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 June 30, 1998
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.)
500 North Akard, Suite 4500, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 756-7000
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 July 31,
1998 was 12,734,711.
<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 SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------- --------------------------
1998 1997 1998 1997
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Operations $ 45,284 $ 37,842 $ 90,089 $ 73,086
Interest income 2,083 2,222 4,230 4,007
------------------------------- ------------------------------
Total revenues 47,367 40,064 94,319 77,093
Expenses:
Salaries and benefits 23,417 19,430 44,989 35,908
Travel and marketing 4,305 3,746 7,440 6,445
General and administrative 8,778 7,589 17,437 14,166
Amortization of goodwill 694 688 1,388 1,278
Interest and other expense 469 321 843 597
------------------------------- ------------------------------
Total expenses 37,663 31,774 72,097 58,394
------------------------------- ------------------------------
Income before taxes 9,704 8,290 22,222 18,699
Income taxes 3,699 3,340 8,507 7,346
------------------------------- ------------------------------
Net income before minority interest 6,005 $ 4,950 13,715 $ 11,353
Minority interest, net of tax (127) 130 53 89
------------------------------- ------------------------------
Net income $ 6,132 $ 4,820 $ 13,662 $ 11,264
=============================== ==============================
Net income per share $ 0.48 $ 0.38 $ 1.08 $ 0.88
Net income per share-assuming dilution $ 0.46 $ 0.38 $ 1.03 $ 0.87
=============================== ==============================
Cash dividends declared per share $ 0.12 $ 0.10 $ 0.22 $ 0.20
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
E. W. Blanch Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,577 $ 11,608
Due from fiduciary accounts 20,326 30,874
Prepaid insurance 496 1,471
Other current assets 10,331 7,428
---------------------------------
Total current assets 36,730 51,381
Long-term investments 36,869 14,939
Property and equipment, net 26,374 26,309
Goodwill, net 24,019 34,916
Other assets 14,082 11,772
Fiduciary accounts--assets 633,486 780,450
---------------------------------
Total assets $ 771,560 $ 919,767
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued compensation $ 2,416 $ 6,628
Notes payable to banks 15,496 1,379
Accounts payable 12,302 14,420
Current portion of long-term liabilities 1,892 2,586
Other current liabilities 4,153 12,020
---------------------------------
Total current liabilities 36,259 37,033
Long-term debt, less current portion 745 13,675
Other liabilities, less current portion 7,723 10,536
Fiduciary accounts--liabilities 633,486 780,450
---------------------------------
Total liabilities 678,213 841,694
Minority interest 2,462 1,621
SHAREHOLDERS' EQUITY 90,885 76,452
---------------------------------
Total liabilities and shareholders' equity $ 771,560 $ 919,767
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
E. W. Blanch Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 13,662 $ 11,264
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,961 3,869
Changes in operating assets and liabilities:
Due from fiduciary accounts 9,711 (4,484)
Other current assets (4,145) (7,788)
Accrued compensation (4,074) (1,021)
Accounts payable and other current liabilities (5,112) 9,732
Other, net (4,706) 1,171
--------------------------------
Net cash provided by operating activities 10,297 12,743
INVESTING ACTIVITIES
Purchases of property and equipment (6,625) (5,477)
Purchase of investments (21,809) 0
Issuance of finance notes receivable, net 0 (14)
Excess of cash acquired from purchase of subsidiary 0 480
Proceeds from the sale of investments 9,100 0
Proceeds from the sale of a subsidiary 2,500 15,092
Other investing activities, net 173 268
--------------------------------
Net cash provided by (used) in investing activities (16,661) 10,349
FINANCING ACTIVITIES
Purchase of treasury shares (4,326) (14,550)
Proceeds from the issuance of treasury shares to
employee benefit plans 6,804 1,224
Dividends paid (2,795) (2,583)
Net (repayments) borrowings on lines of credit 4,200 (1,340)
Payments on long-term debt (3,584) (538)
Other financing activities, net 34 171
--------------------------------
Net cash provided by (used in) financing activities 333 (17,616)
--------------------------------
Net increase (decrease) in cash and cash equivalents (6,031) 5,476
Cash and cash equivalents at beginning of period 11,608 1,069
--------------------------------
Cash and cash equivalents at end of period $ 5,577 $ 6,545
================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
E. W. Blanch Holdings, Inc.
Notes to Consolidated Financial Statements
June 30, 1998
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, 1997.
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 it's wholly and
majority owned subsidiaries.
Certain prior year amounts have been reclassified to conform with current year
presentation.
2. ACCOUNTING POLICIES
Principles Of Consolidation
The accompanying consolidated financial statements include the accounts and
operations of the Company and it's 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 June 30, 1998, is
a $179,000 loss.
5
<PAGE>
3. NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the company's net income or shareholders'
equity. SFAS No. 130 requires unrealized gains or losses on the company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS No. 130.
During the three months ended June 30, 1998 and 1997, total other comprehensive
income amounted to $955,000 and $131,000. During the six months ended June 30,
1998 and 1997, total other comprehensive income amounted to $1,088,000 and
$149,000.
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 will adopt
SFAS No. 131 for the year ended December 31, 1998.
In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company has not
completed its analysis, but may adopt the new Statement in 1998. The Statement
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
Based on the Company's derivative positions at June 30, 1998, management has not
completed its analysis, but does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company. Becuase the standard allows certain foreign currency
transactions to be accounted for as hedges for financial reporting purposes that
were not previously treated as hedges, the Company may change its policies
toward the management of certain foreign currency exposures. Any changes that
may occur would be to further reduce the Company's exposure to foreign currency
risks.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted weighted
average shares outstanding for the periods ended June 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ------------------------
1998 1997 1998 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Weighted average shares -basic 12,751 12,737 12,685 12,858
Effect of dilutive securities:
Employee stock options 644 105 644 151
------------------------ ------------------------
Weighted average shares- assuming dilution 13,395 12,842 13,329 13,009
======================== ========================
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD LOOKING STATEMENTS
Statements other than historical information contained herein are considered
forward-looking and involve a number of risks and uncertainties. Forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. There are certain important factors
that could cause results to differ materially from those anticipated by some of
the statements made herein. In addition to the risk factors discussed, among the
other factors that could cause actual results to differ materially are the
following: market dynamics, interest rate changes, regulatory changes,
competition, and the failure of the Company and its subsidiaries or significant
third parties to achieve Year 2000 compliance or material expense in connection
with such compliance. Additional information concerning those and other factors
are contained in the Company's Securities and Exchange Commission filings,
including but not limited to the most recent Form 10-K, copies of which are
available from the Company without charge.
YEAR 2000 COMPLIANCE
The Company has performed an assessment of its Year 2000 issues and is in the
process of implementing steps to ensure Year 2000 compliance. The Company
expects to complete the Year 2000 compliance process for its current software by
December 31, 1998. The Company's investment in new software includes the
requirements associated with Year 2000 compliance. Certain costs associated with
the purchase or development of new software which is Year 2000 compliant are
being capitalized. All other costs are being expensed as incurred. The
additional investment to ensure all current software is Year 2000 compliant is
not expected to be material. The Company could be adversely affected by the Year
2000 issue if other entities (i.e., clients and vendors) not affiliated with the
Company do not adequately address their own Year 2000 compliance issues.
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.
The following is a summary of revenues and income before taxes by geographic
area for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Quarter Ended June 30, 1998 Quarter Ended June 30, 1997
---------------------------- ----------------------------
Income Income
Revenues before taxes Revenues before taxes
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Domestic operations $ 36,982 $ 8,254 $ 29,841 $ 7,335
Foreign operations 10,385 1,450 10,223 955
--------- --------- --------- ---------
$ 47,367 $ 9,704 $ 40,064 $ 8,290
========== ========= ========= =========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
------------------------------ ------------------------------
Income Income
Revenues before taxes Revenues before taxes
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Domestic operations $ 73,474 $ 19,293 $ 61,021 $ 17,294
Foreign operations 20,845 2,929 16,072 1,405
--------- --------- --------- ---------
$ 94,319 $ 22,222 $ 77,093 $ 18,699
========= ========= ========= =========
</TABLE>
Domestic operations include reinsurance intermediary services, risk management
consulting and administration services, program distribution services, policy
distribution capabilities, and the general agency operations. All of these
services, except general agency operations, (up until disposition in May 1998),
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 general agency operations were
focused on the primary distribution of insurance for property and casualty
insurance companies, largely through independent insurance agents. Due to the
competitive nature of the general agency business, the Company's profit margins
for these services were relatively lower.
In the second quarter, the Company sold its San Antonio, Texas operations,
including the sale of its general agency, Blanch Insurance Services, Inc.
(Blanch GA), and other selected assets. The net effect of these dispositions was
a net one-time gain of $1.0 million before taxes. As part of the sale agreement
of Blanch GA, the Company became a shareholder of the purchasing company.
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 brokering operation and international reinsurance
intermediary operations. Swire Blanch also provides financial services through
the sale of pension plans for insurance companies. Insurance brokerage services
include the retail operations located in northern England and Hong Kong.
Approximately 75% of foreign revenues are recognized in the United Kingdom with
the remainder primarily from the Pacific Rim and Latin America. Although certain
Pacific Rim financial markets continue to experience some economic volatility,
the Company does not anticipate a significant impact to its business in that
area of the world. 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 and acquisition costs
associated with the purchase. 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.
In June 1998, the Company completed its acquisition of Walbaum Americana, S.A.,
a leading provider of insurance and reinsurance intermediary services in Latin
America, based in Buenos Aires, Argentina.
Subsequent to June 1998, the Company completed acquisitions of Dunn & Carter
Ltd, a London based insurance broker specializing in retrocessional reinsurance,
and K2 Technologies, Inc., a San Jose, California based company specializing in
the design and support of interactive software platforms for use in risk
assessment and engineering as well as information integration.
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
8
<PAGE>
In the second quarter, the Company sold its San Antonio, Texas operations,
including the sale of its general agency, Blanch Insurance Services, Inc.
(Blanch GA), and other selected assets. The net effect of these dispositions was
a net one-time gain of $1.0 million before taxes. As a result of these
dispositions, the Company has reevaluated the services provided to its clients
and determined these services to be homogeneous in nature. The income from
operations relates primarily to revenue derived from risk management services.
Therefore, the Company, starting in June 1998, has decided to report its
revenues into two categories:
Operational Revenues and Interest Income.
OPERATIONS
The following are the components of operational revenue for the quarter ended
June 30 (in thousands):
1998 1997
----------- -----------
Domestic Operations $35,479 $28,167
Foreign Operations 9,805 9,675
----------- -----------
$45,284 $37,842
=========== ===========
Domestic operations increased $7.3 million, or 26.0%, from the prior year
primarily as a result of new production and one-time gains of $1.8 million,
associated with the disposition of the Company's operations in San Antonio,
Texas. The Company also incurred one-time charges of $767,000, relating to the
sale, resulting in net gains of $1.0 million before taxes.
International operations increased $0.1 million or 1.3% from the prior year.
INTEREST INCOME
1998 1997
----------- -----------
FIDUCIARY INTEREST INCOME
Domestic $1,288 $1,480
Foreign 463 434
----------- -----------
1,751 1,914
CORPORATE INTEREST INCOME
Domestic 215 194
Foreign 117 114
----------- -----------
332 308
$2,083 $2,222
=========== ===========
Interest income was $2.1 million for the quarter ended June 30, 1998 compared to
$2.2 million the prior year, a decrease of $0.1 million or 4.5%.
9
<PAGE>
Fiduciary interest income from domestic operations was $1.3 million for the
quarter ended June 30, 1998 compared to $1.5 million the prior year, a decrease
of $0.2 million or 13.3%. The average balance of domestic funds for the quarter
was $106.6 million (compared to $95.2 million for the prior year), at an average
yield of 5.0% (compared to 5.6% the prior year). Swire Blanch also earned $0.5
million of fiduciary interest income in the three months ended June 30, 1998
compared to $0.4 million the prior year.
Corporate interest income from domestic operations was $0.2 million for the
quarter ended June 30, 1998 and 1997. Swire Blanch earned $0.1 million of
corporate interest income for the quarter ended June 30, 1998 and 1997.
EXPENSES
Domestic operating expenses increased $6.2 million to $28.7 million, or 27.9%,
for the quarter ended June 30, 1998 compared to $22.5 million the prior year.
This is primarily a result of increases in employee count as well as salaries
and benefits expenses including normal salary progressions and one-time charges
associated with the disposition of the Company's San Antonio, Texas operations.
The increase in employees is due to increased business levels and businesses
acquired or started by the Company. Domestic operations also experienced
increases in travel and marketing, general and administrative expenses, and
interest and other expenses due to increased business levels.
International operating expenses for the quarter ended June 30, 1998 decreased
$0.4 million, or 4.3% for the quarter ended June 30, 1998 compared to $9.3
million the prior year. 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 22.3% for domestic operations for the quarter ended June
30, 1998, compared to 24.6% for the same period in the prior year.
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 14.0% for foreign operations for the quarter ended June 30,
1998, compared to 9.3% for the same period in the prior year. This increase is
primarily due to increases in new production and cost efficiencies.
SIX MONTHS ENDED 1998 COMPARED WITH SIX MONTHS ENDED 1997
In the second quarter, the Company sold its San Antonio, Texas operations,
including the sale of its general agency, Blanch Insurance Services, Inc.
(Blanch GA), and other selected assets. The net effect of these dispositions was
a net one-time gain of $1.0 million before taxes. As a result of these
dispositions, the Company has reevaluated the services provided to its clients
and determined these services to be homogeneous in nature. The income from
operations relates primarily to revenue derived from risk management services.
Therefore, the Company, starting in June 1998, has decided to report its
revenues into two categories: Operational Revenues and Interest Income.
Foreign operations for the six months ended June 30, 1998 include six months of
activity as compared to five months of activity for the six months ended June
30, 1997. This comparison is the result of the acquisition of Swire Blanch in
February 1997.
10
<PAGE>
OPERATIONS
The following are the components of Operational revenue for the six months ended
June 30 (in thousands):
1998 1997
----------- -----------
Domestic Operations $70,439 $57,909
Foreign Operations 19,650 15,177
----------- -----------
$90,089 $73,086
=========== ===========
For the six months ended June 30, 1998, domestic operations increased $12.5
million, or 21.6%, from the prior year primarily as a result of new production.
International operations increased $4.5 million, or 29.5%, from the prior year.
These increases are primarily the result of the inclusion of six months of
activity as compared to the five months of activity in the prior year as well as
increases in new production. This comparison is the result of the acquisition of
Swire Blanch in February 1997.
INTEREST INCOME
1998 1997
----------- -----------
FIDUCIARY INTEREST INCOME
Domestic $2,616 $2,540
Foreign 929 676
----------- -----------
3,545 3,216
CORPORATE INTEREST INCOME
Domestic 419 572
Foreign 266 219
----------- -----------
685 791
$4,230 $4,007
=========== ===========
Interest income was $4.2 million for the six months ended June 30, 1998 compared
to $4.0 million the prior year, an increase of $0.2 million or 5.0%.
Fiduciary interest income from domestic operations was $2.6 million for the six
months ended June 30, 1998 compared to $2.5 million the prior year, an increase
of $0.1 million or 4.0%. The average balance of domestic funds for the six
months ended June 30, 1998 was $103.4 million (compared to $95.8 million for the
prior year), at an average yield of 5.03% (compared to 5.3% the prior year).
Swire Blanch also earned $0.9 million of fiduciary interest income in the six
months ended June 30, 1998, compared to $0.7 million the prior year.
Corporate interest income from domestic operations was $0.4 million for the six
months ended June 30, 1998 compared to $0.6 million the prior year. This
decrease is the result of the sale of the Company's premium finance operation in
February 1997. Premium finance interest and fees were $0.2 million for the six
months ended June 30, 1997. Swire Blanch earned $0.3 million of corporate
interest income for the six months ended June 30, 1998, compared to $0.2 million
the prior year.
11
<PAGE>
EXPENSES
Domestic operating expenses increased $10.5 million to $54.2 million, or 24.0%,
for the six months ended June 30, 1998 compared to $43.7 million the prior year.
This increase is primarily a result of increases in employee count as well as
salaries and benefits expenses including normal salary progression and one-time
charges associated with the disposition of the Company's San Antonio, Texas
operations. The increase in employees is due to increased business levels and
businesses acquired or started by the Company. Domestic operations also
experienced increases in travel and marketing, general and administrative
expenses, and interest and other expenses due to increased business levels.
International operating expenses increased $3.2 million, or 21.8%, for the six
months ended June 30, 1998 compared to $14.7 million the prior year. The
increase is primarily the result of the inclusion of six months of activity as
compared to five months of activity in the prior year. This comparison is the
result of the acquisition of Swire Blanch in February 1997. 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 26.3% for domestic operations for the six months ended June
30, 1998, compared to 28.3% for the same period in the prior year.
Operating profit margins, calculated as income before taxes as a percentage of
total revenues, were 14.1% for foreign operations for the six months ended June
30, 1998, compared to 8.7% for the five months ended June 30, 1997. This
increase is primarily due to increases in new production, cost efficiencies as
well as to larger portions of revenues that are earned in January. The Company
did not acquire Swire Blanch until February 1997.
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 32% for the year ended December
31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds consist primarily of brokerage commissions and
fees and interest income. Funds are applied generally to the payment of
operating expenses, the purchase 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 $5.6 million at June 30,
1998.
The Company generated $10.3 million of cash from operations during the first six
months of 1998 compared with $12.7 million for the same period in 1997. The
decrease in operating cash flow in 1998 is primarily due to 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 used in investing activities was $16.6 million for the six months
ended June 30, 1998. During the six months ended June 30, 1998, the Company
received net proceeds of $2.5 million from the sale of its San Antonio, Texas
operations. The Company also used $6.6 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 also used $8.7 million of
cash for the
12
<PAGE>
purchase of government securities for its actively traded portfolio, and $13.2
million for the purchase of strategic investments in companies that provide
technology solutions for the insurance industry. The Company received proceeds
from the sale of investments from its actively traded portfolio of $9.1 million.
The primary source of cash for financing activities for the six months ended
June 30, 1998, was $6.8 million from proceeds from the issuance of treasury
shares used to fund employee benefit plans. The primary uses of cash were $4.3
million for the purchase of treasury stock, $2.8 million of dividends paid to
shareholders and $3.6 million for payments on long-term debt. In the prior year,
net cash used by financing activities included $14.6 million for the purchase of
treasury stock, $2.6 million of dividends paid to shareholders and $1.3 million
for the net repayment of lines of credit.
The Company's long-term investment portfolio at June 30, 1998, was $36.9
million, comprised of equity and debt instruments. The market value of the
Company's investment portfolio at June 30, 1998, was $1.5 million above 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 22, 1998, the Board of Directors declared a regular quarterly cash
dividend of $0.10 per share, payable March 3, 1998 to shareholders of record as
of February 9, 1998. On April 23, 1998, the Board of Directors declared a
regular quarterly cash dividend of $0.12 per share, payable June 1, 1998, to
shareholders of record as of May 4, 1998. On July 23, 1998, the Board of
Directors declared a regular quarterly dividend of $0.12 per share payable on
September 1, 1998, to shareholders of record as of August 10, 1998.
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.
13
<PAGE>
E. W. BLANCH HOLDINGS, INC.
Part II. Other Information
Items 1, 2, 3 and 5 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on April 23, 1998.
Proxies for the meeting were solicited pursuant to Regulation 14 of the
Securities Exchange Act of 1934. The following matters were voted upon:
* Election of directors:
Newly elected directors:
In Favor Withheld
James N. Land, Jr. 9,394,689 275,395
Chris L. Walker 9,357,478 312,606
Paul B. Ingrey 9,394,379 275,705
* Approval of the E.W. Blanch Holdings, Inc. Management Incentive
Plan.
In Favor Opposed Abstained Broker Non-Vote
7,107,171 395,023 225,221 1,942,669
* Approval of an amendment to the E.W. Blanch Holdings, Inc. 1993
Stock Incentive Plan.
In Favor Opposed Abstained Broker Non-Vote
4,084,241 3,806,913 25,261 1,753,669
* Ratification of Ernst & Young LLP as the auditors for the Company
for the year 1998.
In Favor Opposed Abstained Broker Non-Vote
9,661,865 1,829 6,390 0
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
Exhibit 27 - Financial Data Schedule
(b.) The registrant filed a current report on Form 8-K on June 30, 1998. The
report was filed in order to disclose the sale of Common Stock pursuant
to Regulation S under the Securities Act of 1933 in connection with the
Company's acquisition of Swire Blanch MSTC S.A..
14
<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: August 14, 1998 /s/ Ian D. Packer
----------------------------------
Ian D. Packer
Executive Vice President
and Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,577
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,730
<PP&E> 41,610
<DEPRECIATION> 15,236
<TOTAL-ASSETS> 771,560
<CURRENT-LIABILITIES> 36,259
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 771,560
<SALES> 90,089
<TOTAL-REVENUES> 94,319
<CGS> 0
<TOTAL-COSTS> 72,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843
<INCOME-PRETAX> 22,222
<INCOME-TAX> 8,507
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,715
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.03
</TABLE>
