-----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, BWKuxAEEkwwdv8rQ5WtKJQEgs3vxlM/NkKxrfyrOAkhzZwuFc+1nerl3qbudqGS9 F0Y+GPaPnoxOOlu5A/7W5g== 0000009346-97-000011.txt : 19971111 0000009346-97-000011.hdr.sgml : 19971111 ACCESSION NUMBER: 0000009346-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDWIN & LYONS INC CENTRAL INDEX KEY: 0000009346 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 350160330 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05534 FILM NUMBER: 97711974 BUSINESS ADDRESS: STREET 1: 1099 N MERIDIAN ST STREET 2: STE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3176369800 MAIL ADDRESS: STREET 1: 1099 NORTH MERIDIAN ST STREET 2: STE 700 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: BALDWIN H C AGENCY INC DATE OF NAME CHANGE: 19720309 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 Commission file number September 30, 1997 0-5534 BALDWIN & LYONS, INC. (Exact name of registrant as specified in its charter) INDIANA 35-0160330 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1099 North Meridian Street, Indianapolis, Indiana 46204 - ------------------------------------------------- ------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (317) 636-9800 -------------- 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, 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 as of November 7, 1997: TITLE OF CLASS NUMBER OF SHARES OUTSTANDING Common Stock, No Par Value: Class A (voting) 2,397,354 Class B (nonvoting) 11,291,245 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS - ---------------------------- BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30 December 31 1997 1996 ------------ ------------ ASSETS Investments: Fixed maturities $ 289,210 $ 273,828 Equity securities 143,963 147,196 Short-term and other 19,441 22,223 --------- --------- 452,614 443,247 Cash and cash equivalents 16,870 12,117 Accounts receivable 19,153 13,967 Reinsurance recoverable 46,690 43,829 Current federal income taxes - 568 Other assets 13,299 12,732 --------- --------- $ 548,626 $ 526,460 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and loss expenses $ 193,945 $ 196,939 Reserves for unearned premiums 17,447 10,835 Accounts payable and accrued expenses 33,658 34,830 Deferred federal income taxes 15,083 10,734 Currently payable federal income taxes 1,675 - --------- --------- 261,808 253,338 Shareholders' equity: Common stock-no par value 730 744 Additional paid-in capital 41,340 42,100 Unrealized net gains on investments 42,360 38,472 Retained earnings 202,388 191,806 --------- --------- 286,818 273,122 --------- --------- $ 548,626 $ 526,460 ========= ========= Number of common and common equivalent shares outstanding 13,848,463 14,034,248 Book value per outstanding share $20.71 $19.46
See notes to condensed consolidated financial statements. BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------- ----------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- REVENUES Net premiums earned $ 16,633 $ 13,971 $ 44,942 $ 45,407 Net investment income 4,534 4,832 13,809 14,695 Realized net gains on investments 4,493 1,775 13,824 5,459 Commissions and other income 480 233 1,299 892 --------- --------- --------- --------- 26,140 20,811 73,874 66,453 EXPENSES Losses and loss expenses incurred 10,670 7,418 29,019 27,403 Other operating expenses 6,394 5,102 17,017 15,211 --------- --------- --------- --------- 17,064 12,520 46,036 42,614 INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL INCOME TAXES 9,076 8,291 27,838 23,839 Federal income taxes 2,849 2,682 8,799 7,715 --------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS 6,227 5,609 19,039 16,124 Discontinued operations, net of federal income taxes - (19) - 250 --------- --------- --------- --------- NET INCOME $ 6,227 $ 5,590 $ 19,039 $ 16,374 ========= ========= ========= ========= PER SHARE DATA Average number of common and common equivalent shares outstanding 13,923,281 14,264,064 13,996,403 14,398,430 Income before discontinued operations and realized net gains $ .24 $ .31 $ .72 $ .87 Realized net gains on investments .21 .08 .64 .25 Discontinued operations - - - .02 --------- --------- --------- --------- NET INCOME $ .45 $ .39 $ 1.36 $ 1.14 ========= ========= ========= ========= Dividends $ .10 $ .10 $ .30 $ .26 ========= ========= ========= =========
See notes to condensed consolidated financial statements. BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 1997 1996 ---------- ---------- Net cash provided by operating activities $ 3,527 $ 4,345 Investing activities: Purchases of long-term investments (191,325) (156,642) Proceeds from sales or maturities of long-term investments 199,401 154,524 Net sales of short-term investments 3,710 9,029 Distributions from limited partnerships 289 2,506 Other investing activities (1,595) (1,542) ---------- ---------- Net cash provided by investing activities 10,480 7,875 Financing activities: Dividends paid to shareholders (4,139) (3,704) Cost of treasury stock (5,116) (7,658) Proceeds from sales of common stock 1 - ---------- ---------- Net cash used in financing activities (9,254) (11,362) ---------- ---------- Increase in cash and cash equivalents 4,753 858 Cash and cash equivalents at beginning of year 12,117 18,014 ---------- ---------- Cash and cash equivalents at end of period $ 16,870 $ 18,872 ========== ==========
See notes to condensed consolidated financial statements. NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. Interim financial statements should be read in conjunction with the Company's annual audited financial statements. (2) Certain prior year balances have been reclassified to conform to the current period presentation. (3) The effective federal income tax rate is less than the statutory rate for the periods ended September 30, 1997 and September 30, 1996 due primarily to tax-exempt investment income. (4) The following line items from the Statements of Income are presented net of the reinsurance amounts shown below.
1997 1996 ---------- ---------- Quarter ended September 30: Net premiums earned $ 2,563 $ 2,765 Losses and loss expenses 4,809 3,137 Other operating expenses (236) (194) Nine months ended September 30: Net premiums earned 6,432 9,639 Losses and loss expenses 7,162 5,138 Other operating expenses (565) (805)
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------------------------------------------------------------------- AND RESULTS OF OPERATIONS - ------------------------- LIQUIDITY AND CAPITAL RESOURCES -------------------------------- The Company generally experiences positive cash flow from operations resulting from the fact that premiums are collected on insurance policies in advance of the disbursement of funds in payment of claims. Operating costs of the property/casualty insurance subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, generally average between 15% and 30% of premiums earned and the remaining amount is available for investment for varying periods of time pending the settlement of claims relating to the insurance coverage provided. For the nine months ended September 30, 1997, positive cash flow from operations totaled $3.5 million, a decrease from $4.3 million generated during the first nine months of 1996. Increased cash flows from premiums from the Company's new products were offset by increases in losses and operating expenses paid. In addition, investment income received declined as a result of a change in the mix of investments favoring municipal bonds and the disposal of certain dividend paying equity securities. Recent cash flows have, at times, lagged behind those of earlier periods because of declining premium volume in retrospectively rated workers' compensation and fleet trucking liability businesses. Management expects premium revenues from these products to continue trending downward during 1997 as the result of competitive pressures in the trucking insurance markets. Management believes this decline in trucking insurance revenues will be mitigated somewhat by continued growth in Company's personal automobile program. For several years, the Company's investment philosophy has emphasized the purchase of relatively short-term instruments with maximum quality and liquidity. The average life of the Company's fixed income (bond and short-term investment) portfolio was approximately 3 years at September 30, 1997. The Company's assets at September 30, 1997 included $20.9 million in investments classified as short-term which were readily convertible to cash without significant market penalty. In addition, fixed maturity investments totaling $80.6 million will mature within the twelve month period following September 30, 1997. The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands. Consolidated shareholders' equity totaled $286.8 million at September 30, 1997 and includes $267.8 million representing GAAP shareholder's equity of insurance subsidiaries, of which $39.0 million may be transferred by dividend or loan to the parent company without approval by, or notification to, regulatory authorities. An additional $206.4 million of shareholder's equity of such insurance subsidiaries may be advanced or loaned to the Company with prior notification to, and approval from, regulatory authorities. The Company believes that these restrictions pose no material liquidity concerns to the Company. The financial strength and stability of the subsidiaries would permit ready access by the parent company to short-term and long-term sources of credit, if necessary. In addition, the parent company had cash and marketable securities valued at $49.7 million at September 30, 1997. RESULTS OF OPERATIONS --------------------- COMPARISONS OF THIRD QUARTER, 1997 TO THIRD QUARTER, 1996 --------------------------------------------------------- Net premiums earned increased $2.7 million during the third quarter of 1997 as compared to the same period of 1996. The increased premium volume is primarily attributable to the continued growth of the Company's private passenger automobile program. Premium earned from this program totaled $4.7 million for the quarter, an increase of $2.2 million (84.2%) from the prior year. Premiums earned for this program have increased each quarter since its inception in 1995. The remaining increase is attributable to current quarter loss activity which resulted in additional premium being recorded on expired retrospectively rated workers' compensation policies. Net investment income decreased $.3 million (6.2%) due to lower pre-tax investment yields resulting from increases in the Company's municipal bond and equity security portfolios as compared to the third quarter of 1996. Overall pre-tax annualized yields decreased from 5.2% during the third quarter of 1996 to 4.9% for the current quarter while after tax yields decreased from 3.7% during the third quarter of 1996 to 3.5% for the third quarter of 1997. The third quarter 1997 net realized gain of $4.5 million consists of net gains on equity securities of $4.9 and net losses of $.4 million on other securities. The after tax annualized yield on invested assets, considering realized and unrealized gains for the current quarter, was 13.3%. Losses and loss expenses incurred during the third quarter of 1997 increased $3.3 million from that experienced during the third quarter of 1996. The increase is due primarily to increases in volume from the Company's private passenger automobile program and favorable loss experience in the Company's fleet trucking programs during the 1996 third quarter. In addition, losses incurred from reinsurance assumed increased $.6 million during the current quarter resulting from unfavorable development on cancelled treaties. Loss and loss expense ratios for the comparative third quarters were as follows: 1997 1996 -------- -------- Fleet trucking 67.2% 50.8% Voluntary reinsurance assumed 57.1 33.8 Small fleet trucking 69.6 42.7 Private passenger automobile 66.5 75.7 Residual market, assigned risk and all other * * All lines 64.2 53.1 * Premium and loss amounts for this category are insignificant. Other operating expenses for the third quarter of 1997 increased $1.3 million from the third quarter of 1996. The consolidated expense ratio of the Company's insurance subsidiaries was 34.5% for the third quarter of 1997 compared to 30.6% for the third quarter of 1996. The increase in the consolidated expense ratio reflects a decline in trucking premium relative to fixed costs and insufficient volume to minimize ratios in the Company's new product lines. Average commission rates on reinsurance assumed from catastrophe and property pools also increased during the 1997 period. The ratio of consolidated other operating expenses to total revenue (excluding realized gains) increased to 29.5% during the third quarter of 1997 compared to 26.8% for the 1996 third quarter. The effective federal tax rate for consolidated operations for the third quarter of 1997 was 31.4% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, principally the increase in realized capital gains after tax of $1.8 million, income from consolidated operations increased $.6 million (11.0%) during 1997 compared with the 1996 third quarter. COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO ------------------------------------------------------ NINE MONTHS ENDED SEPTEMBER 30, 1996 ------------------------------------ Net premiums earned decreased $.5 million (1.0%) during the first nine months of 1997 as compared to the same period of 1996. Intense competition in the trucking insurance markets has resulted in a decline of $5.0 million in the Company's fleet trucking products from the same period last year. In addition to premium declines relating to the non-renewal of business and premium reductions on business retained, the Company has increased its use of facultative reinsurance to cede larger portions of its trucking liability risk because of favorable facultative reinsurance pricing. Offsetting these decreases was a $5.7 million (89.9%) increase in premiums earned from the Company's private passenger automobile product. Increased volume in this product has resulted from continued penetration of the Indiana market as well as expansion into additional states. Net investment income decreased by $.9 million (6.0%) during the first nine months of 1997 compared to the same period in 1996 for the same reasons mentioned above for the quarterly comparison. Overall pretax yields decreased to 5.0% from 5.3% a year earlier while after tax yields decreased from 3.7% during the first nine months of 1996 to 3.5% for the first nine months of 1997. The net realized gain on investments of $13.8 million for the first nine months of 1997 consists of net gains of $14.6 million on equity securities and net losses of $.8 million on other investments. The after tax annualized yield on invested assets, considering realized and unrealized gains for the current year- to-date, was 7.9%. Losses and loss expenses incurred during the first nine months of 1997 were $1.6 million higher than the same period of 1996. The increase is due primarily to increases in losses and loss expenses from the Company's growing private passenger automobile program and higher losses incurred from reinsurance assumed resulting from unfavorable development on cancelled treaties. These increases were largely offset by decreases in losses from the Company's fleet trucking products in line with the decreased premium volume for the 1997 period. Loss and loss expense ratios for the comparative nine month periods were as follows: 1997 1996 -------- -------- Fleet trucking 62.6% 62.5% Voluntary reinsurance assumed 60.9 39.0 Small fleet trucking 54.3 68.1 Private passenger automobile 71.9 74.7 Residual market, assigned risk and all other 57.7 50.4 All lines 64.6 60.3 Other operating expenses increased $1.8 million (11.9%) during the first nine months of 1997 compared to the same period of 1996. The consolidated expense ratio of the Company's insurance subsidiaries was 32.8% for 1997 compared to 26.8% for 1996 for the same reasons provided above for the quarterly comparison. The ratio of other operating expenses to total revenue (excluding realized gains) was 28.3% for 1997 compared to 24.9% for 1996. The effective federal tax rate for consolidated operations for the first nine months of 1997 was 31.6% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, principally the increase in realized capital gains after tax of $5.4 million, income from consolidated operations for the first nine months of 1997 was $19.0 million, up $2.9 million from the comparable 1996 period. FORWARD-LOOKING INFORMATION --------------------------- Any forward-looking statements in this report, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the Company's business is highly competitive and the entrance of new competitors into or the expansion of the operations by existing competitors in the Company's markets and other changes in the market for insurance products could adversely affect the Company's plans and results of operations; (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission; and (iv) other risks and factors which may be beyond the control or foresight of the Company. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS --------------------------------------- In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. No material impact is expected on primary earnings per share for the quarter and nine months ended September 30, 1997 and September 30, 1996 as a result of the adoption of Statement 128. The impact of Statement 128 on the calculation of fully diluted earnings per share for these periods is also not expected to be material. In June 1997, the Financial Accounting Standards Board issued Statements No. 130, REPORTING COMPREHENSIVE INCOME, and No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which require adoption in 1998. The Company has not completed its analysis of these new standards and, as such, has not determined the full impact of their adoption. PART II - OTHER INFORMATION --------------------------- ITEM 6 (a) EXHIBITS - -------------------- Number and caption from Exhibit Table of Regulation S-K Item 601 Exhibit No. - ------------------------------------ ---------------------------- (11) Statement regarding computation EXHIBIT 11 -- of per share earnings Computation of Per Share Earnings Item 6 (b) REPORTS ON FORM 8-K - ------------------------------- No reports on Form 8-K have been filed by the registrant during the three months ended September 30, 1997. 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. BALDWIN & LYONS, INC. Date November 10, 1997 By /s/ Gary W. Miller -------------------- ------------------------------ Gary W. Miller, President and Chief Operating Officer Date November 10, 1997 By /s/ G. Patrick Corydon -------------------- ------------------------------ G. Patrick Corydon, Vice President - Finance (Principal Financial and Accounting Officer) BALDWIN & LYONS, INC. Form 10-Q for the fiscal quarter ended September 30, 1997 INDEX TO EXHIBITS Exhibit Number Method of Filing --------------------------------- --------------------- EXHIBIT 11 Computation of per share earnings File herewith electronically EXHIBIT 27 Financial Data Schedule Filed herewith electronically BALDWIN & LYONS, INC. FORM 10-Q, EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- -------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ ------------ PRIMARY: Average number of shares outstanding 13,732,625 14,098,344 13,806,541 14,233,364 Dilutive stock options--based on treasury stock method using average market price 190,656 165,720 189,862 165,066 ----------- ----------- ----------- ----------- Totals 13,923,281 14,264,064 13,996,403 14,398,430 =========== =========== =========== =========== Net Income $ 6,227,896 $ 5,590,777 $19,039,444 $16,374,455 =========== =========== =========== =========== Per share amount $ .45 $ .39 $ 1.36 $ 1.14 =========== =========== =========== =========== FULLY DILUTED: Average number of shares outstanding 13,732,625 14,098,344 13,806,541 14,233,364 Dilutive stock options--based on treasury stock method using average market price 190,843 165,720 190,305 165,414 ----------- ----------- ----------- ----------- Totals 13,923,468 14,264,064 13,996,846 14,398,778 =========== =========== =========== =========== Net Income $ 6,227,896 $ 5,590,777 $19,039,444 $16,374,455 =========== =========== =========== =========== Per share amount $ .45 $ .39 $ 1.36 $ 1.14 =========== =========== =========== ===========
EX-27 2
7 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of operations enclosed herein electronically in Form 10Q for the year-to-date, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 289,210 0 0 143,963 0 0 452,614 16,870 8,728 2,379 548,626 193,945 17,447 0 5,938 0 0 0 730 0 548,626 44,942 13,809 13,824 1,299 29,019 5,109 4,804 27,838 8,799 19,039 0 0 0 19,039 1.36 1.36 154,537 35,461 (6,442) 11,639 21,946 149,971 0 Cash includes cash equivalents. All loss data is presented net of applicable reinsurance recoverable.
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