= ======= ======
The group other reserves include the merger reserve and goodwill reserve
arising on the acquisition by the company of its subsidiaries. Transfers are
being made from the profit and loss account to eliminate the merger reserve and
goodwill reserve over a 20-year period.
The cumulative amount of goodwill written off against the group's profit and
loss account in respect of acquisitions made in the current and earlier
financial years is (pound)772,000.
23. Reconciliation of movement in shareholders' funds
Group Group
1995 1994
(pound)'000 (pound)'000
Profit/(loss) for the financial year 394 (342)
Dividends (366) (366)
------ ------
28 (708)
Goodwill adjustments eliminated against reserves (139) (33)
Share premium account 2 -
------ ------
(109) (741)
Opening shareholders' funds at 1 October 2,658 3,399
------ ------
Closing shareholders' funds at 30 September 2,549 2,658
====== ======
24. Finance lease obligations Group Group
1995 1994
(pound)'000 (pound)'000
Due within one year 343 413
Due within two to five years 988 332
------ ------
1,331 745
Less: Finance charges allocated to future periods (346) (131)
------ ------
985 614
====== ======
Current obligations 288 342
Non-current obligations 697 272
------ ------
985 614
====== ======
The greater part of the cost of these commitments will be recharged to
managed syndicates as incurred.
A-15
25. Operating Lease Commitments
The group has annual lease commitments for land and buildings, the
majority of which will be recharged to managed syndicates as incurred, as
follows:
Group Group
1995 1994
(pound)'000 (pound)'000
Commitments expiring in less than 1 year - 1
Commitments expiring in 2 to 5 years 1,236 417
Commitments expiring in more than 5 years 766 2,263
===== ======
26. Reconciliation of operating profit
to net cash inflow from operating activities
Group Group
1995 1994
(pound)'000 (pound)'000
Operating profit/(loss) 142 (515)
Depreciation charges 1,100 1,309
(Profit)/loss on sale of tangible fixed assets (23) 178
(Increase) in work in progress (80) (82)
(Increase) in debtors (609) (2,209)
Increase in creditors and provisions 1,839 3,956
------ ------
2,369 2,637
====== ======
Analysed
Continuing operations before
exceptional charges 2,541 2,807
Exceptional charges (172) (170)
------ ------
2,369 2,637
====== ======
27. Purchase of subsidiary undertaking Group
1995
(pound)'000
Net assets acquired
Debtors including taxation recoverable 4
Cash 153
Creditors: amounts falling due within
one year (138)
------
19
Minority interest (5)
Goodwill 69
------
83
======
Satisfied by:
Cash 83
-----
83
=====
Analysis of net inflow of cash in respect of
the purchase of subsidiary undertaking
Cash consideration (83)
Cash acquired 153
------
70
======
A-16
28. Disposal of subsidiary undertakings Group
1995
(pound)'000
Net assets disposed of:
Debtors 438
Cash 395
Creditors: amounts falling due
within one year (556)
Trade investment retained (52)
------
225
======
Satisfied by:-
Cash received 225
======
Analysis of net outflow of cash in
respect of the disposal of
subsidiary undertakings
Cash consideration (225)
Cash disposed of 395
------
170
======
29. Analysis of changes in financing during the year
Share capital and Loan stock and
share premium lease obligations
(pound)'000 (pound)'000
Balance at 1.10.94 3,031 893
Cash inflow/(outflow) from financing 2 (584)
Inception of finance lease contracts - 1,098
Termination of finance lease contracts - (271)
------ --------
Balance at 30.9.95 3,033 1,136
======= ========
30. Analysis of cash and cash equivalents
Group Group Group
1995 1994 Movement
(pound)'000 (pound)'000 (pound)'000
Cash at bank 4,203 4,674 (471)
Bank overdrafts (26) (4) (22)
------ ------ ------
4,177 4,670 (493)
====== ====== =====
Effect of foreign exchange rate changes (8)
-----
(501)
=====
Cash at 30 September, 1995 includes (pound)2.4m (1994 - (pound)2.0m) held
by insurance intermediaries in respect of insurance broking and similar
activities as detailed further in note 16 to the financial statements.
A-17
31. Directors' interests
(a) Share holdings in company
The interests of the directors and their families (as defined in the
Companies Act 1985) in the ordinary shares of 1p each in the company
on 30 September, 1995 and 1 October, 1994 or date of appointment,
were as follows:-
Beneficial 30.9.95 1.10.94
B.P.D. Kellett 1,146,571 1,146,571
I.R. Binney 60,000 60,000
G.S. Blacker 30,000 30,000
C.M. Burton 502,100 502,100
W. Deem 454,024 454,024
R.J. Maylam 476,400 476,400
R.B. Morgan (appointed 1.7.95) - -
A.A. Pitt 219,110 219,110
A. Sharp (resigned 11.9.95) N/A 4,821,370
R.J. Sharp 128,356 128,356
T. Shenton 104,252 104,252
Non-Beneficial
R.J. Maylam, I.R. Binney and G.S. Blacker
(Trustees of Profit Sharing Scheme) 72,800 155,050
R.J. Maylam 30,000 30,000
A.A. Pitt 19,030 22,500
(b) Share options in ordinary shares
Number of Options
----------------- Market
price at Period during which
At During the year At Exercise date of options are
Directors 30.9.94 Granted Exercised Lapsed 30.9.95 price exercise
C.M.Burton 6,500 6,500 77.67p 27.1.97 to 26.1.2004
W.Deem 7,000 7,000 77.67p 27.1.97 to 26.1.2004
B.P.D.Kellet 7,500 7,500 77.67p 27.1.97 to 26.1.2004
R.J.Maylam 7,500 7,500 77.67p 27.1.97 to 26.1.2004
A.A.Pitt 7,000 7,000 77.67p 27.1.97 to 26.1.2004
R.J.Sharp 477,585 477,585 4.71p* 9.5.96 to 8.5.2001
" 7,500 7,500 77.67p 27.1.97 to 26.1.2004
T.Shenton 42,000 42,000 38.40p 23.7.96 to 22.7.2003
" 6,500 6,500 77.67p 27.1.97 to 26.1.2004
------- ------- ---------- ----- ------ ------ --------------------
Total 569,085 0 0 0 569,085
======= ======= ========== ===== =======
Exercise price
4.71p 477,585 477,585
38.40p 42,000 42,000
77.67p 49,500 49,500
- ------ ------- ------- ---------- ----- ------
Total 569,085 0 0 0 569,085
====== ======= ======= ========== ===== =======
A-18
31. Directors' interests (Continued)
(b) Share options in ordinary shares
The market price of shares at 30.9.95 was 54p (30.9.94 - 50p) and the
range during the period was 48p to 62p.
* As part of the terms of the acquisition agreement of Castle
Underwriting Holdings Limited ("Castle"), Mr R.J. Sharp has been
granted options over 477,585 ordinary shares in the company,
exercisable at 4.71p during the period 9.5.96 to 8.5.2001. These
options were granted in place of those previously held over ordinary
shares in Castle (see note 21 above).
(c) Other interests in the company
As part of the terms of the acquisitions of the Kellett group and the
Castle group the vendors of those groups were separately issued loan
notes by way of deferred consideration. The loan notes generally have
nominal capital values but entitle the holders to participate in
profit commission from the acquired groups in accordance with the
terms of the acquisition agreements.
Messrs B.P.D. Kellett, T. Shenton and W. Deem were among the vendors
of Kellett. The percentage of the loan notes issued to Kellett
vendors in which they have an interest is as follows:
B.P.D. Kellett 50.96%
T. Shenton 4.63%
W. Deem 20.18%
Mr R.J. Sharp was among the vendors of Castle. He has an interest in
1.13% of the loan notes issued to Castle vendors.
(d) Transactions within the Archer Group
Except for Mr T. Shenton who resigned as an Underwriting Member of
Lloyd's on 31 December 1994 and Mr R.B. Morgan the directors of the
company were Underwriting Members of Lloyd's and participate on group
managed syndicates for the 1995 Underwriting Account through their
members' agent, which in certain cases is a group company.
Mr R.B. Morgan is the non-executive deputy chairman of London
Insurance Market Investment Trust plc (LIMIT). This is the holding
company of a number of corporate members of Lloyd's, one of which
places capacity on the group's managed syndicates.
The rates of underwriting agency fee and profit commission charged to
the directors are the standard rates charged by the group's managing
agent to Underwriting Members of Lloyd's on its managed syndicates.
(e) Other matters
Mr B.P.D. Kellett is a non-executive director of Cottrell & Maguire
Limited and a director of Additional Underwriting Agents (No 7)
Limited.
Mr R.J. Sharp is a director of G.W. Run-off Limited. He is also a
director of Abtrust Securities Limited which is one of the group's
syndicates' investment managers. The investment management services
are provided on normal commercial terms and Mr Sharp receives no
emoluments from that company.
(f) Apart from the above no director had a material interest in any
significant contract to which the company or any subsidiary was a
party.
A-19
32. Contingent Liabilities
The group has arranged facilities with its bankers in respect of bank
guarantees in connection with the Lloyd's underwriting membership of
sponsored Names. It has also given counter indemnities to its bankers and
an assurance company which have given guarantees to Lloyd's, or loans to
employees in relation to their underwriting membership at Lloyd's. At 30
September, 1995 the company had a contingent liability in respect of these
matters totalling (pound)1,028,000 (1994: (pound)1,063,000). The balance
at 30 September, 1995, includes (pound)25,000 (1994: (pound)25,000) in
respect of an officer of the company.
Included in that total is an aggregate amount of (pound)296,000 (1994:
(pound)223,000) in respect of guarantees relating to 7 directors of
subsidiary companies (1994: 7).
This company has provided a guarantee to the Society of Lloyd's to support
the solvency deficit of a subsidiary undertaking, Castle Members Agents
Limited, calculated under the Lloyd's solvency requirements contained
within the Underwriting Agents Byelaw (No 4 of 1984) as amended, amounting
to (pound)3,105,000.
The company together with other group companies has given a guarantee to
secure the overdraft facilities of the group. The guaranteed borrowing of
the group at 30 September 1995 was nil.
33. Litigation
It was reported last year that considerable uncertainty surrounded the
potential outcome of litigation against various of the company's
subsidiaries. As a result the board of directors of those companies took
professional advice and the following companies were placed into creditors
voluntary liquidation on 12 January 1995: Devonshire Underwriting Agents
Ltd, Chiltern Underwriting Agents Ltd, Eastcheap Agents Ltd, Castle
Syndicate Management Ltd and Henry G Nicholson (Underwriting) Ltd. On 13
March 1995 and 15 May 1995 Greenly Underwriting Agency Ltd and Stafford
Knight & Co (Underwriting Agency) Ltd were also placed into creditors
voluntary liquidation.
A number of group companies have received letters from Names reserving
their position with regard to very general allegations of negligent
underwriting or other failures to exercise due care and attention to their
affairs. In each and every notification no detailed points of claim have
been submitted.
34. Reconciliation to US GAAP
The consolidated financial statements of Archer have been prepared in
accordance with applicable accounting standards in the United Kingdom (UK
GAAP) which differ in certain significant respects from generally accepted
accounting principles in the United States (US GAAP). Differences which
have a significant effect on the reported profit (loss), shareholders'
equity and balance sheets for the periods presented are set forth below.
(i) Profit Commissions
Profit commissions are recognized in the year received which, under UK
GAAP for Lloyd's Managing Agencies, is three years after the underwriting
year to which it relates. Under US GAAP, the profit commissions are
estimated and earned ratably over the period to which they relate.
(ii) Goodwill
Goodwill arising on the acquisition of subsidiaries accounted for as a
purchase can be written off directly to reserves in the year of
acquisition in the United Kingdom whereas the excess of the total purchase
price over the net tangible assets acquired is recorded as an asset on the
balance sheet in the United States and amortized over periods up to forty
years in the income statement.
Archer management has historically written off all goodwill to reserves in
the year of acquisition. Archer amortises goodwill over twenty years. For
US GAAP purposes, Archer amortised goodwill to the profit and loss
account over the same period.
A-20
(iii) Dividends
In the United Kingdom, proposed dividends are deducted from shareholders'
equity and accrued as a liability, whereas in the United States dividends
are not given any accounting recognition until legally declared and
approved by the Board of Directors.
(iv) Insurance broking assets and liabilities
Fiduciary assets and liabilities maintained on behalf of the insureds and
the insurance companies are included on the insurance intermediaries
balance sheet under UK GAAP. In the United States, agencies net amounts
due to or from insureds with amounts due to or from the insurance
companies.
Included in the attached financial statements are the following amounts
which would be presented net under US GAAP:
Group 1995
(pound)'000
-----------
Cash at bank 2,405
Debtors 8,145
Creditors: amounts falling due within one year (10,550)
==========
(v) Current Assets and Liabilities
Current assets under UK GAAP include certain amounts which fall due after
more than one year. Under US GAAP, such assets would be reclassified as
non-current assets. Borrowings under US GAAP are classified according to
the maturity of the financial instrument, while under US GAAP, certain
borrowings would be classified according to the maturity of the available
back up facility. Provisions for liabilities and charges under UK GAAP
include certain amounts due within one year which would be reclassified to
current liabilities under US GAAP.
(vi) Deferred taxation
Under UK GAAP, provision is made for deferred taxation under the liability
method unless there is reasonable certainty that such deferred taxation
will not become payable in the foreseeable future. Under US GAAP, deferred
taxation is accounted for on all temporary differences which will result in
taxable or tax-deductible amounts in future years subject to a valuation
allowance to reduce the deferred tax asset if it is more likely than not
that the related tax benefit will not be realised. The directors do not
consider that the deferred tax balances under US GAAP are materially
different from those stated under a UK GAAP basis.
(vii) Earnings per Ordinary Share
Under UK GAAP, earnings per ordinary share is computed using the weighted
average number of ordinary shares in issue during the year. US GAAP also
includes in the computation for earnings per ordinary share the dilutive
effect of all outstanding share options and common share equivalents under
the treasury stock method. Under UK GAAP, the weighted average number of
ordinary shares for prior years is restated to reflect the bonus element
of rights issued. Under US GAAP, no restatement is made.
(viii) Discontinued Operations
Under UK GAAP, the trading results of a discontinued business segment
prior to the implementation of the decision to terminate are not
separately disclosed in the profit and loss account. Under US GAAP, the
results of discontinued operations are eliminated from the results of
continuing operations and are shown as a separate component of net income
for all years presented.
A-21
(ix) Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1
presents substantially the same information as required under US GAAP. Under US
GAAP, there are certain differences from UK GAAP with regard to classification
of items within the cash flow statement and with regard to the classification of
cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing activities. Under US GAAP, only operating activities, investing
activities and financing activities are reported. Cash flows from taxation and
return on investments and servicing of finance would, with the exception of
dividends paid and the costs of financing, be included as operating activities
under US GAAP. The payment of dividends and costs of financing would be included
under financing activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include bank loans and
overdrafts repayable within three months from the date of the advance as is the
case under UK GAAP.
Set out below, for illustrative purposes, is a summary consolidated statement of
cash flows under US GAAP.
Group 1995
(pound) 000
Net cash provided by operating activities 2,659
Net cash used in investing activities (2,212)
Net cash used by financing activities (926)
-----------
Net decrease in cash and cash equivalents (479)
===========
(x) Reconciliation
The following tables reconcile net income and shareholders' funds as reported
under UK GAAP to approximate US GAAP.
Group
1995
(pound)'000
-----------
Net income for the financial period
under UK GAAP 394
Adjustments:
Accrued profit commission on open years,
net of staff bonuses and entitlements 4,769
Amortisation of goodwill (195)
Tax effect of US GAAP adjustments (1,574)
----------
Profit for the financial year
under USGAP 3,394
==========
Consisting of:
Profit from continuing operations 3,951
Loss from discontinued operations (557)
----------
Net income 3,394
==========
Approximate income per share adjusted
for US GAAP (pence):
Profit from continuing operations 10.5p
Loss from discontinued operations (1.5)
----------
Net income 9.0p
==========
A-22
Group
1995
(pound)'000
-----------
Shareholders'funds in accordance with
UK GAAP 2,549
Adjustments:
Accrued Profit commission receivable
on Open years 11,000
Accrued staff bonuses and entitlements
payable on open years' profit commissions (2,424)
Unamortised goodwill 2,951
Proposed dividends 183
Tax effect of US GAAP adjustments (2,830)
----------
Shareholders' funds in accordance with
US GAAP 11,429
==========
Shareholders' funds in accordance with US GAAP
as translated to U.S.dollars $18,092
=========
The approximate total shareholders' funds have been translated to U.S. dollars
converted from sterling at the period end rate for the date shown. This
translation should not be considered as a representation that the original
pounds sterling amount actually represents such dollar amount or could be
converted from or into dollars at the rate implied.
A-23
Archer Group Holdings plc
Consolidated Profit and Loss Account
Nine months to
30.6.96
(pound)'000
Note (unaudited)
Turnover 2 7,502
Operating expenses 2 (8,522)
----------
Operating (loss)/profit 2 (1,020)
Share of profits of associated
undertakings 78
Net interest and other income
receivable 157
----------
(Loss)/profit on ordinary
activities before taxation 2 (785)
Taxation on (loss)/profit on
ordinary activities 3 67
----------
(Loss)/profit on ordinary
activities after taxation (718)
Minority interest 5
----------
(Loss)/profit for the period (713)
Dividends 4 (183)
----------
Retained (loss)/profit for
the period (896)
==========
(Losses)/earnings per ordinary
share (pence) 5 (1.9)p
==========
The only recognised gains and losses for the current and prior period are those
dealt with in the profit and loss account above.
A-24
Archer Group Holdings plc
Consolidated Balance Sheet
At
30.06.96
Note (pound)'000
(unaudited)
Fixed assets
Tangible 1,589
Investments 6 2,146
----------
3,735
----------
Current Assets
Work in progress 234
Deferred tax recoverable 210
Debtors 7 20,062
Investments 625
Cash at bank 7 4,852
----------
25,983
Creditors - amounts falling due
within one year 7 (27,256)
-----------
Net current(liabilities)/assets (1,273)
-----------
Total assets less current
liabilities 2,462
Creditors - amounts falling due
after more than one year (767)
Provisions for liabilities
and charges -
-----------
Net assets 1,695
===========
Capital and reserves
Called-up share capital 378
Share premium account 2,712
Other reserves 8 (2,822)
Profit and loss account 8 1,425
------------
1,693
Minority Interests 2
------------
1,695
============
All capital and reserves including minority interests represent equity
shareholders' interests.
A-25
Archer Group Holdings plc
Summarised Consolidated
Cash Flow Statement
Nine months to
30.06.96
(pound)'000
(unaudited)
Net cash (outflow)/inflow from
operating activities (982)
Returns on investments and servicing
of finance (30)
Taxation paid (65)
Investing activities (1,005)
-----------
Net cash (outflow)/inflow before financing (2,082)
===========
Net cash outflow from financing 370
Decrease in cash and cash equivalents (2,452)
-----------
(2,082)
===========
Notes to the Summarised
Consolidated Cash Flow Statement
A) Reconciliation of operating loss to net cash (outflow)/inflow from
operating activities
Nine months to
30.06.96
(pound)'000
Operating (loss)/profit (1,020)
Depreciation 593
Increase in work in progress (72)
Increase in debtors (7,474)
Increase in creditors and provisions 6,991
-----------
(982)
===========
B) Analysis of cash and cash equivalents
30.06.96 30.06.95 Movement
(pound)'000 (pound)'000 (pound)'000
Cash at bank 4,852 4,203 649
Bank overdrafts (3,067) (26) (3,041)
---------- ----------- ----------
1,785 4,177 (2,392)
========== ===========
Effect of foreign exchange rate movements (60)
-----------
(2,452)
===========
A-26
Archer Group Holdings plc
Notes (unaudited)
1. Basis of Presentation
The unaudited results for the nine months to 30 June 1996 have been
prepared in accordance with applicable accounting standards in the
United Kingdom and using accounting policies consistent with the
group's annual report for 1995. The figures for the year ended 30
September 1995 do not constitute full financial statements within the
meaning of Section 240, Companies Act 1985. Full audited financial
statements of the company for that year on which the auditors expressed
an unqualified opinion, have been delivered to the Registrar of
Companies.
The figures shown represent the consolidation of the company and its
subsidiaries and incorporate the results of the group's share of
associated undertakings.
2. Segmental Analysis Nine months to
30.06.96
(pound)'000
a) Turnover
Lloyd's underwriting agencies
Profit commission -
Agency fees 2,368
Other 69
-----
2,437
Insurance services 5,065
-----
7,502
=====
Geographical analysis
UK 7,200
Australia 302
-----
7,502
=====
A-27
Archer Group Holdings plc
Notes
2. Segmental Analysis (Continued)
Nine months to
30.06.96
(pound)'000
b) Operating expenses
Lloyd's underwriting agencies 3,251
Insurance services 5,271
-----
8,522
=====
c) Operating (loss)/profit
Lloyd's underwriting agencies (814)
Insurance services (206)
-----
(1,020)
=====
d) (Loss)/profit on ordinary activities before taxation
Lloyd's underwriting agencies (806)
Insurance services (57)
Share of profits of associated
undertakings 78
-----
(785)
=====
e) Assets employed
Lloyd's underwriting agencies 1,739
Insurance services (44)
-----
1,695
=====
3. Taxation
Taxation is provided at rates of corporation tax ruling during the
accounting period.
4. Interim Dividend
The directors have declared an interim dividend of 0.5p (net) per share
(equivalent to 0.62p per share with associated tax credit) in respect
of the year ending 30 September 1996 (1995: 0.5p (net) per share). The
interim dividend will be payable on 18 July 1996 to shareholders on the
register at the close of business on 18 June 1996.
A-28
Archer Group Holdings plc
Notes
5. Losses per share
The calculation of losses per share is based on the loss for the
financial period and the 36,657,687 weighted average shares in issue
during the period.
6. Fixed Asset Investments
At
30.06.96
(pound)'000
Associated undertakings (i) 2,089
Other 57
-----
2,146
=====
(i) The group's associated undertakings are Archer Dedicated plc
and International Strategic Insurance Services Inc. and the
above figure represents the group's share of the fair value of
the net assets at the date of investment plus the group's
share of retained profit since that date.
7. Insurance Intermediary Assets and Liabilities
Included in the consolidated balance sheet headings listed below are
the following amounts of insurance intermediary cash, debtors and
creditors arising in the group's insurance operations.
At
30.06.96
(pound)'000
Cash at bank 4,499
Debtors 14,646
Creditors: amounts falling due
within one year (19,145)
=======
8. Profit and Loss Account and Other Reserves
Nine months to
30.06.96
profit & loss other
account reserves
(pound)'000 (pound)'000
Opening balance 2,467 (2,951)
Retained loss
for period (896) -
Goodwill adjustments - (17)
Transfer (146) 146
------ -------
Closing balance 1,425 (2,822)
====== =======
A-29
9. Reconciliation to US GAAP
The consolidated financial statements of Archer have been prepared in
accordance with applicable accounting standards in the United Kingdom (UK
GAAP) which differ in certain significant respects from generally accepted
accounting principles in the United States (US GAAP). Differences which
have a significant effect on the reported profit (loss), shareholders'
equity and balance sheets for the periods presented are set forth below.
(i) Profit Commissions
Profit commissions are recognized in the year received which, under UK
GAAP for Lloyd's Managing Agencies, is three years after the
underwriting year to which it relates. Under US GAAP, the profit
commissions are estimated and earned ratably over the period to which
they relate.
(ii) Goodwill
Goodwill arising on the acquisition of subsidiaries accounted for as a
purchase can be written off directly to reserves in the year of
acquisition in the United Kingdom whereas the excess of the total
purchase price over the net tangible assets acquired is recorded as an
asset on the balance sheet in the United States and amortized over
periods up to forty years in the income statement.
Archer management has historically written off all goodwill to reserves
in the year of acquisition. Archer amortises goodwill over twenty
years. For U.S. GAAP purposes, Archer amortised goodwill to the profit
and loss account over the same period.
(iii) Dividends
In the United Kingdom, proposed dividends are deducted from
shareholders' equity and accrued as a liability, whereas in the United
States dividends are not given any accounting recognition until legally
declared and approved by the Board of Directors.
(iv) Insurance broking assets and liabilities
Fiduciary assets and liabilities maintained on behalf of the insureds
and the insurance companies are included on the insurance
intermediaries balance sheet under UK GAAP. In the United States,
agencies net amounts due to or from insureds with amounts due to or
from the insurance companies.
A-30
Included in the attached financial statements are the following amounts
which would be presented net under US GAAP:
At
30.06.96
(pound) '000
-------------
Cash at bank 4,499
Debtors 14,646
Creditors: amounts falling due within one year (19,145)
=============
(v) Current Assets and Liabilities
Current assets under UK GAAP include certain amounts which fall due after
more than one year. Under US GAAP, such assets would be reclassified as
non-current assets. Borrowings under US GAAP are classified according to
the maturity of the financial instrument, while under US GAAP, certain
borrowings would be classified according to the maturity of the available
back up facility. Provisions for liabilities and charges under UK GAAP
include certain amounts due within one year which would be reclassified to
current liabilities under US GAAP.
(vi) Deferred taxation
Under UK GAAP, provision is made for deferred taxation under the liability
method unless there is reasonable certainty that such deferred taxation
will not become payable in the foreseeable future. Under US GAAP, deferred
taxation is accounted for on all temporary differences which will result in
taxable or tax-deductible amounts in future years subject to a valuation
allowance to reduce the deferred tax asset if it is more likely than not
that the related tax benefit will not be realised. The directors do not
consider that the deferred tax balances under US GAAP are materially
different from those stated under a UK GAAP basis.
(vii) Earnings per Ordinary Share
Under UK GAAP, earnings per ordinary share is computed using the weighted
average number of ordinary shares in issue during the year. US GAAP also
includes in the computation for earnings per ordinary share the dilutive
effect of all outstanding share options and common share equivalents under
the treasury stock method. Under UK GAAP, the weighted average number of
ordinary shares for prior years is restated to reflect the bonus element
of rights issued. Under US GAAP, no restatement is made.
(viii) Discontinued Operations
Under UK GAAP, the trading results of a discontinued business segment prior
to the implementation of the decision to terminate are not separately
disclosed in the profit and loss account. Under US GAAP, the results of
discontinued operations are eliminated from the results of continuing
operations and are shown as a separate component of net income for all
years presented.
A-31
(ix) Consolidated statement of cash flows
The consolidated statement of cash flows prepared in accordance with FRS 1
presents substantially the same information as required under US GAAP. Under US
GAAP, there are certain differences from UK GAAP with regard to classification
of items within the cash flow statement and with regard to the classification of
cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing activities. Under US GAAP, only operating activities, investing
activities and financing activities are reported. Cash flows from taxation and
return on investments and servicing of finance would, with the exception of
dividends paid and the costs of financing, be included as operating activities
under US GAAP. The payment of dividends and costs of financing would be included
under financing activities under US GAAP.
Under US GAAP, cash and cash equivalents do not include bank loans and
overdrafts repayable within three months from the date of the advance as is the
case under UK GAAP.
Set out below, for illustrative purposes, is a summary consolidated statement of
cash flows under US GAAP.
Nine
months
to
30.06.96
(pound)'000
---------------
Net cash used in operating activities (1,077)
Net cash used in investing activities (1,005)
Net cash used in financing activities (370)
----------------
Net decrease in cash and cash equivalents (2,452)
================
(x) Reconciliation
The following tables reconcile net income and shareholders' funds as reported
under UK GAAP to approximate US GAAP.
Nine
Months
to
30.06.96
(pound)'000
-----------
Net loss for the period under UK GAAP (713)
Adjustments:
Accrued profit commission on open years, net
of staff bonuses and entitlements 5,448
Amortisation of goodwill (146)
Tax effect of US GAAP adjustments (1,798)
----------
Profit for the period under USGAAP 2,791
==========
Consisting of:
Profit from continuing operations 3,586
Loss from discontinued operations (795)
----------
Net income 2,791
==========
Approximate income per share adjusted
for US GAAP (pence):
Profit from continuing operations 9.4p
Loss from discontinued operations (2.1)
----------
Net income 7.3p
==========
A-32
At
30.06.96
(pound)'000
-----------
Shareholders' funds in accordance with UK GAAP 1,693
Adjustments:
Accrued Profit commission receivable on Open years 17,988
Accrued staff bonuses and entitlements payable on
open years' profit commissions (3,965)
Unamortised goodwill 2,822
Proposed dividends -
Tax effect of US GAAP adjustments (4,628)
-----------
Shareholders' funds in accordance with US GAAP 13,910
===========
Shareholders' funds in accordance with US GAAP
as translated to U.S. dollars $21,591
===========
The approximate total shareholders' funds have been translated to U.S. dollars
converted from sterling at the period end rate for the date shown. This
translation should not be considered as a representation that the original
pounds sterling amount actually represents such dollar amount or could be
converted from or into dollars at the rate implied.
A-33
PRO FORMA FINANCIAL INFORMATION
The following condensed consolidated pro forma balance sheet at September 30,
1996 and condensed consolidated pro forma statement of operations for the nine
months ended September 30, 1996 and the year ended December 31, 1995 reflect the
financial position and results of operations of Chartwell after giving effect to
the Acquisition of Archer, the issuance of 2,725,000 common shares and the
related redemption of 35% of the $75,000,000 principal amount Senior Notes due
2004 which occurred in April 1996 as described in the notes hereto. These pro
forma statements should be read in conjunction with the historical financial
statements of Chartwell and the notes thereto. The condensed consolidated pro
forma information is not necessarily indicative of the results of operations or
financial position of Chartwell that would have been reported if the Acquisition
and related transactions had occurred at the dates assumed for purposes of
preparation of such information or of the future results of operations or
financial position of Chartwell. The format of the income statement below has
been changed from that presented in Chartwell's historical financial statements
to segment the Underwriting, Service and Corporate operations. This segmentation
highlights the increasing importance of the Service segment following the Archer
acquisition.
Condensed Consolidated Pro Forma Balance Sheet (Unaudited)
September 30, 1996
(Dollars in Thousands)
Historical Historical Pro forma Pro forma
Chartwell Archer Adjustments Chartwell
--------- ---------- ----------- ---------
ASSETS:
Investments $ 650,000 $ 3,584 $(27,795)(1) $ 626,054
Cash and cash equivalents 71,232 9,147 (7,513)(2) 72,865
--------- --------- ---------- ---------
Investments and
cash 712,497 12,730 (35,308) 698,919
--------- ---------- ---------- ---------
Premiums in process
of collection 97,057 97,057
Reinsurance recoverable 191,976 191,976
Accounts receivable 33,504 23,688 (3) 32,733
(24,459)(2)
Prepaid reinsurance 23,915 23,915
Deferred and current
income taxes 51,976 351 (3,133)(4) 49,194
Deferred policy
acquisition costs 18,333 18,333
Deposits 18,221 18,221
Goodwill 51,017 (5) 51,017
Other assets 61,649 3,044 1,700 (6) 66,393
---------- --------- --------- -----------
Total assets $1,184,624 $49,629 $13,507 $1,247,759
========== ========= ========= ===========
LIABILITIES:
Loss and Loss adjustment
expenses $ 736,267 $ - $ - $ 736,267
Unearned premiums 85,117 85,117
Contingent interest notes 27,011 27,011
Other reinsurance balances 26,152 26,152
Accounts payable 45,518 (31,972)(2) 13,545
Accrued expenses and
other liabilities 28,913 1,281 14,195 (7) 44,389
Loan notes 9,321 (1)(8) 9,321
Long term debt 68,750 24,793 (1) 93,543
--------- -------- ------- ----------
Total Liabilities 972,210 46,798 16,336 1,035,345
--------- -------- ------- ----------
COMMON STOCKHOLDERS' EQUITY:
Common stock 96 631 (631)(1) 96
Additional paid-in capital 211,781 4,529 (4,529)(1) 211,781
Net unrealized appreciation
(depreciation) (7,340) (7,340)
Foreign currency translation
adjustment 48 48
Retained earnings (deficit) 7,829 (2,330) (2,330)(1) 7,829
--------- -------- ------- ----------
Total common stockholders'
equity 212,414 2,613 (2,613) 212,414
--------- -------- ------- ----------
Total liabilities and
stockholders' equity $1,184,624 $49,411 $13,723 $1,247,759
========== ======== ======== ==========
See notes to unaudited condensed consolidated pro forma financial statements.
B-1
Condensed Consolidated Pro Forma Statement of Operations (Unaudited)
For the nine months ended September 30, 1996
(Dollars in Thousands, except per share amounts)
Adjusted Historical Pro forma Pro forma
Chartwell(9) Archer Adjustments Chartwell
--------- ---------- ----------- ---------
UNDERWRITING OPERATIONS:
Premiums earned $ 153,186 $ $ $ 153,186
Net investment income 32,590 (1,407)(10) 31,183
Net realized capital gains 951 951
--------- ---------- ------- ---------
Total revenues 186,727 (1,407) 185,320
--------- ---------- ------- ---------
Loss and loss adjustment
expenses 110,593 110,593
Policy acquisition costs 37,511 37,511
Operating expenses 11,759 11,759
Amortization of goodwill 99 99
-------- ---------- ------- ---------
Total expenses 159,962 159,962
-------- ---------- ------- ---------
Underwriting income
before taxes 26,765 (1,407) 25,358
-------- ---------- ------- ---------
SERVICE OPERATIONS:
Service and other revenue 5,068 12,659 9,796 (11) 26,470
(1,052)(12)
Net investment income 5 262 267
-------- ---------- ------- ---------
Total revenues 5,073 12,921 8,744 26,737
-------- ---------- ------- ---------
Operating expenses 777 14,232 2,101 (11) 14,349
(2,761)(12)
Amortization of goodwill 1,531 (13) 1,531
-------- ---------- ------ --------
Total expenses 777 14,232 871 15,879
-------- ---------- ------ --------
Service income
before taxes 4,296 (1,311) 7,873 10,858
-------- ---------- ------ --------
CORPORATE:
Net investment income 775 775
Net realized capital gains 51 51
-------- ---------- ------ --------
Total revenues 826 826
-------- ---------- ------ --------
Operating expenses 1,123 1,123
Interest expense 6,595 412 (14) 8,576
1,568 (15)
-------- ---------- ------ --------
Total expenses 7,718 1,981 9,699
-------- ---------- ------ --------
Corporate income
(loss before taxes) (6,892) (1,981) (8,873)
-------- ---------- ------ --------
Consolidated income
before taxes 24,168 (1,311) 4,485 27,343
-------- ---------- ------ --------
Income taxes 7,084 (112) 1,597 8,569
-------- ---------- ------ --------
Net income before
extraordinary items $ 17,084 ($1,199) $2,888 $18,773
======== ========== ====== ========
Net income per
common share $1.78 $1.96
======== ========
Weighted average
number of common
shares outstanding
(16) 9,583,811 9,583,811
========= ==========
See notes to unaudited condensed consolidated pro forma financial statements.
B-2
Condensed Consolidated Pro Forma Balance Sheet (Unaudited)
For the year ended December 31, 1995
(Dollars in Thousands)
Adjusted Historical Pro forma Pro forma
Chartwell(7) Archer Adjustments Chartwell
--------- ---------- ----------- ----------
UNDERWRITING OPERATIONS:
Premiums earned $ 246,990 $ 246,990
Net investment income 39,432 ($1,876)(10) 37,556
Net realized capital gains 10,287 10,287
--------- ---------- ------- ---------
Total revenues 296,709 (1,876) 294,833
--------- ---------- ------- ---------
Loss and loss adjustment
expenses 212,132 212,132
Policy acquisition costs 62,599 62,599
Operating expenses 23,586 23,586
Amortization of goodwill 11 11
-------- ---------- ------- ---------
Total expenses 298,328 298,328
-------- ---------- ------- ---------
Underwriting income
before taxes (1,619) (1,876) (3,495)
-------- ---------- ------- ---------
SERVICE OPERATIONS:
Service and other revenue 1,509 19,943 11,032 (11) 27,544
(2,442)(18)
(2,498)(12)
Net investment income 211 554 5 770
-------- ---------- ------- ---------
Total revenues 1,720 20,498 6,097 28,314
-------- ---------- ------- ---------
Operating expenses 1,104 19,497 2,432 (11) 18,646
(488)(18)
(3,899)(12)
Amortization of goodwill 2,041 (13) 2,041
-------- ---------- ------ --------
Total expenses 1,104 19,497 85 20,687
-------- ---------- ------ --------
Service income
before taxes 616 1,000 6,011 7,628
-------- ---------- ------ --------
CORPORATE:
Net investment income 1,866 1,866
Net realized capital gains (88) (88)
-------- ---------- ------ --------
Total revenues 1,778 1,778
-------- ---------- ------ --------
Operating expenses 2,578 2,578
Interest expense 9,108 550 (14) 11,749
2,091 (15)
-------- ---------- ------ --------
Total expenses 11,686 2,641 14,327
-------- ---------- ------ --------
Corporate income
(loss before taxes) (9,908) (2,641) (12,549)
-------- ---------- ------ --------
Consolidated income
before taxes (10,911) 1,000 1,494 (8,416)
-------- ---------- ------ --------
Income taxes (3,749) 361 1,045 (2,343)
-------- ---------- ------ --------
Net income before
extraordinary items $ (7,162) $ 640 $ 448 $(6,074)
======== ========== ======= ========
Net income per
common share ($0.75) ($0.63)
======== ========
Weighted average
number of common
shares outstanding
(16) 9,583,811 9,583,811
========= ==========
B-3
NOTES TO CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The historical financial information has been derived from the
historical financial statements of Chartwell and Archer. The condensed
consolidated pro forma financial statements should be read in conjunction with
the historical consolidated financial statements of Chartwell and Archer
and the notes thereto. The historical financial information of Archer was
obtained from the internal financial statements for the nine months ended June
30, 1996. All amounts in Pounds Sterling were translated to U.S. Dollars at an
exchange rate of $1.67, the rate on the initial closing date of November 17,
1996. Archer's historical financial information is prepared on a U.K GAAP
basis and certain adjustments to reconcile to U.S. GAAP are shown below.
The condensed consolidated pro forma financial statements have been
prepared under the purchase method of accounting for the Acquisition of Archer.
Under purchase accounting, the acquired assets and liabilities of Archer are
recognized at their fair value at the time of the Acquisition. The purchase
price of Archer is assumed to be $61.9 million including $1.7 million of costs
associated with obtaining the bank debt and consists of $27.8 million
in cash, $9.3 million in loan notes and $24.8 million of bank debt.
The condensed consolidated pro forma financial statements do not
purport to be indicative of the financial position or operating results which
would have been achieved had the Acquisition been consummated as of the dates
indicated and should not be construed as being representative of the
future financial position or operating results The pro forma adjustments are
based upon available information and assumptions that Chartwell believes
are reasonable under the circumstances.
1) To reflect the purchase of Archer which is assumed to be funded by a cash
contribution from Chartwell, a loan from First Union Bank and the issuance
of loan notes in the amounts stated above.
2) To eliminate the Intermediary Assets and Liabilities which have been
included in Archer's historical balance sheet but should not be included on
the balance sheet under U.S. GAAP.
3) The excess of the assumed purchase price over the net assets of Archer
acquired would result in goodwill of approximately $51.0 million. The
goodwill will be amortized over 25 years.
4) To accrue the estimated profit commission receivable, net of staff bonus
entitlements of 20% payable, on a U.S. GAAP basis for the profits which
have been earned but not yet received or recorded in the historical
financial statements of Archer in accordance with U.K. accounting
principles.
5) To accrue Archer's share of the "Pomeroy Contribution" under Lloyd's
Reconstruction and Renewal Plan. This non-recurring item has not been
included in the pro forma statement of operations.
6) To reflect the deferred tax effect of the pro forma transactions.
7) Represents the estimated amount of loan notes assumed to be issued. The
actual amount depends on the number of current shareholders who elect to
receive loan notes in lieu of cash for their shares. The recorded amount of
the loan notes approximates market value.
8) Reflects the historical income statement of Chartwell for the nine months
ended September 30, 1996 adjusted for the issuance of 2,725,000 common
shares and the redemption of 35% of the $75,000,000 principal amount Senior
Notes due 2004 which occurred in April 1996. A reconciliation of the pro
forma net income is as follows (in thousands):
Net income $14,715
Add extraordinary item 1,874
---------
Income before extraordinary item 16,589
Decrease in interest expense, net of tax 495
----------
Pro forma net income $17,084
9) To reflect the foregone investment income on the cash assumed to be
contributed from Chartwell, including the costs associated with obtaining
the bank debt, using an estimated return of 6.75%.
10) To record an estimate of the profit commissions earned and staff bonus
entitlements of 20% payable on open underwriting years which have not
been recorded by Archer in the historical financial statements. The
commissions are based on a reasonable estimate of the syndicate profits
which would have been earned under U.S. GAAP revenue recognition criteria
for the period.
B-4
11) To eliminate the revenues and expenses of certain Archer subsidiaries whose
operations were sold in 1996.
12) To record amortization of the goodwill assumed to be generated from the
transaction over a 25 year period.
13) To record interest on the loan notes at an estimated interest rate of 5.9%
per annum.
14) To record interest expense on the First Union loan at an estimated interest
rate of 6.5% per annum.
15) The weighted average number common shares outstanding assumes the issuance
of 2,725,000 common shares and the merger with Piedmont Management Company
Inc. (the "Merger") occurred on the first day of the period presented.
16) Reflects the historical income statement of Chartwell for the year ended
December 31, 1995 adjusted for the issuance of 2,725,000 common shares,
the redemption of 35% of the $75,000,000 principal amount Senior Notes
and the Merger as if such transactions had occurred on January 1, 1995.
17) To reverse the profit commission and staff bonus entitlements of 20% on the
1992 underwriting year which was received and recorded in the historical
financial statements of Archer for the year ended September 30, 1995.
18) Amount represents the costs associated with obtaining the bank debt. Such
amount will be amortized over six years.
B-5
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
CHARTWELL RE CORPORATION
Dated: February 3, 1997 By:/s/ Richard E. Cole
--------------------
Richard E. Cole
Chairman and CEO