<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
-----------------------------------------------------------------------------
For Quarter Ended Commission file number
June 30, 1996 0-5534
BALDWIN & LYONS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0160330
------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1099 North Meridian Street, Indianapolis, Indiana 46204
- - --------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-9800
-------------------
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, 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 August 1, 1996:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting) 2,447,529
Class B (nonvoting) 11,650,645
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
- - ----------------------------
<TABLE>
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
June 30 December 31
1996 1995
--------- ---------
<C> <C>
<S>
ASSETS
Investments:
Fixed maturities $ 280,346 $ 279,083
Equity securities 98,944 98,428
Short-term and other 41,522 47,322
--------- ---------
420,812 424,833
Cash 2,699 1,369
Accounts receivable 15,867 13,174
Reinsurance recoverable 51,277 54,702
Investments in equity
subsidiary and its affiliates 9,932 9,582
Other assets 10,260 8,565
--------- ---------
$ 510,847 $ 512,225
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 210,534 $ 211,489
Reserves for unearned premiums 10,941 8,262
Accounts payable and accrued expenses 38,407 43,895
Deferred federal income taxes 1,041 833
Currently payable federal income taxes 1,644 738
--------- ---------
262,567 265,217
Shareholders' equity:
Common stock-no par value 752 777
Additional paid-in capital 42,090 43,620
Unrealized net gains on investments 19,648 19,251
Retained earnings 185,790 183,360
--------- ---------
248,280 247,008
--------- ---------
$ 510,847 $ 512,225
========= =========
Number of common and common
equivalent shares outstanding 14,233,372 14,716,630
Book value per outstanding share $17.44 $16.78
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Net premiums earned $ 16,142 $ 15,684 $ 31,436 $ 28,541
Net investment income 4,877 4,710 9,863 9,270
Realized net gains on investments 3,105 2,171 3,684 1,726
Commissions and other income 331 277 659 663
-------- -------- -------- --------
24,455 22,842 45,642 40,200
EXPENSES
Losses and loss expenses incurred 10,224 11,549 19,985 19,928
Other operating expenses 4,993 4,314 10,109 8,174
-------- -------- -------- --------
15,217 15,863 30,094 28,102
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
FEDERAL INCOME TAXES AND EQUITY SUBSIDIARY 9,238 6,979 15,548 12,098
Federal income taxes 2,993 1,930 5,033 3,488
-------- -------- -------- --------
NET INCOME FROM CONTINUING OPERATIONS
BEFORE EQUITY SUBSIDIARY 6,245 5,049 10,515 8,610
Income (loss) from equity subsidiary,
net of federal income taxes 28 (42) 269 93
-------- -------- -------- --------
NET INCOME FROM CONTINUING OPERATIONS 6,273 5,007 10,784 8,703
Discontinued operations,
net of federal income taxes - (239) - 142
-------- -------- -------- --------
NET INCOME $ 6,273 $ 4,768 $ 10,784 $ 8,845
======== ======== ======== ========
PER SHARE DATA
Average number of common and common
equivalent shares outstanding 14,336,090 15,070,105 14,466,357 15,073,449
Income before discontinued
operations and realized net gains $ .30 $ .25 $ .58 $ .51
Realized net gains on investments .14 .09 .17 .07
Discontinued operations - (.02) - .01
-------- -------- -------- --------
NET INCOME $ .44 $ .32 $ .75 $ .59
======== ======== ======== ========
Dividends $ .08 $ .08 $ .16 $ .14
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Six months ended
June 30
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 5,387 $ 9,125
Investing activities:
Purchases of long-term investments (117,077) (126,982)
Proceeds from sales or maturities 114,626 125,955
of long term investments
Net sales (purchases) of short-term investments 7,007 (10,727)
Investment in equity subsidiary 2,465 3,666
Other investing activities (1,131) (474)
-------- --------
Net cash provided by (used in) investing activities 5,890 (8,562)
Financing activities:
Dividends paid to shareholders (2,294) (2,086)
Cost of treasury stock (7,653) -
Proceeds from sales of common stock - 1,199
-------- --------
Net cash used in financing activities (9,947) (887)
-------- --------
Increase (decrease) in cash 1,330 (324)
Cash at beginning of year 1,369 531
-------- --------
Cash at end of period $ 2,699 $ 207
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10Q and 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
fair presentation have been included. Operating results for the interim periods
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. Interim financial statements should be read in
conjunction with the Company's annual audited financial statements.
(2) Effective September 30, 1995, the Company sold its subsidiary, Hoosier
Insurance Company. Prior period amounts in the enclosed Statements of Income
have been restated to remove the operations of Hoosier Insurance Company which
are now included under the caption "Discontinued operations". Prior period
amounts shown in footnote 4 have also been restated.
(3) The effective federal income tax rate is less than the statutory rate for
the periods ended June 30, 1996 and June 30, 1995 due primarily to tax-exempt
investment income.
<PAGE>
(4) The following line items from the Statements of Income are presented net of
the reinsurance amounts shown below.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Quarter ended June 30:
Net premiums earned $ 2,863 $ 4,900
Losses and loss expenses (3,086) 3,040
Other operating expenses (119) (484)
Six months ended June 30:
Net premiums earned 6,875 8,648
Losses and loss expenses 2,001 11,386
Other operating expenses (610) (840)
</TABLE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - ---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- - -----------------------------------
Liquidity and Capital Resources
--------------------------------
The Company generally experiences positive cash flow from operations resulting
from the fact that premiums are collected on insurance policies in advance of
the disbursement of funds in payment of claims. Operating costs of the
property/casualty insurance subsidiaries, other than loss and loss expense
payments and commissions paid to related agency companies, generally average
between 15% and 20% of premiums earned and the remaining amount is available for
investment for varying periods of time pending the settlement of claims relating
to the insurance coverage provided. For the six months ended June 30, 1996,
positive cash flow from operations totaled $5.4 million, a decrease from $9.1
million generated during the first half of 1995. The cash flow quoted for the
1995 period included the operations of Hoosier Insurance Company which was sold
on September 30, 1995. Under applicable accounting standards, previous years'
cash flow statements are not restated to reflect discontinued operations.
Adjusted for Hoosier's operations, cash flow for the first six months of 1995
was $8.5 million. The decrease from this amount to the 1996 cash flow was
primarily the result of reinsurance payments made under contingency provisions
of certain treaties. Recent cash flows have, at times, lagged behind those of
earlier periods because of declining premium volume in retrospectively rated
workers' compensation and fleet trucking liability businesses. Management
expects premium revenues from these products to continue trending downward
during 1996 as the result of competitive pressures in the trucking insurance
markets. This decline in trucking insurance revenues will be mitigated somewhat
by continued growth in Company's private passenger automobile program.
<PAGE>
For several years, the Company's investment philosophy has emphasized the
purchase of relatively short-term instruments with maximum quality and
liquidity. The average life of the Company's investment portfolio was
approximately 3 years at June 30, 1996. The Company's assets at June 30, 1996
included $31.6 million in investments classified as short-term which were
readily convertible to cash without significant market penalty. In addition,
fixed maturity investments totaling $35.2 million will mature prior to December
31, 1996. The Company believes that these liquid investments are more than
sufficient to provide for projected claim payments and operating cost demands
even during a period of declining premium volume.
Consolidated shareholders' equity totaled $248.3 million at June 30, 1996 and
includes $218.0 million representing GAAP shareholder's equity of insurance
subsidiaries, of which $32.5 million may be transferred by dividend or loan to
the parent company without approval by, or notification to, regulatory
authorities. An additional $169.0 million of shareholder's equity of such
insurance subsidiaries may be advanced or loaned to the Company with prior
notification to, and approval from, regulatory authorities. At June 30, 1996,
approximately $1.0 million of the Company's consolidated shareholders' equity
represents undistributed earnings of AMLI Realty, Inc. and its affiliates. The
Company believes that these restrictions pose no material liquidity concerns to
the Company. The financial strength and stability of the subsidiaries would
permit ready access by the parent company to short-term and long-term sources of
credit, if necessary. In addition, the parent company had cash and marketable
securities of $44.1 million at June 30, 1996.
Results of Operations
----------------------
Comparisons of Second Quarter, 1996 to Second Quarter, 1995
------------------------------------------------------------
Net premiums earned increased $.5 million during the second quarter of 1996 as
compared to the same period of 1995. The increased premium volume is primarily
attributable to increases in premiums from the Company's private passenger
automobile and workers' compensation products of $2.1 million and $1.0 million,
respectively. The increase in workers' compensation premium includes $.6
million attributable to loss development on retrospectively rated policies
written in prior years. Premiums from the Company's independent contractor and
small fleet programs also increased $.8 million and $.3 million, respectively.
These increases were partially offset by decreases in the Company's large and
medium fleet trucking products of $2.5 million and $.3 million, respectively.
Premiums from voluntary and involuntary reinsurance assumed each decreased $.4
million from the 1995 quarter. Trucking insurance markets continue to be
increasingly competitive and, as a result, premium volume is expected to be
lower over the near term.
Net investment income increased $.2 million (3.5%) during the second quarter of
1996 as increases in invested assets were partially offset by decreases in
yields. Overall pretax yields decreased from 5.6% during the second quarter of
1995 to 5.3% for the current quarter while after tax yields decreased from 3.9%
during the second quarter of 1995 to 3.8% for the second quarter of 1996.
<PAGE>
The second quarter 1996 net realized gain of $3.1 million consists of net gains
on equity securities of $3.4 million and net losses of $.3 million on other
securities.
Losses and loss expenses incurred during the second quarter of 1996 decreased
$1.3 million from that experienced during the second quarter of 1995. The
decrease is due primarily to favorable experience in the Company's medium fleet
trucking product and voluntary reinsurance assumed business which decreased $2.2
million and $1.7 million, respectively. The Company also experienced decreased
loss activity in involuntary reinsurance assumed and its small fleet product.
These decreases were partially offset by an increase in losses from the
Company's fleet trucking business, exclusive of medium fleet, of $2.1 million.
In addition, losses from the Company's private passenger automobile product
increased $1.3 million due to continued growth. Loss and loss expense ratios
for the comparative second quarters were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Fleet trucking 72.9% 67.8%
Voluntary reinsurance assumed 37.7 76.7
Small fleet trucking 30.4 149.0
Private passenger automobile 66.7 87.1
Residual market, assigned risk
and all other (37.7) 107.7
All lines 63.3 73.6
</TABLE>
Other operating expenses for the second quarter of 1996 increased $.7 million
from the second quarter of 1995. The consolidated expense ratio of the
Company's insurance subsidiaries was 24.6% for the second quarter of 1996
compared to 28.9% for the second quarter of 1995 due to lower commission rates
on most trucking insurance products effective in 1996 and cost reductions
resulting from departmental restructurings completed during the last half of
1995. The ratio of consolidated other operating expenses to total revenue
(adjusted for realized gains) increased to 23.4% during the second quarter of
1996 compared to 20.9% for the 1995 second quarter due largely to new product
development costs incurred by the parent company.
The effective federal tax rate for consolidated operations for the second
quarter of 1996 was 32.4% and is less than the statutory rate primarily because
of tax exempt investment income.
As a result of the factors mentioned above, income from consolidated operations
increased $1.2 million (23.7%) during 1996 compared with the 1995 second
quarter.
The Company's ownership of Amli Realty Inc. remained at 38% during the second
quarter of 1996. The Company's share of Amli's net operating income was $28,000
for the second quarter of 1996 compared to loss of $41,000 for the second
quarter of 1995.
<PAGE>
Comparisons of Six Months Ended June 30, 1996 to
-------------------------------------------------
Six Months Ended June 30, 1995
-------------------------------
Net premiums earned increased $2.9 million (10.1%) during the first six months
of 1996 as compared to the same period of 1995. This increase is due primarily
to growth in the Company's private passenger automobile product of $3.6 million
In addition, premiums from the Company's independent contractor and small fleet
programs increased $1.0 million and $.7 million, respectively. Premiums from
workers' compensation products also increased $2.3 million, $1.4 million of
which is attributable to loss development on retrospectively rated policies
written in prior years. These increases were offset by a $4.0 million decrease
in trucking premiums, primarily from large fleet, and a combined $.8 million
decrease in premiums from voluntary and involuntary reinsurance assumed
business. The fleet trucking premium decreases result from the non-renewal of
certain accounts as well as premium reductions and lower net retentions on
accounts renewed during 1996.
Net investment income increased by $.6 million (6.4%) during the first six
months of 1995 compared to the same period in 1995 for the same reasons
mentioned above for the quarterly comparison. Overall pretax yields decreased
to 5.4% from 5.6% a year earlier while after tax yields decreased from 3.9%
during the first half of 1995 to 3.8% for the first six months of 1996.
The net realized gain on investments of $3.7 million for the first six months of
1996 consists predominantly of net gains on equity securities.
The change in losses and loss expenses incurred during the first six months of
1996 compared to the same period of 1995 was insignificant. Growth in the
Company's private passenger automobile program was almost entirely offset by
decreases in losses from voluntary reinsurance assumed.
Loss and loss expense ratios for the comparative six month periods were as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Fleet trucking 67.0% 67.9%
Voluntary reinsurance assumed 41.5 66.0
Small fleet trucking 80.0 123.0
Private passenger automobile 74.0 86.1
Residual market, assigned risk
and all other 24.5 109.9
All lines 63.6 69.8
</TABLE>
Other operating expenses increased $1.9 million (23.7%) during the first six
months of 1996 compared to the same period of 1995. The consolidated expense
ratio of the Company's insurance subsidiaries was 25.1% for 1996 compared to
29.4% for 1995 due to lower commission rates on most trucking insurance products
effective in 1996 and cost reductions resulting from departmental restructurings
completed during the last half of 1995. The ratio of other operating expenses
to total revenue (adjusted for realized gains) was 24.1% for 1996 compared to
<PAGE>
21.2% for 1995 due largely to new product development costs incurred by the
parent company.
The effective federal tax rate for consolidated operations for the first six
months of 1996 was 32.4% and is less than the statutory rate primarily because
of tax exempt investment income.
As a result of the factors mentioned above, income from consolidated operations
for the first six months of 1996 was $10.5 million, up 22.1% from the comparable
1995 period.
The Company's share of Amli's net operating income, combined with losses from
its stock transactions, was a net $269,000 in income for the first six months of
1996 compared to net income of $93,000 for the same period of 1995.
PART II - OTHER INFORMATION
ITEM 6 (a) EXHIBITS
- - ---------------------
Number and caption from Exhibit
Table of Regulation S-K Item 601 Exhibit No.
- - --------------------------------- -------------
(11) Statement regarding computation EXHIBIT 11 --
of per share earnings Computation of Per Share
Earnings
(27) Financial Data Schedules EXHIBIT 27
Item 6 (b) REPORTS ON FORM 8-K
- - ---------- -------------------
No reports on Form 8-K have been filed by the registrant during the three months
ended June 30, 1996.
<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.
BALDWIN & LYONS, INC.
Date August 2, 1996 By /s/ Gary W. Miller
------------------ -------------------------------
Gary W. Miller, President and
Chief Operating Officer
Date August 2, 1996 By /s/ G. Patrick Corydon
------------------ -------------------------------
G. Patrick Corydon,
Vice President - Finance
(Principal Financial and
Accounting Officer)
<PAGE>
BALDWIN & LYONS, INC.
Form 10-Q for the fiscal quarter
ended June 30, 1996
INDEX TO EXHIBITS
<TABLE>
<Caption
Exhibit Number Description Method of Filing
- - -------------- ------------------------ -------- --------------------
<S> <C> <C>
EXHIBIT 11 Computation of per share Filed herewith electronically
earnings
EXHIBIT 27 Financial Data Schedules Filed herewith electronically
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALDWIN & LYONS, INC.
FORM 10-Q, EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Average number of shares
outstanding 14,170,712 14,927,974 14,301,617 14,871,106
Dilutive stock options--based on
treasury stock method using
average market price 165,378 142,131 164,740 202,343
---------- ---------- ---------- ----------
Totals 14,336,090 15,070,105 14,466,357 15,073,449
========== ========== ========== ==========
Net Income $ 6,272,998 $ 4,768,484 $10,783,678 $ 8,845,461
=========== =========== =========== ===========
Per share amount $ .44 $ .32 $ .75 $ .59
======= ======= ======= =======
Fully Diluted:
Average number of shares
outstanding 14,170,712 14,927,974 14,301,617 14,871,106
Dilutive stock options--based on
treasury stock method using
average market price 166,420 142,131 165,261 202,343
---------- ---------- ---------- ----------
Totals 14,337,132 15,070,105 14,466,878 15,073,449
========== ========== ========== ==========
Net Income $ 6,272,998 $ 4,768,484 $10,783,678 $ 8,845,461
=========== =========== =========== ===========
Per share amount $ .44 $ .32 $ .75 $ .59
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations enclosed
herein electronically in Form 10Q for the year-to-date, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 280,346
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 98,944
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 420,812
<CASH> 2,699
<RECOVER-REINSURE> 10,105
<DEFERRED-ACQUISITION> 1,294
<TOTAL-ASSETS> 510,847
<POLICY-LOSSES> 210,534
<UNEARNED-PREMIUMS> 10,941
<POLICY-OTHER> 34
<POLICY-HOLDER-FUNDS> 8,134
<NOTES-PAYABLE> 0
0
0
<COMMON> 752
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 510,847
31,436
<INVESTMENT-INCOME> 9,863
<INVESTMENT-GAINS> 3,684
<OTHER-INCOME> 659
<BENEFITS> 19,985
<UNDERWRITING-AMORTIZATION> 2,835
<UNDERWRITING-OTHER> 2,136
<INCOME-PRETAX> 15,548
<INCOME-TAX> 5,033
<INCOME-CONTINUING> 10,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,784
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<RESERVE-OPEN> 161,458<F1>
<PROVISION-CURRENT> 23,426<F1>
<PROVISION-PRIOR> (3,441)<F1>
<PAYMENTS-CURRENT> 4,548<F1>
<PAYMENTS-PRIOR> 13,920<F1>
<RESERVE-CLOSE> 162,975<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>All loss data is presented net of applicable reinsurance recoverable.
</FN>
</TABLE>
