-----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, GMfBSeoc0WX59bnnmFPNjn4SUV3CYzZXAW09SyzQ9QiGLhilH/wF+J+7GPYpEgeS CsZ94Z2COGyHCPrzj5xspA== 0000009346-96-000005.txt : 19961209 0000009346-96-000005.hdr.sgml : 19961209 ACCESSION NUMBER: 0000009346-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALDWIN & LYONS INC CENTRAL INDEX KEY: 0000009346 STANDARD INDUSTRIAL CLASSIFICATION: 6411 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: 96655141 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, 1996 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 6, 1996: TITLE OF CLASSNUMBER OF SHARES OUTSTANDING Common Stock, No Par Value: Class A (voting) 2,444,329 Class B (nonvoting) 11,591,545 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 1996 1995 ------------ ------------ ASSETS Investments: Fixed maturities $ 273,610 $ 279,083 Equity securities 110,814 98,428 Short-term and other 42,441 47,322 --------- --------- 426,865 424,833 Cash 3,321 1,369 Accounts receivable 14,031 13,174 Reinsurance recoverable 51,096 54,702 Investments in equity subsidiary and its affiliates 9,910 9,582 Other assets 10,390 8,565 --------- --------- $ 515,613 $ 512,225 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and loss expenses $ 208,883 $ 211,489 Reserves for unearned premiums 9,994 8,262 Accounts payable and accrued expenses 37,796 43,895 Deferred federal income taxes 2,515 833 Currently payable federal income taxes 791 738 --------- --------- 259,979 265,217 Shareholders' equity: Common stock-no par value 752 777 Additional paid-in capital 42,108 43,620 Unrealized net gains on investments 22,804 19,251 Retained earnings 189,970 183,360 --------- --------- 255,634 247,008 --------- --------- $ 515,613 $ 512,225 ========= ========= Number of common and common equivalent shares outstanding 14,237,238 14,716,630 Book value per outstanding share $17.96 $16.78 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 1996 1995 1996 1995 -------- -------- -------- -------- REVENUES Net premiums earned $ 13,971 $ 14,386 $ 45,407 $ 42,928 Net investment income 4,832 4,738 14,695 14,007 Realized net gains on investments 1,775 5,154 5,459 6,880 Commissions and other income 233 250 892 913 -------- -------- -------- -------- 20,811 24,528 66,453 64,728 EXPENSES Losses and loss expenses incurred 7,418 7,859 27,403 27,787 Other operating expenses 5,102 4,350 15,211 12,524 -------- -------- -------- -------- 12,520 12,209 42,614 40,311 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL INCOME TAXES AND EQUITY SUBSIDIARY 8,291 12,319 23,839 24,417 Federal income taxes 2,682 4,090 7,715 7,577 -------- -------- -------- -------- NET INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY SUBSIDIARY 5,609 8,230 16,124 16,840 Income (loss) from equity subsidiary, net of federal income taxes (19) 248 250 341 -------- -------- -------- -------- NET INCOME FROM CONTINUING OPERATIONS 5,590 8,477 16,374 17,181 DISCONTINUED OPERATIONS, NET OF FEDERAL INCOME TAXES Income from operations of Hoosier Insurance Company - 600 - 742 Gain on sale of Hoosier Insurance Company - 7,464 - 7,464 -------- -------- -------- -------- NET INCOME $ 5,590 $ 16,541 $ 16,374 $ 25,387 ======== ======== ======== ======== PER SHARE DATA Average number of common and common equivalent shares outstanding 14,264,064 14,844,460 14,398,430 14,997,120 Income before discontinued operations and realized net gains $ .31 $ .34 $ .89 $ .85 Realized net gains on investments .08 .23 .25 .30 Income from operations of Hoosier Insurance Company - .04 - .05 Gain on sale of Hoosier Insurance Company - .50 - .50 -------- -------- -------- -------- NET INCOME $ .39 $ 1.11 $ 1.14 $ 1.70 ======== ======== ======== ======== Dividends $ .10 $ .08 $ .26 $ .22 ======== ======== ======== ======== 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 1996 1995 -------- -------- Net cash provided by operating activities $ 7,444 $ 12,518 Investing activities: Purchases of long-term investments (156,642) (182,160) Proceeds from sales or maturities of long term investments 154,524 169,462 Net sales of short-term investments 7,024 5,082 Investment in equity subsidiary 2,506 3,680 Other investing activities (1,542) (413) -------- -------- Net cash provided by (used in) investing activities 5,870 (4,349) Financing activities: Dividends paid to shareholders (3,704) (3,255) Cost of treasury stock (7,658) (5,362) Proceeds from sales of common stock - 1,200 -------- -------- Net cash used in financing activities (11,362) (7,417) -------- -------- Increase in cash 1,952 752 Cash at beginning of year 1,369 531 -------- -------- Cash at end of period $ 3,321 $ 1,283 ======== ======== 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, 1996. Interim financial statements should be read in conjunction with the Company's annual audited financial statements. (2) The effective federal income tax rate is less than the statutory rate for the periods ended September 30, 1996 and September 30, 1995 due primarily to tax - - -exempt investment income. (3) The following line items from the Statements of Income are presented net of the reinsurance amounts shown below.
1996 1995 -------- -------- Quarter ended September 30: Net premiums earned $ 2,765 $ 3,814 Losses and loss expenses 3,137 6,527 Other operating expenses (194) (370) Nine months ended September 30: Net premiums earned 9,639 12,462 Losses and loss expenses 5,138 17,913 Other operating expenses (805) (1,211)
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 20% 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, 1996, positive cash flow from operations totaled $7.4 million, a decrease from $12.5 million generated during the first nine months of 1995. This decrease was the result of a decline in cash flows from premiums, reinsurance payments made under contingency provisions of certain treaties and an increase in federal income tax estimated payments. These decreases were partially offset by a decline in losses and loss expenses paid. 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 1996 as the result of competitive pressures in the trucking insurance markets. It is expected that this decline in trucking insurance revenues will be mitigated somewhat by anticipated growth in Company's private passenger 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 investment portfolio was approximately 3 years at September 30, 1996. The Company's assets at September 30, 1996 included $31.6 million in investments classified as short-term which were readily convertible to cash without significant market penalty. In addition, fixed maturity investments totaling $21.0 million will mature prior to December 31, 1996. The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands even during a period of declining premium volume. Consolidated shareholders' equity totaled $255.6 million at September 30, 1996 and includes $228.5 million representing GAAP shareholder's equity of insurance subsidiaries, of which $33.7 million may be transferred by dividend or loan to the parent company without approval by, or notification to, regulatory authorities. An additional $177.9 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. At September 30, 1996, approximately $1.0 million of the Company's consolidated shareholders' equity represents undistributed earnings of Amli Realty, Inc. and its affiliates. See comments regarding Amli under Item 5 - Other Information. 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 of $42.1 million at September 30, 1996. RESULTS OF OPERATIONS --------------------- COMPARISONS OF THIRD QUARTER, 1996 TO THIRD QUARTER, 1995 --------------------------------------------------------- Net premiums earned decreased $.4 million during the third quarter of 1996 as compared to the same period of 1995. The decreased premium volume is primarily attributable to decreases in premiums from the Company's large and medium fleet trucking products of $1.8 million and $.3 million, respectively. In addition, premiums from the Company's workers' compensation products and voluntary reinsurance assumed from catastrophe pools decreased by $.5 million and $.6 million, respectively. These decreases were partially offset by increases in premiums from the Company's private passenger automobile and independent contractor products of $2.0 million and $.9 million, respectively. Trucking insurance markets continue to be increasingly competitive and, as a result, premium volume is expected to be lower over the near term. Net investment income increased $.1 million (2.0%) during the third quarter of 1996 as increases in invested assets were partially offset by decreases in yields. Overall pretax yields decreased from 5.6% during the third quarter of 1995 to 5.2% for the current quarter while after tax yields decreased from 3.9% during the third quarter of 1995 to 3.7% for the third quarter of 1996. The third quarter 1996 net realized gain of $1.8 million consists of net gains on equity securities and short-term investments of $1.2 and $.7 million, respectively, and net losses of $.1 million on other securities. Losses and loss expenses incurred during the third quarter of 1996 decreased $.4 million from that experienced during the third quarter of 1995. The decrease is due primarily to favorable experience in the Company's medium fleet trucking and independent contractor products which decreased $1.7 million and $.8 million, respectively. The 1995 quarter also included approximately $.9 million in assumed losses from former subsidiary, Hoosier Insurance Company. These decreases were partially offset by an increase in losses from the Company's large fleet trucking business of $1.5 million. In addition, losses from the Company's private passenger automobile product increased $1.6 million due to continued growth. Loss and loss expense ratios for the comparative third quarters were as follows:
1996 1995 ----- ----- Fleet trucking 50.8% 54.3% Voluntary reinsurance assumed 33.8 51.2 Small fleet trucking 42.7 70.1 Private passenger automobile 75.7 66.0 Residual market, assigned risk and all other 95.3 44.7 All lines 53.1 54.6
Other operating expenses for the third quarter of 1996 increased $.8 million from the third quarter of 1995. The consolidated expense ratio of the Company's insurance subsidiaries was 30.6% for the third quarter of 1996 compared to 28.0% for the third quarter of 1995 due primarily to the higher average commission rates on private passenger automobile business. In addition, commission rates on certain of the fleet trucking products were increased during the 1996 quarter. The current quarter expense ratio was also impacted by fixed expenses attributable to the fleet trucking business as premium volume declined. The ratio of consolidated other operating expenses to total revenue (excluding realized gains) increased to 26.8% during the third quarter of 1996 compared to 22.5% for the 1995 third quarter due largely to increases in average commission rates, lower premium volume from fleet trucking and new product development costs incurred by the parent company. The effective federal tax rate for consolidated operations for the third quarter of 1996 was 32.4% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, principally the decrease in realized capital gains after tax of $2.2 million, income from consolidated operations decreased $2.6 million (31.9%) during 1996 compared with the 1995 third quarter. The Company's ownership of Amli Realty Inc. increased to 39% during the third quarter of 1996. The Company's share of Amli's net operating loss was $19,000 for the third quarter of 1996 compared to net income of $247,000 for the third quarter of 1995. See comments under Item 5 - Other Information, following. COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO ------------------------------------------------------ NINE MONTHS ENDED SEPTEMBER 30, 1995 ------------------------------------ Net premiums earned increased $2.5 million (5.8%) during the first nine months of 1996 as compared to the same period of 1995. This increase is due primarily to growth in the Company's private passenger automobile product of $5.6 million In addition, premiums from the Company's independent contractor and small fleet programs increased $1.9 million and $.8 million, respectively. Premiums from workers' compensation products also increased $1.8 million, $1.3 million of which is attributable to loss development on retrospectively rated policies written in prior years. These increases were offset by a $6.2 million decrease in trucking premiums, primarily from large fleet, and a combined $1.4 million decrease in premiums from voluntary and involuntary reinsurance assumed business. The fleet trucking premium decreases result from the non-renewal of certain accounts as well as premium reductions and lower net retentions on accounts renewed during 1996. Net investment income increased by $.7 million (4.9%) during the first nine months of 1996 compared to the same period in 1995 for the same reasons mentioned above for the quarterly comparison. Overall pretax yields decreased to 5.3% from 5.6% a year earlier while after tax yields decreased from 3.9% during the first nine months of 1995 to 3.7% for the first nine months of 1996. The net realized gain on investments of $5.5 million for the first nine months of 1996 consists of net gains of $4.7 million on equity securities and $.8 million on other investments. Losses and loss expenses incurred during the first nine months of 1996 were $.4 million lower than the same period of 1995. Medium fleet losses incurred decreased $5.5 million during the first nine months of 1996 compared to 1995. In addition, voluntary and involuntary reinsurance assumed losses decreased a combined $2.3 million for the current year to date compared to the 1995 period. These decreases were substantially offset by large fleet trucking losses and growth in the Company's private passenger automobile program resulting in increases in losses incurred of $3.1 and $4.3 million, respectively. Loss and loss expense ratios for the comparative nine month periods were as follows:
1996 1995 ----- ----- Fleet trucking 62.5% 63.6% Voluntary reinsurance assumed 39.0 60.6 Small fleet trucking 68.1 99.2 Private passenger automobile 74.7 70.6 Residual market, assigned risk and all other 50.4 101.8 All lines 60.3 64.7
Other operating expenses increased $2.7 million (21.5%) during the first nine months of 1996 compared to the same period of 1995. The consolidated expense ratio of the Company's insurance subsidiaries was 26.8% for 1996 compared to 29.0% for 1995 due to lower commission rates on most trucking insurance products effective in 1996 and cost reductions resulting from departmental restructurings completed during the last half of 1995. The ratio of other operating expenses to total revenue (excluding realized gains) was 24.9% for 1996 compared to 21.7% for 1995 due largely to new product development costs incurred by the parent company. The effective federal tax rate for consolidated operations for the first nine months of 1996 was 32.4% and is less than the statutory rate primarily because of tax exempt investment income. As a result of the factors mentioned above, principally the decrease in realized capital gains after tax of $.9 million, income from consolidated operations for the first nine months of 1996 was $16.1 million, down $.8 million from the comparable 1995 period. The Company's share of Amli's net operating income, combined with losses from its stock transactions, was a net $250,000 in income for the first nine months of 1996 compared to net income of $341,000 for the same period of 1995. See comments under Item 5 - Other Information, following. PART II - OTHER INFORMATION ITEM 5 OTHER INFORMATION - - ------------------------ On October 15, 1996, Amli Realty Co., the Company's 39% owned unconsolidated subsidiary, entered into an agreement with UICI, a publicly traded financial services and insurance company, which will result in UICI acquiring all of Amli's outstanding stock. Upon the anticipated closing of this agreement in November, the Company will receive approximately 617,000 shares of UICI common stock which has a current market value of $17.0 million. The Company's book value of Amli stock to be exchanged was $7.4 million at September 30, 1996. This exchange will be treated as a tax free reorganization and will result in an increase in the Company's book value of approximately $.44 per share, using current market values. 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 Schedules 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 September 30, 1996. 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 6, 1996 By /s/ Gary W. Miller ------------------- ----------------------------- Gary W. Miller, President and Chief Operating Officer Date November 6, 1996 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, 1996 INDEX TO EXHIBITS
Exhibit Number Description Method of Filing - - -------------- -------------------------- ----------------------------- EXHIBIT 11 Computation of Per Share Filed herewith electronically Earnings EXHIBIT 27 Financial Data Schedules 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 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Primary: Average number of shares outstanding 14,098,344 14,706,330 14,233,364 14,816,181 Dilutive stock options--based on treasury stock method using average market price 165,720 138,130 165,066 180,939 ---------- ---------- ---------- ---------- Totals 14,264,064 14,844,460 14,398,430 14,997,120 ========== ========== ========== ========== Net Income $ 5,590,777 $16,542,004 $16,374,455 $25,387,465 =========== =========== =========== =========== Per share amount $ .39 $ 1.11 $ 1.14 $ 1.70 ======= ======== ======== ======== Fully Diluted: Average number of shares outstanding 14,098,344 14,706,330 14,233,364 14,816,181 Dilutive stock options--based on treasury stock method using average market price 165,720 138,130 165,414 180,939 ---------- ---------- ---------- ---------- Totals 14,264,064 14,844,460 14,398,778 14,997,120 ========== ========== ========== ========== Net Income $ 5,590,777 $16,542,004 $16,374,455 $25,387,465 =========== =========== =========== =========== Per share amount $ .39 $ 1.11 $ 1.14 $ 1.70 ======= ======== ======== ========
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-31-1996 JAN-01-1996 SEP-30-1996 273,610 0 0 110,814 0 0 426,865 3,321 8,145 1,316 515,613 208,883 9,994 0 7,455 0 0 0 752 0 515,613 45,407 14,695 5,459 892 27,403 4,105 3,318 23,839 7,715 16,124 0 0 0 16,374 1.14 1.14 161,458 33,078 (5,675) 7,925 21,499 159,437 0 All loss data is presented net of applicable reinsurance recoverable.
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