-----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, UakEn8u+J0oFoWsWiXZMuTuJpapfbPdSrFMAtvJoaQUgbpeEIzw91OLCAm/2q0aj q5pwgplzzsCmeviF5g1M1Q== 0000009346-03-000014.txt : 20030806 0000009346-03-000014.hdr.sgml : 20030806 20030806153758 ACCESSION NUMBER: 0000009346-03-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDWIN & LYONS INC CENTRAL INDEX KEY: 0000009346 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 350160330 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05534 FILM NUMBER: 03826214 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 r10q063003.txt SECOND QUARTER FORM 10Q 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 June 30, 2003 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of August 5, 2003: TITLE OF CLASS NUMBER OF SHARES OUTSTANDING Common Stock, No Par Value: Class A (voting) 2,666,666 Class B (nonvoting) 11,891,854 Index to Exhibits located on page 15. PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS
BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) JUNE 30 December 31 2003 2002 ------------------ ------------------ ASSETS Investments: Fixed maturities $ 285,296 $ 290,155 Equity securities 114,311 105,441 Short-term and other 16,356 9,158 ------------------ ------------------ 415,963 404,754 Cash and cash equivalents 61,304 41,699 Accounts receivable 37,207 33,646 Reinsurance recoverable 148,237 137,870 Notes receivable from employees 6,996 7,494 Current federal income taxes - 1,701 Other assets 18,997 17,298 ------------------ ------------------ $ 688,704 $ 644,462 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and loss expenses $ 292,295 $ 277,744 Reserves for unearned premiums 38,296 29,016 Accounts payable and accrued expenses 40,653 39,854 Note payable to bank - 7,500 Current federal income taxes 2,783 - Deferred federal income taxes 8,734 5,760 ------------------ ------------------ 382,761 359,874 Shareholders' equity: Common stock-no par value 621 621 Additional paid-in capital 35,321 35,248 Unrealized net gains on investments 38,258 29,640 Retained earnings 231,742 219,079 ------------------ ------------------ 305,942 284,588 ------------------ ------------------ $ 688,704 $ 644,462 ================== ================== Number of common and common equivalent shares outstanding 14,699 14,645 Book value per outstanding share $20.81 $19.43
See notes to condensed consolidated financial statements. - 2 -
BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ---------------------------------- 2003 2002 2003 2002 --------------- --------------- ---------------- --------------- REVENUES Net premiums earned $ 36,960 $25,865 $68,661 $47,529 Net investment income 3,124 3,793 6,497 7,676 Realized net gains (losses) on investments 5,739 (735) 3,287 100 Commissions and other income 1,443 1,284 2,945 2,513 --------------- --------------- ---------------- --------------- 47,266 30,207 81,390 57,818 EXPENSES Losses and loss expenses incurred 23,900 17,137 44,411 30,901 Other operating expenses 8,145 5,630 15,128 11,448 --------------- --------------- ---------------- --------------- 32,045 22,767 59,539 42,349 --------------- --------------- ---------------- --------------- INCOME BEFORE FEDERAL INCOME TAXES 15,221 7,440 21,851 15,469 Federal income taxes 4,920 2,518 7,018 5,088 --------------- --------------- ---------------- --------------- NET INCOME $ 10,301 $ 4,922 $14,833 $ 10,381 =============== =============== ================ =============== PER SHARE DATA: DILUTED EARNINGS $ .70 $ .34 $ 1.01 $ .70 =============== =============== ================ =============== BASIC EARNINGS $ .71 $ .34 $ 1.02 $ .71 =============== =============== ================ =============== DIVIDENDS PAID TO SHAREHOLDERS $ .10 $ .08 $ .20 $ .16 =============== =============== ================ =============== RECONCILIATION OF SHARES OUTSTANDING: Average shares outstanding - basic 14,558 14,557 14,556 14,669 Dilutive effect of options outstanding 157 101 116 101 --------------- --------------- ---------------- --------------- Average shares outstanding - diluted 14,715 14,658 14,672 14,770 =============== =============== ================ ===============
See notes to condensed consolidated financial statements. - 3 -
BALDWIN & LYONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) Six Months Ended June 30 2003 2002 -------------- --------------- Net cash provided by operating activities $ 25,565 $ 17,809 Investing activities: Purchases of long-term investments (90,297) (86,715) Proceeds from sales or maturities of long-term investments 104,475 70,053 Net sales (purchases) of short-term investments (8,946) 15,012 Decrease (increase) in notes receivable from employees 495 (5,036) Other investing activities (1,278) (799) -------------- --------------- Net cash provided by (used in) investing activities 4,449 (7,485) Financing activities: Dividends paid to shareholders (2,913) (2,308) Cost of treasury stock purchased - (8,854) Drawing on line of credit - 10,000 Repayment on line of credit (7,500) - Proceeds from sales of common stock 4 2 -------------- --------------- Net cash used in financing activities (10,409) (1,160) -------------- --------------- Increase in cash and cash equivalents 19,605 9,164 Cash and cash equivalents at beginning of period 41,699 31,840 -------------- --------------- Cash and cash equivalents at end of period $61,304 $41,004 ============== ===============
See notes to condensed consolidated financial statements. NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION: 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 notes 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, 2003. Interim financial statements should be read in conjunction with the Company's annual audited financial statements. - 4 - NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) FORWARD-LOOKING STATEMENTS: 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) REINSURANCE: The following table summarizes the Company's transactions with reinsurers for the 2003 and 2002 comparative periods.
2003 2002 ------------ ------------ Quarter ended June 30: Premiums ceded to reinsurers $ 17,377 $ 15,795 Losses and loss expenses ceded to reinsurers 21,189 4,413 Commissions from reinsurers 4,765 4,344 Six months ended June 30: Premiums ceded to reinsurers 35,090 27,465 Losses and loss expenses ceded to reinsurers 42,282 19,333 Commissions from reinsurers 9,590 7,791
(4) COMPREHENSIVE INCOME OR LOSS: Total realized and unrealized income for the quarter ended June 30, 2003 was $20,556 and compares to a total realized and unrealized loss of $3,564 for the quarter ended June 30, 2002. For the six months ended June 30, 2003, total realized and unrealized income was $24,194 and compares to total realized and unrealized income of $1,579 for the six months ended June 30, 2002. - 5 - NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) REPORTABLE SEGMENTS - PROFIT OR LOSS: The following table provides certain profit and loss information for each reportable segment. All amounts presented are computed based upon generally accepted accounting principles. In addition, segment profit for fleet trucking includes the direct marketing agency operations conducted by the parent company and is computed after elimination of inter-company commissions and, accordingly, segment profit presented here will not agree with statutory underwriting gains for this segment which may be quoted elsewhere in the Company's financial statements.
2003 2002 --------------------------------------------- ----------------------------------------- DIRECT AND NET PREMIUM SEGMENT PROFIT Direct and Net Premium Segment ASSUMED EARNED AND (LOSS) Assumed Earned and Profit (Loss) PREMIUM FEE INCOME Premium Fee Income WRITTEN Written ------------- ------------- --------------- ------------- ------------ ------------ QUARTER ENDED JUNE 30: PROTECTIVE PRODUCTS: Fleet trucking $ 36,048 $ 20,803 $ 8,153 $ 27,142 $ 13,306 $ 5,086 Reinsurance assumed 2,786 3,271 500 2,171 2,151 388 SAGAMORE PRODUCTS: Personal division 9,857 10,241 849 8,733 8,494 623 Commercial division: Small fleet trucking 4,760 2,111 24 3,110 2,176 410 Workers' compensation 2,350 1,553 (469) 1,260 829 152 ------------- ------------- --------------- ------------- ------------ ------------ Total Commercial division 7,110 3,664 (445) 4,370 3,005 562 All other 342 272 (207) 68 58 50 ------------- ------------- --------------- ------------- ------------ ------------ Totals $ 56,143 $ 38,251 $ 8,850 $ 42,484 $ 27,014 $ 6,709 ============= ============= =============== ============= ============ ============ SIX MONTHS ENDED JUNE 30: PROTECTIVE PRODUCTS: Fleet trucking $ 70,486 $ 38,910 $ 15,034 $ 48,646 $ 23,903 $ 9,448 Reinsurance assumed 5,609 5,830 983 3,946 3,357 640 SAGAMORE PRODUCTS: Personal division 23,594 19,484 1,485 19,602 16,409 1,310 Commercial division: Small fleet trucking 8,337 3,903 177 5,745 4,390 707 Workers' compensation 4,542 2,685 (480) 2,634 1,605 24 ------------- ------------- --------------- ------------- ------------ ------------ Total Commercial division 12,879 6,588 (303) 8,379 5,995 731 All other 445 371 (50) 136 116 6 ------------- ------------- --------------- ------------- ------------ ------------ Totals $ 113,013 $ 71,183 $ 17,149 $ 80,709 $ 49,780 $ 12,135 ============= ============= =============== ============= ============ ============
- 6 - NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) REPORTABLE SEGMENTS - RECONCILIATION TO CONSOLIDATED REVENUE AND CONSOLIDATED PROFIT OR LOSS: The following tables are reconciliations of reportable segment revenues and profits to the Company's consolidated revenue and income before federal income taxes, respectively.
Three Months Ended Six Months Ended June 30 June 30 2003 2002 2003 2002 ------------- ------------- ------------- ------------ REVENUE: Net premium earned and fee income $ 38,251 $ 27,014 $ 71,183 $ 49,780 Net investment income 3,124 3,793 6,497 7,676 Realized net gains (losses) on investments 5,739 (735) 3,287 100 Other 152 135 423 262 ------------- ------------- ------------- ------------ Total consolidated revenue $ 47,266 $ 30,207 $ 81,390 $ 57,818 ============= ============= ============= ============ PROFIT: Segment profit $ 8,850 $ 6,709 $ 17,149 $ 12,135 Net investment income 3,124 3,793 6,497 7,676 Realized net gains (losses) on investments 5,739 (735) 3,287 100 Corporate expenses (2,492) (2,327) (5,082) (4,442) ------------- ------------- ------------- ------------ Income before federal income taxes $ 15,221 $ 7,440 $ 21,851 $ 15,469 ============= ============= ============= ============
(7) LOANS TO EMPLOYEES: In 2000, 2001 and 2002 the Company provided loans to certain key employees for the sole purpose of purchasing the Company's Class B common stock in the open market. $7,260 of such full-recourse loans were issued and $6,996 remain outstanding at June 30, 2003 and carry interest rates of between 4.75% and 6%, payable annually on the loan anniversary date. The underlying securities serve as collateral for these loans, which must be repaid no later than 10 years from the date of issue. No additional loans will be made under this program. (8) STOCK SPLIT: All share and per share amounts are adjusted for the five-for-four stock split on February 17, 2003. - 7 - 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. The Company's cash flow relating to premiums is significantly affected by reinsurance programs in effect from time-to-time whereby the Company cedes both premium and risk to other insurance and reinsurance companies. These programs vary significantly among products and overall premium ceded rates, net of ceding commission allowances, have decreased recently reflective of the effect of the provisions of reinsurance agreements currently in place. For the six months ended June 30, 2003, the Company experienced positive cash flow from operations totaling $25.6 million, a significant improvement from the $17.8 million in positive cash flow generated during the first half of 2002. The primary difference in cash flows for the periods presented is attributable to a 46% increase in premiums collected net of reinsurance. The increase in premium collections was partially offset by related increases in losses paid and operating expenses that normally follow such a premium volume increase. 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 2.5 years at June 30, 2003 compared to 2.9 years at December 31, 2002. The Company's assets at June 30, 2003 included $61.3 million in investments classified as short-term or cash equivalents that were readily convertible to cash without significant market penalty. An additional $72.8 of fixed maturity investments will mature within the twelve-month period following June 30, 2003. The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands even before consideration of current positive cash flows. Consolidated shareholders' equity is composed largely 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 June 30, 2003, $44.0 million may be transferred by dividend or loan to the parent company without approval by, or notification to, regulatory authorities. An additional $203.2 million of shareholder's equity of the insurance subsidiaries may be advanced or loaned to the parent holding 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. The parent company had cash and marketable securities valued at $40.8 million at June 30, 2003. - 8 - The Company's annualized premium writing to surplus ratio for the first half of 2003 was approximately 53%. Regulatory guidelines generally allow for writings of 200% of surplus. Accordingly, the Company can continue to increase premium writings significantly with no need to raise additional capital. Further, the Insurance Subsidiaries' individual capital structures are several times higher than the minimum amounts designated by the National Association of Insurance Commissioners. RESULTS OF OPERATIONS COMPARISONS OF SECOND QUARTER, 2003 TO SECOND QUARTER, 2002 Net premiums earned during the second quarter of 2003 increased $11.1 million (43%) as compared to the same period of 2002. The increase is due primarily to a 61% increase in premiums from the Company's fleet trucking program as the market has allowed the Company to maintain rate levels while continuing to add new accounts over the past six quarters. In addition, premiums from the Company's voluntary reinsurance assumed program increased 39% due primarily to increased participation under existing agreements and new programs effective January 1, 2003. In addition, premiums from the Company's small business workers' compensation and private passenger automobile programs increased 93% and 20%, respectively, due to rate increases by competitors, which allow Sagamores's pricing to be more competitive, and continued geographic expansion. Premiums from the small fleet trucking program are nearly level with that of the prior year quarter as this product is gaining momentum in the marketplace. Direct premiums written and assumed during the second quarter of 2003 totaled $56.1 million, a 32% increase from the $42.5 million reported a year earlier. All divisions experienced direct premium growth ranging from 16% to 87% when compared to the second quarter of 2002. Premium ceded to reinsurers averaged 32.8% of direct premium production for the current quarter compared to 39.2% a year earlier. Net investment income, before tax, during the second quarter of 2003 was 18% lower than the second quarter of 2002 due primarily to the continued decline in investment yields. The short-term nature of the Company's fixed income investment portfolio has been negatively impacted by the numerous interest rate reductions by the Federal Reserve Board since January 1, 2001. Pre-tax yields dropped one and three-quarters percentage points from the prior year quarter. After tax yields posted a slightly smaller decline as a portion of the Company's fixed income portfolio was converted from taxable to tax-exempt securities. The average life of the Company's fixed income portfolio decreased from 2.9 years at the prior year end to 2.5 years at June 30, 2003 reflecting management's continuing decision not to commit funds for longer terms as long as interest rates remain at 50 year lows. The second quarter 2003 net realized gain of $5.7 million consisted of net gains on equity securities, short-term investments and fixed maturities and of $5.3 million, $.3 million and $.3 million, respectively. The above gains were partially offset by a charge for other-than-temporary impairment on investments of $.1 million. - 9 - Losses and loss expenses incurred during the second quarter of 2003 increased $6.8 million from that experienced during the second quarter of 2002, consistent with the increase in premium volume previously discussed. Loss ratios for each of the Company's major product lines were as follows:
2003 2002 ---- ---- Large and medium fleet trucking 63.3% 71.2% Private passenger automobile 62.7 65.5 Small fleet trucking 59.2 48.7 Voluntary reinsurance assumed 61.8 67.5 Small business workers' compensation 96.1 47.1 All lines 64.7 66.3
The increase in the loss and loss expense ratio for small business workers' compensation is due to reserve strengthening of prior period cases resulting from a reevaluation of exposures for this product. Because of the relatively small size of this product, the higher product loss ratio did not have a material impact on the consolidated loss ratio. Other operating expenses for the second quarter of 2003 increased 45% from the second quarter of 2002. Adjusted for ceding allowances, operating expenses increased 29% from the second quarter of 2002 and compares favorably with the 43% increase in premiums earned from the 2002 quarter as many of the Company's expenses do not vary directly with premium volume. Ceding allowances as a percentage of direct expenses have declined due to changes in the Company's reinsurance structure whereby the Company now retains a greater percentage of the risk compared to prior periods, particularly within the fleet trucking product. In addition, ceding allowance rates are slightly lower under current reinsurance agreements compared to rates in effect under prior period agreements. Available capacity within each of the Company's divisions has allowed for the expansion of business with only minimal additions to personnel and other fixed costs over the past year. Management believes that significant additional capacity exists before most divisions would be obliged to incur meaningful increases in personnel or other fixed costs. The Company cedes a large portion of its direct premiums to reinsurers and these reinsurance premiums carry significant expense offsets. Ceding allowances totaled $4.8 million for the 2003 quarter compared to $4.3 million for the 2002 quarter. The ratio of consolidated other operating expenses to operating revenue was 19.6% during the second quarter of 2003 compared to 18.2% for the 2002 second quarter reflecting the diminished effect of ceding commissions, contingent commissions to non-affiliated agents resulting from lower loss ratios and increases in payroll resulting from expanding business. The effective federal tax rate for consolidated operations for the second quarter of 2003 was 32.3% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, net income increased $5.4 million (109.3%) during the second quarter of 2003 as compared with the 2002 second quarter. - 10 - COMPARISONS OF SIX MONTHS ENDED JUNE 30, 2003 TO SIX MONTHS ENDED JUNE 30, 2002 Net premiums earned increased $21.1 million (44%) during the first six months of 2003 as compared to the same period of 2002. The increased premium volume is primarily attributable to a 68% increase in the Company's fleet trucking product for the same reasons mentioned above in the quarterly comparison. In addition, net premiums earned for the private passenger automobile, voluntary reinsurance assumed, and small business workers' compensation products increased 18%, 58% and 68%, respectively, all for reasons discussed in the quarterly comparison. Direct premiums written and assumed during the first half of 2003 totaled $113.0 million, a 40% increase from the $80.7 million reported a year earlier. All divisions experienced direct premium growth ranging from 20% to 72% when compared to the first half of 2002. Premium ceded to reinsurers averaged 32.8% of direct premium production for the current quarter compared to 35.8% a year earlier. Net investment income during the first half of 2003 was 15% lower than the 2002 period for the same reasons as indicated in the quarterly comparison above. Overall pre-tax and after tax yields were lower during the current period consistent with the change in net investment income. The net realized gain on investments of $3.3 million for the first six months of 2003 consists of net gains on equity securities and fixed maturity investments of $5.1 million and $.5 million, respectively, and was partially offset by $.5 million in losses in short-term and other investments. The net realized gain was also partially offset by charges for other-than-temporary impairment on equity securities and fixed maturities of $1.4 million and $.4 million, respectively. Losses and loss expenses incurred during the first six months of 2003 increased $13.5 million from the first six months of 2002, consistent with the increased premium volume previously discussed. Loss and loss expense ratios for the comparative six-month periods were as follows:
2003 2002 ---- ---- Large and medium fleet trucking 65.3% 69.5% Private passenger automobile 62.9 64.2 Small fleet trucking 56.7 52.7 Voluntary reinsurance assumed 63.7 60.5 Small business workers' compensation 81.1 54.7 All lines 64.7 65.0
Other operating expenses increased $3.7 million (32%) during the first six months of 2003 compared to the same period of 2002. Ceding commission allowances included in net expenses were $9.6 million for the 2003 period compared to $7.8 million in the prior year period. The ratio of other operating expenses to total revenue (adjusted for realized gains) was 19.4% for 2003 compared to 19.8% for 2002. The effective federal tax rate for consolidated operations for the first six months of 2003 was 32.1% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, net income increased $4.5 million (42.9%) during the first half of 2003 as compared with the 2002 period. - 11 - 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. CRITICAL ACCOUNTING POLICIES There have been no changes in the Company's critical accounting policies as disclosed in the Form 10K filed for the year ended December 31, 2002. ITEM 4. CONTROLS AND PROCEDURES Baldwin & Lyons, Inc. management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. - 12 - 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 (99.1) Certification of CEO EXHIBIT 99.1 pursuant to Section 302 of the Certification of CEO Sarbanes-Oxley Act of 2002 And 18 U.S.C. 1350 (99.2) Certification of CFO EXHIBIT 99.2 pursuant to Section 302 of the Certification of CFO Sarbanes-Oxley Act of 2002 And 18 U.S.C. 1350 (99.3) Certification of CEO EXHIBIT 99.3 pursuant to Section 906 of the Certification of CEO Sarbanes-Oxley Act of 2002 And 18 U.S.C. 1350 (99.4) Certification of CFO EXHIBIT 99.4 pursuant to Section 906 of the Certification of CFO Sarbanes-Oxley Act of 2002 And 18 U.S.C. 1350 ITEM 6 (b) REPORTS ON FORM 8-K A Form 8-K was filed by the registrant on May 1, 2003 regarding its earnings announcement for the first quarter of 2003. - 13 - 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 August 6, 2003 By /S/ Gary W. Miller -------------------- ----------------------------------- Gary W. Miller, Chairman and CEO Date August 6, 2003 By /S/ G. Patrick Corydon -------------------- ----------------------------------- G. Patrick Corydon, Senior Vice President - Finance (Principal Financial and Accounting Officer) - 14 - BALDWIN & LYONS, INC. Form 10-Q for the fiscal quarter ended June 30, 2003 INDEX TO EXHIBITS Begins on sequential page number of Form Exhibit Number 10-Q -------------- ----------------------------- EXHIBIT 11 Filed herewith electronically Computation of per share earnings EXHIBIT 99.1 Filed herewith electronically Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act and 18 U.S.C. 1350 EXHIBIT 99.2 Filed herewith electronically Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act and 18 U.S.C. 1350 EXHIBIT 99.3 Filed herewith electronically Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act and 18 U.S.C. 1350 EXHIBIT 99.4 Filed herewith electronically Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act and 18 U.S.C. 1350 - 15 - EX-99 2 exh-9910603.txt CEO SECTION 302 CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Gary W. Miller, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Baldwin & Lyons, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 6, 2003 /S/ Gary W. Miller - ------------------------------ Gary W. Miller Chairman of the Board and Chief Executive Officer EX-99 3 exh-9920603.txt CFO SECTION 302 CERTIFICATION Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, G. Patrick Corydon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Baldwin & Lyons, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 6, 2003 /S/ G. Patrick Corydon - ------------------------------ G. Patrick Corydon Senior Vice President and Chief Financial Officer EX-99 4 exh-9930603.txt CEO SECTION 906 CERTIFICATION Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Baldwin & Lyons, Inc. (the "Company") on Form 10-Q for the quarterly period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary W. Miller, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Gary W. Miller - ---------------------- Gary W. Miller Chairman of the Board and Chief Executive Officer August 6, 2003 EX-99 6 exh-9940603.txt CFO SECTION 906 CERTIFICATION Exhibit 99.4 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Baldwin & Lyons, Inc. (the "Company") on Form 10-Q for the quarterly period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, G. Patrick Corydon, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ G. Patrick Corydon - ------------------------- G. Patrick Corydon Senior Vice President and Chief Financial Officer August 6, 2003 EX-11 7 exh-110603.txt EARNINGS PER SHARE
BALDWIN & LYONS, INC. FORM 10-Q, EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------------------- ---------------------------------- 2003 2002 2003 2002 --------------- --------------- ---------------- ---------------- BASIC: Average number of shares outstanding 14,557,643 14,557,064 14,556,018 14,669,313 =============== =============== ================ ================ Net Income $10,301,148 $4,922,270 $14,832,872 $10,380,812 =============== =============== ================ ================ Per share amount $ .71 $ .34 $ 1.02 $ .71 =============== =============== ================ ================ DILUTED: Average number of shares outstanding 14,557,643 14,557,064 14,556,018 14,669,313 Dilutive stock options--based on treasury stock method using average market price 157,491 100,641 116,027 100,579 --------------- --------------- ---------------- ---------------- Totals 14,715,134 14,657,705 14,672,045 14,769,892 =============== =============== ================ ================ Net Income $10,301,148 $4,922,270 $14,832,872 $10,380,812 =============== =============== ================ ================ Per share amount $ .70 $ .34 $ 1.01 $ .70 =============== =============== ================ ================
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