Arch Capital Group Ltd. Reports 2001 Second Quarter Results.Business Editors GREENWICH Greenwich, borough, Greater London, England Greenwich (grĭn`īj, grĕn`–), outer borough (1991 pop. 200,800) of Greater London, SE England, on the Thames River. Manufactures include telephone equipment and underwater cable. , Conn.--(BUSINESS WIRE)--Aug. 13, 2001 Arch Capital Group Ltd. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : ACGL ACGL Arch Capital Group Ltd. ACGL Automobile Corporation of Goa Limited ACGL Alternative County Government Law ) today reported 2001 second quarter results. The Company reported 2001 second quarter after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , which excludes net realized investment gains and losses and equity in net income of investees, of $2.8 million, or $0.21 per share, compared to an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $1.0 million, or $0.08 per share, in the 2000 second quarter. For the six months ended June June: see month. 30, 2001, after-tax operating income was $4.1 million, or $0.32 per share, compared to an operating loss for the comparable 2000 period of $14.3 million, or $1.03 per share. Net income for the 2001 second quarter was $8.4 million, or $0.65 per share, which included after-tax net realized investment gains of $5.7 million, or $0.44 per share. These amounts compare with net loss for the 2000 second quarter of $2.6 million, or $0.21 per share, which included after-tax net realized investment losses of $239,000, or $0.02 per share. Net income for the six months ended June 30, 2001 was $16.4 million, or $1.28 per share, which included after-tax net realized investment gains of $11.8 million, or $0.92 per share. These amounts compare with net income for the comparable 2000 period of $5.1 million, or $0.36 per share, which included after-tax realized investment gains of $20.9 million, or $1.49 per share. As a result of the Company's previously announced acquisition of the remaining ownership interests in Arch Risk Transfer Services Ltd. ("ART Services"), formerly known as Altus Altus (ăl`təs), city (1990 pop. 21,910), seat of Jackson co., SW Okla.; inc. 1907. The city's agricultural products include cotton, wheat, sorghum, and cattle. There is light manufacturing. Holdings, Ltd., the above net income amounts have been restated for all periods prior to the 2001 second quarter in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting governing gov·ern v. gov·erned, gov·ern·ing, gov·erns v.tr. 1. To make and administer the public policy and affairs of; exercise sovereign authority in. 2. a "step acquisition." After the Company's acquisition of its initial ownership interest in ART Services in March 1998, the investment was carried at its estimated fair value from the initial purchase through March 31, 2001 in accordance with generally accepted accounting principles. Upon the closing of the Company's acquisition of ART Services on June 22, 2001, the Company was required to retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin adopt the equity method of accounting for its original minority ownership interest in ART Services for the periods prior to the acquisition and to restate re·state tr.v. re·stat·ed, re·stat·ing, re·states To state again or in a new form. See Synonyms at repeat. re·state its historical financial results. The required change to the equity method of accounting for this investment resulted in a reduction in the Company's book value at June 30, 2001 in the amount of $3.5 million, or $0.27 per share, and decreased net income by $327,000, or $0.02 per share, and $475,000, or $0.03 per share, for the 2001 second quarter and the six months ended June 30, 2001, respectively. Restating net income previously reported resulted in a decrease in net income of $55,000 for the 2000 second quarter and an increase in net income of $1.8 million, or $0.13 per share, for the six months ended June 30, 2000. At June 30, 2001, after giving effect to the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. , the Company's consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was $271.7 million, or $21.12 per share, compared with $272.3 million, or $21.43 per share, at December December: see month. 31, 2000. Consolidated shareholders' equity included a $6.4 million, or $0.50 per share, decline in book value resulting from a decrease in the Company's investment portfolio for the six months ended June 30, 2001. On a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, book value per share was $20.93 at June 30, 2001, compared with $21.43 at December 31, 2000, as restated. Cautionary Note Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 provides a "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " for forward-looking statements. This release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. All statements other than statements of historical fact included in this release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. terminology The terminology used in the computer and telecommunications field adds tremendous confusion not only for the lay person, but for the technicians themselves. What many do not realize is that terms are made up by anybody and everybody in a nonchalant, casual manner without any regard or such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward-looking statements involve the Company's current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below and elsewhere in this release and include: -- the availability of acquisition candidates and other investments on attractive terms; -- competition for acquisition opportunities and in the businesses of the operating companies the Company has acquired or may acquire or form; -- the Company's future business operations and strategy; -- the integration of businesses the Company has acquired or may acquire into its existing operations; -- losses relating to aviation business and business produced by a certain managing underwriting agency for which the Company may be liable to the purchaser of its reinsurance business or to others; -- greater than expected loss ratios on insurance written by the Company's insurance subsidiaries and adverse development of claim and/or claim expense liabilities related to business written by its insurance subsidiaries in prior years; -- the failure of reinsurers or others to meet their obligations to the Company's insurance subsidiaries in connection with losses relating to their insurance businesses; -- general economic and market conditions; -- changes in interest rates; -- regulatory changes and conditions; -- rating agency policies and practices; and -- loss of key personnel. All subsequent written and oral forward-looking statements attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the Company or persons acting on its behalf are expressly qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by these cautionary statements. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with other cautionary statements that are included herein or elsewhere. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share data)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
-------------------------------------------
(Restated) (Restated)
Revenues
Net premiums written $6,719 ($63,493) $9,557 ($10,604)
(Increase) decrease in
unearned premiums (1,154) 92,861 (2,359) 98,134
-------------------------------------------
Net premiums earned 5,565 29,368 7,198 87,530
Net investment income 3,078 4,257 6,238 9,547
Net investment gains
(losses) 9,605 (367) 18,609 32,106
Equity in net income of
investees 33 853 921 633
Fee income 3,711 5,426
Net commission income 1,199 1,681
Gain on sale of
reinsurance operations 2,191 2,191
-------------------------------------------
Total revenues 23,191 36,302 40,073 132,007
Expenses
Claims and claims expenses 5,526 22,388 7,071 76,263
Commissions and brokerage 10,003 26,756
Other operating expenses 5,036 1,678 9,074 4,246
Foreign exchange loss 1,159
-------------------------------------------
Total expenses 10,562 34,069 16,145 108,424
Income Before Income Taxes 12,629 2,233 23,928 23,583
Federal income taxes:
Current 50 251
Deferred 4,179 4,840 7,284 18,493
-------------------------------------------
Income tax expense 4,229 4,840 7,535 18,493
-------------------------------------------
Net Income (Loss) $8,400 ($2,607) $16,393 $5,090
===========================================
Average Shares Outstanding
Basic 12,832,261 12,379,371 12,809,572 13,948,267
Diluted 12,844,000 12,379,371 12,818,160 13,949,503
Basic and diluted net
income (loss)
per share $0.65 ($0.21) $1.28 $0.36
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
(Unaudited)
June 30, December 31,
2001 2000
---------------------------------
(Restated)
Assets
Investments:
Fixed maturities (amortized cost:
2001, $141,182; 2000, $37,849) $141,400 $38,475
Publicly traded equity securities
(cost: 2001, $2,656; 2000,
$24,987) 3,175 51,322
Privately held securities (cost:
2001, $35,921; 2000, $57,913) 36,000 56,418
Securities held in escrow
(amortized cost: 2001, $21,873;
2000, $20,887) 21,888 20,970
Short-term investments 65,598 97,387
---------------------------------
Total investments 268,061 264,572
---------------------------------
Cash 12,123 11,481
Accrued investment income 2,716 1,432
Premiums receivable 56,708
Unpaid claims and claims expenses
recoverable 80,857
Prepaid reinsurance premiums 25,534
Reinsurance balances receivable 46,529
Goodwill 26,626 6,111
Deferred income tax asset 7,891 8,192
Deferred policy acquisition costs 4,809
Other assets 14,228 4,119
---------------------------------
Total Assets $546,082 $295,907
=================================
Liabilities
Claims and claims expenses $104,946
Unearned premiums 85,144
Reinsurance balances payable 46,673
Reserve for contingent loss of
escrowed assets 15,000 $15,000
Other liabilities 22,667 8,608
---------------------------------
Total Liabilities 274,430 23,608
---------------------------------
Commitments and Contingencies
Shareholders' Equity
Preferred shares, $.01 par value:
50,000,000 shares authorized
(none issued)
Common shares, $.01 par value:
200,000,000 shares authorized
(issued: 2001, 12,863,079; 2000,
12,708,818) 129 127
Additional paid-in capital 290,376 288,016
Deferred compensation under share
award plan (1,479) (341)
Retained earnings (deficit) (17,233) (33,626)
Accumulated other comprehensive
income consisting of unrealized
appreciation (depreciation) of
investments, net of income tax (141) 18,123
----------------------------------
Total Shareholders' Equity 271,652 272,299
----------------------------------
Total Liabilities & Shareholders'
Equity $546,082 $295,907
==================================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
Six Months Ended,
June 30,
2001 2000
------------- -----------------
(Restated)
Common Shares
Balance at beginning of year $127 $171
Common shares issued 2 1
------------- -----------------
Balance at end of period 129 172
------------- -----------------
Additional Paid-in Capital
Balance at beginning of year 288,016 342,034
Common shares issued 2,408 1,221
Common shares retired (48)
------------- -----------------
Balance at end of period 290,376 343,255
------------- -----------------
Deferred Compensation Under Share
Award Plan
Balance at beginning of year (341) (317)
Restricted common shares (issued)
cancelled (1,772) (1,122)
Compensation expense recognized 634 496
------------- -----------------
Balance at end of period (1,479) (943)
------------- -----------------
Retained Earnings (Deficit)
Balance at beginning of year, as
previously reported (30,916) (22,175)
Adjustment to retroactively adopt
the equity method of accounting
for the original
investment in ART Services (2,710) (3,439)
------------- -----------------
Balance at beginning of year, as
adjusted (33,626) (25,614)
Net income 16,393 5,090
------------- -----------------
Balance at end of period (17,233) (20,524)
------------- -----------------
Treasury Shares, At Cost
Balance at beginning of year (387)
Purchase of treasury shares (48) (59,415)
Retirement of treasury shares 48
------------- -----------------
Balance at end of period (59,802)
------------- -----------------
Accumulated Other Comprehensive
Income
Unrealized Appreciation
(Depreciation) of Investments,
Net of Income Tax
Balance at beginning of year 18,432 27,188
Adjustment to retroactively adopt
the equity method of accounting
for the original
investment in ART Services (309) (745)
------------- -----------------
Balance at beginning of year,
as adjusted 18,123 26,443
Change in unrealized appreciation
(depreciation) (18,264) (36,046)
------------- -----------------
Balance at end of period (141) (9,603)
------------- -----------------
Total Shareholders' Equity $271,652 $252,555
============= =================
Comprehensive Income (Loss)
Net income $16,393 $5,090
Other comprehensive income,
net of tax
Unrealized appreciation
(depreciation) of investments:
Unrealized holding gains
(losses) arising during period (6,427) (15,177)
Less: reclassification
adjustment for net realized
gains included in net income (11,837) (20,869)
------------- -----------------
Other comprehensive income (loss) (18,264) (36,046)
-----------------
-------------
Comprehensive Income (Loss) ($1,871) ($30,956)
============= =================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended,
June 30,
2001 2000
------------ -----------------
(Restated)
Operating Activities
Net income $16,393 $5,090
Adjustments to reconcile net
income to net cash provided by
operating activities:
Liability for claims and claims
expenses (253) 7,069
Unearned premiums 5,163 (5,226)
Premiums receivable (5,971) 10,733
Accrued investment income (326) 996
Reinsurance recoverables (2,668) (11,093)
Reinsurance balances payable 205 (5,121)
Deferred policy acquisition costs (473) 344
Net investment (gains)/losses (18,610) (23,603)
Deferred income tax asset 302 4,222
Other liabilities (3,017) 9,031
Other items, net 8,963 7,550
------------ -----------------
Net Cash Provided By (Used For)
Operating Activities (292) (8)
------------ -----------------
Investing Activities
Purchases of fixed maturity
investments (112,225) (89,166)
Sales of fixed maturity investments 65,899 148,292
Purchases of equity securities (19) (18,233)
Sales of equity securities 44,468 133,477
Net sales (purchases) of short-term
investments 37,500 (111,978)
Sales or disposal (purchases) of
furniture and equipment (633) 6
Proceeds from sale of reinsurance
operations 4,842
Acquisition of American Independent
Insurance Holding Company,
net of cash 224
Acquisition of ART Services,
net of cash (34,159)
------------ -----------------
Net Cash Provided By (Used For)
Investing Activities 1,055 67,240
------------ -----------------
Financing Activities
Common shares issued 100
Purchase of treasury shares (48) (59,415)
Debt retirement (73)
------------ -----------------
Net Cash Provided By (Used For)
Financing Activities (121) (59,315)
------------ -----------------
Increase in cash 642 7,917
Cash beginning of year 11,481 9,457
------------ -----------------
Cash end of period $12,123 $17,374
============ =================
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(dollars in thousands, except per share data)
(Unaudited)
June 30, December 31,
2001 2000
------------- -------------------
(Restated)
Privately held securities:
Arch Risk Transfer Services Ltd. $12,981
American Independent Insurance
Holding Company 7,350
The ARC Group, LLC $8,282 8,468
Arx Holding Corp. 3,571 3,514
Distribution Investors, LLC 293 100
GuideStar Health Systems, Inc. 250
Island Heritage Insurance Company,
Ltd. 4,725 4,534
New Europe Insurance Ventures 637 642
Sunshine State Holding Corporation 2,004 1,766
Stockton Holdings Limited 10,000 10,000
Trident II, L.P. 6,488 6,813
------------- -------------------
Total $36,000 $56,418
============= ===================
Investment commitments $21,737 $22,633
============= ===================
Book Value Per Share - basic $21.12 $21.43
Book Value Per Share - diluted $20.93 $21.43
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
----------------------------------------
(Restated) (Restated)
Per Share Amounts, Net of Tax
Basic and Diluted:
Operating income (loss) $0.21 ($0.08) $0.32 ($1.03)
Net realized investment
gains (losses) 0.44 (0.02) 0.92 1.49
Equity in net income of
investees 0.05 0.04 0.05
Loss on sale of
reinsurance operations (0.16) (0.15)
----------------------------------------
Net income (loss) $0.65 ($0.21) $1.28 $0.36
========================================
Total Portfolio Current
Yield
At amortized cost:
Pre-tax 5.2% 4.6% 4.9% 3.8%
Net of tax 4.6% 3.2% 4.5% 2.7%
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