-----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, TSGkSNPO0Qn0bTOp6gvvxYC5RFkUGNX5uHsMWCdAwirIxVWk3u4RX8IcsNDTLzGM RwdjHcCS+KhZNk72k3KWdQ== 0000914039-98-000186.txt : 19980514 0000914039-98-000186.hdr.sgml : 19980514 ACCESSION NUMBER: 0000914039-98-000186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 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: SEC FILE NUMBER: 000-07849 FILM NUMBER: 98617536 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 (Mark one) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period. . . . . . . . March 31, 1998 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 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 1, 1998: 28,423,929. 2 W. R. Berkley Corporation and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 1998 1997 (Unaudited) ----------- ----------- Assets Investments: Invested cash $ 491,857 $ 417,967 Fixed maturity securities: Held to maturity, at cost (fair value $190,509 and $194,919) 177,563 182,172 Available for sale at fair value (cost $2,235,778 and $2,240,901) 2,312,989 2,322,971 Equity securities, at fair value: Available for sale (cost $78,154 and $76,134) 90,490 86,243 Trading account (cost $436,886 and $301,136) 471,907 311,969 Cash 11,966 21,669 Premiums and fees receivable 372,730 331,774 Due from reinsurers 449,281 432,516 Accrued investment income 35,859 36,930 Prepaid reinsurance premiums 74,107 72,148 Deferred policy acquisition costs 154,542 145,737 Real estate, furniture & equipment at cost, less accumulated depreciation 133,529 126,831 Excess of cost over net assets acquired 72,386 73,142 Other assets 59,833 37,215 ----------- ----------- $ 4,909,039 $ 4,599,284 =========== =========== Liabilities, Reserves, Debt and Stockholders' Equity Liabilities and reserves: Reserves for losses and loss expenses $ 1,953,835 $ 1,909,688 Unearned premiums 622,277 589,384 Due to reinsurers 106,430 95,140 Deferred Federal income taxes 30,637 32,887 Short-term debt 20,164 -- Trading securities sold but not yet purchased at market value (proceeds $297,992 and $162,360) 310,229 159,456 Other liabilities 296,537 242,721 ----------- ----------- 3,340,109 3,029,276 ----------- ----------- Long-term debt 374,523 390,415 ----------- ----------- Company-obligated manditorily redeemable capital securities of a subsidiary trust holding solely 8.197% junior subordinated debentures of the Corporation due December 15, 2045 207,955 207,944 Minority interest 22,991 24,357 ----------- ----------- Stockholders' equity: Preferred stock, par value $.10 per share: Authorized 5,000,000 shares: 7 3/8% Series A Cumulative Redeemable Preferred Stock 653,952 shares issued and outstanding 65 65 Common stock, par value $.20 per share: Authorized 40,000,000 shares, issued and outstanding, net of treasury shares, 29,603,129 and 29,568,335 shares 7,281 7,281 Additional paid-in capital 428,955 428,760 Retained earnings 586,960 569,160 Accumulated other comprehensive income 55,789 58,206 Treasury stock, at cost, 6,800,939 and 6,835,510 shares (115,589) (116,180) ----------- ----------- 963,461 947,292 ----------- ----------- $ 4,909,039 $ 4,599,284 =========== ===========
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, -------------------------- 1998 1997 --------- --------- Revenues: Net premiums written $ 333,832 $ 284,010 Change in unearned premiums (31,199) (26,726) --------- --------- Premiums earned 302,633 257,284 Net investment income 56,394 44,831 Management fees and commissions 19,919 17,530 Realized gains on investments 3,417 9,340 Other income 2,243 837 --------- --------- Total revenues 384,606 329,822 Operating costs and expenses: Losses and loss expenses (205,202) (169,593) Other operating costs and expenses (134,511) (110,013) Interest expense (12,173) (12,218) --------- --------- Income before income taxes and minority interest 32,720 37,998 Federal income tax expense (7,197) (9,795) --------- --------- Income before minority interest 25,523 28,203 Minority interest 150 341 --------- --------- Net income before preferred dividends 25,673 28,544 Preferred dividends (1,887) (2,117) --------- --------- Net income before extraordinary loss 23,786 26,427 Extraordinary loss on early extinguishment of long-term debt (net of taxes of $1,311) (2,435) -- --------- --------- Net income attributable to common stockholders $ 21,351 $ 26,427 ========= ========= Earnings per share: Basic $ .72 $ .90 ========= ========= Diluted $ .69 $ .88 ========= ========= Average shares outstanding Basic 29,585 29,462 ========= ========= Diluted 30,755 29,949 ========= =========
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, -------------------------- 1998 1997 --------- --------- Cash flows from operating activities: Net income before preferred dividends and extraordinary loss $ 25,673 $ 28,544 Adjustments to reconcile net income to cash flows from operating activities: Minority interest (150) (341) Increase in reserves for losses and loss expenses, net 38,672 11,976 Depreciation and amortization 3,669 642 Change in unearned premiums and prepaid reinsurance premiums 30,934 26,726 Increase in premiums and fees receivable (40,956) (18,545) Change in Federal income taxes 5,971 6,119 Change in deferred acquisition cost (8,805) (8,914) Realized gains on investments (3,417) (9,340) Other (26,250) 1,088 --------- --------- Net cash flows from operating activities before trading account sales 25,341 37,955 Trading account sales 68,657 58,708 --------- --------- Net cash flows from operating activities 93,998 96,663 --------- --------- Cash flows from investing activities: Proceeds from sales, excluding trading account: Fixed maturity securities available for sale 205,985 153,346 Equity securities 648 16,485 Proceeds from maturities and prepayments of fixed maturity securities 49,452 39,040 Cost of purchases, excluding trading account: Fixed maturity securities available for sale (241,578) (273,971) Fixed maturity securities held to maturity -- -- Equity securities (2,706) (13,914) Change in balances due to/from security brokers (25,906) 17,552 Net additions to real estate, furniture and equipment (10,165) (3,398) Other -- (8,820) --------- --------- Net cash flows from investing activities (24,270) (73,680) --------- --------- Cash flows from financing activities: Net proceeds from issuance of Short-term debt 20,164 -- Repayment of preferred stock -- (27,462) Repayment of long-term debt (18,408) -- Cash dividends to common stockholders (3,251) (2,554) Cash dividends to preferred stockholders (1,809) (2,307) Other (2,237) 3,823 --------- --------- Net cash flows from financing activities (5,541) (28,500) --------- --------- Net increase (decrease) in cash and invested cash 64,187 (5,517) Cash and invested cash at beginning of year 439,636 346,485 --------- --------- Cash and invested cash at end of period $ 503,823 $ 340,968 ========= ========= Supplemental disclosure of cash flow information: Interest paid $ 7,475 $ 7,475 ========= ========= Federal income taxes paid, net $ 1,175 $ 3,675 ========= =========
3 5 W. R. Berkley Corporation and Subsidiaries Notes to Consolidated Financial Statements March 31, 1998 (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, 1997. 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, --------------- 1998 1997 ---- ---- Ceded premiums written $ 65,382 $ 55,079 ======= ======= Ceded premiums earned $ 61,905 $ 54,678 ======= ======= Ceded losses and loss expenses $ 25,169 $ 25,245 ======= =======
C. PER SHARE DATA Basic per share data is based upon the weighted average number of shares outstanding during the year. Diluted per share data reflects the potential dilution that would occur if employee stock based compensation plans were exercised. During the quarter, the Company realized an extraordinary loss of $2,435,000 related to the repurchase and retirement of $16,300,000 (face amount) of long-term debt. The Basic and Diluted earnings per share data follows (amounts in thousands):
For the three months Ended March 31, 1998 1997 ---- ---- Net income before extraordinary loss $ 23,786 $ 26,427 26,427 Extraordinary loss on early retirement of long-term debt (net of taxes of $1,311) (2,435) -- ---------- ---------- Net income attributable to common stockholders $ 21,351 $ 26,427 ========== ========== Earnings per share - Basic: Net income before extraordinary loss 0.80 0.90 Extraordinary loss on early retirement of long-term debt (0.08) -- ---------- ---------- Net income attributable to common stockholders 0.72 0.90 ========== ========== Earnings per share - Diluted: Net income before extraordinary loss 0.77 0.88 Extraordinary loss on early retirement of long-term debt (0.08) -- ---------- ---------- Net income attributable to common stockholders 0.69 0.88 ========== ==========
4 6 D. Comprehensive Income In June 1997, the Financial Accounting Standard Board issued statement No. 130, "Reporting Comprehensive Income", which requires enterprises to disclose comprehensive income and its components. The differences between comprehensive income and net income are unrealized foreign exchange gains (losses) as well as unrealized gains (losses) on securities. The following is a reconciliation of comprehensive income (amounts in thousands):
For the three months Ended March 31, 1998 1997 -------- -------- Net income $ 21,351 $ 26,427 Other comprehensive income: Change in unrealized foreign exchange gains (losses) (996) -- Unrealized holding gains(losses)on investment securities arising during the period (3,642) (33,549) Less: Reclassification adjustment for gains included in net income, net of tax 2,221 6,071 -------- -------- Net change in unrealized gains during the period (1,421) (27,478) Other comprehensive income (2,417) (27,478) -------- -------- Comprehensive income $ 18,934 $ (1,051) ======== ========
E. OTHER MATTERS Reclassifications have been made in the 1997 financial statements as originally reported to conform them to the presentation of the 1998 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 $21.4 million, ($.69 diluted per share) for the first quarter of 1998, in comparison with $26.4 million, ($.88 diluted per share), for the 1997 period. Operating income, which we define as net income before realized investment gains and extraordinary loss on early extinguishment of long-term debt, was $21.6 million, ($.70 diluted per share), in the first quarter of 1998 in comparison with $20.4 million, ($.68 diluted per share), earned in the corresponding 1997 period. Net premiums written during the first quarter of 1998 increased by 18% to $333.8 million from $284.0 million written in the comparable 1997 period. Net premiums written by the regional segment increased by $17.5 million or 12% as the majority of the regional units recorded growth. Specialty net premiums written increased by $11.2 million or 24% due to an increases in transportation and excess and surplus lines of business. Net premiums written by our reinsurance operations increased by $10.0 million or 20% due mainly to an increase in treaty volume. Alternative markets net premiums written increased $3.2 million or 10% due to the commencement of operations of Key Risk Insurance Company (which underwrote business previously managed on behalf of a self-insurance association). This increase more than offset a decline in premiums written by Midwest Employers Casualty Company. International net premiums written increased $7.9 million or 93%, primarily due to a 1997 acquisition. For the three months ended March 31, 1998, pre-tax investment income increased by 26% to $56.4 million. This increase was primarily due to an increase in average investable assets due to cash flow from operations. In addition, higher earnings in our trading portfolio 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 1998, management fees increased 14% from the comparable 1997 amount, principally due to the addition of a significant new account. Realized gains decreased to $3.4 million from $9.3 million earned in the comparable 1997 period. Realized gains on fixed income securities result primarily from the Company's strategy of maintaining an appropriate balance between the duration of its fixed income portfolio and the duration of its liabilities; 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 1998 realized gains resulted from the sale of fixed income securities whereas in 1997 realized gains resulted primarily from the sale of equity securities. The combined ratio (on a statutory basis) of the Company's insurance operations increased to 102.0% for the quarter ended March 31, 1998 from 100.1% in the comparable 1997 period due to an increase in the consolidated loss ratio and an increase in the expense ratio. The consolidated loss ratio (losses and loss expenses incurred expressed as a percentage of premiums earned) increased to 67.7% in 1998 from 66.2% in 1997 due to an increase in weather related losses which was partially offset by better than expected experience in business written in prior years recorded by specialty operations. Other operating costs and expenses, which consist of the expenses of the Company's insurance and alternative markets operations as well as the Company's corporate and investment expenses, increased by 22% to $134.5 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 slightly to 34.0% from 33.5% primarily due to higher commission expense in reinsurance operations which resulted primarily from a change in business mix. Federal income tax expense in 1998 was $7.2 million (22% effective rate) as compared to a $9.8 million (26% effective rate) for the comparable 1997 period. The decrease in the effective tax rate in 1998 is due primarily to an increase in the percentage of pre-tax income that is tax-exempt. (See "Liquidity and Capital Resources"). 6 8 Liquidity and Capital Resources Cash flow from operating activities before trading account sales, was $25.3 million in the first quarter of 1998 compared with $38.0 million for the same period in 1997. The investment portfolio, net of trading account securities, on a cost basis, increased by $.8 million to $3,009.4 million at March 31, 1998 from $3,008.6 million at December 31, 1997. The change in the Company's investment portfolio distribution, excluding trading account securities, at March 31, 1998 as compared with December 31, 1997 was: tax-exempt securities increased to 38% from 35%; U.S. Government securities and cash equivalents decreased to 24% from 30%; corporate bonds increased to 17% from 16%; mortgage-backed securities increased to 18% from 17%; and equity securities represented the balance. In February 1998 the Company repurchased $16.3 million face value of its 9.875% and 8.7% senior notes and debentures for $19.7 million and issued $20.2 of short-term debt to finance these purchases. In April 1998 the Company repurchased an additional $18.4 million of its 9.875% and 8.7% senior debentures for $22.1 million. In April 1998 the Company issued $40 million face value 6.375% medium-term notes due April 15, 2005. The proceeds from the issuance of the medium-term notes will be used to repay the short-term debt issued in connection with the repurchased debentures. In addition, a portion of the proceeds from the medium-term notes will be used to retire $10 million face value of its 8.95% senior notes, which are due May 20, 1998. During 1998 the Company purchased 1,433,300 shares of its Common Stock. On May 12, 1998, the Board of Directors authorized the Company to repurchase up to 2,000,000 shares of Common Stock. For the first quarter of 1998, Stockholders' equity increased by approximately $16.2 million primarily from the increase in retained earnings. Accordingly, the Company's total capitalization, increased to $1,566 million at March 31, 1998 and the percentage of the Company's capital attributable to debt decreased to 25% from 26% at December 31, 1997. 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 /s/ WILLIAM R. BERKLEY ------------------------- William R. Berkley Chairman of the Board and Chief Executive Officer /s/ ANTHONY J. DEL TUFO ------------------------- Anthony J. Del Tufo Senior Vice President, Chief Financial Officer and Treasurer 9 EX-27 2 EXHIBIT 27
7 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 2,312,989 177,563 190,509 562,397 0 0 3,052,949 503,823 0 154,542 4,909,039 1,953,835 622,277 0 0 602,642 0 65 7,281 956,115 4,909,039 302,633 56,394 3,417 2,243 205,202 0 0 32,720 7,197 23,786 0 (2,435) 0 21,351 0.72 0.69 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----