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, 2000
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
of incorporation or organization) No.)
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 5, 2000 - 8,440,762
- - Total number of pages filed including cover and under pages 20
- - Exhibit index is located on page 16
1
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KAYE GROUP INC.
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 2000 and 1999 7
Consolidated Statements of Comprehensive Income for the
three months ended March 31, 2000 and 1999 8
Notes to Unaudited Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Year 2000 Compliance 15
Safe Harbor Disclosure 15
PART II OTHER INFORMATION 16
2
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KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and December 31, 1999
(in thousands, except par value per share)
<TABLE>
<CAPTION>
2000 1999
----------- -------
(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 $18,973 and $25,610) $ 20,411 $ 27,678
Premiums and other receivables 21,356 27,265
Prepaid expenses and other assets 2,010 1,717
-------- --------
Total current assets 43,777 56,660
Fixed assets (net of accumulated depreciation of $7,203 and $6,922) 3,617 3,770
Intangible assets (net of accumulated amortization of $3,946 and $3,845) 10,323 10,228
Other assets 249 195
-------- --------
Total assets - insurance brokerage companies 57,966 70,853
-------- --------
PROPERTY AND CASUALTY COMPANIES:
Investments available-for-sale:
Fixed maturities, at market value (amortized cost: 2000, $44,930;
1999, $42,273) 43,945 41,304
Equity securities, at market value (cost:2000, $6,022; 1999, $3,873) 6,512 4,496
Short term investments, at cost, which approximates market value 4,250 5,500
-------- --------
Total investments 54,707 51,300
Cash and cash equivalents 5,583 8,827
Accrued interest and dividends 888 873
Premiums receivable 1,301 2,333
Reinsurance recoverable on paid and unpaid losses 3,381 2,747
Prepaid reinsurance premiums 586 488
Deferred acquisition costs 2,954 4,313
Deferred income taxes 1,368 1,236
Other assets 4,482 4,520
-------- --------
Total assets - property and casualty companies 75,250 76,637
-------- --------
CORPORATE:
Cash and cash equivalents 1,192 1,233
Prepaid expenses and other assets 128 153
Investments:
Equity securities, at market value (cost:2000, $243, and 1999, $243) 359 243
Deferred income taxes 199 93
-------- --------
Total assets - corporate 1,878 1,722
-------- --------
Total assets $135,094 $149,212
-------- --------
</TABLE>
See notes to consolidated financial statements
3
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KAYE GROUP INC.
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and December 31, 1999
(in thousands, except par value per share)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
(UNAUDITED)
<S> <C> <C>
LIABILITIES
INSURANCE BROKERAGE COMPANIES:
Current liabilities:
Premiums payable and unearned commissions $ 32,788 $ 42,161
Accounts payable and accrued liabilities 5,697 8,103
Notes payable 549 527
--------- ---------
Total current liabilities 39,034 50,791
Notes payable 712 841
Deferred income taxes 98 491
--------- ---------
Total liabilities-insurance brokerage companies 39,844 52,123
--------- ---------
PROPERTY AND CASUALTY COMPANIES:
Liabilities:
Unpaid losses and loss expenses 24,329 23,969
Unearned premium reserves 9,679 13,694
Accounts payable and accrued liabilities 7,612 7,953
Other liabilities 171 245
--------- ---------
Total liabilities - property and casualty companies 41,791 45,861
--------- ---------
CORPORATE:
Current liabilities:
Accounts payable and accrued liabilities 177 300
Loan payable 1,266 1,241
Income taxes payable 1,585 366
--------- ---------
Total current liabilities 3,028 1,907
Loan payable-long-term 1,744 2,070
--------- ---------
Total liabilities-corporate 4,772 3,977
--------- ---------
Total liabilities 86,407 101,961
--------- ---------
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;
shares issued and outstanding (2000, 8,463 ; 1999, 8,458) 85 85
Paid - in capital 18,019 18,019
Accumulated other comprehensive income, net of deferred
income tax benefit (2000, ($129); 1999, ($118)) (250) (228)
Unearned stock grant compensation (249) (254)
Retained earnings 31,269 29,858
Common stock in Treasury, shares at cost (2000, 23 ; 1999, 28) (187) (229)
--------- ---------
Total stockholders' equity 48,687 47,251
--------- ---------
Total liabilities and stockholders' equity $ 135,094 $ 149,212
--------- ---------
</TABLE>
See notes to consolidated financial statements
4
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Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2000 and 1999
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
----------------------
2000 1999
------- -------
INSURANCE BROKERAGE COMPANIES
Revenues:
Commissions and fees - net $ 8,777 $ 8,564
Investment income 333 350
------- -------
Total revenues 9,110 8,914
------- -------
Expenses:
Salaries and benefits 5,645 5,576
Amortization of intangibles 287 354
Other operating expenses 3,174 3,376
------- -------
Total operating expenses 9,106 9,306
------- -------
Interest expense 208 82
------- -------
Loss before income taxes-insurance brokerage
companies (204) (474)
------- -------
PROPERTY AND CASUALTY COMPANIES
Revenues:
Net premiums written 2,951 2,817
Change in unearned premiums 4,113 3,603
------- -------
Net premiums earned 7,064 6,420
Net investment income 784 727
Net realized gains on investments 385 1
Other income 18 18
------- -------
Total revenues 8,251 7,166
------- -------
Expenses:
Losses and loss expenses 2,751 2,182
Acquisition costs and general and administrative
expenses 2,775 2,368
------- -------
Total expenses 5,526 4,550
------- -------
Income before income taxes-property and casualty
companies 2,725 2,616
------- -------
CORPORATE
Revenues:
Net investment income 14 3
Expenses:
Other operating expenses 83 97
Interest expense 67 79
------- -------
Net expenses before income taxes-corporate (136) (173)
------- -------
See notes to unaudited consolidated financial statements
5
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Item 1. - Financial Statements (continued)
KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2000 and 1999
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
-------------------------
2000 1999
------- -------
Income before income taxes 2,385 1,969
------- -------
Provision (benefit) for income taxes
Current 1,383 1,181
Deferred (620) (571)
------- -------
Total provision for income taxes 763 610
------- -------
Net income $ 1,622 $ 1,359
------- -------
EARNINGS PER SHARE
Basic $ 0.19 $ 0.16
------- -------
Diluted $ 0.19 $ 0.16
------- -------
Weighted average of shares outstanding - basic 8,461 8,460
------- -------
Weighted average shares outstanding and
share equivalents outstanding - diluted 8,669 8,605
------- -------
See notes to unaudited consolidated financial statements
6
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KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended ended March 31, 2000 and 1999
(in thousands)
(UNAUDITED)
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,622 $ 1,359
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Deferred acquisition costs 1,359 1,135
Amortization of bond premium - net 157 138
Deferred income taxes (620) (571)
Net realized loss (gains) on investments (385) (1)
Depreciation and amortization expense 594 639
Change in assets and liabilities:
Accrued interest and dividends (15) (45)
Premiums and other receivables 6,300 31,458
Prepaid expenses and other assets (79) (1,072)
Premiums payable and unearned commissions (9,447) (33,848)
Accounts payable and accrued liabilities (2,736) (2,674)
Unpaid losses and loss expenses 360 983
Unearned premium reserves (4,015) (3,560)
Income taxes payable 1,219 608
-------- --------
Net cash used in operating activities (5,686) (5,451)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments available - for - sale :
Purchase of fixed maturities (3,997) (5,573)
Purchase of equity securities (4,531)
Purchase of short term investments 1,250 (1,150)
Maturities of fixed securities 934 960
Sales of fixed securities 249 101
Sales of equity securities 2,768
Purchase of fixed assets (212) (296)
Acquisition payments (708) (2,612)
-------- --------
Net cash used in investing activities (4,247) (8,570)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisition debt-repayment (94) (94)
Notes and loan payable-repayment (314) (405)
Acquisition of treasury stock (712)
Payment of dividends (211) (212)
-------- --------
Net cash used in financing activities (619) (1,423)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,552) (15,444)
Cash and cash equivalents at beginning of period 37,738 45,443
-------- --------
Cash and cash equivalents at end of period $ 27,186 $ 29,999
-------- --------
Supplemental cash flow disclosure:
Interest expense $ 282 $ 122
Income taxes $ 164 $ 573
Noncash financing activity:
Reissuance of treasury stock for an $ 42 $ 505
acquisition
See notes to consolidated financial statements
7
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KAYE GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999
(in thousands)
(UNAUDITED)
2000 1999
-------- -------
NET INCOME $ 1,622 $ 1,359
Other comprehensive income:
Unrealized (depreciation) appreciation of
investments available-for-sale, net of
deferred income tax (benefit) liability
(2000, $119 , 1999, ($117)) 232 (224)
Less: reclassification adjustment for gains
included in net income, net of deferred income
tax liability (2000, $130, 1999, $0) (254) (1)
-------- -------
Total other comprehensive loss (22) (225)
-------- -------
COMPREHENSIVE INCOME $ 1,600 $ 1,134
-------- -------
See notes to consolidated financial statements
8
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ITEM 1. - Financial Statements (continued)
KAYE GROUP INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) General
The consolidated financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 are unaudited, 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, 2000 are not
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 1999 Form 10-K. The December 31,
1999 Consolidated Balance Sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
2) Business Segments
Kaye Group Inc. (the "Company"), a Delaware corporation, 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") comprised of the Insurance Companies and
Claims Administration Corporation.
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
alternative distribution 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 and,
for the most part, the related expenses are allocated to either the Insurance
Brokerage Companies or the Property and Casualty Companies. Certain holding
company expenses are not allocated and include debt servicing and public company
expenses, including investor relations costs. In addition, Corporate Operations
include an investment in Arista Investors Corp.
9
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The identifiable segment assets, operating profits and income before income
taxes are shown on the accompanying Consolidated Balance Sheets and Statements
of Income. The following table is a summary of certain other segment information
for the three months ended March 31, 2000 and 1999:
Business Segments - 2000
- --------------------------------------------------------------------------------
Insurance Property &
(in thousands) Brokerage Casualty
------------------------------------------------------------------------------
Revenue from external sources $ 8,778 $ 7,064
Revenue from other segments (1) 18
Interest income from other segments -- 65
Depreciation and amortization expense 585 2,182
Capital expenditures 212 --
Business Segments - 1999
- --------------------------------------------------------------------------------
Insurance Property &
(in thousands) Brokerage Casualty
------------------------------------------------------------------------------
Revenue from external sources $8,371 $6,420
Revenue from other segments 193 18
Depreciation and amortization expense 639 1,975
Capital expenditures 296 --
3) Loan Payable
The 7.8% Term Loan due through 2002 is secured by the stock of the Property
and Casualty Companies. Certain covenants exist on this loan, the most
significant being the requirement to maintain a minimum GAAP net worth, minimum
statutory surplus in the insurance companies, a fixed ratio of net premiums to
surplus and a minimum debt service coverage. At March 31, 2000, the Company was
in compliance with the covenants under the loan agreement.
In addition, the Company has available a $4,500,000 revolving line of
credit through 2001 at a rate of LIBOR plus 175 basis points or the banks' base
rate. The line is also secured by the stock of the Property and Casualty
Companies. The proceeds are available for general operating needs and
acquisitions. At March 31, 2000, no amount was outstanding on the revolving line
of credit. A quarterly fee is assessed in the amount of .05% on the unused
balance.
The Company's required principal payments on the Loan for the respective
years are $940,000 in 2000, $1,343,000 in 2001, and $727,000 in 2002. Interest
expense for the loan for the three months ended March 31, 2000 and 1999 were
$67,000 and $79,000, respectively.
4) Treasury Stock
In December 1998, the Board of Directors authorized the repurchase, at
management's discretion, of up to 300,000 shares of the Company's Common Stock.
The Company's repurchases of shares of Common Stock are recorded as treasury
stock and result in a reduction of stockholders' equity. When treasury shares
are reissued the Company uses a first-in, first-out
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method and the excess of re-issuance price over repurchase cost is treated as an
increase of paid-in capital. Net issuances/(purchases) of treasury stock for the
three months ended March 31, 2000 and 1999 amounted to 5,062 and (28,000)
shares, respectively.
5) Stock Performance Plan
During July 1999, the Company awarded 34,000 shares of restricted stock
from shares previously granted under the Stock Performance Plan to certain key
employees. The market value of these shares awarded totaled $264,000 and has
been recorded as unamortized restricted stock compensation (net of amortization)
as a separate component of stockholders' equity. Unearned compensation is being
amortized to expense on a straight line basis over the remaining vesting period.
6) Earnings Per Share
Earnings per common share for the three months ended March 31, 2000 and
1999 have been computed below in accordance with SFAS No. 128, based upon
weighted average common and dilutive shares outstanding (in thousands, except
per share amounts):
2000 1999
------ ------
Net income (numerator) $1,622 $1,359
------ ------
Weighted average common shares and effect of
dilutive shares used in the computation of
earnings per share:
Average shares outstanding-basic 8,461 8,460
Effect of dilutive shares 208 145
------ ------
Average shares outstanding-diluted
(denominator) 8,669 8,605
------ ------
Earnings per common share:
Basic $0.19 $0.16
Diluted $0.19 $0.16
7) Dividends
On March 20, 2000, the Board of Directors declared a quarterly dividend of
$.025 per share, payable April 20, 2000 to stockholders of record on March 31,
2000.
8) Changes in Accounting Policies - Accounting Standards not yet Adopted
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 which provides guidance for applying
generally accepted accounting principles relating to the timing of revenue
recognition in financial statements filed with the SEC. Any change required by
the SAB must be made in the second quarter 2000 with a cumulative effect
accounting change. Management believes that this SAB will not have a material
impact on the consolidated financial statements.
11
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9) 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Kaye Group Inc. (the "Company"), a Delaware corporation, 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") comprised of 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
primarily include debt servicing and public company expenses, including investor
relations costs. In addition, Corporate Operations include an investment in
Arista Investors Corp. ("Arista").
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Results of Operations
Three months ended March 31, 2000
compared with three months ended March 31, 1999
- -----------------------------------------------
Net Income
Net Income for the three months ended March 31, 2000 increased by $263,000
to $1,622,000 or basic earnings per share of $0.19 compared to $1,359,000 or
$0.16 for the same period last year, as explained below.
Insurance Brokerage Companies
Loss before income taxes decreased by $270,000 to $204,000 in 2000 from
$474,000 in 1999, primarily due to higher revenues and lower other operating
expenses, as discussed below.
Total revenues in 2000 were $9,110,000 compared with $8,914,000 in 1999, an
increase of $196,000 (2%). Gross commissions and fees were higher by $703,000
(7%) as a result of new business exceeding lost business. The commission expense
rate (defined as commissions incurred to independent producers as a percentage
of gross commissions and fees) to produce new and renewal business increased
from 15% to 20% which resulted in a decrease in net commissions and fees of
$433,000. Notwithstanding this decrease, net commissions and fees increased
$213,000 from $8,564,000 to $8,777,000. Investment income decreased by $17,000
(5%) primarily due to lower fiduciary investments.
Salaries and benefits increased by $69,000 (1%) to $5,645,000 in 2000
compared to $5,576,000 in 1999. The increase was mainly the result of increased
internal commission expense partially offset by lower headcount and incentive
compensation accruals.
Amortization of intangibles decreased $67,000 (19%) to $287,000 in 2000
compared with $354,000 in 1999 due to a reduction in certain intangibles
acquired in 1998 as a result of the sale of the majority of the operations of
Laub Group of Florida, Inc. and of certain assets of Florida Insurance
Associates, Inc. during the quarter.
Other operating expenses decreased by $202,000 (6%) to $3,174,000 from
$3,376,000. The decrease was mainly due to an increase in intercompany
management fees allocated to the Property and Casualty Companies offset by
higher premium financing fees.
Interest expense increased by $126,000 as a result of the SRW acquisition
which includes a related note payable to the Property and Casualty Companies.
Property and Casualty Companies
Income before income taxes increased by $109,000 (4%) to $2,725,000 in 2000
from $2,616,000 in 1999. This increase was due to an increase in net premiums
earned and investment income, and realized capital gains, offset by an increase
in the combined ratio, as discussed below.
Net premiums earned for 2000 increased by $644,000 (10%) to $7,064,000 from
$6,420,000 in 1999. The increase was due to an increase in reinsurance assumed
and direct
13
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business.
Net investment income increased by $57,000 (8%) to $784,000 in 2000 from
$727,000 in 1999. The increase was due to an increase in investments.
The realized gain on investments of $385,000 in 2000 was due to a
re-balancing of the equity investment portfolio.
The loss ratio (loss incurred expressed as a percentage of net premiums
earned) increased to 39% in 2000 from 34% in 1999. The increase was due the
growth in reinsurance liability business which generally experiences higher
losses and an increase in an intercompany claims management fee.
The acquisition costs and general and administrative expenses ratio
increased to 39% in 2000 from 37% in 1999. The increase was primarily due to an
increase in intercompany management fees.
Corporate
Net expenses before income taxes decreased in 2000 by $37,000 to $136,000
from $173,000 in 1999 due to increased investment income and a reduction in
interest expense and operating expenses.
Provision for Income Taxes
The provision for income taxes for 2000 and 1999 was $763,000 and $610,000,
respectively, resulting in an effective tax rate of 32% and 31% for 2000 and
1999, respectively.
Financial Condition and Liquidity
Management believes that the Company's operating cash flow, along with its
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 $14,118,000 (9%) to $135,094,000 at March 31,
2000 from $149,212,000 at December 31, 1999. Total liabilities decreased by
$15,554,000 (15%) to $86,407,000 at March 31, 2000 from $101,961,000 at December
31, 1999. These reductions were primarily due to reductions in brokerage segment
fiduciary assets and liabilities (insurance premiums).
Stockholders' equity increased by $1,436,000 (3%) to $48,687,000 at March
31, 2000, from $47,251,000 at December 31, 1999. The increase in equity resulted
from net income of $1,622,000, $42,000 for issuances of treasury stock, and
$5,000 related to amortization of unearned compensation under the Company's
Stock Performance Plan, offset by dividends paid of $211,000, and an increase in
net unrealized depreciation of investments of $22,000.
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The Company maintains a substantial level of cash and liquid short term
investments which are used to meet anticipated payment obligations, primarily
premiums payable to insurance markets. As of March 31, 2000, the Company had
cash and short term investments of $27,186,000. Of the Company's total
investments, certain amounts are pledged or deposited into trust funds to
collateralize the Company's obligations under reinsurance agreements.
As presented in the Consolidated Statements of Cash Flows, the Company's
cash and cash equivalents decreased by $10,552,000 for the period ended March
31, 2000. Operating activities used cash of $5,686,000 which is primarily
attributable to the timing of receipts and payments of insurance premiums
(brokerage segment fiduciary assets and liabilities). Investing activities used
cash of $4,247,000 primarily for the purchase of investments and acquisition
payments. Financing activities used cash of $619,000 for payments of dividends
and loan repayments.
Year 2000 Compliance
A comprehensive review was performed by the Company of the insurance
policies written by its Insurance Companies and their underwriting guidelines to
determine year 2000 exposure. The Insurance Companies primarily issued policies
covering all or part of an insured's self-insured retention, with limits
generally up to $25,000 that follow the form of the policies for coverage in
excess of the Insurance Companies' policies. The Insurance Companies did not
issue exclusions on these policies. The Insurance Companies also issued a number
of policies with greater limits of coverage, and included a year 2000 exclusion
on such policies. The Company is aware that year 2000 liabilities may be deemed
not to be fortuitous in nature and, therefore, not covered under the policies
underwritten by the Insurance Companies. Moreover, based upon the classes of
insurance primarily underwritten by the Insurance Companies, the Company
believes that its coverage exposure with respect to year 2000 losses will not be
material. However, changes in social and legal trends may establish coverage
unintended for Year 2000 exposures by re-interpreting insurance contracts and
exclusions.
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 SEC) 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 Earnings Per Share Calculation
27 Consolidated Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K for the period January 1, 2000 to March 31,
2000.
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 12, 2000 /s/ Bruce D. Guthart
-----------------------------------------
Bruce D. Guthart, Chairman, President and
Chief Executive Officer
May 12, 2000 /s/ Michael P. Sabanos
-----------------------------------------
Michael P. Sabanos, Executive Vice President and
Chief Financial Officer
17
<PAGE>
KAYE GROUP INC EXHIBIT 11
Earnings Per Share Calculation Page 1 of 2
For the Three Months Ended March 31,2000
Shares outstanding at 12/31/99 8,458,295 (A)
Plus: Net Issuance of Treasury Stock 5,062
--------------
Balance @ 3/31/00 8,463,357 (B)
--------------
Weighted average 8,460,826 [(A)+(B)] /2
--------------
Three months
ended
Mar.31,2000
==============
Net Income $ 1,622,000 (1)
I. Average Shares: 8,460,826 (2)
II. Basic EPS 0.1917 (1) / (2)
==============
III. Diluted EPS
Weighted Average Shares 8,460,826 (2)
Dilution 208,281 (3)
--------------
8,669,107 (4)
==============
Diluted EPS 0.1871 (1) / (4)
==============
18
<PAGE>
KAYE GROUP INC EXHIBIT 11
Earnings Per Share Calculation Page 2 of 2
For the Three Months Ended March 31,2000
<TABLE>
<CAPTION>
IV. Outstanding at March 31, 2000
Weighted
Units Price/Share Proceeds Average Proceeds
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
A. Options (8/17/93) 75,500 $ 10.000 $ 755,000
Options (1/24/94 5,000 10.910 54,550
Options (2/3/94) 500 11.630 5,815
Options (9/13/95) 15,000 7.880 118,200 15,000 118,200
Options (10/25/95) 39,750 8.430 335,093
Options (5/15/96) 10,000 7.060 70,600 10,000 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) 158,850 5.060 803,781 159,650 807,829
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 15,000 120,450
Options (12/31/97) 5,000 6.640 33,200 5,000 33,200
Options (07/01/98) 2,000 6.700 13,400 2,000 13,400
Options (10/30/98) 20,000 6.170 123,400 20,000 123,400
Options (12/10/98) 21,800 6.600 143,880 22,400 147,840
Options (2/15/99) 800 7.410 5,928 800 5,928
Options (2/24/99) 40,000 7.380 295,200 40,000 295,200
Options (10/29/99) 20,000 8.240 164,800 20,000 164,800
Options (11/01/99) 48,500 8.240 399,640 48,500 399,640
Options (12/15/99) 252,500 7.500 1,893,750 252,500 1,893,750
----------- ----------- ----------- ------------
990,200 $6,636,387 870,850(5) 5,493,937
=========== =========== =========== ============
Dilutive Shares 870,850(5) 5,493,937(6)
=========== ===========
</TABLE>
V. Average market value/share
Average Close on
Close last day
=========== ==========
January 8.728
February 8.788
March 7.360 6.563
-----------
Hash total 3 mths 24.876
===========
/ 3
-----------
Average price per share Three mths 8.292
===========
VII. Diluted
Three Months
------------
Total Proceeds from exercise $ 5,493,937(6)
Divided by average price 8.292
Repurchase shares of 662,569
Shares issued (options) 870,850(5)
------------
Dilution - Shares (3) 208,281
============
19
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
Exhibit 27
Page 1 of 1
KAYE GROUP INC.
CONSOLIDATED FINANCIAL DATA SCHEDULE
For three months ended March 31, 2000
(in thousands, except per share amounts)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 43,945
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,871
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 55,066
<CASH> 27,186
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,954
<TOTAL-ASSETS> 135,094
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 9,679
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,271
0
0
<COMMON> 85
<OTHER-SE> 48,602
<TOTAL-LIABILITY-AND-EQUITY> 135,094
7,064
<INVESTMENT-INCOME> 1,131
<INVESTMENT-GAINS> 385
<OTHER-INCOME> 18
<BENEFITS> 2,751
<UNDERWRITING-AMORTIZATION> 2,178
<UNDERWRITING-OTHER> 597
<INCOME-PRETAX> 2,385
<INCOME-TAX> 763
<INCOME-CONTINUING> 1,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,622
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
<RESERVE-OPEN> 23,969
<PROVISION-CURRENT> 3,484
<PROVISION-PRIOR> (38
<PAYMENTS-CURRENT> 282
<PAYMENTS-PRIOR> 2,804
<RESERVE-CLOSE> 24,329
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
