-----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, S+Z6B+Ayjdn2ulysvofSpWWFTo2isBGbIQMVpGG//WBIIPtfltAsmczlF/0qt0nz 4whY3O811GpwaaY1R9TQVg== 0000009346-00-000007.txt : 20000516 0000009346-00-000007.hdr.sgml : 20000516 ACCESSION NUMBER: 0000009346-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 630710 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 March 31, 2000 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 May 8, 2000: TITLE OF CLASS NUMBER OF SHARES OUTSTANDING Common Stock, No Par Value: Class A (voting) 2,318,085 Class B (nonvoting) 10,181,863 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31 December 31 2000 1999 ------------ ------------ ASSETS Investments: Fixed maturities $ 224,999 $ 250,386 Equity securities 142,863 139,300 Short-term and other 30,155 32,467 ---------- ---------- 398,017 422,153 Cash and cash equivalents 27,955 20,115 Accounts receivable 31,266 24,991 Reinsurance recoverable 43,470 44,825 Current federal income taxes - 764 Other assets 17,899 17,829 ---------- ---------- $ 518,607 $ 530,677 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and loss expenses $ 169,316 $ 173,473 Reserves for unearned premiums 30,834 24,432 Accounts payable and accrued expenses 27,764 40,289 Deferred federal income taxes 7,298 7,700 Current federal income taxes 4,411 - ---------- ---------- 239,623 245,894 Shareholders' equity: Common stock-no par value 667 702 Additional paid-in capital 37,415 39,663 Unrealized net gains on investments 25,416 24,711 Retained earnings 215,486 219,707 ---------- ---------- 278,984 284,783 ---------- ---------- $ 518,607 $ 530,677 ========== ========== Number of common and common equivalent shares outstanding 12,579 13,246 Book value per outstanding share $22.18 $21.50
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 March 31 2000 1999 ------------ ------------ REVENUES Net premiums earned $ 19,669 $ 15,985 Net investment income 4,937 4,668 Realized net gains on investments 4,466 2,645 Commissions and other income 831 563 ---------- ---------- 29,903 23,861 EXPENSES Losses and loss expenses incurred 13,255 10,960 Other operating expenses 7,344 5,995 ---------- ---------- 20,599 16,955 ---------- ---------- INCOME BEFORE FEDERAL INCOME TAXES 9,304 6,906 Federal income taxes 3,029 1,947 ---------- ---------- NET INCOME $ 6,275 $ 4,959 ========== ========== PER SHARE DATA - BASIC AND DILUTED: Income before realized net gains $ .26 $ .24 Realized net gains on investments .22 .12 ---------- ---------- NET INCOME $ .48 $ .36 ========== ========== Dividends $ .10 $ .10 ========== ========== RECONCILIATION OF SHARES OUTSTANDING: Average shares outstanding - basic 13,051 13,630 Dilutive effect of options outstanding 97 130 ---------- ---------- Average shares outstanding - diluted 13,148 13,760 ========== ==========
See notes to condensed consolidated financial statements. BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Three Months Ended March 31 2000 1999 ---------- ---------- Net cash provided by (used in) operating activities ($ 1,946) $ 810 Investing activities: Purchases of long-term investments (38,764) (38,800) Proceeds from sales or maturities of long-term investments 68,318 36,198 Net sales of short-term investments 2,752 4,996 Other investing activities (1,180) (1,195) ---------- ---------- Net cash provided by investing activities 31,126 1,199 Financing activities: Dividends paid to shareholders (1,311) (1,364) Cost of treasury stock (11,503) (3,318) Repayment on line of credit (8,528) - Proceeds from sales of common stock 2 2 ---------- ---------- Net cash used in financing activities (21,340) (4,680) ---------- ---------- Increase (decrease) in cash and cash equivalents 7,840 (2,671) Cash and cash equivalents at beginning of period 20,115 16,955 ---------- ---------- Cash and cash equivalents at end of period $ 27,955 $ 14,284 ========== ==========
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, 2000. Interim financial statements should be read in conjunction with the Company's annual audited financial statements. (2) Forward-looking statements in this report 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 inherent risks and uncertainties. Readers are encouraged to review the Company's annual report for its full statement regarding forward-looking information. (3) The following line items from the Statements of Income are presented net of the reinsurance amounts shown below.
Quarter Ending March 31 2000 1999 ---------- ---------- Net premiums earned $ 4,899 $ 4,158 Losses and loss expenses 5,563 1,108 Other operating expenses (1,754) (1,415)
Deductions from losses and loss expenses shown above represent case basis activity for the periods presented only and do not include changes in provisions for incurred but not reported claims which will be ceded to reinsurers. (4) Total realized and unrealized income for the quarter ended March 31, 2000 was $6,977 and compares to total realized and unrealized income of $1,972 for the quarter ended March 31, 1999. (5) If the Company had adopted Financial Accounting Standards Board Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, net income for the 2000 quarter would have been approximately $254 lower ($.02 per share). (6) The Company purchased 673,200 shares of treasury stock for approximately $11.5 million under its continuing stock repurchase program. (7) The following table provides certain profit and loss information for each reportable segment:
Non-standard Private Voluntary Fleet Passenger Reinsurance Trucking Automobile Assumed All Other Totals ----------- ----------- ----------- ----------- ----------- QUARTER ENDED MARCH 31: 2000: Direct and assumed premium written $ 11,140 $ 14,598 $ 2,378 $ 2,820 $ 30,936 Net premium earned and fee income 6,196 9,522 2,543 1,991 20,252 Underwriting gain (loss) 1,517 (193) 393 419 2,136 1999: Direct and assumed premium written 10,145 8,990 603 2,365 22,103 Net premium earned and fee income 6,158 7,687 926 1,596 16,367 Underwriting gain (loss) 2,211 (404) (95) (218) 1,494
(8) The following tables are reconciliations of reportable segment revenues and profits to the Company's consolidated revenue and income from continuing operations before federal income taxes, respectively.
2000 1999 ------------ ------------ REVENUE: Net premium earned and fee income $ 20,252 $ 16,367 Net investment income 4,937 4,668 Realized net gains on investments 4,466 2,645 Other income 248 181 ---------- ---------- Total consolidated revenue $ 29,903 $ 23,861 ========== ==========
2000 1999 ------------ ------------ PROFIT: Underwriting gain $ 2,136 $ 1,494 Net investment income 4,937 4,668 Realized net gains on investments 4,466 2,645 Corporate expenses (2,235) (1,901) ---------- ---------- Income from continuing operations before federal income taxes $ 9,304 $ 6,906 ========== ==========
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 25% and 35% 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. Cash flow is significantly impacted by the Company's reinsurance ceded programs. Beginning in June, 1998, The Company changed its reinsurance programs with respect to its trucking insurance whereby more risk was ceded to others. It was anticipated that this change would eventually result in diminished cash flows since substantial portions of premiums on current policies are ceded to reinsurers while losses incurred in periods prior to June, 1998, (when the Company retained much more risk) would be settled with cash payments. For the three months ended March 31, 2000, the Company experienced just such a negative cash flow from operations totaling $1.9 million, a decline from $.8 million in positive cash flow generated during the first quarter of 1999. The lower cash flows resulted from a decrease in net premiums collected, net of reinsurance payments, as discussed above, and an increase in net losses paid resulting from the settlement of several older claims, as reflected in a $4.2 million decrease in loss and loss expense reserves since December 31, 1999. 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 less than 3 years at March 31, 2000. The Company's assets at March 31, 2000 included $28.0 million in investments classified as short-term or cash equivalents which were readily convertible to cash without significant market penalty. In addition, fixed maturity investments totaling $35.3 million will mature within the twelve month period following March 31, 2000. The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands. Consolidated shareholders' equity is composed essentially of GAAP shareholder's equity of the insurance subsidiaries. As such, there are statutory restrictions on the transfer of portions of this equity to the parent holding company. At March 31, 2000, $39.6 million may be transferred by dividend or loan to the parent company without approval by, or notification to, regulatory authorities. An additional $182.9 million of shareholder's equity of the 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 $10.3 million at March 31, 2000. RESULTS OF OPERATIONS COMPARISONS OF FIRST QUARTER, 2000 TO FIRST QUARTER, 1999 Net premiums earned during the first quarter of 2000 increased $3.7 million (23%) as compared to the same period of 1999. Net premiums from the Company's private passenger automobile and small fleet trucking programs increased $1.7 million and $.4 million, respectively, due to both geographic expansion and competitive changes favorable to the Company in the private passenger automobile marketplace. In addition, premium from voluntary reinsurance assumed were $1.6 million higher due primarily to non-recurring reinstatement premiums related to the European windstorms that occurred late in 1999. Adjusted to remove these reinstatement premiums, net premiums earned increased by 12% from the prior year period. Net investment income during the first quarter of 2000 was 5.8% higher than the first quarter of 1999 due primarily to income reported by certain limited partnerships. Income from these partnerships is sporadic. Yields on short-term and equity investments were higher for the quarter but were offset by a decrease in bond holdings where yields were relatively unchanged from 1999 levels. Overall after tax yields were higher than the prior year quarter, consistent with the pre-tax changes. The first quarter 2000 net realized gain of $4.5 million included net gains on equity securities of $7.7 million and net losses on limited partnership investments and fixed maturity investments of $2.5 million and $.7 million, respectively. Losses and loss expenses incurred during the first quarter of 2000 were $2.3 million higher than the first quarter of 1999 due primarily to growth in the private passenger automobile program and losses from reinsurance assumed covering the European windstorms (see comments relating to reinstatement premiums, above). Loss and loss expense ratios for the comparative first quarters were as follows: 2000 1999 --------- --------- Fleet trucking 67.5% 57.4% Voluntary reinsurance assumed 74.6 105.6 Private passenger automobile 71.3 71.2 Small fleet trucking 56.8 67.6 All lines 67.4 68.6 The fleet trucking loss ratio for the first quarter of 2000 was impacted by the new reinsurance treaties effective June 1, 1998 whereby the Company has significantly limited its exposure to loss while ceding off the majority of its direct liability premium writings. In addition, fleet trucking losses reported in the first quarter of 1999 included savings recognized on certain large fleet claims, the incidence of which was not repeated in the current year quarter. The loss ratio for small fleet trucking reflects favorable frequency and severity for the current quarter. Other operating expenses for the first quarter of 2000 increased $1.3 million from the first quarter of 1999 consistent with the increase in net premiums earned. The consolidated expense ratio of the Company's insurance subsidiaries was 29.0% for the first quarter of 2000 compared to 29.4% for the first quarter of 1999. The ratio of consolidated other operating expenses to total revenue (adjusted for realized gains) was 28.9% during the first quarter of 2000 compared to 28.3% for the 1999 first quarter. The effective federal tax rate for consolidated operations for the first quarter of 2000 was 32.6% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, and principally the increase in net capital gains on investments, net income increased $1.3 million compared with the 1999 first quarter. 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. 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 (27) Financial Data Schedule EXHIBIT 27 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 March 31, 2000. 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 May 12, 2000 By /s/ Gary W. Miller ------------------ ---------------------------- Gary W. Miller, Chairman and CEO Date May 12, 2000 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 March 31, 2000 INDEX TO EXHIBITS Begins on sequential page number of Form EXHIBIT NUMBER 10-Q -------------- ---------------------------- EXHIBIT 11 File herewith electronically Computation of per share earnings EXHIBIT 27 File herewith electronically Financial Data Schedule BALDWIN & LYONS, INC. FORM 10-Q, EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31 2000 1999 ------------ ------------ BASIC: Average number of shares outstanding 13,051,391 13,629,786 ============ ============ Net Income $ 6,275,559 $ 4,958,989 ============ ============ Per share amount $ .48 $ .36 ============ ============ DILUTED: Average number of shares Outstanding 13,051,391 13,629,786 Dilutive stock options--based on treasury stock method using average market price 96,897 130,027 ------------ ------------ Totals 13,148,288 13,759,813 ============ ============ Net Income $ 6,275,559 $ 4,958,989 ============ ============ Per share amount $ .48 $ .36 ============ ============
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 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 224,999 0 0 142,863 0 0 398,017 27,955 7,828 4,964 518,607 169,316 30,834 43 5,738 0 0 0 667 0 518,607 19,669 4,937 4,466 831 13,255 2,378 1,588 9,304 3,029 6,275 0 0 0 6,275 .48 .48 130,703 12,730 525 5,188 11,595 127,175 0 Includes cash and cash equivalents. All loss data is presented net of applicable reinsurance recoverable. Basic earnings per share.
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