The Company's principal headquarters are located in Fair Lawn, New Jersey where it occupies approximately 36,000 square feet under a lease which expires in 2000 at a current annual rental expense of approximately $400,000.
Pursuant to the Restructuring entered into in March 1996 (See Discontinued Operations) the Company's lease for its former principal headquarters has been transferred to The Robert Plan Corporation.
The Company believes that these facilities are well maintained and adequate to meet its needs in the foreseeable future.
The following selected financial data of the Company are derived from the consolidated financial statements. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.
Income (loss) from discontinued operations less applicable income taxes/(benefit) of none, ($924), $670, $3,633, $2,852 and $1,417, respectively (7,108) (6,754) 1,158
Working capital (deficiency) $ (8,717) $ 3,110 $12,475 Total assets 8,369 18,795 22,748 Short-term debt -- 2,000 -- Stockholders' equity (deficit) (6,013) 5,376 20,574
Income (loss) from discontinued operations less applicable income taxes/(benefit) of none, ($924), $670, $3,633, $2,852 and $1,417, respectively 5,653 4,116 2,034
Loss on disposal of discontinued operations including $1,000 for losses in 1996 prior to sale, no tax benefit provided
Working capital (deficiency) $12,843 $17,102 $12,386 Total assets 22,443 18,544 14,451 Short-term debt -- -- -- Stockholders' equity (deficit) 20,541 17,637 13,302
(1) Includes a $1,165 ($.14 per share) and $3,373 ($.25 per share net of tax) special charge in 1995 and 1994, respectively. (2) All per share amounts are based on the increased number of shares giving retroactive effect to the impact of the five for four stock split by way of a twenty-five percent (25%) stock dividend declared on March 18, 1993 and the five percent (5%) stock dividend declared on December 19, 1991. (3) Revenues of the discontinued operations (ISD) were $20,228, $32,893, $8,589, $68,515, $88,858 and $53,541, respectively, for each of the periods above.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------ ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
ISD revenues in 1993 through 1995 were primarily made up of policy administration and claims servicing fees from customers such as Atlantic/Pacific Employers Insurance Company and to a lesser extent, Clarendon National Insurance Company ("Clarendon"), for servicing policies in the New Jersey voluntary and assigned risk markets. The contract with Atlantic/Pacific Employers Insurance Company reached its peak level of activity in 1994 and policy volumes declined sharply in 1995. During 1995 and 1996, Atlantic/Pacific Employers Insurance Company planned to non-renew all of their auto insurance policies in New Jersey in accordance with the accelerated withdrawal order entered into with the New Jersey Department of Insurance in August 1994.
By the end of 1994, Warner decided that risk taking, even as a reinsurer, was not an attractive business strategy, particularly because of the substantial capital required by its insurance subsidiary relative to other Warner capital commitments. Warner and Clarendon agreed, therefore, to end the reinsurance arrangement in the fourth quarter of 1994 and "commute" all reinsurance interests and liabilities back to the inception of the agreement, thus eliminating all reinsurance activity of Alerion. This had the effect of reducing revenues by $6.1 million and operating income by $.5 million in the fourth quarter of 1994.
Since Warner was no longer willing to share in the underlying insurance risk of PAIP policies, it could not, by law, continue to provide policy administration and claims servicing to Clarendon under the LAD program after 1994.
The overall decline in total revenues in calendar 1994 versus fiscal 1993 is due primarily to the phasing out of the MTF program, as described in the next paragraph, and related data processing contracts with other insurance companies.
Policies serviced under the three-year MTF contract came to an end at September 30, 1993 with respect to policy processing and administration as the last of the MTF policies expired. In 1993, Warner's policy servicing revenues from the MTF were approximately $8 million versus less than $1 million in 1994. The claims for these MTF policies have been handled for Warner since the inception of the contract by a subcontractor. The claims fees were included in Warner's total revenues as "subcontracted claims servicing revenue" and are passed through to the subcontractor without any profit for Warner. In calendar 1994, these "pass-through" subcontract claims servicing revenues were approximately $1 million, compared with approximately $20 million in the high activity level in fiscal 1993. As of March 1, 1996, the Company's contracted activity for the MTF has ended.
In March 1996, the Company received a $2.3 million refund of federal income taxes paid prior to 1995.
Working capital deficit at December 31, 1995 exclusive of liabilities in excess of assets of the ISD business discontinued in March 1996 of $8,648,368 was $68,275. In March 1996, as a result of the Restructuring described in Note 1 to the Consolidated Financial Statements, the Company expects to have a positive net worth at March 31, 1996 primarily because of the issuance to certain ISD customers and The Robert Plan Corporation of Warner Common Stock and Warrants with a fair market value of approximately $7 million. Furthermore, in March 1996, the Company received an additional $3,022,391 for the sale of Common Stock and Warrants and expects to receive another $1,553,124 in May 1996 from the sale of additional Common Stock pursuant to a series of transactions with Software Investments Limited and Care Corporation Limited that are described in Note 11 to the Consolidated Financial Statements.
The Company believes that current cash balances, proceeds from the sale of Common Stock and Warrants in 1996 and anticipated cash flows from continuing operations will be sufficient to meet normal operating needs for the continuing COVER-ALL business in 1996.
The financial statements and supplementary data listed in Item 14(a)(1) and (2) are included in this report beginning on page 15.