This Form 10-Q/A is being filed for the sole purpose of correcting the following
typographical errors in the registrant's Form 10-Q dated November 11, 1997 for
the quarter ended September 30, 1997. Amounts are in thousands.
For the third quarter ended September 30, 1997:
Travel and marketing expense should be $3,020
For the nine months ended September 30, 1997:
Cash flows from operations should be $23,539
Net (repayments) borrowings on line of credit should be $(1,340)
Exhibit 11 Statement Re: Computation of Per Share Earnings
The caption under Fully Diluted should be:
Net effect of dilutive stock options - based on the treasury stock method
using the period end market price, if higher than the average market price
This Form 10-Q/A reflects these corrections. All other information contained in
this Form 10-Q/A are unchanged from the previously filed Form 10-Q.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission File Number: 1-11794
E. W. Blanch Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-1741779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 West 80th Street, Minneapolis, Minnesota 55431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 835-3310
NONE
(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 (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 _____
The number of shares of the Registrant's common stock outstanding as of
November 5, 1997 was 12,579,000.
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
E. W. Blanch Holdings, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Brokerage commissions and fees $ 43,009 $ 27,948 $116,095 $ 73,196
Investment income 2,361 1,880 6,368 5,381
-------- -------- -------- --------
Total revenues 45,370 29,828 122,463 78,577
Expenses:
Salaries and benefits 20,613 10,985 56,521 32,075
Travel and marketing 3,020 1,735 9,465 5,313
General and administrative 7,109 5,091 21,275 14,404
Amortization of goodwill 689 784 1,967 2,320
Interest and other expense 365 62 962 172
-------- -------- -------- --------
Total expenses 31,796 18,657 90,190 54,284
-------- -------- -------- --------
Income before taxes 13,574 11,171 32,273 24,293
Income taxes 5,311 4,312 12,657 9,393
-------- -------- -------- --------
Net income before minority interest 8,263 6,859 19,616 14,900
Minority interest, net of tax 282 -- 371 --
-------- -------- -------- --------
Net income $ 7,981 $ 6,859 $ 19,245 $ 14,900
======== ======== ======== ========
Net income per share $ 0.62 $ 0.52 $ 1.49 $ 1.12
======== ======== ======== ========
Weighted average number of shares of Common
Stock outstanding 12,933 13,296 12,892 13,292
======== ======== ======== ========
Cash dividends declared per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
E. W. Blanch Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,366 $ 1,069
Due from fiduciary accounts 20,743 13,624
Premium finance notes -- 14,931
Prepaid insurance 1,937 1,749
Other current assets 6,595 4,467
-------- --------
Total current assets 45,641 35,840
Long-term investments, available for sale 10,670 9,793
Property and equipment, net 23,657 13,001
Goodwill, net 30,441 17,490
Other assets 12,995 9,452
Fiduciary accounts--assets 777,800 429,180
-------- --------
Total assets $901,204 $514,756
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued compensation $ 4,457 $ 4,176
Notes payable to banks -- 1,340
Accounts payable 13,059 3,939
Current portion of long-term liabilities 3,925 1,685
Other current liabilities 5,786 2,014
-------- --------
Total current liabilities 27,227 13,154
Long-term debt, less current portion 13,464 1,188
Other liabilities, less current portion 9,781 2,781
Fiduciary accounts--liabilities 777,800 429,180
-------- --------
Total liabilities 828,272 446,303
Minority interest 1,896 --
SHAREHOLDERS' EQUITY 71,036 68,453
-------- --------
Total liabilities and shareholders' equity $901,204 $514,756
======== ========
SEE ACCOMPANYING NOTES.
<PAGE>
E. W. Blanch Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,245 $ 14,900
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,074 4,458
Changes in operating assets and liabilities:
Due from fiduciary accounts (3,458) (6,636)
Other current assets (5,048) (4,222)
Accrued compensation 280 (884)
Accounts payable and other current liabilities 8,892 89
Other, net (2,446) (441)
-------- --------
Net cash provided by operating activities 23,539 7,264
INVESTING ACTIVITIES
Purchases of property and equipment (8,730) (2,950)
Issuance of finance notes receivable, net (14) (3,773)
Purchases of investments 1,342 (1,227)
Excess of cash acquired from purchase of subsidiary 480 --
Proceeds from the sale of subsidiary 15,092 --
Proceeds from sale of investments 866 513
Other investing activities, net 18 (84)
-------- --------
Net cash provided by (used) in investing activities 9,054 (7,521)
FINANCING ACTIVITIES
Purchase of treasury shares (14,550) --
Proceeds from the issuance of treasury shares to
employee benefit plans 1,297 928
Dividends paid (3,841) (3,971)
Net (repayments) borrowings on lines of credit (1,340) 1,557
Payments on long-term debt 881 (1,275)
Other financing activities, net 257 (184)
-------- --------
Net cash (used in) financing activities (17,296) (2,945)
-------- --------
Net increase (decrease) in cash and cash equivalents 15,297 (3,202)
Cash and cash equivalents at beginning of period 1,069 4,977
-------- --------
Cash and cash equivalents at end of period $ 16,366 $ 1,775
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
E. W. Blanch Holdings, Inc.
Notes to Consolidated Financial Statements
September 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they 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 a fair
presentation have been included. Operating results for the interim periods are
not necessarily indicative of the results for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report to shareholders for the year
ended December 31, 1996.
E.W. Blanch Holdings, Inc. ("the Company") and its predecessor organizations
have been in operation since 1957. The Company is a leading international
provider of integrated risk management and distribution services including
reinsurance intermediary services, risk management consulting and administration
services, and primary insurance distribution services. The consolidated
financial statements include the accounts of the Company and its wholly and
majority owned subsidiaries. In 1997, the Company purchased a 70% interest in
Swire Fraser Insurance (Holdings) Limited (Swire Fraser) and an additional 20%
interest in the Swire Blanch joint venture. The combined operations of Swire
Fraser and Swire Blanch were merged into a single operation under the Swire
Blanch name, which is owned 70% by the Company and 30% by Swire Pacific Limited
(Swire Pacific).
2. ACCOUNTING POLICIES
Principles Of Consolidation
The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly and majority owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. The functional
currency of the Company's foreign operations is the British pound sterling. The
Company translates income and expense accounts at the average rate in effect for
the period. Balance sheet accounts are translated at the period end exchange
rate. Adjustments resulting from the balance sheet translation are reflected in
Shareholder's Equity. The cumulative translation adjustment at September 30,
1997 is an $8,000 gain.
<PAGE>
3. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 128, "Earnings per
Share" in February 1997. The Company will adopt the statement in the fourth
quarter of 1997, as required, and early adoption is not permitted. Upon
adoption, prior periods will be restated. The Company has completed an initial
analysis and does not expect the difference in earnings per share to be
material.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 defines the financial statement presentation for "all changes in a
company's equity during a period except those resulting from investments by
owners and distributions to owners." SFAS No. 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and will be
adopted by the Company in the first quarter of 1998. Because the statement is
merely an adjustment of presentation, the Company does not expect the adoption
of this statement to have any impact on the amount of net income, earnings per
share or total shareholders' equity reported.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14 and
defines financial and descriptive information about a Company's operating
segments that is to be disclosed in financial statements. The Company is
developing allocation methods to assess performance on a business segment basis.
Once completed, additional disclosures will be provided in accordance with this
Statement.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed in
this quarterly report on Form 10-Q are forward looking statements that involve
risks and uncertainties, many of which are outside the Company's control and,
accordingly, actual results may differ materially. These risks and uncertainties
include competition, dependence on key personnel, market conditions in the
insurance and reinsurance industries, government regulation, fiduciary funds,
international operations and the impact of specific engagements and new
opportunities. The Company's Annual Report on Form 10-K filed with the SEC on
March 31, 1997 includes a discussion of these risk factors and is incorporated
herein by reference.
GENERAL
The Company is a leading international provider of integrated risk management
and distribution services including reinsurance intermediary services, risk
management consulting and administration services, and primary insurance
distribution services.
In February 1997, the Company purchased a 70% interest in Swire Blanch
(previously named Swire Fraser). The consideration for the Swire Blanch purchase
included the assumption of certain existing indebtedness of (pound)6.2 million
($10.2 million at purchase date) and a cash payment of (pound)1.8 million ($2.9
million). As part of the purchase agreement, after a minimum of three years
either party has the option to request the purchase by the Company of the 30%
minority interest at a price defined by formula. The combined Swire Fraser and
Swire Blanch operations had revenues of (pound)22.6 million ($36.9 million) in
1996, and showed a loss primarily due to the recognition of charges associated
with the Lloyd's Reconstruction and Reconciliation Agreement and reserves for
real estate no longer occupied by Swire Fraser.
In February 1997, the Company purchased 750,000 shares of its common stock, at a
negotiated price of $19.40 per share, from its Chairman. Total consideration was
$14.6 million.
As part of the restructuring of its primary insurance distribution operations,
the Company completed the sale of its premium finance business in February 1997.
The Company received $15.2 million in exchange for the outstanding stock of the
premium finance subsidiaries. The net proceeds equaled the Company's investment
in the business, resulting in no gain or loss from the transaction.
Due to the integrated nature of the Company's risk management and distribution
business, and because the primary insurance distribution operations after
restructuring are no longer significant, the Company has discontinued its
financial reporting by business segment. Current year operations reflect the
operations from the Swire Blanch acquisition discussed above on a consolidated
basis from the date of acquisition, due to the Company's 70% controlling
interest. Prior year results of foreign operations include only the equity or
loss in the earnings of the Swire Blanch international reinsurance intermediary,
jointly owned 50% by the Company and 50% by Swire Pacific. The
<PAGE>
following is a summary of revenues and income before taxes by geographic area
for the periods indicated (in thousands):
Quarter ended Quarter ended
September 30, 1997 September 30, 1996
-------------------- --------------------
Income Income
Revenues before taxes Revenues before taxes
-------- -------- -------- --------
Domestic operations $ 33,619 $ 11,517 $ 29,717 $ 11,060
Foreign operations 11,751 2,057 111 111
-------- -------- -------- --------
$ 45,370 $ 13,574 $ 29,828 $ 11,171
======== ======== ======== ========
Nine months ended Nine months ended
September 30, 1997 September 30, 1996
-------------------- --------------------
Income Income
Revenues before taxes Revenues before taxes
-------- -------- -------- --------
Domestic operations $ 94,640 $ 28,810 $ 78,370 $ 24,086
Foreign operations 27,823 3,463 207 207
-------- -------- -------- --------
$122,463 $ 32,273 $ 78,577 $ 24,293
======== ======== ======== ========
Domestic operations include the reinsurance intermediary services provided by
E.W. Blanch Co., Inc. (EWBCo.), the risk management consulting and
administration services provided by Paragon Reinsurance Risk Management
Services, Inc. (Paragon), the program distribution services of Rockwood
Programs, Inc. (Rockwood), the policy distribution capabilities of Alternative
Distribution Managers (Alternative Distribution), and the general agency
operations of Blanch Insurance Services, Inc. (Blanch GA). The services provided
by EWBCo., Paragon, Rockwood and Alternative Distribution are focused on
providing solutions for the management and distribution of risk to a client base
which is primarily comprised of property and casualty insurance companies. These
services are generally recurring and, due to the Company's expertise and the
value-added nature of its services, have been able to operate at relatively
higher operating margins. The services provided by Blanch GA are focused on the
primary distribution of insurance to property and casualty insurance companies,
largely through independent insurance agents. Due to the competitive nature of
Blanch GA's business, the Company's profit margins for these services are
relatively lower. Corporate services, which includes the operations of the
holding company are also included in domestic operations.
Foreign operations include Swire Blanch, the Company's international insurance
and reinsurance broker headquartered in London. Swire Blanch includes a Lloyd's
insurance and reinsurance broking operation and international reinsurance
intermediary operations. Swire Blanch also provides financial services through
the sale of pension plan products for insurance companies. Primary insurance
distribution services of Swire Blanch include the retail operations of Swire
Renshaw, located in northern England, and Swire Insurance Brokers, located in
Hong Kong. Approximately 75%, of Swire Blanch's revenues are generated in the
United Kingdom with the remainder primarily from the Pacific Rim. The Company's
foreign operations currently do not enjoy the relatively higher profit margins
of the Company's domestic risk management and distribution services. This is due
to a number of factors, including competitive market conditions for Lloyd's
brokers, the small, start-up nature of many of the international offices, the
competitiveness of the Swire Renshaw primary insurance distribution business,
and the capitalization of acquisition costs associated with the purchase of
Swire Fraser. The Company seeks to grow its international profitability through
the integration of systems, services and expertise in order to increase revenue
production and processing efficiencies.
<PAGE>
The Company plans to increase its investments in technology, particularly in the
areas of risk management and risk distribution, which includes both catastrophic
modeling and consulting capabilities.
THIRD QUARTER 1997 COMPARED WITH THIRD QUARTER 1996
BROKERAGE COMMISSIONS AND FEES
The following are the components of brokerage commissions and fees for the
quarter ended September 30 (in thousands):
1997 1996
-------- --------
DOMESTIC OPERATIONS
Reinsurance brokerage $27,069 $23,611
Risk management fees 1,666 1,015
Program and policy distribution fees 840 173
General agency commissions 2,327 3,038
-------- --------
31,902 27,837
FOREIGN OPERATIONS
Reinsurance brokerage 3,528 111
Specialty lines 2,763 --
Financial services fees 2,658 --
Swire Renshaw 1,705 --
Swire Insurance Brokers 453 --
-------- --------
11,107 111
$43,009 $27,948
======== ========
Domestic operations reinsurance brokerage increased $3.6 million, or 14.6%, from
the prior year primarily as a result of growth in existing accounts and new
production. Risk management fees include Paragon's consulting and administration
services and software licensing and maintenance business, a business which began
July 1, 1996. These fees were $1.7 million for the quarter ended September 30,
1997 compared to $1.0 million the prior year, an increase of $0.7 million, or
64.1%. This increase is attributable to fees related to the software licensing
and maintenance business, $0.1 million, and additional administrative services,
$0.6 million. Program and policy distribution fees increased $0.7 million, or
48.5%, to $0.8 million for the quarter. This increase is primarily the result of
new production which commenced in late 1996. General agency commissions
decreased $0.7 million, or 30.5%, to $2.3 million for the quarter ended
September 30, 1997 compared to $3.0 million the prior year. This is primarily
the result of decreased premium volume, $17.3 million for the quarter ended
September 30, 1997 compared to $24.3 million in 1996. The decrease in premium
volume is the result of the decision to exit the personal lines business in the
fourth quarter of the previous fiscal year.
International operations had $11.1 million of brokerage commission and fees in
the quarter ended September 30, 1997. Reinsurance intermediary services, which
include those in London and other international offices, had $3.5 million of
brokerage. Specialty lines, which includes the specialty insurance distribution
services based in London, contributed $2.8 million of revenues. Financial
services fees, generated from the sale of various pension plan products for
insurance companies, were $2.7 million. Finally, Swire Renshaw and Swire
Insurance Brokers generated $1.7 million and
<PAGE>
$0.5 million of revenues, respectively, from the primary distribution of
insurance from their offices in northern England and Hong Kong, respectively.
For the quarter ended September 30, 1996 foreign revenues were $0.1 million and
comprised only the Company's 50% equity in the net income of the Swire Blanch
joint venture.
INVESTMENT INCOME
The following are the components of investment income for the three months ended
September 30, 1997 (in thousands):
1997 1996
--------- ---------
DOMESTIC OPERATIONS
Fiduciary investment income $1,607 $1,185
Corporate investment income 110 112
Premium finance interest and fees -- 583
--------- ---------
1,717 1,880
FOREIGN OPERATIONS
Fiduciary investment income 499 --
Corporate investment income 145 --
--------- ---------
644 --
$2,361 $1,880
========= =========
Investment income was $2.4 million for the quarter ended September 30, 1997
compared to $1.9 million the prior year, an increase of $0.5 million or 25.6%.
The primary sources of investment income are from fiduciary funds and corporate
capital.
Fiduciary investment income from domestic operations was $1.6 million for the
quarter ended September 30, 1997 compared to $1.2 million the prior year, an
increase of $0.4 million or 35.7%. The average balance of domestic funds for the
quarter was $115.7 million (compared to $86.5 million for the prior year), at an
average yield of 5.6% (compared to 5.1% the prior year). Swire Blanch also
earned $0.5 million of fiduciary investment income in the nine months ended
September 30, 1997.
Corporate investment income from domestic operations was the same as prior year.
Swire Blanch earned $0.1 million of corporate investment income for the nine
months ended September 30, 1997.
Prior year investment income included $0.6 million of premium finance interest
and fees. This business was sold in February 1997.
EXPENSES
Domestic operating expenses increased $3.4 million to $22.0 million, or 18.1%,
for the quarter ended September 30, 1997 compared to $18.7 million the prior
year. The increase is primarily a result of increases in salaries and benefits
expenses including normal salary progressions, increases in benefit costs and an
increase in employees as of September 30, 1997 compared to the prior year. The
increase in employees is due to increased business levels and the growth of
businesses acquired and started in 1996. Domestic operations also experienced
increases in travel and marketing and general and administrative expenses offset
by a reduction in goodwill amortization, the result of the goodwill writedown
recorded in fiscal 1996.
<PAGE>
Operating expenses for international operations in the quarter ended September
30, 1997 were $9.8 million. Similar to the Company's domestic operations,
approximately two-thirds of these expenses relate to salaries and benefits for
employees.
PROFIT MARGINS
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 34.3% for domestic operations for the quarter ended
September 30, 1997, compared to 37.2% for the same period in the prior year.
Gross profit margins, calculated as income before corporate services expenses
and before taxes, were a loss of 16.6% for Blanch GA for the quarter ended
September 30, 1997, compared to a profit of 2.4% for the same period in the
prior year. The Company's remaining domestic risk management and distributions
services earned a gross profit margin of 55.0% for the quarter ended September
30, 1997, compared to a gross profit margin of 52.2% for the same period in the
prior year.
Operating profit margins were 17.4% for foreign operations for the quarter ended
September 30, 1997. Gross profit margins for the quarter ended September 30,
1997 were 22.0% for the primary insurance distribution operations of Swire
Renshaw and Swire Insurance Brokers and 16.3% for the remaining foreign
reinsurance and specialty risk management and distribution services, including a
number of start-up operations around the globe. The majority of operating profit
from primary insurance distribution operations is recorded in the first half of
the year.
NINE MONTHS ENDED 1997 COMPARED WITH NINE MONTHS ENDED 1996
BROKERAGE COMMISSIONS AND FEES
The following are the components of brokerage commissions and fees for the nine
months ended September 30 (in thousands):
1997 1996
--------- --------
DOMESTIC OPERATIONS
Reinsurance brokerage $ 73,700 $ 61,360
Risk management fees 5,306 2,179
Program and policy distribution fees 2,866 1,033
General agency commissions 7,938 8,417
--------- --------
89,810 72,989
FOREIGN OPERATIONS
Reinsurance brokerage 7,639 207
Specialty lines 7,380 --
Financial services fees 5,544 --
Swire Renshaw 3,978 --
Swire Insurance Brokers 1,744 --
--------- --------
26,285 207
$116,095 $ 73,196
========= ========
For the nine months ended September 30, 1997, domestic operations reinsurance
brokerage increased $12.3 million, or 20.1%, from the prior year primarily as a
result of growth in existing accounts and new production. Risk management fees
include the consulting and administration
<PAGE>
services and software licensing and maintenance business, a business which began
July 1, 1996, of Paragon. These fees were $5.3 million for the nine months ended
September 30, 1997 compared to $2.2 million the prior year, an increase of $3.1
million, or 143.5%. This increase is attributable to fees related to the
software licensing and maintenance business, $2.0 million, and additional
administrative services, $1.1 million. Program and policy distribution fees
increased $1.8 million, or 177.4%, to $2.8 million for the nine months ended
September 30. This increase is primarily the result of new production which
commenced in late 1996. General agency commissions decreased $0.5 million, or
5.7%, to $7.9 million for the nine months ended September 30, 1997 compared to
$8.4 million the prior year.
International operations had $26.3 million of brokerage commissions and fees in
the nine months ended September 30, 1997. Reinsurance intermediary services,
which include those in London and other international offices, had $7.6 million
in brokerage. Specialty lines, which includes the specialty insurance
distribution services based in London, contributed $7.4 million of revenues.
Financial services fees, generated from the sale of various pension plan
products for insurance companies, were $5.5 million. Finally, Swire Renshaw and
Swire Insurance Brokers generated $4.0 million and $1.7 million of revenues,
respectively, from the primary distribution of insurance from their offices in
northern England and Hong Kong, respectively. For the nine months ended
September 30, 1996 foreign revenues were $0.2 million and comprised only the
Company's 50% equity in the net income of the Swire Blanch joint venture.
INVESTMENT INCOME
The following are the components of investment income for the nine months ended
September 30, 1997 (in thousands):
1997 1996
------- -------
DOMESTIC OPERATIONS
Fiduciary investment income $4,149 $3,427
Corporate investment income 494 271
Premium finance interest and fees 187 1,683
------- -------
4,830 5,381
FOREIGN OPERATIONS
Fiduciary investment income 1,171 --
Corporate investment income 367 --
------- -------
1,538 --
$6,368 $5,381
======= =======
Investment income was $6.4 million for the nine months ended September 30, 1997
compared to $5.4 million the prior year, an increase of $1.0 million or 18.3%.
The primary sources of investment income are from fiduciary funds and corporate
capital.
Fiduciary investment income from domestic operations was $4.1 million for the
nine months ended September 30, 1997 compared to $3.4 million the prior year, an
increase of $0.7 million or 21.1%. The average balance of domestic funds for the
nine months ended September 30, 1997 was $102.5 million (compared to $85.0
million for the prior year), at an average yield of 5.4% (compared to 5.4% the
prior year). Swire Blanch also earned $1.2 million of fiduciary investment
income in the nine months ended September 30, 1997.
<PAGE>
Corporate investment income from domestic operations increased to $0.5 million
from $0.3 million as a result of larger invested balances in 1997. Swire Blanch
earned $0.4 million of corporate investment income for the nine months ended
September 30, 1997.
Premium finance interest and fees were $0.2 million for the nine months ended
September 30, 1997 compared to $1.7 million the prior year. The decrease is the
result of the sale of the premium finance business in February 1997.
EXPENSES
Domestic operating expenses increased $11.5 million to $65.8 million, or 21.1%,
for the nine months ended September 30, 1997 compared to $54.3 million the prior
year. The increase is primarily a result of increases in salaries and benefits
expenses including normal salary progression, increased employee benefit cost
and an increase of employees as of September 30, 1997 compared to the prior
year. The increase in employees is due to increased business levels and
businesses acquired or started in 1996. Domestic operations also experienced
increases in travel and marketing and general and administrative expenses offset
by a reduction in goodwill amortization, the result of the goodwill writedown
recorded in fiscal 1996.
Operating expenses for the eight months of international operations included in
the nine months ended September 30, 1997 were $24.4 million. Similar to the
Company's domestic operations, approximately two-thirds of these expenses relate
to salaries and benefits for employees.
PROFIT MARGINS
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 30.5% for domestic operations for the nine months ended
September 30, 1997, compared to 31.0% for the same period in the prior year.
Gross profit margins, calculated as income before corporate services expenses
and before taxes, were a loss of 5.8% for the Blanch GA for the nine months
ended September 30, 1997, compared to a loss of 6.6% for the same period in the
prior year. The Company's remaining domestic risk management and distributions
services earned a gross profit margin of 51.8% for the nine months ended
September 30, 1997, compared to a gross profit margin of 48.3% for the same
period in the prior year.
Operating profit margins were 12.4% for foreign operations for the nine months
ended September 30, 1997. Gross profit margins for the nine months ended
September 30, 1997 were 17.5% for the primary insurance distribution operations
of Swire Renshaw and Swire Insurance Brokers and 11.1% for the remaining foreign
reinsurance and specialty risk management and distribution services, including a
number of start-up operations around the globe. The majority of operating profit
from primary insurance operations is recorded in the first half of the year.
INCOME TAXES
The Company's combined federal and state effective tax rate for domestic
operations continues to be 39%. The effective tax rate provided for the
Company's foreign operations is expected to be 35%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds consist primarily of brokerage commissions and
fees and investment income. Funds are applied generally to the payment of
operating expenses, the purchase
<PAGE>
of equipment used in the ordinary course of business, the repayment of
outstanding indebtedness, and the distribution of earnings. The Company's cash
and cash equivalents were $16.4 million at September 30, 1997.
The Company generated $23.5 million of cash from operations during the first
nine months of 1997 compared with $7.3 million for the same period in 1996. The
increase in operating cash flow in 1997 is primarily due to the increase in net
income, the timing of cash distributions from the fiduciary accounts to the
Company and the timing of changes in various operating assets and liabilities.
Cash flow from investing activities was $9.1 million for the nine months ended
September 30, 1997. During the nine months ended September 30, 1997, the Company
received net proceeds of $15.1 million from the sale of its premium finance
operations. Consideration for the Swire Blanch transaction was $2.9 million in
cash and the assumption of (pound)6.2 million of debt (approximately $10.2
million at the acquisition date). The Company believes the operations of Swire
Blanch will provide sufficient cash flows to satisfy the debt. Swire Blanch's
cash at the purchase date was $3.4 million, thus providing $0.5 million of net
cash from the acquisition. The Company also used $8.7 million of cash for the
purchase of property and equipment, primarily computerized systems. The Company
intends to increase its investment in such systems. The Company's investment in
new software includes the requirements associated with year 2000 compliance. The
additional investment to ensure all current software is year 2000 compliant is
not expected to be material. During 1996, the Company used cash in investing
activities primarily for a $3.8 million net issuance of premium finance notes
and $3.0 million for the purchase of property and equipment.
The primary uses of cash for financing activities for the nine months ended
September 30, 1997 were $14.6 million for the purchase of treasury stock, $3.8
million of dividends paid to shareholders and $1.3 million for the net repayment
of lines of credit. In the prior year, net cash used by financing activities was
$2.9 million, consisting primarily of cash dividends paid to shareholders and
net repayments of lines of credit. The Company issued $1.2 million and $0.8
million of treasury stock to fund employee benefit plans in the nine months
ended September 30, 1997 and 1996, respectively.
The Company's long-term investment portfolio at September 30, 1997 was $10.7
million, comprised of equity and debt instruments. The market value of the
Company's investment portfolio at September 30, 1997 approximated cost. Cash,
short-term investments and the Company's line of credit are available and
managed for the payment of its operating and capital expenditures. The Company
is not subject to any regulatory capital requirements in connection with its
business.
On January 24, 1997, the Board of Directors declared a regular quarterly cash
dividend of $0.10 per share, payable March 3, 1997 to shareholders of record as
of February 7, 1997. On April 24, 1997, the Board of Directors declared a
regular quarterly cash dividend of $0.10 per share, payable June 2, 1997 to
shareholders of record as of May 9, 1997. On July 24, 1997, the Board of
Directors declared a regular quarterly dividend of $0.10 per share payable on
September 2, 1997 to shareholders of record as of August 12, 1997. On October
23, 1997, the Board of Directors declared a regular quarterly dividend of $0.10
per share payable on December 1, 1997 to shareholders of record as of November
10, 1997.
The Company believes that its cash and investments, combined with its borrowing
facilities and internally generated funds, will be sufficient to meet its
present and reasonably foreseeable long-term capital needs.
<PAGE>
E. W. BLANCH HOLDINGS, INC.
Part II. Other Information
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
Exhibit 10 Specimen Severance Agreement *
Exhibit 10.1 Schedule of Executives Receiving Severance
Agreement *
Exhibit 11 Statement Re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule *
(b.) The registrant did not file a current report on Form 8-K
during the quarter ended September 30, 1997.
- -----------------
* Previously filed
<PAGE>
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.
E. W. BLANCH HOLDINGS, INC.
Dated: November 14, 1997 /s/ Ian D. Packer
Ian D. Packer
Executive Vice President
and Chief Financial Officer
Exhibit 11 - Statement Re: Computation of Per share Earnings
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter ended Nine months ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 12,575 13,254 12,683 13,219
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 358 42 209 73
------- ------- ------- -------
Total 12,933 13,296 12,892 13,292
======= ======= ======= =======
Net income $ 7,981 $ 6,859 $19,245 $14,900
======= ======= ======= =======
Per share amount $ 0.62 $ 0.52 $ 1.49 $ 1.12
======= ======= ======= =======
Fully Diluted:
Average shares outstanding 12,575 13,254 12,603 13,219
Net effect of dilutive stock options-
based on the treasury stock method
using the period-end market price, if
higher than average market price 398 42 398 93
------- ------- ------- -------
Total 12,973 13,296 13,081 13,292
======= ======= ======= =======
Net income $ 7,981 $ 6,859 $19,245 $14,900
======= ======= ======= =======
Per share amount $ 0.62 $ 0.52 $ 1.47 $ 1.12
======= ======= ======= =======
</TABLE>
