SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------------- ----------------
COMMISSION FILE NUMBER: 1-6732
DANIELSON HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-6021257
(State of Incorporation) (I.R.S. Employer Identification No.)
767 THIRD AVENUE, NEW YORK, NEW YORK 10017-2023
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 888-0347
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 6, 2001
----- -----------------------------
Common Stock, $0.10 par value 19,505,954 shares
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)
For the Three For the Six
Months Ended June 30, Months Ended June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
----------- ----------- ------------ -------
Revenues:
Gross premiums earned $ 22,475 $ 17,170 $ 43,687 $ 33,967
Ceded premiums earned (2,221) (1,669) (4,291) (2,958)
---------- ---------- ---------- ----------
Net premiums earned 20,254 15,501 39,396 31,009
Net investment income 3,234 2,153 5,563 4,210
Net realized investment gains 35 1,027 851 4,090
Other Income 334 271 652 502
--------- --------- --------- ---------
Total Revenues 23,857 18,952 46,462 39,811
--------- --------- --------- ---------
Losses and Expenses:
Gross losses and loss adjustment expenses 23,149 12,844 39,551 24,498
Ceded losses and loss adjustment expenses (1,852) (1,506) (3,210) (1,892)
---------- ---------- ---------- ----------
Net losses and loss adjustment expenses 21,297 11,338 36,341 22,606
Policyholder dividends 41 26 83 96
Policy acquisition expenses 5,657 4,003 9,797 7,912
General and administrative expenses 2,411 2,242 4,890 4,404
--------- --------- --------- ---------
Total Losses and Expenses 29,406 17,609 51,111 35,018
--------- --------- --------- ---------
Income (loss) before provision for income taxes (5,549) 1,343 (4,649) 4,793
Income Tax Provision 30 19 43 34
--------- --------- --------- ---------
Net Income (loss) $ (5,579) $ 1,324 $ (4,692) $ 4,759
========= ========= ========= =========
Earnings (loss) per share of common stock
Basic $ (.29) $ .07 $ (.24) $ .26
========= ========== ========== ==========
Diluted $ (.29) $ .07 $ (.24) $ .25
========= ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share information)
June 30, 2001 December 31,
(UNAUDITED) 2000
----------------- --------------
Assets:
Fixed maturities, available for sale at fair value
(Cost: $137,513 and $123,667) $ 139,605 $ 123,213
Equity securities, at fair value (Cost: $12,808 and $25,064) 14,711 24,454
Short term investments, at cost which
approximates fair value 6,645 6,463
-------- ---------
Total Investments 160,961 154,130
Cash 5,567 6,082
Accrued investment income 4,556 1,782
Premiums and fees receivable, net of allowances
of $763 and $588 17,512 15,555
Reinsurance recoverable on paid losses, net of allowances
of $628 and $623 3,192 4,020
Reinsurance recoverable on unpaid losses, net of
allowances of $101 and $101 21,096 20,641
Prepaid reinsurance premiums 2,873 2,629
Property and equipment, net of accumulated depreciation
of $8,981 and $8,748 1,134 1,325
Deferred acquisition costs 4,060 3,665
Other Assets 1,423 1,648
-------- ---------
Total Assets $ 222,374 $ 211,477
========== ==========
Liabilities and Stockholders' Equity:
Unpaid losses and loss adjustment expenses $ 105,433 $ 100,030
Unearned premiums 27,487 23,207
Policyholder dividends 339 364
Reinsurance premiums payable 1,700 1,630
Funds withheld on ceded reinsurance 1,666 1,666
Other Liabilities 3,422 3,250
-------- ---------
Total Liabilities 140,047 130,147
Preferred stock ($0.10 par value; authorized
10,000,000 shares; none issued and outstanding) - -
Common stock ($0.10 par value; authorized
100,000,000 shares; issued 19,516,694 shares and 19,306,694
shares; outstanding 19,505,954 shares and 19,295,954) 1,952 1,931
Additional paid-in capital 63,058 62,449
Accumulated other comprehensive income (loss) 3,995 (1,064)
Retained earnings 13,388 18,080
Treasury Stock (Cost of 10,740 Shares) (66) (66)
-------- ---------
Total Stockholders' Equity 82,327 81,330
-------- ---------
Total Liabilities and Stockholders' Equity $ 222,374 $ 211,477
========== ==========
See accompanying Notes to Consolidated Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(In Thousands, Except Share Amounts)
(Unaudited)
Comprehensive Comprehensive
Income (Loss) for the Income (Loss)for the
Three Months Ended Six Months Ended
June 30, June 30,
JUNE 30, 2001 2001 2000 2001 2000
------------- ---- ---- ---- ----
Common Stock
Balance, Beginning of Year $ 1,931
Exercise of options to purchase Common Stock 21
------
Balance, End of Period 1,952
-----
Additional Paid-in Capital
Balance, Beginning of Year 62,449
Exercise of options to purchase Common Stock 609
------
Balance, End of Period 63,058
------
Retained Earnings
Balance, Beginning of Year 18,080
Net Income (loss) (4,692) $(5,579) $1,324 $(4,692) $4,759
------ ------ ---- ------ -------
Balance, End of Period 13,388
------
Accumulated Other Comprehensive Income (loss)
Balance, Beginning of Year (1,064)
Net Unrealized Gain (loss) On Available-
For-sale Securities (1) 5,126 826 5,059 2,169
---- --- ----- -------
Other Comprehensive Income 5,059 5,126 826 5,059 2,169
----- ------ ----- ----- -------
Total Comprehensive Income (loss) $(453) $2,150 $367 $6,928
======= ==== ======= =======
Balance, End of Period 3,995
---------
Treasury Stock
Balance, Beginning of Year (66)
-----
Balance, End of Period (66)
-----
Total Stockholders' Equity $ 82,327
======
Common Stock, Shares
Balance, Beginning of Year 19,306,694
Exercise of options to purchase Common Stock 210,000
----------
Balance, End of Period 19,516,694
==========
Treasury Stock, Shares
Balance, Beginning of Year 10,740
------
Balance, End of Period 10,740
======
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(1) Disclosure of Reclassification Amount: 2001 2000 2001 2000
---- ---- ---- ----
Unrealized holding gains
arising during the period $5,161 $ 1,853 $ 5,910 $ 6,259
Less: reclassification adjustment
for net gains included
in net income 35 1,027 851 4,090
------- ------- ------- ---------
Net Unrealized Gains On Securities $5,126 $ 826 $ 5,059 $ 2,169
======= ======== ======= =========
See accompanying Notes to Consolidated Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
FOR THE SIX
MONTHS ENDED JUNE 30,
2001 2000
--------- ---------
Cash Flows From Operating Activities:
Income (Loss) from continuing operations $ (4,692) $ 4,759
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net realized investment gains (851) (4,090)
Depreciation and amortization 431 442
Change in accrued investment income (2,774) (37)
Change in premiums and fees receivable (1,957) (2,334)
Change in reinsurance recoverables 828 (513)
Change in reinsurance recoverable on unpaid losses (455) 1,516
Change in prepaid reinsurance premiums (244) (492)
Change in deferred acquisition costs (395) (607)
Change in unpaid losses and loss adjustment expenses 5,403 (8,201)
Change in unearned premiums 4,280 3,464
Change in reinsurance payables and funds withheld 70 221
Change in policyholder dividends payable (25) (11)
Change in receivable on reinsurance treaty rescission - 11,459
Other, Net 305 (434)
--------- ---------
Net cash provided by (used in )operating activities (76) 5,142
--------- ---------
Cash Flows From Investing Activities:
Proceeds from sales:
Fixed income maturities available-for-sale 9,601 7,500
Equity securities 15,986 12,553
Investments, matured or called:
Fixed income maturities available-for-sale 10,488 12,007
Investments, purchased:
Fixed income maturities available-for-sale (33,825) (29,134)
Equity securities (3,012) (9,844)
Purchases of property and equipment (125) (65)
--------- --------
Net cash used in investing activities (887) (6,983)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of options to purchase Common Stock 630 -
-------- ---------
Net cash provided by (used in) financing activities 630 -
-------- ---------
Net decrease in cash and short term investments (333) (1,841)
Cash and Short Term Investments At Beginning of Period 12,545 8,339
--------- ---------
Cash and Short Term Investments At End of Period $ 12,212 $ 6,498
======== ========
See accompanying Notes to Consolidated Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements of Danielson
Holding Corporation ("DHC" or "Registrant") and subsidiaries (collectively with
DHC, the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America. However, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six months ended June 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, reference is made to the
Consolidated Financial Statements and footnotes thereto included in DHC's
Annual Report on Form 10-K for the year ended December 31, 2000. Certain prior
year amounts have been reclassified to conform with the current year's financial
statement presentation.
2) PER SHARE DATA
Per share data is based on the weighted average number of shares of common
stock of DHC, par value $0.10 per share ("Common Stock"), outstanding during a
particular year or other relevant period. Diluted earnings per share
computations, as calculated under the treasury stock method, include the average
number of shares of additional outstanding Common Stock issuable for stock
options and warrants, whether or not currently exercisable. Such average shares
were 19,571,593 and 19,579,349 for the three and six months ended June 30, 2001,
respectively, and 19,030,634 and 19,119,115 for the three and six months ended
June 30, 2000, respectively. Basic earnings per share are calculated using only
the average number of outstanding shares of Common Stock and disregarding the
average number of shares issuable for stock options and warrants. Such average
shares were 19,505,954 and 19,423,578 for the three and six months ended June
30, 2001, respectively, and 18,476,265 for both the three and six months ended
June 30, 2000.
3) INCOME TAXES
DHC files a Federal consolidated income tax return with its subsidiaries.
DHC's Federal consolidated return includes the taxable results of certain
grantor trusts established pursuant to a prior court approved reorganization to
assume various liabilities of certain present and former subsidiaries of DHC.
These trusts are not consolidated with DHC for financial statement purposes. The
Company records its interim tax provisions based upon estimated effective tax
rates for the year.
The Company has made provisions for certain state and local taxes. Tax
filings for these jurisdictions do not consolidate the activities of the trusts
referred to above. For further information, reference is made to Note 8 of the
Notes to Consolidated Financial Statements included in DHC's Annual Report on
Form 10-K for the year ended December 31, 2000.
4) INVESTMENTS
During the three months ended June 30, 2001, the Company purchased
$57,493,000 face amount of American Commercial Lines LLC Senior Notes 10.25%,
due 6/30/08 ("ACL Notes") at a cost of $28,995,573. The fair value of the ACL
Notes was $30,471,290 at June 30, 2001. See "Item 3. Qualitative and
Quantitative Disclosures About Market Risk."
4) AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, NAICC was required to record its statutory
amounts pursuant to the Accounting Practices and Procedures Manual issued by the
National Association of Insurance Commissioners ("SSAPs"). The effect of
adoption of the SSAPs did not have a material effect on NAICC's statutory
surplus.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS 133, as amended by
SFAS 138 and related guidance, collectively "the Standard", established the
accounting and reporting standards for derivative instruments and hedging
activities. The Company adopted the Standard on January 1, 2001 and such
adoption did not have a material effect on the financial statements.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 140"). The Statement is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after March 31, 2001. SFAS No. 140 also includes
provisions that require additional disclosures in the financial statements for
fiscal years ending after December 15, 2000.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141"), which provides that all
business combinations should be accounted for using the purchase method of
accounting and establishes criteria for the initial recognition and
measurement of goodwill and other intangible assets recorded in connection with
a business combination. The provisions of SFAS No. 141 apply to all business
combinations initiated after June 30, 2001 and to all business combinations
accounted for by the purchase method that are completed after June 30, 2001.
The Company will apply the provisions of SFAS No. 141 to any future business
combinations.
The FASB issued Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"), which establishes the
accounting for goodwill and other intangible assets following their recognition.
SFAS No. 142 is effective beginning January 1, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. GENERAL
Danielson Holding Corporation ("DHC") is organized as a holding company
with substantially all of its operations conducted by subsidiaries (collectively
with DHC, the "Company"). DHC, on a parent-only basis, has limited continuing
expenditures for rent and administrative expenses and derives revenues primarily
from investment returns on portfolio securities. Therefore, the analysis of the
Company's financial condition is generally done on an operating subsidiary
basis.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and the information in Item 3, " Qualitative and
Quantitative Disclosures About Market Risk" contain forward-looking statements,
including statements concerning capital adequacy, adequacy of reserves, goals,
future events and underlying assumptions and other statements which are other
than statements of historical facts. Such forward-looking statements may be
identified, without limitation, by the use of the words "believes",
"anticipates", "expects", "intends", "plans" and similar expressions. All such
statements represent only current estimates or expectations as to future results
and are subject to risks and uncertainties which could cause actual results to
materially differ from current estimates or expectations. See "RISK FACTORS THAT
MAY AFFECT FUTURE RESULTS".
2. RESULTS OF NAICC'S OPERATIONS
The operations of DHC's principal subsidiary, National American Insurance
Company of California ("NAICC"), are primarily in specialty property and
casualty insurance.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
Net premiums earned were $20.3 million and $39.4 million for the three and
six months ended June 30, 2001, respectively, compared to $15.5 million and
$31.0 million for the three and six months ended June 30, 2000, respectively.
The increase in net premiums earned is directly related to the change in net
premiums written. Net premiums written were $23.1 million and $43.4 million for
the three and six months ended June 30, 2001, respectively, compared to $17.3
million and $34.1 million for the three and six months ended June 30, 2000,
respectively.
The overall increase in net written premiums for 2001 over the comparable
periods in 2000 is attributable to growth in commercial lines. Net
written premiums in non-standard commercial automobile increased by $11.1
million or 112% during 2001 over the comparable year to date period 2000. This
increase is due to increased production.
Net investment income was $2.3 million and $4.2 million for the three and
six months ended June 30, 2001, respectively, compared to $1.9 million and $3.7
million for the three and six months ended June 30, 2000, respectively. The
growth in investment income is attributable to increased cash flow of $3.2
million over the comparable year-to-date period in 2000 caused by the growth
in commercial automobile premiums and an increase in overall annualized
investment yield from 6.62% in 2000 to 8.41% in 2001. The increase in the
annualized investment yield was due to the investment in American Commercial
Lines LLC Senior Notes. See Note 4 of the Notes to Consolidated Financial
Statements. Net realized investment gains (losses) were $(77,000) and $734,000
for the three and six months ended June 30, 2001. Net realized investment gains
were $736,000 and $3.8 million for the three and six months ended June 30, 2000.
The gains (losses) were recognized almost exclusively from the sale of equity
securities.
Net losses and loss adjustment expenses ("LAE") were $21.3 million and
$36.3 million for the three and six months ended June 30, 2001, respectively,
compared to $11.3 million and $22.6 million for the three and six months ended
June 30, 2000, respectively. The resulting loss and LAE ratios for the
corresponding year-to-date periods were 92.2 percent and 72.9 percent,
respectively for 2001 and 2000. The loss and LAE ratio increased in 2001 over
2000 due primarily to the continued adverse development in both California
workers' compensation and private passenger automobile. As a result, effective
June 1, 2001, NAICC has terminated one of its private passenger automobile
programs and effective July 2001, NAICC has ceased writing California workers'
compensation insurance.
Policy acquisition costs were $5.7 million and $9.8 million for the three
and six months ended June 30, 2001, respectively, compared to $4.0 million and
$7.9 million for the three and six months ended June 30, 2000, respectively. As
a percentage of net premiums earned, policy acquisition expenses were 24.9
percent and 25.5 percent for the six months ended June 30, 2001 and 2000,
respectively. The decrease in the policy acquisition expense ratio in 2001 is
due primarily to the overall increase in premium volume while fixed underwriting
expenses included in policy acquisition costs remained relatively constant.
General and administrative expenses were $1.8 million and $3.6 million for
the three and six months ended June 30, 2001, respectively. General and
administrative expenses were $1.6 million and $3.1 million for the three and six
months ended June 30, 2000, respectively. General and administrative expenses
increased slightly in 2001 over 2000 due to increased premium volume. As a
percentage of net premiums written, general and administrative expenses were 8.3
percent and 9.0 percent for the six months ended June 30, 2001 and 2000,
respectively.
The combined ratios (which represent a ratio of losses and expenses to net
earned premiums in a particular period) were 126.7 percent and 108.9 percent for
the six months ended June 30, 2001 and 2000, respectively. Net income
(loss) from insurance operations for the six months ended June 30, 2001 and
2000 was $(4.9) million and $5.3 million, respectively. The decrease in
net income from insurance operations during the first six months of 2001
compared to the same period for 2000 is attributable to increased
losses incurred due to adverse development in prior years' reserves and the
decrease in net realized investment gains.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries require both readily liquid assets and
adequate capital to meet ongoing obligations to policyholders and claimants, as
well as to pay ordinary operating expenses. The primary sources of funds to meet
these obligations are premium revenues, investment income, recoveries from
reinsurance and, if required, the sale of invested assets. NAICC's investment
policy guidelines require that all liabilities be matched by a comparable amount
of investment grade invested assets. Management of NAICC believes that NAICC has
both adequate capital resources and sufficient reinsurance to meet any
unforeseen events such as natural catastrophes, reinsurer insolvencies or
possible reserve deficiencies.
The Company meets both its short-term and long-term liquidity requirements
through operating cash flows that include premium receipts, investment income
and reinsurance recoveries. To the extent operating cash flows do not provide
sufficient cash flow, the Company relies on the sale of invested assets. Cash
provided by operations was $1.6 million and $5.7 million for the six months
ended June 30, 2001 and 2000, respectively. The decrease in cash provided by
operations is primarily attributable to the collection of a reinsurance
settlement for $11.5 million in 2000 offset by increased premium collections in
2001 related to the growth in the commercial automobile program. Overall cash
and invested assets, at fair value, at June 30, 2001 were $142.0 million,
compared to $139.2 million at December 31, 2000. The Company believes that its
liquidity needs will continue to be met through the same sources in the
future.
3. RESULTS OF DHC'S OPERATIONS
CASH FLOW FROM PARENT-ONLY OPERATIONS
Operating cash flow of DHC on a parent-only basis is primarily dependent
upon the rate of return achieved on its investment portfolio and the payment of
general and administrative expenses incurred in the normal course of business.
For the six months ended June 30, 2001 and 2000, cash used in parent-only
operating activities was $1.7 million and $0.6 million, respectively. The
increase in cash used in operating activities is attributable to an increase in
accrued interest purchased in DHC's investment portfolio. For information
regarding DHC's operating subsidiaries' cash flow from operations, SEE "2.
RESULTS OF NAICC'S OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES."
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001 cash and investments of DHC were approximately $24.5
million, compared to $21.0 million at December 31, 2000. The increase is due to
a $4 million loan from NAICC to DHC, offset by the purchase of accrued interest
in DHC's investment portfolio and the payment of general and administrative
expenses in the normal course of business. For information regarding DHC's
operating subsidiaries' liquidity and capital resources, see "2. RESULTS OF
NAICC'S OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES."
4. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
As noted above, the foregoing discussion may include forward-looking
statements that involve risks and uncertainties. In addition to other factors
and matters discussed elsewhere herein, some of the important factors that, in
the view of the Company, could cause actual results to differ materially from
those discussed in the forward-looking statements include the following:
1. The insurance products sold by the Company are subject to intense
competition from many competitors, many of whom have substantially greater
resources than the Company. There can be no assurance that the Company will be
able to successfully compete and generate sufficient premium volume at
attractive prices to be profitable.
2. In order to implement its business plan, the Company has been seeking to
enter into strategic partnerships and/or make acquisitions of businesses that
would enable the Company to earn an attractive return on investment.
Restrictions on the Company's ability to issue additional equity in order to
finance any such transactions exist which could significantly affect the
Company's ability to finance any such transaction. The Company may have limited
other resources with which to implement its strategy and there can be no
assurance that any transaction will be successfully consummated.
3. The insurance industry is highly regulated and it is not possible to
predict the impact of future state and federal regulation on the operations of
the Company.
4. Unpaid losses and loss adjustment expenses ("LAE") are based on
estimates of reported losses, historical Company experience of losses reported
by reinsured companies for insurance assumed from such insurers, and estimates
based on historical Company and industry experience for unreported claims. Such
liability is, by necessity, based upon estimates which may change in the near
term, and there can be no assurance that the ultimate liability will not exceed,
or even materially exceed, such estimates.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's objectives in managing its investment portfolio are to
maximize investment income and investment returns while minimizing overall
risk. Investment strategies are developed based on many factors including
underwriting results, overall tax position, regulatory requirements, and
fluctuations in interest rates. Investment decisions are made by management and
approved by the Board of Directors. Market risk represents the potential for
loss due to adverse changes in the fair value of securities. The market risks
related to the Company's fixed maturity portfolio are primarily interest rate
risk and prepayment risk. The market risks related to the Company's equity
portfolio are foreign currency risk and equity price risk. During the quarter,
in a series of open market transactions, the Company purchased a total of
$57,493,000 face amount of American Commercial Lines LLC Senior Notes 10.25%,
due 6/30/08 with a fair value of $30,471,290 as of June 30, 2001. This amount
represents approximately 14% of the total assets of the Company. This security
was purchased with available cash through broker dealers and other market
participants trading this security. None of the parties from whom purchases were
ultimately made are affiliated in any way with the Company. All purchases were
made at prevailing market prices. This security is a publicly traded
distressed/high yield bond. The Company believes that this security offers an
attractive yield and should increase the return on the Company's current
investment portfolio, provided there is no money default. However, there are
market risks inherent in these securities in addition to the risks related to
the rest of the Company's fixed maturity portfolio. The market value for
distressed debt tends to be more sensitive to economic conditions and
individual corporate developments than those of higher rated securities. In
addition, the secondary market for these bonds is generally less liquid. For
further information, reference is made to Management's Discussion and Analysis
of Financial Condition and Results of Operations included in DHC's Annual
Report on Form 10-K for the year ended December 31, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
NAICC is a party to various legal proceedings which are considered routine
and incidental to its business and are not material to the financial condition
and operation of its business. DHC is not a party to any legal proceeding which
is considered material to the financial condition and operation of its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
SIGNATURES
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 thereunto duly authorized.
Date: August 14, 2001
DANIELSON HOLDING CORPORATION
(Registrant)
BY: /S/ DAVID BARSE
--------------------------------------------
David Barse
PRESIDENT & CHIEF OPERATING OFFICER
BY: /S/ MICHAEL CARNEY
-----------------------------------
Michael Carney
CHIEF FINANCIAL OFFICER