1
EXHIBIT 99.2
PHYSICIANS INSURANCE COMPANY OF OHIO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
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(Unaudited)
ASSETS
Investments:
Available for sale:
Fixed maturities, at fair value (amortized cost $94,784,167 and $81,326,490) $ 93,810,473 81,573,579
Equity securities, at fair value (cost $64,561,467 and $63,945,369) 105,167,535 99,857,295
Investment in affiliate, at equity 28,086,983 32,974,930
Short-term investments, at cost 11,168,338 9,162,925
Real estate 1,623,201 3,038,750
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Total investments 239,856,530 226,607,479
Cash and cash equivalents 19,481,509 43,987,805
Premiums and other receivables, net 7,530,332 10,927,156
Reinsurance receivables 91,929,975 100,719,416
Prepaid deposits and reinsurance premiums 2,848,107 16,623,918
Accrued investment income 1,622,529 1,716,672
Property and equipment, net 5,422,442 5,538,348
Deferred policy acquisition costs 5,123,414 2,894,644
Other assets 5,212,208 6,439,127
Assets held in separate accounts 6,116,068 6,361,040
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Total assets $ 385,143,114 $ 421,815,605
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LIABILITIES
Policy liabilities and accruals:
Unpaid losses and loss adjustment expenses, net of discount $ 213,293,973 $ 229,796,606
Future policy benefits and claims payable 12,321,044 15,576,716
Annuity and other policyholders' funds 31,711,044 31,976,176
Unearned premiums 21,261,524 30,858,612
Reinsurance balance payable 5,280,268 8,376,110
Deferred gain on retroactive reinsurance 3,270,070 3,500,544
Other liabilities 6,261,076 11,749,700
Deferred tax liability 6,378,610 4,174,461
Liabilities related to separate accounts 6,116,068 6,361,040
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Total liabilities 305,893,677 342,369,965
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Minority Interest (176,842) 96,295
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SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, authorized 1,000,000 shares; none issued Common
stock:
Class A, $1 par value; authorized 8,000,000; issued 5,476,395 shares 5,476,395 5,476,395
Additional paid-in capital 12,007,240 11,933,320
Net unrealized appreciation on investments 26,658,979 23,827,817
Cumulative foreign currency translation adjustment 35,910 (14,792)
Equity changes of investee company (588,814) (979,066)
Retained earnings 42,461,621 39,906,703
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86,051,331 80,150,377
Less treasury stock, at cost (Class A shares 590,198 in 1996 272,498 shares in 1995) 6,625,052 (801,032)
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Total shareholders' equity 79,426,279 79,349,345
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Total liabilities and shareholders equity $ 385,143,114 $ 421,815,605
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The accompanying notes are an integral part of the
consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1996 and 1995
Three Months Ended September Nine Months Ended September 30,
1996 1995 1996 1995
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(Unaudited) (Unaudited)
Revenues:
Premium income $ 8,357,061 $ 5,330,979 $ 22,850,617 $ 15,100,278
Investment income, net 2,714,268 3,026,858 7,767,565 10,163,108
Realized gains on investments 2,251,067 4,074,484 3,096,198 4,773,383
Land sales 1,496,123 1,330,501
Commission income 74,344 38,834 406,588 92,143
Other income 320,359 6,157,988 912,435 6,512,664
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Total revenues 13,717,099 18,629,143 36,529,526 37,972,077
------------ ------------ ------------ ------------
Expenses:
Loss and loss adjustment expenses 6,445,518 5,275,201 15,542,124 15,404,893
Benefits and claims 462,237 68,473 701,592 409,231
Interest credited to policyholders 573,572 613,135 1,737,346 1,819,218
Policy acquisition costs 38,292 125,905 74,742
Land sales 1,438 (31,260) 1,406,741 1,335,406
Insurance underwriting and other expenses 5,073,637 3,333,675 14,598,064 7,975,399
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Total expenses 12,594,694 9,259,224 34,111,772 27,018,889
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Equity in earnings of affiliate 577,104 923,537 27,018,889
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Income before income taxes 1,699,509 9,369,919 3,341,291 10,953,188
Provision (benefit) for federal income 344,516 (5,507,417) 786,340 (5,468,698)
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taxes
Net income $ 1,354,993 $ 14,877,336 $ 2,554,951 $ 16,421,886
============ ============ ============ ============
Net income per common share
and common equivalent share $ 0.27 $ 2.87 $ 0.49 $ 3.20
============ ============ ============ ============
Weighted average shares outstanding 5,074,348 5,132,468 5,265,012 5,190,821
============ ============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
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1996 1995
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,554,951 $ 16,421,886
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes 745,672 (6,451,515)
Depreciation and amortization 2,677,166 1,748,782
Realized gains on investments and property and equipment (3,184,701) (4,773,388)
Equity in income of affiliate (632,893)
Changes in assets and liabilities, net of effects from acquisitions of
businesses:
Premiums and other receivables 3,396,824 (5,041,067)
Reinsurance recoverable and payable 19,469,410 (69,183,722)
Accrued investment income 94,143 2,380,716
Deferred policy acquisition costs (4,109,648) (1,602,628)
Unpaid losses and loss adjustment expenses (16,502,633) 47,799,001
Claims payable (1,577,789) (120,144)
Unearned premiums (9,597,088) 10,430,777
Other (3,273,052) (1,000,348)
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Net cash (used in) operating activities (9,939,638) (9,391,650)
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CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of investments:
Available for sale:
Fixed maturities 6,787,590 111,921,092
Equity securities 38,823,287 7,216,031
Proceeds from maturity of investments:
Available for sale:
Fixed maturities 9,345,393 14,418,792
Purchases of investments:
Available for sale:
Fixed maturities (30,061,188) (10,687,098)
Equity securities (35,357,920) (57,331,124)
Net (purchases) sales of short-term investments (2,005,413) 1,641,505
Net sales of real estate 1,457,389 1,193,311
Proceeds from sale of property and equipment 42,709 63,082
Purchases of property and equipment (222,903) (1,073,859)
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Net cash (used in) provided by investing activities (11,191,056) 67,361,732
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank and other borrowings (77,129)
Net decrease in future policy benefits (3,255,672) (120,614)
Net decrease in annuity and other policyholders' funds (265,132) 792,434
Issuance of treasury stock 94,500 350,000
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Net cash (used in) provided by financing activities (3,426,304) 944,691
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Effect of exchange rate changes on cash 50,702
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Net (decrease) increase in cash and cash equivalents (24,506,296) 58,914,773
Cash and cash equivalents at beginning of year 43,987,805 21,058,769
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Cash and cash equivalents at end of period $ 19,481,509 $ 79,973,542
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The accompanying notes are an integral part of the
consolidated financial statements.
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PHYSICIANS INSURANCE COMPANY OF OHIO AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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1. Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The interim financial statements include
all adjustments (all of which are normal and recurring, in nature)
which, in the opinion of management, are necessary in order to make the
financial statements not misleading. For further information, refer to
the consolidated financial statements and footnotes included in the
Company's Form S-4 Registration Statement effective October 3, 1996.
Certain reclassifications have been made to conform to the current
presentation.
2. Subsequent Events
On May 9, 1996, Physicians Insurance Company of Ohio ("PICO"), Guinness
Peat Group plc ("GPG"), and the Ondaatje Corporation ("TOC") (TOC
subsequently changed its name to Global Equity Corporation) entered into
an agreement whereby GPG agreed to sell 850,000 Class A Shares of PICO
common stock to TOC in two blocks, subject to regulatory approval at an
average price of approximately US $18.00 per share. GPG agreed to sell
the shares to TOC at a discount to market due to their status as
restricted stock and in consideration of the quantity of shares to be
purchased. On May 13, and June 4, 1996 TOC purchased the shares. Prior
to these transactions, GPG owned approximately 40% of PICO common stock.
Following these transactions, GPG and TOC own approximately 23% and 16%
of PICO, respectively. The shares of PICO owned by TOC have been
accounted for as treasury shares in the PICO consolidated financial
statements.
3. Pending Business Transaction
On March 4, 1996 the Company and The Citation Insurance Group ("CIG")
announced that they had signed a letter of intent for a stock-for-stock
merger, pursuant to which the Company will become a wholly owned
subsidiary of CIG. As a result of the combination, the shareholders of
the Company will own 80 percent of the combined company. The definitive
agreement to merge the two companies was signed on May 3, 1996. On
November 7, 1996, the shareholders of the Company and CIG voted for the
approval of the merger. The closing date of the transaction was November
20, 1996. Upon consummation of the merger, CIG's name was changed to
"PICO Holdings, Inc."