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 March 31, 1999
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
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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 April
30, 1999 was 12,962,904.
<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
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-----------------------
Revenues:
Operations $59,668 $44,805
Interest income 2,344 2,147
-----------------------
Total revenues 62,012 46,952
Expenses:
Salaries and benefits 25,885 21,572
Travel and marketing 3,503 3,135
General and administrative 12,337 8,659
Amortization of goodwill 771 694
Interest expense 320 374
-----------------------
Total expenses 42,816 34,434
-----------------------
Income before taxes 19,196 12,518
Income taxes 7,894 4,808
-----------------------
Net income before minority interest and
equity in loss of unconsolidated
subsidiaries 11,302 7,710
Minority interest, net of tax 231 180
Equity in net loss of unconsolidated
subsidiaries, net of tax 1,581 441
-----------------------
Net income $ 9,490 $ 7,089
=======================
Per share data:
Basic earnings $ 0.74 $ 0.56
Diluted earnings $ 0.70 $ 0.53
Cash dividends declared $ 0.12 $ 0.10
SEE ACCOMPANYING NOTES.
2
<PAGE>
E. W. Blanch Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,530 $ 707
Due from fiduciary accounts 31,508 41,551
Prepaid insurance 648 1,141
Investments, trading portfolio 5,302 5,245
Other current assets 14,048 13,603
-------------------------
Total current assets 61,036 62,247
Long-term investments, available for sale 17,414 18,427
Investments in unconsolidated subsidiaries 19,645 20,014
Property and equipment, net 33,146 32,420
Intangibles, net 29,385 30,425
Other assets 10,344 8,805
Fiduciary accounts--assets 807,114 760,918
-------------------------
Total assets $ 978,084 $ 933,256
=========================
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accrued compensation $ 4,929 $ 9,865
Notes payable to banks under lines of credit 6,148 11,112
Accounts payable 14,218 16,950
Current portion of long-term liabilities 293 289
Other current liabilities 15,264 10,119
-------------------------
Total current liabilities 40,852 48,335
Long-term debt, less current portion 482 557
Other liabilities, less current portion 9,168 9,177
Fiduciary accounts--liabilities 807,114 760,918
-------------------------
Total liabilities 857,616 818,987
MINORITY INTEREST: 3,736 3,632
SHAREHOLDERS' EQUITY:
Common stock - par value $0.01 per share (authorized
30,000,000 shares; issued and outstanding: 14,141,671
shares in 1999 and 1998) 141 141
Additional paid in capital 57,766 56,996
Treasury stock (1,306,647 shares in 1999 and 1,299,714
shares in 1998) (28,742) (26,598)
Accumulated other comprehensive income 840 1,327
Retained earnings 86,727 78,771
-------------------------
Total shareholders' equity 116,732 110,637
-------------------------
Total liabilities, minority interest and shareholders'
equity $ 978,084 $ 933,256
=========================
</TABLE>
SEE ACCOMPANYING NOTES.
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E. W. Blanch Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,490 $ 7,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,071 2,549
Deferred income tax provision (benefit)
Undistributed loss of unconsolidated subsidiaries 3,733 (1,151)
Non-cash compensation expense 1,581 441
Changes in operating assets and liabilities: 971 430
Due from fiduciary accounts 9,830 4,984
Other current assets (938) (1,738)
Accrued compensation (4,936) (2,403)
Accounts payable and other current liabilities (683) (3,870)
Purchases of trading portfolio investments (354) (4,205)
Sales of trading portfolio investments 185 1,014
Other operating activities, net (247) 350
-----------------------
Net cash provided by operating activities 21,703 3,490
INVESTING ACTIVITIES
Purchases of investments, available for sale (636) (25)
Sales of investments, available for sale 1,085 3,249
Purchases of property and equipment, net (3,255) (3,047)
Acquisition of unconsolidated subsidiaries (1,250) (11,275)
Other investing activities, net (37) --
-----------------------
Net cash used in investing activities (4,093) (11,098)
FINANCING ACTIVITIES
Dividends paid (1,533) (1,262)
Proceeds from the issuance of treasury shares to
employee stock plans 849 1,030
Purchase of treasury stock (3,193) --
Net (repayments) borrowings on lines of credit (4,964) 5,400
Payments on long-term debt (21) (2,860)
Other financing activities, net 75 78
-----------------------
Net cash (used in) provided by financing activities (8,787) 2,386
-----------------------
Net increase (decrease) in cash and cash equivalents 8,823 (5,222)
Cash and cash equivalents at beginning of period 707 11,608
-----------------------
Cash and cash equivalents at end of period $ 9,530 $ 6,386
=======================
</TABLE>
SEE ACCOMPANYING NOTES.
4
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E. W. Blanch Holdings, Inc.
Notes to Consolidated Financial Statements
March 31, 1999
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, 1998.
E.W. Blanch Holdings, Inc. ("the Company") and its predecessor organizations
have been in operation since 1957. The Company is a leading provider of
integrated risk management and distribution services including reinsurance
intermediation and technical, analytic, and financial consulting services. The
consolidated financial statements include the accounts of the Company and its
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 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 March 31, 1999,
is an unrealized $6,000 gain.
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3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board 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 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.
While an analysis is not complete, based on the Company's derivative positions
at March 31, 1999, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company. Because 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 basic and diluted weighted average shares
outstanding for the period ended March 31 (in thousands):
THREE MONTHS ENDED
MARCH 31
------------------------
1999 1998
------------------------
Weighted average shares - basic 12,773 12,614
Effect of dilutive securities 780 701
------------------------
Weighted average shares- assuming dilution 13,553 13,315
========================
5. BUSINESS SEGMENT INFORMATION
The following is additional business segment information for the three months
ended March 31 (in thousands):
Profit (Loss), net of tax 1999 1998
- --------------------------------------------------------------------------------
Domestic Primary $8,689 $6,746
Domestic Wholesale Insurance Services -- (69)
------------------------
Total Domestic Operations 8,689 6,677
Foreign Operations 801 412
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Consolidated $9,490 $7,089
========================
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<PAGE>
Revenues 1999 1998
- --------------------------------------------------------------------------------
Domestic Primary $48,042 $33,930
Domestic Wholesale Insurance Services -- 2,562
------------------------
Total Domestic Operations 48,042 36,492
Foreign Operations 13,970 10,460
------------------------
Consolidated $62,012 $46,952
========================
6. COMPREHENSIVE INCOME
During the three months ended March 31, 1999 and 1998, total other comprehensive
income (loss) amounted to ($487,000) and $132,000, respectively. Total
comprehensive income for the three months ended March 31, 1999 and 1998 amounted
to $9,003,000 and $7,221,000, respectively.
7
<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. Some of the 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 ISSUE
BACKGROUND
The Year 2000 issue is the result of computer systems using a two-digit format,
as opposed to four digits, to indicate the year. Computer systems using a
two-digit format will be unable to correctly interpret dates beyond the year
1999, which could cause a system failure or other computer errors, leading to a
disruption in the operation of those systems.
STATE OF READINESS
The Company began reviewing all of its information technology ("IT") systems
developed internally and from outside vendors in the early 1990's because of the
Company's growth and the need to bring about operational improvements. As a
result, the Company decided to develop a new back office processing system and
to implement a new financial and human resource system. All of these systems are
Year 2000 compliant. In 1997, the Company expanded its international operations
through the acquisition of Swire Blanch. Since the acquisition, the Company
began to integrate all worldwide systems into appropriate existing, Year 2000
compliant Company systems. The integration of the Company's IT systems is
expected to be substantially complete by end of the second quarter of 1999. The
Company's senior management and the Board of Directors receive regular updates
on the status of the Company's Year 2000 readiness.
The Company markets services and software products that are internally developed
or acquired from third party vendors. These software based products and services
were developed using Year 2000 compliant technologies. Testing is completed and
certifications of compliance have been received on software that the Company
developed internally. The Company has obtained written certifications from all
of its third party developers of software marketed by the Company. The process
of confirming Year 2000 compliance for the software that the Company markets is
substantially complete.
Interfaces with Third Parties
The Company is reviewing, and has initiated formal communications with third
parties that provide goods or services which are essential to the Company's
operations in order to: (1) determine the
8
<PAGE>
extent to which the Company is vulnerable to any failure by such material third
parties to remediate their respective Year 2000 problems; and (2) resolve such
problems to the extent practicable. In May 1998, the Company requested
information from customers and vendors regarding the status of their Year 2000
compliance. Follow up requests were sent in December 1998 to those third parties
that had not responded to the Company's initial request or that indicated
compliance issues. A certification letter has been or will be requested from
each of our vendors to validate compliance. The Company has also requested a
statement of Year 2000 compliance from companies in which the Company has made
capital investments.
Independent Verification and Validation
All new IT systems implemented, and any subsequent changes to those systems, go
through several layers of testing and validation, including program testing,
systems testing by an independent quality assurance group, user testing, and
lastly, parallel processing with the old system it is replacing. Portions of the
parallel testing process involve validation of automated interfaces and
reporting by the Company's customers.
In addition, the Company has conducted joint testing with Lloyd's of London on
the international back office processing system. The Company's system has passed
all tests and has been certified by Lloyd's of London.
COSTS
In recent years the Company has made significant investments in new IT systems
that are Year 2000 compliant. However, those investments were made for operating
reasons other than strictly Year 2000 compliance. As stated above, these
systems, whether purchased from an outside vendor or developed internally, are
Year 2000 compliant. The schedule to implement these systems has not been
accelerated because of the Year 2000 issue, nor have any other system projects
been deferred because of the Year 2000 issue. Although the Company does not
record or attempt to allocate expenses for these IT systems which relate solely
to Year 2000 compliance, due to their immateriality, the Company believes that
these costs will not exceed $2 million in total. This estimate does not include
the Company's potential share of Year 2000 costs that may be incurred by other
entities which the Company does not control.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company believes
that, with the installation of the Year 2000 compliant systems described above,
the possibility of significant interruptions of normal operations should be
substantially reduced. However, due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third parties, the Company is continuing to assess the risks and
develop its contingency plans.
CONTINGENCY PLAN
The Company is revising its existing business interruption contingency plans to
address internal and external issues specific to Year 2000 compliance, to the
extent practicable. Such revisions are expected to be completed by the end of
the second quarter of 1999. These plans are intended to enable the Company to
continue to operate and include performing certain processes manually; repairing
or obtaining replacement systems; and changing suppliers. The Company believes,
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<PAGE>
however, that due to the widespread nature of potential Year 2000 issues, the
contingency planning process is an ongoing one which will require further
modifications as the Company obtains additional information regarding the
Company's internal readiness and the status of third party Year 2000 readiness.
Forward-Looking Statements
Readers are cautioned that forward-looking statements contained in the Year 2000
Issue disclosures should be read in conjunction with the Company's disclosures
under the heading: "Forward-Looking Statements" on page 8.
EUROPEAN MONETARY UNIT
The Company has initiated an analysis of the new European Monetary Unit ("EMU")
and its effects on the Company's business processes and IT system requirements.
The Company's core back office processing and financial systems are currently
capable of handling multiple currencies and will therefore be able to handle the
EMU as another currency. However, it is likely that the Company will have to
modify its systems to accommodate decimalization and rounding issues, currency
conversions, and the new reporting requirements of the EMU. The Company has
contracted with an outside consulting firm to develop further detailed business
and consequent IT requirements for each phase of the EMU changeover. The Company
expects this study to be completed by the end of the second quarter of 1999. The
Company's management believes that the costs associated with upgrading IT
systems and the impact on business processes will be immaterial to the Company's
results of operations, liquidity and financial condition.
GENERAL
The Company is a leading provider of integrated risk management and distribution
services, including reinsurance intermediation and technical, analytic, and
financial consulting services.
The following is a summary of revenues and income before taxes by geographic
area for the three months ended March 31 (in thousands):
1999 1998
---------------------- ----------------------
Income Income
Revenues before taxes Revenues before taxes
------- ------- ------- -------
Domestic operations $48,042 $17,070 $36,492 $11,039
Foreign operations 13,970 2,126 10,460 1,479
------- ------- ------- -------
$62,012 $19,196 $46,952 $12,518
======= ======= ======= =======
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FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
OPERATIONS
The following are the components of revenue from operations for the three months
ended March 31 (in thousands):
1999 1998
------- -------
Domestic operations $46,242 $34,960
Foreign operations 13,426 9,845
------- -------
$59,668 $44,805
======= =======
Domestic operations increased $11.3 million, or 32.3%, from the prior year
primarily as a result of new client production, recognition of a $3.5 million
gain from the sale of the Clarendon National Florida Personal Lines Property
program to Tower Hill Insurance Group, Inc. in the first quarter of 1999 and
increased revenue resulting from the acquisition of K-2 Technologies Inc. in
July 1998.
International operations increased $3.6 million or 36.4% from the prior year as
a result of new client production and increased revenue as a result of the
acquisition of Dunn & Carter Ltd. in July 1998.
INTEREST INCOME
The following are the components of interest income for the three months ended
March 31 (in thousands):
1999 1998
------- -------
Domestic operations $ 1,800 $ 1,532
Foreign operations 544 615
======= =======
$ 2,344 $ 2,147
======= =======
Interest income is $2.3 million for the three months ended March 31, 1999
compared to $2.1 million the prior year, an increase of $0.2 million or 9.2%.
EXPENSES
Domestic operating expenses increased $5.5 million to $31.0 million, or 21.7%,
for the three months ended March 31, 1999 compared to $25.5 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 the
acquisition of K-2 Technologies, Inc. in July 1998. 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,
and general and administrative expenses due to increased business levels.
General and administrative expenses also include a reserve for a portion of the
brokerage recognized in 1998 for the placement of certain workers' compensation
reinsurance contracts for the AIG Companies, because the validity of those
placements has been placed into question in a judicial proceeding. See "Legal
Proceedings" discussion, on page 14, below. Similarly, a portion of the revenues
for those placements, which otherwise would have been recognized in the first
quarter of 1999, was not recognized, for the same reasons.
11
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International operating expenses increased $2.9 million to $11.8 million, or
31.9% for the three months ended March 31, 1999 compared to $9.0 million the
prior year. The reason for the increase is the costs of new operations and the
acquisition of Dunn & Carter Ltd. in July 1998. 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 and allocation of
central costs as a percentage of total revenues, were 35.5% for domestic
operations for the three months ended March 31, 1999, compared to 30.3% for the
same period in the prior year.
Operating profit margins, calculated as income before taxes and allocation of
central costs as a percentage of total revenues, were 15.2% for foreign
operations for the three months ended March 31, 1999, compared to 14.1% for the
same period in the prior year.
INCOME TAXES
The Company's combined federal and state effective tax rate was 41.1% for the
three months ended March 31, 1999 as compared to 38.4% for the same period the
prior year. The increase in the tax rate is due to changes in the apportionment
of state taxes and taxes on foreign operations.
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 $9.5 million at March 31,
1999.
The Company generated $21.7 million of cash from operations during the first
three months of 1999 compared with $3.5 million for the same period in 1998. The
increase in operating cash flow in 1999 is primarily due to an increase in
earnings, 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 $4.1 million for the three months
ended March 31, 1999. The Company used $3.3 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 used $1.3 million to
acquire a 50% interest in Russell Miller Advisors Asia, LLC ("RMAA"). The
Company accounts for RMAA under the equity method as an unconsolidated
subsidiary. The Company used $0.6 million for the purchase of available for sale
investments and received proceeds from sale of available for sale investments of
$1.1 million.
Cash flow used in financing activities was $8.8 million for the three months
ended March 31, 1999. The primary source of cash from financing activities were
proceeds of $0.8 million from the issuance of treasury shares to fund employee
benefit plans. The primary uses of cash for financing activities were $5.0
million for the repayment on lines of credit, $3.2 million for the purchase of
treasury stock and $1.5 million of dividends paid to shareholders.
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The Company's long-term investment portfolio at March 31, 1999, was $17.4
million, comprised of equity and debt instruments. These investments are
classified as available for sale. The market value of the Company's investment
portfolio at March 31, 1999, was $0.8 million above cost. The Company's
investment in unconsolidated subsidiaries at March 31, 1999 was $19.6 million.
The Company's trading portfolio at March 31, 1999 was $5.3 million, which is
comprised of debt investments. The market value of the Company's trading
portfolio at March 31, 1999 was approximately the same as 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 significant regulatory capital requirements in connection with its business.
On January 28, 1999, the Board of Directors declared a regular quarterly cash
dividend of $0.12 per share, payable March 2, 1999 to shareholders of record as
of February 9, 1999. On April 26, 1999, the Board of Directors declared a
regular quarterly cash dividend of $0.12 per share, payable June 1, 1999 to
shareholders of record as of May 3, 1999.
The Company has a $100 million revolving credit facility with several banks that
will be used to fund general corporate requirements. This facility, which
expires in 2001, carries market rates of interest which may vary depending upon
the Company's degree of leverage. Commitment fees of .200% to .375% are payable
on any unused portion. The facility contains several financial covenants and
restrictions related to acquisitions, payment of dividends and sales of assets.
Covenants contained in the agreement require the Company to exceed minimum
levels of net worth and meet a fixed charge ratio. The Company is currently in
compliance with all of its covenants governing its indebtedness. The Company has
no balance outstanding under this facility as of March 31, 1999.
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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in market risk for the Company during the first
three months of 1999.
Part II. Other Information
Item 1. Legal Proceedings
The various lawsuits to which the Company is a party are routine in nature and
incidental to the Company's business, with the following exception:
E.W. Blanch Co. ("Blanch"), a subsidiary of the Company, is a third-party
defendant in a lawsuit venued in the Supreme Court of the State of New York,
County of New York. This lawsuit was instituted on February 16, 1999, and Blanch
was added as a third-party defendant on March 23, 1999. Plaintiffs are AIU
Insurance Company and various other insurance companies, all of whom are part of
the "AIG" group of companies. Defendants are Unicover Managers, Inc.
("Unicover") and ReliaStar Life Insurance Company ("ReliaStar"). Blanch was
joined in the lawsuit as a third-party defendant by ReliaStar.
In this lawsuit, AIG as plaintiff alleges that ReliaStar, through its agent
Unicover, agreed to provide certain reinsurance protection to AIG, relating to
workers compensation insurance policies issued by the plaintiff AIG companies in
California and elsewhere in the United States. Defendants assert that the
reinsurance coverages in issue never were bound, and defendant ReliaStar further
asserts that if defendant Unicover in fact did bind those coverages, it acted
beyond the authority granted to it by ReliaStar.
In ReliaStar's third party complaint against Blanch, ReliaStar alleges that
Blanch, as AIG's reinsurance broker on the reinsurance placements in issue, knew
or should have known that the reinsurance coverages were not bound and knew or
should have known that Unicover did not have the authority to bind ReliaStar to
those coverages.
The relief being sought by AIG in its complaint against ReliaStar and Unicover
is that defendants be required to honor the reinsurance commitments that AIG
alleges were made, and be required to pay an unspecified amount of money damages
for alleged breach of those reinsurance commitments and (with respect to
Unicover) for negligent misrepresentation.
The relief being sought by ReliaStar in its third party complaint against Blanch
is that, in the event ReliaStar is found to be liable to AIG, Blanch be required
to indemnify and hold ReliaStar harmless for that liability, or in the
alternative Blanch be required to make a contribution for a portion of that
liability in an amount to be determined by the Court.
Blanch in turn has filed a counterclaim back against ReliaStar and Unicover. The
counterclaim alleges that ReliaStar and Unicover in fact did bind the
reinsurance coverages in issue, and therefore they owe Blanch the reinsurance
brokerage to which Blanch is entitled under those reinsurance contracts, and,
alternatively, if it is determined that Unicover misrepresented its authority to
bind ReliaStar, that Blanch be awarded money damages resulting from its reliance
on those misrepresentations.
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This lawsuit is in its preliminary stages. Prior to Blanch being joined in the
case, plaintiffs moved for and were denied a preliminary injunction. Discovery
has recently commenced. Blanch intends to defend vigorously the claims made
against it by ReliaStar and to pursue vigorously its counterclaims against
ReliaStar and Unicover.
Management believes, based on current information, that these actions will not
have a material adverse effect upon the financial position or results of
operations of the Company.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
Exhibit 27 - Financial Data Schedule
(b.) The registrant did not file a current report on Form 8-K during the
quarter ended March 31, 1999.
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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: May 4, 1999 /s/ Ian D. Packer
----------- ----------------------------------
Ian D. Packer
Executive Vice President
and Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,530
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,036
<PP&E> 33,146
<DEPRECIATION> 0
<TOTAL-ASSETS> 978,084
<CURRENT-LIABILITIES> 40,852
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 978,084
<SALES> 59,668
<TOTAL-REVENUES> 62,012
<CGS> 0
<TOTAL-COSTS> 42,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 19,196
<INCOME-TAX> 7,894
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,490
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.70
</TABLE>
