UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-21988
KAYE GROUP INC.
(Exact name of registrant as specified in charter)
Delaware 13-3719772
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
122 East 42nd Street, New York, N.Y. 10168
(Address of principal executive office)
(Zip code)
212-338-2100
(Registrant's telephone number, including area code)
(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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 12, 1998 - 8,474,435
- - Total number of pages filed including cover and under pages 17
- - Exhibit index is located on page 16
<PAGE>
KAYE GROUP INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Safe Harbor Disclosure
15
PART II OTHER INFORMATION 16
2
<PAGE>
Item 1. - Financial Statements
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(in thousands, except par value per share)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
INSURANCE BROKERAGE COMPANIES
Current assets:
Cash and cash equivalents
(including short term investments, and funds held in a fiduciary
capacity of $17,992 and $22,322) $ 22,184 $ 24,833
Premiums and other receivables 30,412 32,790
Prepaid expenses and other assets 1,514 1,385
-------- --------
Total current assets 54,110 59,008
Fixed assets (net of accumulated depreciation of $4,782 and $4,553) 3,200 3,145
Expiration lists (net of accumulated amortization of $2,216 and $1,969) 4,558 4,702
Deferred income taxes 345 966
Other assets 178 181
-------- --------
Total assets - insurance brokerage companies 62,391 68,002
-------- --------
PROPERTY AND CASUALTY COMPANIES
Investments available-for-sale:
Fixed maturities, at market value (amortized cost: 1998,
$41,307; 1997, $41,529) 41,774 42,099
Equity securities, at market value (cost:1998, $671; 1997, $871) 770 981
Short term investments, at cost, which approximates market value 4,750 3,430
-------- --------
Total investments 47,294 46,510
Cash and cash equivalents 9,530 6,409
Accrued interest and dividends 889 882
Premiums receivable 1,148 2,344
Premiums receivable - insurance brokerage companies 72 3,185
Prepaid reinsurance premiums 230 262
Reinsurance recoverable on unpaid losses and loss expenses 2,230 2,811
Funds held under deposit contracts, at market value, which
approximates cost 163 173
Deferred acquisition costs 2,668 3,939
Deferred income taxes 617 379
Other assets 1,684 1,810
-------- --------
Total assets - property and casualty companies 66,525 68,704
-------- --------
CORPORATE
Cash and cash equivalents 65
Prepaid expenses and other assets 67 107
Investments available-for-sale:
Equity securities, at market value
(cost:1998 $527, and 1997, $557) 468 442
Deferred income taxes 15 41
Intercompany receivable 3,428 3,664
-------- --------
Total assets - corporate 3,978 4,319
-------- --------
Total assets $132,894 $141,025
======== ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(in thousands, except par value per share)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES:
INSURANCE BROKERAGE COMPANIES
Current liabilities:
Premiums payable $ 43,261 $ 40,872
Premiums payable - property and casualty companies 72 3,185
Accounts payable and accrued liabilities 5,430 7,983
Notes payable 428 434
Deferred income taxes 1,063
Intercompany payable 2,913 3,342
-------- --------
Total current liabilities 52,104 56,879
Notes payable 573 654
Other liabilities 1,270 1,466
-------- --------
Total liabilities-insurance brokerage companies 53,947 58,999
-------- --------
PROPERTY AND CASUALTY COMPANIES
Liabilities:
Unpaid losses and loss expenses 18,970 19,126
Unearned premium reserves 8,469 12,578
Deposit contracts 130 122
Accounts payable and accrued liabilities 7,064 6,661
Reinsurance payable 179 228
Intercompany payable 515 322
-------- --------
Total liabilities - property and casualty companies 35,327 39,037
-------- --------
CORPORATE
Current liabilities:
Accounts payable and accrued liabilities 529 774
Note payable 1,875 1,875
Income taxes payable 1,108 16
-------- --------
Total current liabilities 3,512 2,665
Note payable-long-term 4,219 5,156
-------- --------
Total liabilities-corporate 7,731 7,821
-------- --------
Total liabilities 97,005 105,857
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000 shares authorized;
none issued or outstanding
Common stock, $.01 par value; 20,000 shares authorized;
8,474 shares issued and outstanding 85 85
Paid - in capital 17,942 17,942
Accumulated other comprehensive income, net of deferred
income tax liability (1998, $173; 1997, $192) 335 373
Retained earnings 17,527 16,768
-------- --------
Total stockholders' equity 35,889 35,168
-------- --------
Total liabilities and stockholders' equity $132,894 $141,025
======== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1998 and 1997
(in thousands, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
INSURANCE BROKERAGE COMPANIES
Revenues:
Commissions and fees - net $ 6,957 $ 6,205
Commissions and fees - net - Property and Casualty Companies 208 222
Interest income 510 485
-------- --------
Total revenues 7,675 6,912
-------- --------
Expenses:
Salaries and benefits 5,455 4,847
Other operating expenses 3,041 3,183
-------- --------
Total operating expenses 8,496 8,030
-------- --------
Interest expense 150
-------- --------
Loss before income taxes-insurance brokerage companies (821) (1,268)
-------- --------
PROPERTY AND CASUALTY COMPANIES
Revenues:
Net premiums written 2,054 1,793
Change in unearned premiums 4,077 3,435
-------- --------
Net premiums earned 6,131 5,228
Net investment income 696 666
Net realized gains on investments 12 0
Other income 63 57
-------- --------
Total revenues 6,902 5,951
-------- --------
Expenses:
Losses and loss expenses 2,346 2,008
Acquisition costs and general and administrative expenses 2,016 2,072
-------- --------
Total expenses 4,362 4,080
-------- --------
Income before income taxes-property and casualty companies 2,540 1,871
-------- --------
CORPORATE
Revenues:
Net investment income (loss) (29) 3
Expenses:
Other operating expenses 114 86
Interest expense 148 124
-------- --------
Net expenses before income taxes-corporate (291) (207)
-------- --------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1998 and 1997
(in thousands, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Income before income taxes and minority interest 1,428 396
-------- --------
Provision (benefit) for income taxes:
Current 1,092 501
Deferred (635) (382)
-------- --------
Total provision for income taxes 457 119
-------- --------
Income before minority interest 971 277
Minority interest (49)
-------- --------
Net income $ 971 $ 228
======== ========
EARNINGS PER SHARE
Basic $ 0.11 $ 0.03
======== ========
Diluted $ 0.11 $ 0.03
======== ========
Weighted average of shares outstanding - basic 8,474 7,020
======== ========
Weighted average shares outstanding and
share equivalents outstanding - diluted 8,596 7,020
======== ========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1998 and 1997
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 971 $ 228
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred acquisition costs 1,271 1,054
Amortization of bond premium - net 142 168
Deferred income taxes (635) (382)
Net realized (gains) losses on investments 18
Depreciation and amortization expense 383 352
Minority interest 49
Change in assets and liabilities:
Accrued interest and dividends (7) 35
Premiums and other receivables 7,300 37,114
Prepaid expenses and other assets 61 407
Unpaid losses and loss expenses (156) 1,433
Unearned premium reserves (4,109) (3,375)
Premiums payable (773) (38,337)
Income taxes payable 1,092 502
Accounts payable and accrued liabilities (1,965) (638)
-------- --------
Net cash provided by (used in) operating activities 3,593 (1,390)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments available - for - sale :
Purchase of fixed maturities (2,831) (1,753)
Purchase of equity securities (500)
Purchase of short term investments (1,320) (3,015)
Maturities of fixed maturities 1,676 735
Sales of fixed maturities 1,222 100
Sales of equity securities 200 300
Funds held under deposit contracts
Sales (purchases) of short term investments 10 (648)
Sales of fixed maturities 300
Maturities of fixed maturities 350
Purchase of fixed assets (727) (760)
Purchase of expiration list (188)
-------- --------
Net cash used in investing activities (1,958) (4,891)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts under deposit contracts 8 58
Notes payable-repayment (1,024) (147)
Proceeds from borrowings 612
Payment of dividends (212) (213)
-------- --------
Net cash provided by (used in) financing activities (1,228) 310
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 407 (5,971)
Cash and cash equivalents at beginning of period 31,307 27,959
-------- --------
Cash and cash equivalents at end of period $ 31,714 $ 21,988
======== ========
Supplemental cash flow disclosure:
Interest expense $ 148 $ 496
Income taxes $ 0 $ 0
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
ITEM 1. - Financial Statements (continued)
KAYE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The consolidated financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are unaudited, and have been prepared
in accordance with generally accepted accounting principles and, in the opinion
of management, reflect all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of the results for such periods.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the financial
statements and related notes in the Company's 1997 Form 10-K. The December 31,
1997 consolidated balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
Certain prior year information has been reclassified to conform with the
1998 presentation.
2) Organization
Effective October 2, 1995 Old Lyme Holding Corporation ("Old Lyme")
combined its operations with the insurance brokerage operations (the "Retail
Brokerage Business") of Kaye International L.P. ("KILP") and changed its name to
Kaye Group Inc. (the "Company"). On December 30, 1997, the stockholders of the
Company approved a restructuring that merged Kaye Holding Corp. ("KHC") into the
Company. This eliminated KILP's minority interest in KHC of $6,191,000 at
December 31, 1997 and increased stockholders' equity of the Company by the same
amount. KILP is the Company's largest stockholder. The merger was accounted for
as a transfer and exchange between entities under common control. Accordingly,
common stock of Kaye Group Inc. issued in exchange for the KHC shares was
accounted for by using the closing NASDAQ market price on (the effective date of
the merger) October 24, 1997 ($7.00). This increased the number of shares of
common stock by 1,454,435 at the par value $.01, per share, or $14,544. Paid-in
capital was increased by $10,166,000 which was the difference between the market
value per share and the par value per share. Minority interest in KHC was
eliminated as a result of the merger and retained earnings of Kaye Group Inc.
was reduced to account for the difference between the market value of the shares
issued, and the book value of the minority interest in KHC.
For further details of the combination, reference is hereby made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
previously filed with the Securities and Exchange Commission.
8
<PAGE>
3) Changes in Accounting Policies
Effective January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in an
annual financial statement that is displayed with the same prominence as other
annual financial statements. This statement also requires that an entity
classify items of other comprehensive earnings by their nature in an annual
financial statement. For example, other comprehensive earnings may include
foreign currency translation adjustments, minimum pension liability adjustments,
and unrealized gains and losses on marketable securities classified as
available-for-sale. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive earnings were as
follows:
Three Months Ended March 31,
----------------------------
1998 1997
---- -----
NET INCOME $971 $228
Net comprehensive loss (38) (78)
---- ----
COMPREHENSIVE INCOME $933 $150
==== ====
4) Funds Held In Fiduciary Capacity
Premiums collected by the Insurance Brokerage Companies but not yet
remitted to insurance carriers, some of which are restricted as to use by law in
certain states in which the Insurance Brokerage Companies operate. These
balances are held in cash and cash equivalents or short term investments. The
offsetting obligation is recorded in premiums payable.
5) Notes Payable
The Company has a $6,094,000, revolving line of credit (the "Loan") with a
bank, collateralized by the stock of the Insurance Companies. The proceeds are
available for general corporate purposes, which may include acquisitions by the
Company or a subsidiary and the making of a loan to an affiliate. Any borrowings
will bear interest at the bank's equivalent of the prime rate of interest as
maintained from time to time or at the Company's option, a LIBOR based rate plus
2.5%. A commitment fee is assessed in the amount of 1/4% per annum on the unused
balance. Among other covenants, the agreement requires maintenance of minimum
consolidated net worth, statutory surplus, ratios of net premiums written to
surplus and minimum interest coverage. As of March 31, 1998, the Company is in
compliance with the covenants of the debt agreement.
9
<PAGE>
The bank's commitment under the Loan has been renegotiated to decrease the
quarterly reduction commitment to $468,750 from $625,000 commencing September
30, 1997 and to extend the due date one year to June 30, 2001. In addition, the
interest rate increased from 1.5% to 2.5% plus LIBOR. All other terms and
conditions remain unchanged. The revised available credit as of the end of each
respective year is $4,687,500 in 1998, $2,812,500 in 1999, $937,500 in 2000, and
none in 2001. The Company's required payments for the respective years are
$1,875,000 in 1998 through 2000 and $1,406,250 in 2001. Interest expense under
the Loan for the three months ended March 31, 1998 an 1997 was $148,000 and
$124,000, respectively.
On August 29, 1997, the Company paid in full the note payable to KILP of
$6,000,000. This note was subject to repayment restrictions stipulated in the
Loan agreement. The due date of the note pursuant to the Loan agreement would
have been in 2001. The bank consented to the payment on August 25, 1997.
6) Earnings Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 Earnings Per Share which requires an
enterprise to present basic and diluted earnings per share on the face of the
income statement. Basic earnings per share, which is calculated by dividing net
income by the weighted average number of common shares outstanding, replaces
primary earnings per share from the prior standard. For all periods previously
reported by the Company, basic earnings per share is the same as primary
earnings per share, since the impact of the Company's common stock equivalents
for those periods did not reach the significance threshold prescribed to require
adjustment under the prior standard. Diluted earnings per share include the
effect of all potentially dilutive securities.
7) Dividends
On March 20, 1998, the Board of Directors declared a quarterly dividend of
$.025 per share, payable April 20, 1998 to stockholders of record on March 31,
1998.
8) Contingent Liabilities
In the ordinary course of business, the Company and its subsidiaries are
subject to various claims and lawsuits in connection with the placement of
insurance. In the opinion of management, the ultimate resolution of all asserted
and potential claims will not have a material adverse effect on the consolidated
financial position of the Company.
9) Future Accounting Policies
In February 1997, the Securities and Exchange Commission ("SEC") issued
Financial Reporting Release No. 48, Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments ("FRR No. 48").
10
<PAGE>
FRR No. 48 amends rules and forms for registrants and requires
clarification and expansion of existing disclosures for derivative financial
instruments, other financial instruments and derivative commodity instruments,
as defined therein. The amendments require enhanced disclosure with respect to
these derivative instruments in the notes to financial statements. As of March
31, 1998, the Company has no derivative financial instruments.
Additionally, the amendments expand existing disclosure requirements to
include quantitative and qualitative discussions with respect to market risk
inherent in market risk sensitive instruments such as equity and fixed maturity
securities, as well as derivative instruments which investors can use to better
understand and evaluate market risk exposures of registrants. These disclosures
are effective for fiscal years ending after June 15, 1998.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosure about
Segments of an Enterprise and Related Information. This statement requires that
companies report certain information about their operating segments in the
financial statements including, information about the products and services from
which revenues are derived, the geographic areas of operations, and information
about major customers. Operating segments are determined by the way management
decides how to allocate resources and how it assesses performance. Descriptive
information about the method used to identify the reportable operating segments
must also be disclosed. The statement also requires a reconciliation of
revenues, net income, and assets and other amounts disclosed for the segments to
the corresponding amounts in the consolidated financial statements. The
statement is effective for year end 1998 and is not expected to change the
Company's current segmentation of its business. The financial position and
operating results of the Company will not be affected by this statement.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Kaye Group Inc. (the "Company"), a Delaware corporation, formerly Old Lyme
Holding Corporation ("Old Lyme"), is a holding company which, through its
subsidiaries, is engaged in a broad range of insurance brokerage, underwriting
and related activities. The Company operates in two insurance business segments
- - the Insurance Brokerage Companies Operations comprised of the Retail Brokerage
Business and the Program Brokerage Business, and the Property and Casualty
Companies Operations ("Property and Casualty Companies" or "Insurance"), which
comprises the Insurance Companies and Claims Administration Corporation.
Overview
The Insurance Brokerage Companies derive their revenue principally from
commissions associated with the placement of insurance coverage for corporate
clients. These commissions are paid by the insurance carriers and are usually a
fixed percentage of the total premiums. Certain of these commissions are
contingent upon the level of volume and profitability of the related coverage to
the insurance companies. There is normally a lag between receipt of funds from
the insured and payment to the insurance company. Investment of these funds over
this period generates additional revenue in the form of interest income.
The Insurance business underwrites property and casualty risks for insureds
in the United States and is sold principally through specially designed
Programs, covering various types of businesses and properties which have similar
risk characteristics. The Insurance business generally underwrites the first
layer of insurance under the Programs and unaffiliated Program insurers provide
coverage for losses above the first layer of risk. Substantially all of the
Insurance business revenues are derived from premiums on this business, plus the
investment income generated by the investment portfolio of the Insurance
business.
Corporate Operations include those activities that benefit the Company in
its entirety and cannot be specifically identified to either the Insurance
Brokerage Companies or the Property and Casualty Companies. Such activities
include debt servicing and public company expenses, including investor
relations.
12
<PAGE>
Results of Operations
Three Months ended March 31, 1998
compared with Three Months ended March 31, 1997
Insurance Brokerage Companies
Loss before income taxes decreased by $447,000 (35%) to $821,000 in 1998
from $1,268,000 in 1997. The improved operating result was mainly due to
decreased interest expense and an increase in contingency income earned on 1997
business, partially offset by higher salaries and related benefits, as discussed
below.
Total revenues in 1998 were $7,675,000 compared with $6,912,000 in 1997, or
an increase of $763,000 (11%). This increase was the result of growth in
commissions and fees-net of $738,000 (11%) and interest income of $25,000.
Commission and fees-net increased mainly as a result of an increase in
contingency commission of $939,000 due to the volume and profitability of 1997
premiums placed with certain insurance carriers, new business of $1,342,000 and
the acquisition of Western Insurance Associates, Inc. which contributed
approximately $438,000. The decreases to commission and fees-net were lost
business of $1,308,000 and timing differences (primarily items to be billed in
future quarters) of $673,000.
Salaries and related benefits increased by $608,000 (13%) to $5,455,000 in
1998 compared to $4,847,000 in 1997. This increase was the result of the
acquisition of Western Insurance Associates, Inc., in July 1997 and increased
performance based compensation.
Other operating expenses decreased by $142,000 (4%) to $3,041,000 in 1998
compared with $3,183,000 in 1997. This decrease was mainly due to expiration of
management service contracts which expired in the third quarter of 1997,
partially offset by the operating expenses of Western Insurance Associates, Inc.
Interest expense decreased by $150,000 in 1998 as a result of the early
payment of the $6,000,000 note payable to Kaye International L.P., in August
1997.
Property and Casualty Companies
Income before income taxes increased in 1998 by $669,000 (36%) to
$2,540,000 from $1,871,000 in 1997. The increase in operating result was due to
increased net premiums earned and a recovery of a bad debt provision, as
discussed below.
Net premiums earned for 1998 increased by $903,000 (17%), to $6,131,000
from $5,228,000 in 1997. The Company's efforts to broaden the distribution
network of the Programs and coverage types has contributed to growth in several
new programs established in the later part of 1997.
13
<PAGE>
Losses and loss expenses increased in 1998 by $338,000 (16%) to $2,346,000
from $2,008,000 in 1997. The loss ratio for 1998 and 1997 was 38%. The increase
in absolute dollars was the result of increased premium volume.
Acquisition costs and general and administrative expenses decreased in 1998
by $56,000 (2%) to $2,016,000 from $2,072,000 in 1997. The expense ratio
(acquisition costs and general and administrative expenses) for 1998 and 1997
was 33% and 40%, respectively. This decrease was due to a recovery of a bad debt
provision and lower administrative charges. Exclusive of the recovery, the
expense ratio for 1998 and 1997 would have been 36% and 40%, respectively.
Corporate
Net expenses before income taxes increased in 1998 by $84,000 (40%) to
$291,000 from $207,000 in 1997. This increase was the result of a provision
recorded for investment decline, additional cost related to investor relations
and increased interest expense on corporate debt.
Financial Condition and Liquidity
Management believes that the Company's operating cash flow, along with the
cash equivalents and short term investments will provide sufficient sources of
liquidity and capital to meet the Company's anticipated needs during the next
twelve months and the foreseeable future. The Company has no capital commitments
that are material individually or in the aggregate.
Total assets decreased by $8,131,000 (6%) to $132,894,000 at March 31, 1998
from $141,025,000 at December 31, 1997. Total liabilities decreased by
$8,852,000 (8%) to $97,005,000 at March 31, 1998 from $105,857,000 at December
31, 1997. Due to the cyclical nature of the business, premiums receivable and
premiums payable fluctuate significantly from quarter to quarter. The collection
of premiums receivable and the amortization of acquisition costs, with the
corresponding payments to underwriters and the amortization of unearned premiums
related to the renewal of the Residential Real Estate Programs effective
December 20, accounted for the major portion of the decrease.
Stockholders' equity increased by $721,000 to $35,889,000 at March 31,
1998, from $35,168,000 at December 31, 1997. The increase in equity resulted
from net income of $971,000 partially offset by a decrease in unrealized
appreciation of investments of $38,000 and dividends payable of $212,000.
The Company's cash and cash equivalents increased by $407,000 for three
months ended March 31, 1998. Operating activities provided cash of $3,593,000
primarily as a result of collection of a contingent commission receivable.
Investing activities used cash of $1,958,000 for the purchase of new computer
software and short term investments. Financing activities used cash of
$1,228,000 for payments of dividends and notes payable.
14
<PAGE>
The Company maintains a substantial level of cash and liquid short term
investments which are used to meet anticipated payment obligations. As of March
31, 1998, the Company had cash and short term investments of $36,464,000. Of the
Company's total invested assets, certain amounts are pledged or deposited into
trust funds to collateralize the Company's obligations under reinsurance
agreements.
The Company has available a $6,094,000 revolving line of credit with a
bank, collateralized by the stock of the Insurance Companies. The proceeds are
available for general operating needs and acquisitions. As of March 31, 1998,
there was no unused portion of the revolving line of credit.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-Q or any other written or
oral statements made by or on behalf of the Company may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
(which are described in more detail elsewhere in documents filed by the Company
with the Securities and Exchange Commission) include, but are not limited to,
uncertainties relating to government and regulatory policies, volatile and
unpredictable developments (including storms and catastrophes), the legal
environment, the uncertainties of the reserving process and the competitive
environment in which the Company operates. The words "believe", "anticipate",
"project", "plan", "expect" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
15
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to lawsuits arising in the normal course of
business. Virtually all pending lawsuits in which the Insurance Companies are a
party, involve claims under policies underwritten or reinsured by such
Companies. Management believes these lawsuits have been adequately provided for
in its established loss and loss expense reserves and that the resolution of
these lawsuits will not have a material adverse effect on the Company's
financial condition or results of operations.
The Insurance Brokerage Companies are subject to various claims and
lawsuits from both private and governmental parties, which include claims and
lawsuits in the ordinary course of business. The majority of pending lawsuits
involve insurance claims, errors and omissions, employment claims, and breaches
of contract. The Company believes that the resolution of these lawsuits will not
have a material adverse effect on the Company's financial condition or results
of operations.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Description
11 Statement regarding computation of earnings per share
27 Financial Data Schedule
b) Reports on Form 8-K
On January 7, 1998 the Company filed Form 8-K announcing several
changes in its Board of Directors.
16
<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.
KAYE GROUP INC.
Registrant
May 13, 1998 /s/ Bruce D. Guthart
---------------------
Bruce D. Guthart,
President & Chief
Executive Officer
May 13, 1998 /s/ Michael P. Sabanos
------------------------
Michael P. Sabanos,
Senior Vice President &
Chief Financial Officer
17
EXHIBIT 11
Page I of II
KAYE GROUP INC
Earnings Per Share Calculation
For the Three Months Ended March 31, 1998
Net Income $ 971,000 (1)
I. Weighted Average Shares:
1/01/98-3/31/98 (90/90 X 8,474,435) 8,474,435
---------
Weighted Average Shares 8,474,435 (2)
=========
II. Basic E/P/S 0.1146 (3)=(1)/(2)
=========
III. Diluted E/P/S
Weighted Average Shares 8,474,435 (2)
Dilution 121,119 (4)
---------
8,595,554 (5)
=========
Diluted E/P/S 0.1130 (6)=(1)/(5)
=========
<PAGE>
EXHIBIT 11
Page II of II
KAYE GROUP INC
Earnings Per Share Calculation
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
IV. Options outstanding Dilutive Shares
Weighted
Units Price/Share Proceeds Average Proceeds
----- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
A. Options (8/17/93) 84,750 $10.000 $ 847,500
Options (1/24/94) 5,000 10.910 54,550
Options (2/3/94) 500 11.625 5,813
Options (9/13/95) 15,000 7.880 118,200
Options (10/20/95) 43,850 8.430 369,656
Options (5/15/96) 10,000 7.060 70,600
Options (12/27/96) 15,000 5.000 75,000 15,000 75,000
Options (2/1/97) 35,000 5.000 175,000 35,000 175,000
Options (2/25/97) 182,250 5.060 922,185 182,250 922,185
Options (4/15/97) 200,000 5.000 1,000,000 200,000 1,000,000
Options (7/1/97) 10,000 4.970 49,700 10,000 49,700
Options (10/31/97) 15,000 8.030 120,450
Options (12/31/97) 5,000 6.640 33,200 5,000 33,200
------- ---------- ------- ---------
621,350 $3,841,853 447,250 (7) 2,255,085 (8)
======= ========== ======= =========
<CAPTION>
V. Average market value/share
Average Average Average Close on
High Low Close last day
------- ------- ------- --------
<S> <C> <C> <C> <C>
Jan 6.578 6.459 6.538
Feb 7.153 7.023 7.013
Mar 7.224 7.162 7.193 7.500
----------
Hash total 3 mths 20.744
==========
/ 3
Average price per share three mths 6.915
==========
<CAPTION>
VII. Diluted
Quarter Ended
-------------
<S> <C>
Total Proceeds from exercise $2,255,085 (8)
Divided by average price 6.915
Repurchase shares of 326,131
Shares issued (options) 447,250 (7)
---------
Dilutive Shares 121,119 (4)
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 41,774
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,238
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 47,928
<CASH> 31,714
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,668
<TOTAL-ASSETS> 132,894
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 8,469
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 130
<NOTES-PAYABLE> 7,095
0
0
<COMMON> 85
<OTHER-SE> 35,804
<TOTAL-LIABILITY-AND-EQUITY> 132,894
6,131
<INVESTMENT-INCOME> 1,177
<INVESTMENT-GAINS> 12
<OTHER-INCOME> 7,228
<BENEFITS> 2,346
<UNDERWRITING-AMORTIZATION> 2,016
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,428
<INCOME-TAX> 457
<INCOME-CONTINUING> 971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
<RESERVE-OPEN> 19,126
<PROVISION-CURRENT> 2,531
<PROVISION-PRIOR> (885)
<PAYMENTS-CURRENT> 129
<PAYMENTS-PRIOR> 1,673
<RESERVE-CLOSE> 18,970
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
