<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995 .
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14697
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HARLEYSVILLE GROUP INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0241172
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
355 MAPLE AVENUE, HARLEYSVILLE, PENNSYLVANIA 19438-2297
--------------------------------------------------------
(Address of principal executive offices, including zip code)
(215) 256-5000
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(Registrant's telephone number, including area code)
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 (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No .
----- -----
At October 30, 1995, 13,649,674 shares of common stock of
Harleysville Group Inc. were outstanding.
<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
INDEX
Page Number
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Part I - Financial Information
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income - For the three
months ended September 30, 1995 and 1994 4
Consolidated Statements of Income - For the nine
months ended September 30, 1995 and 1994 5
Consolidated Statement of Stockholders' Equity -
For the nine months ended September 30, 1995 6
Consolidated Statements of Cash Flows - For the
nine months ended September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
Part II - Other Information 11
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
ASSETS
------
Investments:
Fixed maturities:
Held to maturity, at amortized
cost (fair value $571,697
and $535,114) $ 548,672 $ 557,486
Available for sale, at fair value
(amortized cost $433,054
and $384,691) 447,213 374,322
Equity securities, at fair value
(cost $30,235 and $14,999) 34,351 14,184
Short-term investments, at cost,
which approximates fair value 10,664 10,324
---------- ----------
Total investments 1,040,900 956,316
Cash 2,108 1,584
Receivables:
Premiums 58,536 50,308
Reinsurance 70,648 69,190
Accrued investment income 17,318 16,359
Due from affiliate 5,365
---------- ----------
Total receivables 151,867 135,857
Deferred policy acquisition costs 58,801 52,490
Prepaid reinsurance premiums 7,862 7,630
Property and equipment, net 22,398 21,849
Deferred income taxes 28,817 39,292
Other assets 27,681 26,054
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Total assets $1,340,434 $1,241,072
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Unpaid losses and loss settlement
expenses $ 636,526 $ 603,088
Unearned premiums 236,585 209,570
Accounts payable and accrued expenses 44,684 42,576
Debt and capitalized lease obligations 97,965 100,195
Due to affiliate 8,719
---------- ----------
Total liabilities 1,015,760 964,148
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Stockholders' equity:
Preferred stock, $1 par value, authorized
1,000,000 shares; none issued
Common stock, $1 par value, authorized
23,000,000 shares; issued and
outstanding 13,648,774 and
13,364,062 shares 13,649 13,364
Additional paid-in capital 109,693 103,851
Net unrealized investment gains (losses),
net of deferred income taxes 11,879 (7,276)
Retained earnings 189,453 166,985
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Total stockholders' equity 324,674 276,924
---------- ----------
Total liabilities and
stockholders' equity $1,340,434 $1,241,072
========== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(dollars in thousands, except per share data)
1995 1994*
--------- --------
Revenues:
Premiums earned $120,785 $112,794
Investment income, net of
investment expenses 17,185 16,044
Realized investment gains 56 32
Other income 2,762 2,505
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Total revenues 140,788 131,375
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Losses and expenses:
Losses and loss settlement expenses 83,395 79,253
Amortization of deferred policy
acquisition costs 31,065 29,343
Other underwriting expenses 10,546 9,333
Interest expense 1,662 1,652
Other expenses 600 783
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Total expenses 127,268 120,364
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Income before income taxes 13,520 11,011
Income taxes 3,053 1,956
-------- --------
Net income $ 10,467 $ 9,055
======== ========
Weighted average number of shares
outstanding 13,583,071 13,245,088
Earnings per common share $ .77 $ .68
======== ========
Cash dividends per common share $ .19 $ .17
======== ========
*Reclassified
See accompanying notes to consolidated financial statements.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(dollars in thousands, except per share data)
1995 1994*
--------- --------
Revenues:
Premiums earned $353,046 $335,436
Investment income, net of
investment expenses 50,916 47,954
Realized investment gains 566 3,169
Other income 8,165 7,603
-------- --------
Total revenues 412,693 394,162
-------- --------
Losses and expenses:
Losses and loss settlement expenses 249,237 268,532
Amortization of deferred policy
acquisition costs 91,273 87,069
Other underwriting expenses 27,699 25,973
Interest expense 5,151 4,811
Other expenses 2,156 2,676
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Total expenses 375,516 389,061
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Income before income taxes 37,177 5,101
Income taxes (benefit) 7,555 (3,894)
-------- --------
Net income $ 29,622 $ 8,995
======== ========
Weighted average number of shares
outstanding 13,491,078 13,161,647
Earnings per common share $ 2.20 $ .68
======== ========
Cash dividends per common share $ .53 $ .49
======== ========
*Reclassified
See accompanying notes to consolidated financial statements.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK ADDITIONAL INVESTMENT
PAID-IN GAINS RETAINED
SHARES AMOUNT CAPITAL (LOSSES) EARNINGS TOTAL
--------- ------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994 13,364,062 $13,364 $103,851 $(7,276) $166,985 $276,924
Net income 29,622 29,622
Issuance of
common stock 284,712 285 5,842 6,127
Cash dividends
paid (7,154) (7,154)
Change in
unrealized
investment
gains (losses),
net 19,155 19,155
---------- ------- -------- -------- -------- --------
Balance,
September 30,
1995 13,648,774 $13,649 $109,693 $ 11,879 $189,453 $324,674
========== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(in thousands)
1995 1994
---------- ----------
Cash flows from operating activities:
Net income $ 29,622 $ 8,995
Adjustments to reconcile net income
to net cash provided by operating
activities:
Change in receivables, unearned
premiums, prepaid reinsurance
and due to affiliate 2,054 (6,446)
Increase in unpaid losses and
loss settlement expenses 33,438 39,694
Deferred income taxes 161 (2,858)
Increase in deferred policy
acquisition costs (6,311) (2,178)
Amortization and depreciation 795 1,082
Gain on sale of investments (566) (3,169)
Other, net (121) (1,901)
--------- ---------
Net cash provided by operating
activities 59,072 33,219
--------- ---------
Cash flows from investing activities:
Fixed maturity investments:
Purchases (116,628) (120,686)
Sales or maturities 78,617 96,946
Equity securities:
Purchases (19,907) (15,228)
Sales 4,456
Net (purchases) sales of short-term
investments (340) 6,447
Purchase of property and equipment (1,489) (681)
--------- ---------
Net cash used by investing
activities (55,291) (33,202)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 6,127 5,246
Payment of debt and lease
obligations (2,230) (212)
Dividends paid (7,154) (6,452)
--------- ---------
Net cash used by
financing activities (3,257) (1,418)
--------- ---------
Increase (decrease) in cash 524 (1,401)
Cash at beginning of period 1,584 2,589
--------- ---------
Cash at end of period $ 2,108 $ 1,188
========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Basis of Presentation
The financial information for the interim periods included
herein is unaudited; however, such information reflects all
adjustments, consisting of normal recurring adjustments, which are,
in the opinion of management, necessary to a fair presentation of
the financial position, results of operations, and cash flows for
the interim periods. The results of operations for interim periods
are not necessarily indicative of results to be expected for the
full year.
These financial statements should be read in conjunction with
the financial statements and notes for the year ended December 31,
1994 included in the Company's 1994 Annual Report filed with the
Securities and Exchange Commission on Form 10-K.
2 - Earnings Per Share
Net income per common share is based on the weighted average
number of shares outstanding during each of the respective periods.
Additional shares arising from the assumed exercise of stock
options, which are considered common stock equivalents, were not
included in the computations because the assumed additional
dilutive effect was not material.
3 - Reinsurance
Premiums earned are net of amounts ceded to unrelated insurers
of $10,570,000 and $28,945,000 for the three and nine months ended
September 30, 1995, respectively, and $11,235,000 and $32,283,000
for the three and nine months ended September 30, 1994,
respectively. Losses and loss settlement expenses are net of
amounts ceded to unrelated insurers of $3,916,000 and $13,685,000
for the three and nine months ended September 30, 1995,
respectively, and $3,999,000 and $17,860,000 for the three and
nine months ended September 30, 1994, respectively.
4 - Cash Flows
Net cash tax payments of $8,750,000 and $1,042,000 were made
in the first nine months of 1995 and 1994, respectively. Cash
interest payments of $3,771,000 and $3,374,000 were made in the
first nine months of 1995 and 1994, respectively.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Premiums earned increased $8.0 million and $17.6 million for
the three and nine months ended September 30, 1995 primarily due to
an increase in commercial lines business.
Investment income increased $1.1 million and $3.0 million for
the three and nine months ended September 30, 1995, primarily
resulting from an increase in invested assets. The 1995 third
quarter average yield was 6.8% as compared to 6.9% for the third
quarter of 1994.
Realized investment gains declined $2.6 million for the nine
months ended September 30, 1995 due to a decrease in the amount of
bonds called by their issuers at a premium to amortized cost.
Realized investment gains were not significantly different for the
three months ended September 30, 1995 and 1994.
Other income increased by $0.3 million and $0.6 million for
the three and nine months ended September 30, 1995, primarily due
to an increase in the management fee income received under an
agreement whereby Harleysville Group provides management services
to affiliates.
Income before income taxes increased $2.5 million and $32.1
million for the three and nine months ended September 30, 1995
primarily due to improved underwriting results and the higher
investment income partially offset by the lower realized investment
gains. Harleysville Group's statutory combined ratio decreased to
102.5% for the three months ended September 30, 1995 from 104.1%
for the three months ended September 30, 1994 and to 103.6% for the
nine months ended September 30, 1995 from 113.7% for the nine
months ended September 30, 1994.
The 1994 results were adversely affected by prolonged severe
winter weather. During the first three months of 1994, there were
claims from seven industry-designated catastrophes and a large
number of additional property claims that occurred on dates other
than the designated catastrophe dates that related to the prolonged
severe winter weather. These winter weather claims adversely
affected Harleysville Group's income before income taxes by $28.4
million ($1.41 per share after taxes) for the nine months ended
September 30, 1994.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
The income tax expense for the three and nine months ended
September 30, 1995 includes the tax benefit of $1.7 million and
$5.2 million, compared to $1.9 million and $5.7 million in the same
prior year periods, associated with tax-exempt investment income.
Subject to regulatory approval, effective January 1, 1996,
Harleysville Group's intercompany pooling arrangement with
Harleysville Mutual Insurance Company (Mutual's) will be amended to
include Mutual's wholly-owned subsidiary Pennland Insurance Company
(Pennland) and to change the participation percentages. Under the
amended arrangement, Harleysville Group's participation will
increase from 60% to 65% and Mutual and its wholly owned
subsidiaries participation will decline from 40% to 35%. Pennland
writes personal automobile insurance in Pennsylvania.
Liquidity and Capital Resources
Net cash provided by operating activities was $59.1 million
and $33.2 million for the nine months ended September 30, 1995 and
1994. The lower net cash provided by operating activities in 1994
primarily reflects a higher level of claim payments due to losses
from the winter weather.
Net cash used by investing activities was $55.3 million and
$33.2 million for the nine months ended September 30, 1995 and
1994. The increase primarily is due to the higher amount of cash
provided by operating activities.
Net cash used by financing activities was $1.8 million higher
for the nine months ended September 30, 1995 primarily due to the
prepayment of a $2.0 million capitalized lease obligation.
Harleysville Group Inc. maintained $16.8 million of cash and
marketable investments at the holding company level at September
30, 1995 which is available for general corporate business purposes
including dividends, debt service, capital contributions to
subsidiaries and acquisitions. In March 1995, Harleysville Group
Inc. contributed $5.0 million of capital to Lake States Insurance
Company. The Company has no material commitments for capital
expenditures as of September 30, 1995.
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<PAGE>
HARLEYSVILLE GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings - None
ITEM 2.
Changes in Securities - None
ITEM 3.
Defaults Upon Senior Securities - None
ITEM 4.
Submission of Matters to a Vote of Security Holders - None
ITEM 5.
Other Information - None
SIGNATURE
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.
HARLEYSVILLE GROUP INC.
Date: November 7, 1995 BRUCE J. MAGEE
------------------ --------------------------------
Bruce J. Magee
Senior Vice President and
Chief Financial Officer
(principal financial officer and
principal accounting officer)
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<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000792013
<NAME> HARLEYSVILLE GROUP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 447,213
<DEBT-CARRYING-VALUE> 548,672
<DEBT-MARKET-VALUE> 571,697
<EQUITIES> 34,351
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,040,900
<CASH> 2,108
<RECOVER-REINSURE> 70,648
<DEFERRED-ACQUISITION> 58,801
<TOTAL-ASSETS> 1,340,434
<POLICY-LOSSES> 636,526
<UNEARNED-PREMIUMS> 236,585
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 97,965
<COMMON> 13,649
0
0
<OTHER-SE> 311,025
<TOTAL-LIABILITY-AND-EQUITY> 1,340,434
353,046
<INVESTMENT-INCOME> 50,916
<INVESTMENT-GAINS> 566
<OTHER-INCOME> 8,165
<BENEFITS> 249,237
<UNDERWRITING-AMORTIZATION> 91,273
<UNDERWRITING-OTHER> 27,699
<INCOME-PRETAX> 37,177
<INCOME-TAX> 7,555
<INCOME-CONTINUING> 29,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,622
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 603,088
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
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