-----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, C+21MYLSxghiWv7k5RW1GL5M8SigSQApGpkAj0eVDpoffJjQBHU8co6RxTxQSz37 vWbfy0hme8/crC9WHcIeRg== 0000914039-99-000255.txt : 19990518 0000914039-99-000255.hdr.sgml : 19990518 ACCESSION NUMBER: 0000914039-99-000255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK GROUP INC CENTRAL INDEX KEY: 0000787952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061152790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14737 FILM NUMBER: 99625605 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 10-Q 1 FORM 10-Q 1 UNITED STATES 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 ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _____________________ to _____________________. Commission file number 0-14737 TRENWICK GROUP INC. (Exact name of registrant as specified in its charter) Delaware 06-1152790 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Canterbury Green Stamford, Connecticut 06901 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 353-5500 None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock. Class Outstanding at April 30, 1999 ----- ----------------------------- Common Stock, $.10 par value 10,630,510 2 TRENWICK GROUP INC. INDEX Page PART I. Financial Information Number Consolidated Balance Sheet March 31, 1999 and December 31, 1998 3 Consolidated Statement of Income and Comprehensive Income Three Months Ended March 31, 1999 and 1998 4 Consolidated Statement of Changes in Common Stockholders' Equity Three Months Ended March 31, 1999 and 1998 5 Consolidated Statement of Cash Flows Three Months Ended March 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis 9-12 of Financial Condition and Results of Operations PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 3 TRENWICK GROUP INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, 1999 1998 ----------- ----------- (dollars in thousands) Assets Securities available for sale at fair value: Debt securities (amortized cost: $850,973 and $867,552) $ 871,069 $ 893,020 Equity securities (cost: $55,808 and $44,342) 57,591 49,188 Cash and cash equivalents 49,727 63,003 ----------- ----------- Total investments and cash 978,387 1,005,211 Accrued investment income 14,948 15,974 Receivables from ceding insurers 144,278 138,550 Reinsurance recoverable balances, net 153,041 140,173 Prepaid reinsurance premiums 23,220 22,632 Deferred policy acquisition costs 41,659 35,261 Net deferred income taxes 18,108 14,101 Other assets 20,193 20,359 ----------- ----------- Total assets $ 1,393,834 $ 1,392,261 =========== =========== Liabilities and Stockholders' Equity Liabilities: Unpaid claims and claims expenses $ 678,412 $ 682,428 Unearned premium income 172,551 152,051 6.7% senior notes due 2003 75,000 75,000 Other liabilities 26,789 24,753 ----------- ----------- Total liabilities 952,752 934,232 ----------- ----------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick Group Inc. 110,000 110,000 ----------- ----------- Common stockholders' equity: Common stock, $.10 par value, 30,000,000 shares authorized; 10,630,510 and 11,051,394 shares outstanding 1,063 1,105 Additional paid-in capital 111,749 124,180 Deferred compensation under stock award plan (4,580) (2,905) Retained earnings 211,633 206,312 Accumulated other comprehensive income 11,217 19,337 ----------- ----------- Total common stockholders' equity 331,082 348,029 ----------- ----------- Total liabilities and stockholders' equity $ 1,393,834 $ 1,392,261 =========== ===========
The accompanying notes are an integral part of these statements. 3 4 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, ---------------------- 1999 1998 -------- -------- (in thousands except per share data) Revenues: Net premiums earned $ 58,968 $ 45,824 Net investment income 13,823 12,384 Net realized investment gains 2,506 720 Other income 254 12 -------- -------- Total revenues 75,551 58,940 -------- -------- Expenses: Claims and claims expenses incurred 37,976 26,505 Policy acquisition costs 16,407 15,158 Underwriting expenses 5,805 3,456 General and administrative expenses 1,201 824 Interest expense 1,352 58 Minority interest in subsidiary trust 2,425 2,426 -------- -------- Total expenses 65,166 48,427 -------- -------- Income before income taxes 10,385 10,513 Income taxes 2,280 1,268 -------- -------- Net income $ 8,105 $ 9,245 ======== ======== BASIC EARNINGS PER SHARE $ .75 $ .78 ======== ======== DILUTED EARNINGS PER SHARE $ .74 $ .77 ======== ======== DIVIDENDS PER COMMON SHARE $ .26 $ .25 ======== ======== Comprehensive income (loss): Net Income $ 8,105 $ 9,245 Other comprehensive income (loss): Unrealized investment gains, net of income taxes (3,836) 1,325 Realized investment gains, net of income taxes, included in net income (1,629) (468) Foreign currency translation adjustment, net of income taxes (2,655) -- -------- -------- Total other comprehensive income (loss) (8,120) 857 -------- -------- Comprehensive income (loss) $ (15) $ 10,102 ======== ========
The accompanying notes are an integral part of these statements. 4 5 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended March 31, ------------------------ 1999 1998 --------- --------- (dollars in thousands) Common stockholders' equity, beginning of year $ 348,029 $ 357,649 Common stock, $.10 par value, and additional paid-in capital: Exercise of employer stock options (22,500 shares) -- 328 Income tax (expense)/benefit from compensation deductions (16) 207 Restricted common stock awarded (65,985 and 82,889 shares) 1,914 2,952 Common stock purchased and retired (486,869 and 4,250 shares) (14,371) (150) Deferred compensation under stock award plan: Restricted common stock awarded (1,914) (2,952) Compensation expense recognized 239 121 Retained earnings: Net income 8,105 9,245 Cash dividends ($.26 and $.25) (2,784) (3,013) Accumulated other comprehensive income: Other comprehensive income (loss) (8,120) 857 --------- --------- Common stockholders' equity, end of period $ 331,082 $ 365,244 ========= =========
The accompanying notes are an integral part of these statements. 5 6 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ------------------------ 1999 1998 --------- --------- (in thousands) Cash flows from operating activities: Premiums collected $ 71,582 $ 50,480 Ceded premiums paid (12,825) (10,331) Claims and claims expenses paid (63,707) (30,693) Claims and claims expenses recovered 5,075 521 Underwriting expenses paid (5,715) (5,474) --------- --------- Cash provided by (used for) underwriting activities (5,590) 4,503 Net investment income received 16,001 13,023 Interest expense and subsidiary trust dividends paid (4,903) (4,851) Income taxes recovered (paid) 2,507 (1,044) General and administrative expense (1,201) -- Other income received 63 10 --------- --------- Cash provided by operating activities 6,877 11,641 --------- --------- Cash flows for investing activities: Purchases of debt securities (210,677) (26,064) Sales of debt securities 60,553 62,410 Maturities of debt securities 156,894 15,367 Purchases of equity securities (17,031) (145) Sales of equity securities 9,708 102 Investment in subsidiary, net of cash acquired (171) (39,536) Additions to premises and equipment (805) (44) --------- --------- Cash provided by (used for) investing activities (1,529) 12,090 --------- --------- Cash flows for financing activities: Repurchase of common stock (14,924) (150) Dividends paid (2,784) (3,013) Issuance costs of senior notes (2) (565) Issuance of senior notes -- 75,000 Issuance of common stock -- 328 --------- --------- Cash provided by (used for) financing activities (17,710) 71,600 --------- --------- Effect of exchange rate on cash (914) -- Change in cash and cash equivalents (13,276) 95,331 Cash and cash equivalents, beginning of period 63,003 12,847 --------- --------- Cash and cash equivalents, end of period $ 49,727 $ 108,178 ========= =========
The accompanying notes are an integral part of these statements. 6 7 TRENWICK GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The interim consolidated financial statements included those of Trenwick Group Inc. and its subsidiaries and have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with prior periods. Certain items in the financial statements have been reclassified to conform with the 1999 presentation. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim consolidated financial statements are unaudited; however, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. These interim statements should be read in conjunction with the 1998 audited financial statements and related notes. Acquisition of Trenwick International Limited Trenwick International's insurance operations were included in the Company's results beginning with the second quarter of 1998 following its acquisition by the Company on February 27, 1998. All assets and liabilities of Trenwick International were consolidated in the balance sheet at the date of acquisition. Reclassification Certain items in the financial statements have been reclassified to conform with the 1999 presentation. 2. REINSURANCE Trenwick purchases reinsurance to reduce its exposure to catastrophe losses and the frequency of large losses in all lines of business. Trenwick, however, remains liable in the event that its retrocessionaires do not meet their contractual obligations. The effects of reinsurance on premiums written and premiums earned are as follows (in thousands):
Premiums Written Premiums Earned Three Months Ended Three Months Ended March 31, March 31, ------------------------ ------------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Direct $ 20,039 $ -- $ 16,916 $ -- Assumed 85,514 61,529 65,592 64,426 Ceded (24,759) (17,036) (23,540) (18,602) -------- -------- -------- -------- Net $ 80,794 $ 44,493 $ 58,968 $ 45,824 ======== ======== ======== ========
7 8 The Company recorded ceded claims and claims expenses incurred of $26,594,000 for the three months ended March 31, 1999. 3. STOCKHOLDERS' EQUITY Preferred Stock Trenwick has 2,000,000 shares of $.10 par value preferred stock authorized and none outstanding. Common Stock For the three months ended March 31, 1999, Trenwick awarded key employees an aggregate of 65,985 shares of common stock under the terms of the 1993 Stock Plan, valued at an average of $29.00 per share (approximately $1,914,000). Trenwick is recognizing compensation expense determined by the value of the shares, amortized over a five year vesting period. During the period, 8,369 shares were repurchased at an average of $31.54 per share (approximately $264,000) in connection with the satisfaction of withholding taxes payable upon the vesting of shares previously awarded under the plan. During the first quarter, Trenwick purchased 478,500 shares under its buyback plan at an average price of $29.48 per share. Trenwick has an authorization of 21,000 shares remaining under the current plan. 4. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Three Months Ended March 31, ------------------- 1999 1998 ------- ------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS: $ 8,105 $ 9,245 ======= ======= WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Weighted average shares outstanding (basic) 10,777 11,933 Weighted average shares issuable on exercise of employee stock options, net of assumed repurchases 111 139 ------- ------- Weighted average shares outstanding (diluted) 10,888 12,072 ======= ======= PER SHARE AMOUNTS: Basic net income $ .75 $ .78 ======= ======= Diluted net income $ .74 $ .77 ======= =======
8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Trenwick Group Inc. ("Trenwick") is a holding company with two principal operating subsidiaries, Trenwick America Reinsurance Corporation ("Trenwick America Re"), which reinsures property and casualty risks written by U.S. insurance companies, and Trenwick International Limited ("Trenwick International"), which writes insurance and reinsurance property and casualty risks outside of the U.S. Substantially all of Trenwick America Re's business is produced by reinsurance brokers. Trenwick International obtains its business from a variety of resources, including insurance and reinsurance brokers. Trenwick America Re and Trenwick International underwrite both treaty and facultative business. OPERATING RESULTS Trenwick Group Inc. reported consolidated net income of $8.1 million or $.75 per share for the first quarter of 1999, compared to $9.2 million or $.78 per share for the first quarter of 1998. Net income per share on a diluted basis was $.74 for the first quarter of 1999 compared to $.77 for the first quarter of 1998. Operating income for the first quarter of 1999 was $6.5 million or $.60 per share for 1999 compared to $8.8 million or $.74 per share in 1998. Net income for the first quarters of 1999 and 1998 includes after-tax realized investment gains of $1.6 million or $.15 per share and $468,000 or $.04 per share, respectively. PREMIUMS Trenwick's consolidated net premium writings in the first quarter of 1999 totaled $80.8 million compared to $44.5 million for the same period in 1998. This increase in premium writings reflects the inclusion of Trenwick International's business during this period. Trenwick International's insurance operating results were included in the Company's results beginning with the second quarter of 1998, following its acquisition by the Company on February 27, 1998. Net premium writings from Trenwick America, the group's U.S. operations, amounted to $44.2 million in the quarter compared to $44.5 million for the same period last year. While the overall insurance and reinsurance market remains highly competitive, the rate of decline in net premium writings caused over the past several years by Trenwick's withdrawal from certain business has slowed. Net premium writings have been positively impacted by new business written during the past several quarters and growth in certain existing accounts. Trenwick International reported net premium writings of $36.6 million in the first quarter of 1999. Although not reflected in Trenwick's comparative results, Trenwick International's net premium writings for the first quarter of 1998 were $25.8 million. This expected growth in premium volume resulted primarily from an increase in Trenwick International's increased capital base and, accordingly, its net retentions and expansion into new geographic markets previously limited by its former parent. 9 10 UNDERWRITING EXPERIENCE The combined ratio is one means of measuring the profitability of a property and casualty company. The combined ratio reflects underwriting experience, but does not reflect income from investments or provisions for income taxes. A combined ratio below 100% indicates profitable underwriting and a combined ratio exceeding 100% indicates unprofitable underwriting. Although a reinsurer may have unprofitable underwriting results, the reinsurer may still be profitable because of investment income earned on the accumulated invested assets. The following table sets forth Trenwick's combined ratios and the components thereof calculated on a GAAP basis for the periods indicated:
Three Months Ended March 31, -------------------------------------- 1999 1998 --------------------------- ----- Group Inter- Domestic national ----- ----- ----- ----- Claims and claims expense ratio 64.4% 69.9% 61.1% 57.9% ----- ----- ----- ----- Expense ratio: Policy acquisition expense ratio 27.8 20.3 32.3 33.1 Underwriting expense ratio 9.9 12.6 8.1 7.5 ----- ----- ----- ----- Total expense ratio 37.7 32.9 40.4 40.6 ----- ----- ----- ----- Combined ratio 102.1% 102.8% 101.5% 98.5% ===== ===== ===== =====
As indicated in the preceding table Trenwick's claims and claims expense ratio increased from 57.9% to 64.4% due in part to the inclusion of Trenwick International's underwriting results. Trenwick's claim and claims expense ratio for the first quarter of 1999 includes favorable reserve development of approximately $2.3 million compared to approximately $1.4 million of favorable reserve development for the same period in 1998. The increase in Trenwick's domestic claims and claims expense ratio for the quarter resulted from higher loss ratios selected on its property business written during the quarter reflecting a change in the business mix. The Company wrote two large non-standard automobile treaty accounts. A significant portion of the premiums associated with these accounts represents automobile physical damage, a property line. Included in the claims and claims expense ratio is favorable reserve development of $770,000. Due to different types of business underwritten by Trenwick International, underwriting results in that subsidiary reflect a higher claims and claims expense ratio than Trenwick's domestic business. Included in Trenwick International's claims and claims expense ratio is favorable reserve development of $1.5 million. Trenwick's expense ratio decreased to 37.7% in the first quarter of 1999 from 40.6% in the same period last year. The increase is primarily due to the inclusion of Trenwick International. Due to the mix of business underwritten by Trenwick International, primarily insurance business, its policy acquisition ratio is lower, while its underwriting expense ratio is higher. 10 11 INVESTMENT INCOME Trenwick's net investment income of $13.8 million in the first quarter of 1999 increased 12% compared to $12.4 million for the same period in 1998. Pre-tax yields on invested assets, excluding equity securities, averaged 6.1% in both 1999 and 1998. The increase in investment income is due to the continued growth in Trenwick's invested asset base resulting primarily from the acquisition of Trenwick International. After-tax net investment income in the first quarter of 1999 was $10.2 million compared to $9.3 million for the comparative period in 1998. The effective income tax rate on net investment income for the quarter ended March 31, 1999 was approximately 25.9% versus 24.6% for the same period in 1998. The increase in the effective income tax rate is due to a higher effective tax rate associated with Trenwick International's investment income. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, Trenwick's consolidated investments and cash totaled $978.4 million, as compared to $1.0 billion at December 31, 1998. The fair value of the Company's debt securities portfolio exceeded amortized cost of $851.0 million and $867.6 million by $20.1 million and $25.5 million at March 31, 1999 and December 31, 1998, respectively. At March 31, 1999 and at December 31, 1998, the fair value of the Company's equity securities exceeded cost of $55.8 million and $44.3 million by $1.8 million and $4.9 million, respectively. Trenwick generally limits its investments in debt securities that are rated below investment grade, as these investments are subject to a higher degree of credit risk than investment grade securities. Trenwick closely monitors its below investment grade securities as well as the creditworthiness of the portfolio as a whole. When fair values decline for reasons other than changes in interest rates or other perceived temporary conditions, the security is written down to its net realizable value. In the first quarter of 1999, Trenwick wrote down the value of certain securities by $3.5 million. As of March 31, 1999, Trenwick's common stockholders' equity totaled $331.1 million or $31.14 per share, as compared to $348.0 million or $31.49 per share at December 31, 1998. Since December 31, 1998, the unrealized appreciation of debt and equity investments decreased $5.5 million, net of tax, or $.51 per share. Consolidated stockholder's equity reflects the repurchase of 486,869 shares of Trenwick's common stock at an average price of $29.52 totaling approximately $14.4 million. Trenwick America's statutory surplus was $335.5 million as of March 31, 1999 compared to $330.5 million at December 31, 1998. Trenwick International's statutory surplus was $129.4 million as of March 31, 1999 compared to $131.9 million at December 31, 1998. Cash flow from operations of $6.9 million in the first quarter of 1999 decreased approximately 41% compared to cash flow from operations of $11.6 million for the same period in 1998. The reduction in cash flow from operations of $4.8 million was due primarily to an expected increase in paid loss activity associated with Trenwick America. Cash used by financing activities in the first quarter of 1999 was $17.7 million compared to cash provided by financing activities of $71.6 million in the first quarter of 1998. Cash used by financing activities included repurchases of common stock of approximately $14.9 million. Included in the same period last year were the proceeds from the issuance of $75 million principal amount of 6.7% senior notes. 11 12 Trenwick declared a first quarter dividend of $.26 per share in 1999, a 4% increase compared to $.25 in the first quarter of 1998. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Trenwick reviewed the change in its exposure to market risks since December 31, 1998. The components of Trenwick's holdings has not materially changed. Trenwick's risk management strategy and objectives have not materially changed. Trenwick believes that the potential for loss in each market risk sector described at year-end has not materially changed. SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Certain statements made in this release that are not based on current or historical fact are forward-looking in nature including, without limitation, statements containing words "believes," "anticipates," "intends," "expects," "estimates," "predicts," and words of similar import. Such forward-looking statements involve known and unknown risks, assumptions, uncertainties, and other factors that may cause actual results, performance, or achievements of Trenwick or its industry to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Trenwick has identified certain risk factors which could cause actual plans or results to differ substantially from those included in any forward-looking statements. These risk factors are discussed in Trenwick's 1998 audited financial statements and related notes and such discussion regarding risk factors should be read in conjunction with other cautionary statements that are included herein or elsewhere in the Company's filings with the SEC. 12 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27.0 Financial Data Schedule b) Reports on Form 8-K None 13 14 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. TRENWICK GROUP INC. ----------------------------- (Registrant) Date: May 17, 1999 JAMES F. BILLETT, JR. ----------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer Date: May 17, 1999 ALAN L. HUNTE ----------------------------- Alan L. Hunte Vice President, Chief Financial Officer and Treasurer 14 EX-27 2 EXHIBIT 27
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1999 FOR TRENWICK GROUP INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 871,069 0 0 57,591 0 0 928,660 49,727 144,278 41,659 1,393,834 678,412 172,551 0 0 75,000 110,000 0 1,063 330,019 1,393,834 58,968 13,823 2,506 254 37,976 16,407 10,783 10,385 2,280 0 0 0 0 8,105 .75 .74 0 0 0 0 0 0 0 REPRESENTS NET REINSURANCE RECOVERABLE BALANCES AFTER OFFSET OF FUNDS HELD AND REINSURANCE BALANCES PAYABLE. REPRESENTS BASIC EARNINGS PER SHARE.
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