-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q9UBdw6mg6UDbMGzdQz0g6m+7BewjzRY3icC+f2bp8Yjq8JuvUcn8VPbpkA2knyN z+nkS7htjIEco26md6yQDQ== 0000914039-97-000162.txt : 19970513 0000914039-97-000162.hdr.sgml : 19970513 ACCESSION NUMBER: 0000914039-97-000162 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKLEY W R CORP CENTRAL INDEX KEY: 0000011544 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 221867895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07849 FILM NUMBER: 97600528 BUSINESS ADDRESS: STREET 1: 165 MASON ST STREET 2: P O BOX 2518 CITY: GREENWICH STATE: CT ZIP: 06836-2518 BUSINESS PHONE: 2036293000 MAIL ADDRESS: STREET 1: 165 MASON ST STREET 2: PO BOX 2518 CITY: GREENWICH STATE: CT ZIP: 06836-2518 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended. . . . . . . . March 31, 1997 Commission File Number 0-7849 W. R. BERKLEY CORPORATION (Exact name of registrant as specified in its charter) Delaware 22-1867895 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 165 Mason Street, Greenwich, Connecticut 06836-2518 (Address of principal executive offices) (Zip Code) (203) 629-3000 (Registrant's telephone number, including area code) None Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of common stock, $.20 par value, outstanding as of May 2, 1997: 19,648,061. 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 1997 1996 --------- ----------- (Unaudited) Assets Investments: Invested cash $ 314,904 $ 327,193 Fixed maturity securities: Held to maturity, at cost (fair value $199,804 and $208,232) 200,553 204,234 Available for sale at fair value (cost $2,101,754 and $2,012,911) 2,098,848 2,045,254 Equity securities, at fair value: Available for sale (cost $85,226 and $78,435) 93,666 93,900 Trading account (cost $194,265 and $260,167) 191,908 267,609 Cash 26,064 19,292 Premiums and fees receivable 274,986 256,441 Due from reinsurers 444,550 427,419 Accrued investment income 33,910 34,577 Prepaid reinsurance premiums 69,754 70,057 Deferred policy acquisition costs 128,071 119,157 Real estate, furniture & equipment at cost, less accumulated depreciation 116,613 116,303 Excess of cost over net assets acquired 72,680 73,404 Other assets 24,243 18,424 ----------- ----------- $ 4,090,750 $ 4,073,264 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,809,662 $ 1,782,703 Unearned premiums 540,636 514,213 Due to reinsurers 73,500 71,352 Deferred Federal income taxes -- 4,013 Other liabilities 204,751 210,916 ----------- ----------- 2,628,549 2,583,197 ----------- ----------- Long-term debt 390,183 390,104 ----------- ----------- Company-obligated mandatorily redeemable capital securities of a subsidiary trust holding solely 8.197% junior subordinated debentures of the Corporation due December 15, 2045 207,911 207,901 Minority interest 15,489 12,330 ----------- ----------- Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares: 7 3/8% Series A Cumulative Redeemable Preferred Stock 747,727 and 930,807 shares issued and outstanding 75 93 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 19,648,061 and 19,635,976 shares 4,854 4,854 Additional paid-in capital 444,113 471,492 Retained earnings 513,816 490,338 Net unrealized investment gains, net of taxes 3,597 31,075 Treasury stock, at cost, 4,621,317 and 4,633,402 shares (117,837) (118,120) ----------- ----------- 848,618 879,732 ----------- ----------- $ 4,090,750 $ 4,073,264 =========== ===========
See accompanying notes to consolidated financial statements. 1 3 W. R. Berkley Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (Amounts in thousands except per share data)
For the Three Months Ended March 31, --------------------------- 1997 1996 --------- --------- Revenues: Net premiums written $ 284,010 $ 249,208 Increase in unearned premiums (26,726) (20,069) --------- --------- Premiums earned 257,284 229,139 Net investment income 44,831 39,619 Management fees and commissions 17,530 18,562 Realized gains on investments 9,340 311 Other income 837 643 --------- --------- Total revenues 329,822 288,274 Operating costs and expenses: Losses and loss expenses (169,593) (160,763) Other operating costs and expenses (110,013) (95,393) Interest expense (12,218) (7,787) --------- --------- Income before income taxes and minority interest 37,998 24,331 Federal income tax expense (9,795) (4,809) --------- --------- Income before minority interest 28,203 19,522 Minority interest 341 -- --------- --------- Net income before preferred dividends 28,544 19,522 Preferred dividends (2,117) (3,838) --------- --------- Net income attributable to common stockholders $ 26,427 $ 15,684 ========= ========= Net income per share $ 1.35 $ .78 ========= ========= Average shares outstanding 19,641 20,178 ========= =========
See accompanying notes to consolidated financial statements. 2 4 W. R. Berkley Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
For the Three Months Ended March 31, -------------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net income before preferred dividends $ 28,544 $ 19,522 Adjustments to reconcile net income to cash flows from operating activities: Minority interest (341) -- Increase in reserves for losses and loss expenses, net 11,976 32,351 Depreciation and amortization 642 2,889 Change in unearned premiums and prepaid reinsurance premiums 26,726 20,069 Increase in premiums and fees receivable (18,545) (17,435) Change in Federal income taxes 6,119 4,400 Change in deferred acquisition cost (8,914) (7,448) Realized gains on investments (9,340) (311) Other 1,088 (13,231) --------- --------- Net cash flows from operating activities before trading account sales 37,955 40,806 Trading account sales 58,708 13,335 --------- --------- Net cash flows from operating activities 96,663 54,141 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 153,346 96,627 Equity securities 16,485 2,197 Proceeds from maturities and prepayments of fixed maturity securities 39,040 52,087 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (273,971) (191,618) Fixed maturity securities held to maturity -- (28,448) Equity securities (13,914) (2,080) Change in balances due to/from security brokers 17,552 946 Net additions to real estate, furniture and equipment (3,398) (8,607) Other (8,820) (874) --------- --------- Net cash flows from investing activities (73,680) (79,770) --------- --------- Cash flows from financing activities: Net proceeds from issuance of long-term debt -- 98,850 Repayment of preferred stock (27,462) (27,351) Repayment of subsidiary debt -- (27,225) Cash dividends to common stockholders (2,554) (2,419) Cash dividends to preferred stockholders (2,307) (2,856) Purchase of treasury shares -- -- Other 3,823 416 --------- --------- Net cash flows from financing activities (28,500) 39,415 --------- --------- Net increase (decrease) in cash and invested cash (5,517) 13,786 Cash and invested cash at beginning of year 346,485 206,917 --------- --------- Cash and invested cash at end of period $ 340,968 $ 220,703 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 7,475 $ 4,531 ========= ========= Federal income taxes paid, net $ 3,675 $ 408 ========= =========
3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements March 31, 1997 (Unaudited) The accompanying consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. A. FEDERAL INCOME TAXES The Federal income tax provision has been computed based on the Company's estimated annual effective tax rate which differs from the Federal income tax rate of 35% principally because of tax-exempt investment income. B. REINSURANCE CEDED The amounts of ceded reinsurance included in the statements of operations are as follows (amounts in thousands):
For the Three Months Ended March 31, --------------- 1997 1996 ---- ---- Ceded premiums written $ 55,079 $ 50,874 ======= ======= Ceded premiums earned $ 54,678 $ 52,760 ======= ======= Ceded losses and loss expenses $ 25,245 $ 31,066 ======= =======
C. PER SHARE DATA Per share amounts have been computed based on net income less preferred dividends divided by the weighted average number of common shares outstanding. Incremental shares arising from the assumed issuance of employee stock options, which are considered common stock equivalents, were not included in the computations because the assumed dilutive effect was not material. 4 6 D. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), entitled "Earnings Per Share." SFAS 128 will replace the presentation of primary and fully diluted earnings per share with basic earnings per share and diluted earnings per share, respectively. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period, whereas primary earnings per share includes the dilutive effect of common stock equivalents. Diluted earnings per share is generally similar to fully diluted earnings per share under current accounting standards. For calendar year enterprises, SFAS 128 is effective commencing with year end 1997 financial statements and will then apply retroactively to both annual and interim periods, requiring the restatement of previously presented earnings per share data. Earlier application is not permitted. Based on preliminary calculations, the Company does not believe that earnings per share computed under SFAS 128 would be materially different from the earnings per share data presented herein. E. OTHER MATTERS Net unrealized investment gains decreased by $27,478,000 (net of Federal income taxes of $14,795,000) during the three months ended March 31, 1997. Of this amount, $4,566,000 was attributable to a decrease in unrealized gains on equity securities and $22,912,000 was attributable to a decrease in unrealized gains on fixed maturities available for sale. Reclassifications have been made in the 1996 financial statements as originally reported to conform them to the presentation of the 1997 financial statements. In the opinion of management, the summarized financial information reflects all adjustments which are necessary for a fair presentation of financial position and results of operations for the interim periods. The Company's results of operations are affected by seasonal weather variations. Accordingly, results reflected for any interim period are not necessarily indicative of those to be expected for the entire year. 5 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income attributable to common stockholders ("net income") was $26.4 million, ($1.35 per share) for the first quarter of 1997, in comparison with $15.7 million, ($.78 per share), for the 1996 period. Operating income, which is net income before realized investment gains, was $20.4 million, ($1.04 per share), in the first quarter of 1997 in comparison with $15.5 million, ($.77 per share), earned in the corresponding 1996 period. Net premiums written during the first quarter of 1997 increased by 14% to $284.0 million from $249.2 million written in the comparable 1996 period. Net premiums written by the regional segment increased by $27.6 million or 24%; 60% of this increase is due to business units which were added in the past four years. Specialty net premiums written decreased by $2.3 million or 5% due to a decrease in premiums written by Carolina Casualty which was partially offset by increases recorded by other specialty operations. Net premiums written by our reinsurance operations decreased by $1.5 million or 3% due to a decline in treaty business which was partially offset by premiums generated by the Latin American and Caribbean division which commenced operations in February 1996. Alternative markets net premiums written increased $8.0 million or 32% as both Midwest Employers Casualty Company and Signet Star's Alternative Markets division increased their market penetration. International net premiums written increased $3.1 million or 57% due to the July 1996 start up of a workers compensation unit in Argentina. For the three months ended March 31, 1997, pre-tax investment income increased by 13% to $44.8 million. This increase was primarily due to an increase in average investable assets due to the December 1996 issuance of $210 million Capital Securities, discussed below, and cash flow from operations. In addition, an increase in investment yields available in the financial markets contributed to the growth in investment income (See "Liquidity and Capital Resources"). Management fees and commission income ("Management fees") consist primarily of revenues earned by the Alternative Markets segment. During the first quarter of 1997, management fees decreased 6% from the comparable 1996 amount, principally due to the effects of intense competition in the workers compensation market. Realized gains increased to $9.3 million from $.3 million earned in the comparable 1996 period. Realized gains on fixed income securities result primarily from the Company's strategy of rebalancing the asset and liability duration relationship; realized gains on equity securities arise primarily as a result of a variety of factors which influence the Company's valuation criteria. The majority of the 1997 and 1996 realized gains resulted from the sale of equity securities. The combined ratio (on a statutory basis) of the Company's insurance operations decreased to 100.1% for the quarter ended March 31, 1997 from 103.0% in the comparable 1996 period due to decrease in the consolidated loss ratio which was partially offset by an increase in the expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) decreased to 66.2% in 1997 from 70.4% in 1996 due partially to a decrease in weather related losses. Other operating costs and expenses, which consists of the expenses of the Company's insurance and alternative markets operations as well as the Company's corporate and investment expenses, increased by 15% to $110.0 million. The increase in other operating costs and expenses is primarily due to substantial growth in premium volume which in turn results in an increase in underwriting expenses. The consolidated expense ratio (underwriting expenses expressed as a percentage of premiums written) increased to 33.5% from 32.2% primarily due to higher commission expenses in the Specialty operations. Interest expense increased due to the December 1996 issuance of $210 million Company-obligated mandatory redeemable capital securities of a subsidiary trust holding solely 8.197% Junior Subordinated Debentures of the Corporation. Preferred dividends decreased due to the retirement of the series B Preferred stock, in 1996 and 6 8 the retirement of 252,273 shares of the Series A Preferred Stock during December 1996 and January 1997. Federal income tax expense in 1997 was $9.8 million (26% effective rate) as compared to a $4.8 million (20% effective rate) for the comparable 1996 period. The increase in the effective tax rate in 1997 is due primarily to a decrease in the percentage of pre-tax income that is tax-exempt. (See "Liquidity and Capital Resources"). Liquidity and Capital Resources Cash flow from operating activities before trading account sales, was $38.0 million in the first quarter of 1997 compared with $40.8 million for the same period in 1996. The investment portfolio, on a cost basis, increased by $13.8 million to $2,896.7 million at March 31, 1997 from $2,882.9 million at December 31, 1996 due to cash flow from operations and the net financing activities discussed below. The change in the Company's investment portfolio distribution at March 31, 1997 as compared with December 31, 1996 was: tax-exempt securities increased to 31% from 29%; U.S. Government securities and cash equivalents remained at 27%; corporate bonds remained at 14%; mortgage-backed securities remained at 19% and equity securities represented the balance. In January 1997 the Company purchased and retired 183,080 shares of the Series A Preferred Stock for $27.5 million. For the first quarter of 1997, Stockholders' equity decreased by approximately $31.1 million. The decrease in stockholders' equity is primarily attributable to the repurchase of the Series A Preferred stock. In addition, the decrease in unrealized gains in marketable securities, which was substantially offset by retained earnings in the period, also contributed to a decline in stockholders' equity. Accordingly, the Company's total capitalization, declined to $1,446.7 million at March 31, 1997 and the percentage of the Company's capital attributable to long-term debt increased to 27% from 26% at December 31, 1996. For background information concerning a further discussion of the Company's Liquidity and Capital Resources, see the Company's Annual Report on Form 10-K. 7 9 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits None (b) Reports on Form 8-K None 8 10 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. W. R. BERKLEY CORPORATION By /s/ William R. Berkley ---------------------- William R. Berkley Chairman of the Board and Chief Executive Officer By /s/ Anthony J. DelTufo ---------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 9 EX-27 2 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 2,098,848 200,553 199,804 285,574 0 0 2,584,975 340,968 0 128,071 4,090,750 1,809,662 540,636 0 0 598,094 0 75 4,854 843,689 4,090,750 257,284 44,831 9,340 837 169,593 0 0 37,998 9,795 28,203 0 0 0 26,427 1.35 0 0 0 0 0 0 0 0
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