<PAGE>
UNITED STATES
-------------
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 March 31, 2000 Commission file Number 0-11538
---------------- --------
Overseas Partners Ltd.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Islands of Bermuda N/A
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Mintflower Place, 8 Par-la-Ville Road, Hamilton HM 08, Bermuda
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (441) 295-0788
---------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
123,631,307 Shares
---------------------
Outstanding at May 12, 2000
<PAGE>
PART I, FINANCIAL INFORMATION
-----------------------------
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except share and per share amounts)
--------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
----------- -------------
2000 1999
---------- -------------
(Unaudited)
----------
<S> <C> <C>
ASSETS:
Investments:
Trading, at fair value-
Debt securities (amortized cost 2000-$543,941, 1999-$559,416) $ 500,728 $ 512,148
Equity securities (cost 2000-$1,255,776, 1999-$1,223,954) 1,733,124 1,737,498
Restricted investments, held-to-maturity, at amortized cost
(fair value 2000-$268,730, 1999-$254,619) 245,580 242,931
- ------------------------------------------------------------------------------ ---------- ----------
2,479,432 2,492,577
Cash and cash equivalents 391,171 450,336
Receivables 853,544 711,495
Deferred acquisition costs 95,658 87,146
Real estate and leasing:
Operating leases with UPS 98,224 98,847
Finance leases 45,035 45,400
Hotel 158,533 159,403
Office buildings 786,205 790,864
Other assets
Goodwill 23,231 23,977
Other 83,566 55,237
- ------------------------------------------------------------------------------ ---------- ----------
Total assets $5,014,599 $4,915,282
- ------------------------------------------------------------------------------ ---------- ----------
LIABILITIES AND MEMBERS' EQUITY:
Liabilities:
Accrued losses and loss expenses $ 964,452 $ 972,201
Unearned premiums 523,996 376,745
Reinsurance balances payable 70,919 43,466
Accounts payable and other accruals 53,962 48,632
Deferred income taxes 16,939 16,542
Long-term debt 863,616 866,144
Minority interest 43,840 44,169
- ------------------------------------------------------------------------------ ---------- ----------
Total liabilities $2,537,724 $2,367,899
- ------------------------------------------------------------------------------ ---------- ----------
Commitments and contingencies -- --
Members' equity:
Preference Stock, par value $0.10 per share; authorized 200 million shares;
none issued -- --
Common Stock, par value $0.10 per share; authorized 900 million shares;
issued 127.5 million shares; outstanding 123,631,307 shares 12,750 12,750
Contributed surplus 39,991 39,991
Retained earnings 2,502,608 2,556,774
Treasury stock (2000 - 3,868,693 shares, 1999 - 3,108,585 shares), at cost (78,474) (62,132)
- ------------------------------------------------------------------------------ ---------- ----------
Total members' equity 2,476,875 2,547,383
- ------------------------------------------------------------------------------ ---------- ----------
Total liabilities and members' equity $5,014,599 $4,915,282
- ------------------------------------------------------------------------------ ---------- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except per share amounts)
----------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUES:
Gross reinsurance premiums written $ 285,522 $ 425,379
Reinsurance premiums ceded (38,545) (8,120)
- ----------------------------------------------- --------- ---------
Reinsurance premiums written 246,977 417,259
Change in unearned premiums (118,665) (207,907)
- ----------------------------------------------- --------- ---------
Reinsurance premiums earned 128,312 209,352
Commission income 1,322 1,387
Operating leases with UPS 4,605 4,227
Finance leases 924 957
Hotel 22,306 20,329
Office buildings 38,123 37,650
Interest 15,641 12,856
Net holding gain on trading securities 7,291 30,767
Amortization of fixed income securities 3,678 3,656
Dividends 2,902 3,343
- ----------------------------------------------- --------- ---------
225,104 324,524
--------- ---------
EXPENSES:
Reinsurance losses and loss expenses 108,416 122,108
Reinsurance commissions, taxes and other 24,080 27,207
Depreciation expense 9,225 8,921
Real estate and leasing operating expenses 36,842 34,742
Interest expense 17,592 18,300
Minority interest in earnings 679 565
Investment expenses 1,422 1,455
Amortization of goodwill 746 645
Other operating expenses 3,521 2,960
- ----------------------------------------------- --------- ---------
202,523 216,903
--------- ---------
Income before income taxes 22,581 107,621
Income taxes (2,499) (2,137)
- ----------------------------------------------- --------- ---------
Net income $ 20,082 $ 105,484
- ----------------------------------------------- --------- ---------
Basic and diluted net income per share $ 0.16 $ 0.84
- ----------------------------------------------- --------- ---------
Weighted average number of shares outstanding 123,804 125,669
- ----------------------------------------------- --------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
------------------------------------------
Three Months Ended March 31, 2000 and 1999
------------------------------------------
(In thousands)
--------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Preference Common Stock Treasury Stock Total
Stock ------------------ ------------------ Contributed Retained Members'
---------- Shares Amount Shares Amount Surplus Earnings Equity
------------------ ------------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ -- 127,500 $12,750 (277) $ (4,703) $39,757 $2,476,865 $2,524,669
Net income -- -- -- -- -- -- 105,484 105,484
Purchase of shares -- -- -- (5,208) (103,294) -- -- (103,294)
Sale of treasury stock -- -- -- 3,492 68,450 234 -- 68,684
Balance, March 31, 1999 $ -- 127,500 $12,750 (1,993) $ (39,547) $39,991 $2,582,349 $2,595,543
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $ -- 127,500 $12,750 (3,109) $ (62,132) $39,991 $2,556,774 $2,547,383
Net income -- -- -- -- -- -- 20,082 20,082
Purchase of shares -- -- -- (760) (16,342) -- -- (16,342)
Dividend declared ($0.60
per share) -- -- -- -- -- -- (74,248) (74,248)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 $ -- 127,500 $12,750 (3,869) $ (78,474) $39,991 $2,502,608 $2,476,875
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(U.S.$ in thousands)
--------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
<S> <C> <C>
2000 1999
------------- ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 20,082 $ 105,484
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 397 (1,156)
Depreciation expense 9,225 8,921
Minority interest in earnings 679 565
Net holding gain on trading securities (7,291) (30,767)
Amortization of fixed income securities (3,678) (3,656)
Other 1,860 991
Changes in assets and liabilities:
Receivables (142,049) (184,370)
Deferred acquisition costs (8,512) (28,508)
Other assets (28,329) (3,105)
Accrued losses and loss expenses (7,749) 36,420
Unearned premiums 147,251 213,348
Reinsurance balances payable 27,453 11,660
Accounts payable and other accruals 5,330 2,769
Proceeds from sale of trading investments 326,279 259,252
Purchase of trading investments (303,165) (296,375)
- ------------------------------------------------------ --------- ---------
Net cash flow provided by operating activities 37,783 91,473
- ------------------------------------------------------ --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of restricted investments 1,000 --
Additions to real estate and leasing assets (3,808) (1,041)
- ------------------------------------------------------ --------- ---------
Net cash flow used by investing activities (2,808) (1,041)
- ------------------------------------------------------ --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Purchases of treasury stock (16,342) (103,294)
Proceeds from sale of treasury stock -- 68,684
Repayment of debt (2,542) (2,252)
Distributions to minority interest (1,008) (1,386)
Dividends paid (74,248) --
- ------------------------------------------------------ --------- ---------
Net cash flow used by financing activities (94,140) (38,248)
- ------------------------------------------------------ --------- ---------
Net (decrease) increase in cash and cash equivalents (59,165) 52,184
Cash and cash equivalents:
Beginning of period 450,336 170,855
- ------------------------------------------------------ --------- ---------
End of period $ 391,171 $ 223,039
- ------------------------------------------------------ --------- ---------
Amounts paid for:
U.S. income taxes $ 1,846 $ 7,941
- ------------------------------------------------------ --------- ---------
Interest $ 11,726 $ 11,193
- ------------------------------------------------------ --------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 2000
--------------
(Unaudited)
-----------
1. GENERAL
-------
The accompanying unaudited interim consolidated financial statements include the
accounts of Overseas Partners Ltd. and its subsidiaries (collectively OPL or the
Company). OPL is engaged in the property, casualty and life reinsurance
business and in the real estate and leasing business.
The interim financial statements have been prepared pursuant to the rules and
regulations for reporting on Form 10-Q. Accordingly, certain information and
footnotes required by generally accepted accounting principles for complete
financial statements are not included herein. The interim financial statements
should be read in conjunction with the Overseas Partners Ltd. Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
Interim financial statements are subject to possible adjustments in connection
with the annual audit of the Company's financial statements for the full year;
in the Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and recurring
nature.
The results of operations for the three-month periods ended March 31, 2000 and
1999 are not necessarily indicative of the results to be expected for the full
year.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Except as described in Note 1, the financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America. All activity is recorded in U.S. dollars. Inter-company balances and
transactions have been eliminated in consolidation.
A statement of comprehensive income is not included as OPL's net income equals
comprehensive income.
The operating leases are with subsidiaries of United Parcel Service of America,
Inc. ("UPS").
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective beginning in the first quarter of fiscal 2001 and is not
expected to have a material impact on the Company's financial position or
results of operations.
6
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 2000
--------------
(Unaudited)
-----------
3. TAXES
-----
OPL is organized under the laws of the Islands of Bermuda and does not consider
itself to carry on business through a permanent establishment in the United
States and, therefore, does not expect to be subject to U.S. income taxes.
Certain of OPL's subsidiaries engage in business in the U.S., primarily Overseas
Partners Capital Corp. (OPCC), and as a result, it, but not OPL, is subject to
U.S. income taxes. Under current Bermuda law, OPL is not obligated to pay any
tax in Bermuda based upon income or capital gains.
The United States Internal Revenue Service (IRS) previously asserted that the
Company was subject to U.S. taxation in the amount of approximately $53 million
for its 1984 taxable year and $240 million for its 1985 through 1987 taxable
years, plus additions to tax and interest for those years. On February 13,
1998, the IRS indicated that it no longer intended to pursue its position
against the Company for 1984. On January 4, 1999, the IRS indicated that it no
longer intended to pursue its position against the Company for 1985 through
1987.
On December 22, 1998, the IRS issued a Notice of Deficiency with respect to the
Company's 1988 through 1990 taxable years in which it asserted that the Company
is subject to U.S. taxation in the aggregate amount of approximately $170
million, plus additions to tax and interest, for those years. On March 19,
1999, the Company filed a petition in the United States Tax Court contesting the
asserted deficiencies in tax and additions to tax in the Notice. On May 18,
1999, the IRS filed its Answer to the Company's Petition. The IRS has also
asserted that the Company is subject to U.S. taxation for its 1991 through 1994
taxable years and has proposed an aggregate assessment of $319 million of tax,
plus additions to tax and interest, for those years. The Company has filed a
Protest against the proposed assessment with the Appellate Division of the IRS
with respect to the years 1991 through 1994. The IRS has not proposed an
assessment for years subsequent to 1994. However, the IRS may take similar
positions for subsequent years pending resolution of the years currently in
dispute.
OPL believes that it has no tax liability, that it is not subject to U.S.
taxation, and that there is substantial authority for its position. It is
vigorously contesting the Notice of Deficiency for 1988 through 1990 and will
vigorously contest proposed assessments or any future assessments.
4. BUSINESS SEGMENTS
-----------------
The Company's operations are presently conducted through two segments -
reinsurance and real estate and leasing. The reinsurance segment is managed
from the Bermuda office and now includes accident & health, automobile,
aviation, marine, property, workers' compensation and financial classes of
reinsurance business. Prior to October 1, 1999 the Company also provided
shipper's risk reinsurance. Real estate and leasing activities are owned and
managed through subsidiaries of Overseas Partners Capital Corp., a wholly-owned
subsidiary of OPL. There were no intersegment revenues earned for the periods
ended March 31, 2000 and 1999. Intersegment expenses, such as corporate
overhead, were allocated based on estimated utilization for the years ended
March 31, 2000 and 1999.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies disclosed in the Overseas Partners
Ltd. Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
Income before income taxes by segment consists of revenues less expenses related
to the respective segment's operations. The reinsurance segment maintains a
portfolio of cash and liquid investments to support its reserves for accrued
losses and loss expenses and unearned premiums as well as its capital
requirements. Investments relating to real estate and leasing are primarily
used to collateralize long-term debt issued in connection with the purchase of
real estate properties, operating leases and finance leases. Summary financial
information about the Company's segments is presented in the following table:
7
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 2000
--------------
(Unaudited)
-----------
4. BUSINESS SEGMENTS (continued)
-----------------
<TABLE>
<CAPTION>
Three months ended March 31,
- ------------------------------------------------------------------------------------------
(In thousands) 2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Reinsurance:
Premiums earned $128,312 $209,352
Commission income 1,322 1,387
Investment income 21,957 46,963
- ------------------------------------------------------------------------------------------
151,591 257,702
- ------------------------------------------------------------------------------------------
Real estate and leasing:
Rentals 65,958 63,163
Investment income 7,555 3,659
- ------------------------------------------------------------------------------------------
73,513 66,822
- ------------------------------------------------------------------------------------------
Consolidated 225,104 324,524
- ------------------------------------------------------------------------------------------
NET INCOME BEFORE TAXES
Reinsurance 17,673 106,932
Real estate and leasing 9,175 4,294
Other operating expenses (4,267) (3,605)
- ------------------------------------------------------------------------------------------
Consolidated $ 22,581 $107,621
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In thousands) March 31, 2000 December 31, 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Reinsurance
Cash and investments $2,491,696 $2,581,509
Other 988,148 808,127
- ------------------------------------------------------------------------------------------
3,479,844 3,389,636
- ------------------------------------------------------------------------------------------
Real estate and leasing
Cash and investments 393,391 383,016
Other 1,141,364 1,142,630
- ----------------------------------------------------------------------------------------
1,534,755 1,525,646
- ----------------------------------------------------------------------------------------
Consolidated $5,014,599 $4,915,282
- ----------------------------------------------------------------------------------------
</TABLE>
Substantially all of the Company's long-lived assets, interest expense,
depreciation expense and income tax expense relate to the Company's real estate
and leasing operations.
Approximately 70% of reinsurance revenues are generated from ceding companies
located in the United States; the remainder is derived from customers located
primarily in European countries. All of the Company's leasing and real estate
revenues are generated in the United States. For 2000 and 1999, all of the
Company's long-lived assets were located in the United States.
The Company's largest reinsurance program, until its cancellation effective
October 1, 1999, related to the reinsurance of customer packages shipped by UPS.
Earned premiums on shipper's risk reinsurance were $nil and $90.6 million for
the three months ended March 31, 2000 and 1999, respectively. Net underwriting
income from shipper's risk reinsurance was $nil and $58.1 million for the three
months ended March 31, 2000 and 1999, respectively. OPL earned premiums of
$12.8 million and $12.1 million for the three months ended March 31, 2000 and
1999, respectively for the reinsurance of workers' compensation insurance,
written by Liberty Mutual Insurance company, for employees of a UPS subsidiary
located in the State of California. OPL's real estate and leasing segment
includes a data processing facility leased to UPS subsidiaries. Total rent from
the facility lease was $4.6 million and $4.2 million for the three months ended
March 31, 2000 and 1999, respectively.
8
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
MARCH 31, 2000
--------------
(Unaudited)
-----------
5. BERMUDA INSURANCE REGULATION
----------------------------
The Bermuda Insurance Act of 1978, amendments thereto and related Regulations
require OPL and its wholly-owned reinsurance subsidiaries to each maintain a
minimum solvency margin and a liquidity ratio. For the three months ended March
31, 2000 and 1999, they each met these requirements.
6. CONTINGENCIES
-------------
On November 19, 1999 and January 27, 2000 OPL was named as a defendant in two
class action lawsuits, filed on behalf of customers of UPS, in Montgomery
County, Ohio Court and Butler County, Ohio Court, respectively. The lawsuits
allege, amongst other things, that UPS told its customers that they were
purchasing insurance for coverage of loss or damage to goods shipped by UPS, but
a recent opinion by the United States Tax Court found that the insurance
program, as offered through UPS, several domestic insurance companies, and their
related reinsurance agreement with OPL, was not adequate for UPS to avoid
liability for federal income tax. The November 19, 1999 and the January 27,
2000 actions were removed to the Southern District of New York. The Company
believes that it has meritorious factual and legal defenses to the actions and
intends to defend them vigorously. The Company has sought and will seek
dismissal of the actions, as to OPL, on various grounds, including, among
others, lack of personal jurisdiction by the Court over OPL. However, there can
be no assurance that an adverse determination of the lawsuit would not have a
material effect on the Company.
7. COMPARATIVE FIGURES
-------------------
Certain prior year amounts have been reclassified to conform to the current year
presentation.
9
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Transacted in U.S. Dollars)
----------------------------
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 2000 and 1999
- ------------------------------------------
Reinsurance:
- ------------
<TABLE>
<S> <C> <C>
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------
Gross premiums written $ 285,522 $ 425,379
Premiums ceded (38,545) (8,120)
- ----------------------------------------------------------------------------------------------------
Net premiums written 246,977 417,259
Change in unearned premiums (118,665) (207,907)
- ----------------------------------------------------------------------------------------------------
Premiums earned 128,312 209,352
Commission income 1,322 1,387
- ----------------------------------------------------------------------------------------------------
129,634 210,739
- ----------------------------------------------------------------------------------------------------
Losses and loss expenses (108,416) (122,108)
Commissions and taxes (24,080) (27,207)
- ----------------------------------------------------------------------------------------------------
(132,496) (149,315)
- ----------------------------------------------------------------------------------------------------
Underwriting (loss) income (2,862) 61,424
- ----------------------------------------------------------------------------------------------------
Investment income:
U.S. equities 10,607 40,778
Emerging market equities 4,355 21,495
Fixed income (874) (25,170)
Strategic income mutual fund 3,186 8,127
Other 4,683 1,733
Expenses (1,422) (1,455)
- ----------------------------------------------------------------------------------------------------
Investment income 20,535 45,508
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Reinsurance income $ 17,673 $ 106,932
====================================================================================================
</TABLE>
Gross reinsurance premiums written decreased by $139.9 million for the three
months ended March 31, 2000 compared with the same period in the prior year,
primarily due to the loss of the shipper's risk reinsurance business and the
non-renewal of a number of programs during the first quarter of 2000.
The shipper's risk business related to the reinsurance of customer packages
shipped by UPS. This had historically been our largest reinsurance program up
until its cancellation effective October 1, 1999, following an adverse tax
opinion issued against UPS earlier that year. This business had generated $90.6
million of premiums written for the three months ended March 31, 1999.
We declined to renew several accident and health, aviation, marine and multi-
line programs during the quarter ended March 31, 2000, as such programs did not
meet our return requirements. This resulted in a decrease in premiums written
of $135.4 million compared to the prior year. In addition, we cancelled a
number of existing property programs with premiums written of $27.2 million to
avoid an aggregation of exposure with the new property catastrophe risks written
for the first time in 2000. This new property catastrophe business generated
premiums of $35.7 million for the three months ended March 31, 2000. We started
to write property catastrophe business as we believe that the risk-return
characteristics will be more favorable, over the long term, than from prior
property programs.
Renewals accounted for $204.8 million of premiums written during the quarter
ended March 31, 2000 compared with $274.9 million during the quarter ended March
31, 1999. We also wrote 13 new programs with premiums of $94.9 million during
the quarter ended March 31, 2000 compared with nine new programs yielding
premiums of $55.2 million in the same period in 1999. Accident and health was
the largest contributor to the increase in new business. Premium adjustments
reduced premiums written by $14.2 million for the quarter ended March 31, 2000.
Premiums ceded increased to $38.5 million for the quarter ended March 31, 2000,
compared to $8.1 million for the same period last year. This follows our
purchase of several layers of excess of loss protection for the aviation book of
business. The reinsurance protection provides coverage of $77.0 million in
excess of $3.0 million for a single loss event.
Reinsurance premiums earned decreased by $81.0 million for the three months
ended March 31, 2000 compared with the same period in the prior year, primarily
as a result of the loss of the shipper's risk reinsurance.
10
<PAGE>
Reinsurance: (continued)
- ------------
Our combined ratio, which is the ratio of the sum of losses, loss expenses,
commissions, taxes and other underwriting expenses to earned premiums increased
to 103.3% for the three months ended March 31, 2000 from 71.3% for the
corresponding period in 1999. Net underwriting income for the quarter decreased
by $64.3 million compared to the same period in 1999. These changes are due to
several factors, including:
. the cancellation of the shipper's risk program which contributed underwriting
income of $58.1 million for the three months ended March 31, 1999
. lower margins across most lines of business as a result of continued
competitive pressures on premium rates and aggregate attachment points
. the Company is currently recording a number of programs at higher combined
ratios than those used in the same period last year, reflecting the results
of an updated actuarial evaluation in the fourth quarter of 1999.
Despite extraordinary volatility in world wide equity markets, net investment
income related to our reinsurance segment for the three months ended March 31,
2000 was $20.5 million compared to $45.5 million for the same period in 1999.
Net investment income includes both realized and unrealized gains and losses on
investments.
Our S&P 500 based equity portfolio, which closely tracks the index, returned
1.9% for the quarter ended March 31, 2000, generating $10.6 million as compared
to $40.8 million for the same period in 1999. Investors returned to the stock
market in March to rally almost 10% after the Federal Reserve raised interest
rates less than widely predicted in both February and March. In a fluctuating
quarter for global emerging markets, our emerging markets portfolio returned
1.8% or $4.4 million compared to $21.5 million for the same period in 1999.
Despite rising interest rates our U.S. bond returns have been positive, however
foreign currency exchange losses on the euro continue to impact the global bond
portfolio, which lost 0.2% or $0.9 million compared to a loss of $25.2 million
for the same period in 1999. Our U.S. strategic income portfolio, which is a
combination of fixed income investments, returned 0.7% or $3.2 million for the
quarter, primarily as a result of the convertible securities portion of the
portfolio. This compares to a return of $8.1 million for the same period in
1999.
11
<PAGE>
Real Estate and Leasing:
- ------------------------
<TABLE>
<S> <C> <C>
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------
REVENUE:
Office buildings $ 38,123 $ 37,650
Hotel 22,306 20,329
Leasing 5,529 5,184
- ---------------------------------------------------------------------------------------------------
65,958 63,163
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Operating expenses (36,842) (34,742)
Interest expense (17,592) (18,300)
Depreciation (9,225) (8,921)
Minority interest in earnings (679) (565)
- ---------------------------------------------------------------------------------------------------
(64,338) (62,528)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Operating income 1,620 635
- ---------------------------------------------------------------------------------------------------
Investment income:
Real estate investment trust certificates 2,757 (571)
Other 4,798 4,230
- ---------------------------------------------------------------------------------------------------
Investment income 7,555 3,659
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Real estate and leasing income $ 9,175 $ 4,294
===================================================================================================
</TABLE>
Office building revenue increased by 1.3% for the quarter ended March 31, 2000
from $37.7 million for the same period in 1999. This increase of $0.5 million
was primarily due to increased revenues at Copley Place partially offset by a
fall in revenues at Madison Plaza. Hotel revenue increased $2.0 million due to
an increase in room and occupancy rates over the same period in 1999. Leasing
revenue has increased from $5.2 million in the first quarter of 1999 to $5.5
million in the first quarter of 2000 due to a $0.4 million increase in variable
toll lease revenue of the Ramapo Ridge data processing facility as a result of
an inflationary increase in rates and an increased volume of accounts processed.
Operating expenses have increased by $2.1 million primarily due to increases in
operating expenses at the hotel and Copley Place for the first quarter. These
increases are as a direct result of increased revenues.
Investment income increased by $3.9 million from the same period in 1999
primarily as a result of an increase in the value of the real estate investment
trusts.
Real estate and leasing income for the quarter ended March 31, 2000 increased by
$4.9 million over the same period in 1999 primarily due to increased investment
income, improvements in the profitability of the hotel and increased variable
toll lease revenue at the Ramapo Ridge data processing facility.
Net Income:
- -----------
Net income decreased by $85.4 million over the same period in 1999 due to a
decline in underwriting income and the comparative performance of the investment
markets. The decline in underwriting income was primarily due to the loss of
the shipper's risk program and reduced investment income from the reinsurance
related investment portfolio. Net income from shipper's risk for the three
months ended March 31, 2000 and 1999 was $nil and $58.1 million, respectively.
Net income per share was $0.16, a $0.68 per share decrease over the same period
in 1999 as a result of the aforementioned factors.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Our cash and cash equivalents decreased by $59.2 million during the three months
ended March 31, 2000 compared to an increase of $52.2 million in the same period
in 1999. Operating activities generated $37.8 million, investing activities
used $2.8 million and financing activities used $94.1 million compared to $91.5
million, $1.0 million and $38.2 million respectively, in the same period in
1999.
Reinsurance operations used $11.6 million for the three months ended March 31,
2000 compared to an inflow of $109.6 million for the same period in 1999. This
was largely due to the loss of the shipper's risk program and significant loss
payments on accident & health, marine and multi-line programs. Real estate
operations generated $5.1 million for the three months ended March 31, 2000
compared to $10.7 million for the same period in 1999. We received $16.9
million of interest and dividends, purchased $303.2 million of traded
investments and sold $326.3 million of investments in our trading portfolio
compared to $10.5 million, $296.4 million and $259.3 million respectively, for
the same period in 1999.
During the three months ended March 31, 2000 we purchased $16.3 million of
shares from our shareowners. For the same period in 1999 we purchased $103.3
million of shares from our shareowners and received $68.9 million from sales of
shares. On March 10, 2000, we paid a dividend of $0.60 per share resulting in a
cash outflow of $74.3 million.
On July 21, 1999, we suspended the sale of our stock under the UPS stock
purchase plans (the Plans). This action was taken following the announcement by
UPS of its intended initial public offering. UPS suspended the sale of its
shares under the Plans immediately following its announcement. Prior to the
suspension, units of UPS and OPL shares had been sold to UPS employees under the
Plans.
In addition, we have elected to defer the 2000 repurchase of our shares, as
previously disclosed in a report on Form 8-K filed on October 12, 1999. The
decrease in cash inflow resulting from the suspension of sales under the Plans
is expected to be offset by the deferral of repurchases in 2000.
On November 23, 1999, the Board announced that it approved a temporary limit on
the number of shares that we are willing to purchase from any shareowners who
seek to sell such shares. Until further notice we are prepared to repurchase up
to 10% of any shareowner's shares between November 23, 1999 and November 1,
2000. This means that we are currently willing to purchase in the aggregate
approximately $270 million worth of our shares during this period. The Board
has determined that this would be the most equitable way to purchase shares in
the event shareowners wish to offer shares to the Company. The Board will
reconsider the amount of the temporary limit from time to time based upon the
demand for our shares and our continued maintenance of satisfactory earnings,
financial condition, and liquidity and capital requirements.
The Board has also authorized existing shareowners to purchase up to 10,000
shares of OPL Common Stock, until November 1, 2000, subject to registration of
our shares for sale with the Securities and Exchange Commission.
We intend to use any proceeds from the sale of shares for general corporate
purposes, including strategic investments and acquisitions and the financing
thereof. We may also use all or a portion of the proceeds to repurchase
additional shares from those other shareowners that may desire offering their
shares for repurchase by the Company.
Our investment policies are designed to achieve enhanced returns to shareowners,
measured over conventional medium- to long-term market cycle periods. Our fixed
income portfolio comprises highly liquid debt securities of governments,
supranationals, government agencies, financial institutions and utilities. Our
U.S. and emerging markets equity portfolios are comprised of stocks drawn mainly
from within the S&P 500 Index and the IFC Index.
Because the liquidity of our investments permits us to respond quickly to
changing market conditions, our investments are not significantly affected by
inflation. Inflation, including damage awards and costs, can substantially
increase the ultimate cost of claims in certain types of insurance. This is
because the actual payment of claims may take place a number of years after the
provisions for losses are reflected in the financial statements. We will, on
the other hand, earn income on the funds retained for a period of time until
eventual payment of a claim.
Despite the loss of our shipper's risk reinsurance business, we believe that our
investments, cash flow from operations and borrowing ability are adequate
sources of capital and liquidity for the payment of claims, operating expenses
and dividends and for share repurchases. We further believe that our strong
capital position will permit expansion of our reinsurance business, should
appropriate opportunities arise. In the event we decide to purchase additional
capital assets, we may, as demonstrated by our existing portfolio of assets,
finance such purchases from internally generated funds or from outside borrowing
which we believe would be readily available to us.
13
<PAGE>
Safe Harbor Disclosure
- ----------------------
Some of the statements contained in this Securities and Exchange Commission
filing contain forward-looking information. Forward-looking statements are
statements other than historical information or statements of current condition.
Some forward looking statements can be identified by the use of such words as
"expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or
similar words. These forward-looking statements relate to our plans and
objectives for future operations including our growth and operating strategy,
trends in our industry and our policy on future dividends.
You should be aware that these statements are subject to risks, uncertainties
and other factors, that could cause the actual results to differ materially from
those suggested by the forward-looking statements. Accordingly, there can be no
assurance that those indicated results will be realized. Among the important
factors that could cause actual results to differ materially from those
indicated by our forward-looking statements are:
. our ability to replace, with profitable business, the revenues that we
derived in the past from reinsurance of excess value package insurance
associated with the business of United Parcel Service of America, Inc. ("UPS")
. pricing pressure resulting from the competitive environment in which we
operate
. ability to collect reinsurance recoverables
. the uncertainties of the reserving process
. the occurrence of catastrophic events with a frequency or severity exceeding
our estimates
. loss of the services of any of the Company's executive officers
. uncertainties relating to government and regulatory policies (such as
subjecting us to insurance regulation or taxation in certain jurisdictions)
. losses due to interest rate fluctuations
. developments in global financial markets which could affect our investment
portfolio
. the resolution of any pending or future tax assessments by the IRS against us
. the resolution of other pending litigation
. the impact of mergers and acquisitions
We do not undertake to update these forward-looking statements in any manner.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There has been no material change in the Company's market risks in 2000.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
March 31, 2000.
14
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
---------------------------------------
PART II, OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K
- ------ --------------------------------
a) Exhibits: 27 - Financial Data Schedule (For SEC use only)
--------
b) Reports on Form 8-K: The Company filed a report on Form 8-K on April 7,
-------------------
2000 reporting that Mr. D. Scott Davis had resigned as Chief Executive
Officer of Overseas Partners Ltd. Simultaneously with the resignation, Ms.
Mary Hennessy, the President of the Company, was appointed to the position
of Chief Executive Officer.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 2000 OVERSEAS PARTNERS LTD.
By: /s/ Mary R. Hennessy
-----------------------------
Mary R. Hennessy
Chief Executive Officer and President
By: /s/ Mark R. Bridges
-----------------------------
Mark R. Bridges
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from OPL's
Consolidated Balance Sheets and the Statements of Consolidated Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 245,580
<DEBT-MARKET-VALUE> 268,730
<EQUITIES> 1,733,124
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,479,432
<CASH> 391,171
<RECOVER-REINSURE> 17,620
<DEFERRED-ACQUISITION> 95,658
<TOTAL-ASSETS> 5,014,599
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 523,996
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 863,616
0
0
<COMMON> 12,750
<OTHER-SE> 2,464,125
<TOTAL-LIABILITY-AND-EQUITY> 5,014,599
285,522
<INVESTMENT-INCOME> 29,512
<INVESTMENT-GAINS> 39,509
<OTHER-INCOME> 65,958
<BENEFITS> 108,416
<UNDERWRITING-AMORTIZATION> 24,080
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 22,581
<INCOME-TAX> (2,499)
<INCOME-CONTINUING> 20,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,082
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
