SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
______________________________________________________
For Quarter Ended Commission file number
March 31, 1998 0-5534
BALDWIN & LYONS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0160330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1099 North Meridian Street, Indianapolis, Indiana 46204
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 636-9800
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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 May 9, 1998:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting) 2,397,354
Class B (nonvoting) 11,346,520
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
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<C> <C>
<S>
ASSETS
Investments:
Fixed maturities $ 263,777 $ 276,109
Equity securities 170,493 158,614
Short-term and other 17,941 17,902
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452,211 452,625
Cash and cash equivalents 31,897 23,402
Accounts receivable 24,666 21,454
Reinsurance recoverable 46,429 47,276
Other assets 14,794 12,258
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$ 569,997 $ 557,015
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 197,106 $ 197,195
Reserves for unearned premiums 23,930 18,806
Accounts payable and accrued expenses 29,170 29,662
Deferred federal income taxes 18,236 16,249
Current federal income taxes 2,042 1,140
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270,484 263,052
Shareholders' equity:
Common stock-no par value 731 730
Additional paid-in capital 41,360 41,361
Unrealized net gains on investments 47,951 45,614
Retained earnings 209,471 206,258
299,513 293,963
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$ 569,997 $ 557,015
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Number of common and common
equivalent shares outstanding 13,844,736 13,844,743
Book value per outstanding share $21.63 $21.23
See notes to condensed consolidated financial statements.
</TABLE>
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31
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1998 1997
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<C> <C>
<S>
REVENUES
Net premiums earned $ 16,985 $ 13,322
Net investment income 4,623 4,611
Realized net gains on investments 2,339 5,444
Commissions and other income 315 378
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24,262 23,755
EXPENSES
Losses and loss expenses incurred 10,722 8,863
Other operating expenses 6,794 5,202
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17,516 14,065
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INCOME BEFORE FEDERAL INCOME TAXES 6,746 9,690
Federal income taxes 2,030 3,117
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NET INCOME $ 4,716 $ 6,573
=========== ===========
PER SHARE DATA - BASIC AND DILUTED:
Income before realized net gains $ .23 $ .22
Realized net gains on investments .11 .25
----------- -----------
NET INCOME $ .34 $ .47
=========== ===========
DIVIDENDS $ .10 $ .10
=========== ===========
RECONCILIATION OF SHARES OUTSTANDING:
Average shares outstanding - basic 13,695,735 13,866,971
Dilutive effect of options outstanding 178,129 189,336
----------- -----------
Average shares outstanding - diluted 13,873,864 14,056,307
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
BALDWIN & LYONS, INC. ANDSUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
1998 1997
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<C> <C>
<S>
Net cash provided by operating activities $ 5,843 $ 3,555
Investing activities:
Purchases of long-term investments (40,253) (61,770)
Proceeds from sales or maturities
of long-term investments 44,807 75,603
Net sales (purchases) of
short-term investments (7) 2,011
Other investing activities (319) (715)
----------- -----------
Net cash provided by investing activities 4,228 15,129
Financing activities:
Dividends paid to shareholders (1,370) (1,386)
Cost of treasury stock (213) (2,246)
Proceeds from sales of common stock 7 1
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Net cash used in financing activities (1,576) (3,631)
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Increase in cash and cash equivalents 8,495 15,053
Cash and cash equivalents
at beginning of period 23,402 12,117
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Cash and cash equivalents at end of period $ 31,897 $ 27,170
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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, 1998. Interim financial statements should be read in
conjunction with the Company's annual audited financial statements.
(2) Certain prior year balances have been reclassified to conform to the
current period presentation.
(3) The effective federal income tax rate is less than the statutory rate for
all periods presented due primarily to tax-exempt investment income.
(4) The following line items from the Statements of Income are presented net of
the reinsurance amounts shown below.
<TABLE>
<CAPTION>
Quarter Ending
March 31
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1998 1997
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<C> <C>
<S>
Net premiums earned $ 2,304 $ 1,955
Losses and loss expenses 130 (2,915)
Other operating expenses (243) (209)
(5) Total realized and unrealized income for the quarter ended March 31, 1998
was $7,097 and compares to a net realized and unrealized loss of $5,849 for the
quarter ended March 31, 1997.
(6) If the Company had adopted Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based Compensation, net income for the 1998
quarter would have been approximately $254 lower ($.02 per share).
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
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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 25% and 35% 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 three months ended March 31, 1998,
positive cash flow from operations totaled $5.8 million, an increase from $3.6
million generated during the first quarter of 1997. Increased cash flows from
premiums from the Company's new products were partially offset by increases in
losses and operating expenses paid. Recent cash flows have, at times, lagged
behind those of earlier periods because of declining premium volume in
retrospectively rated workers' compensation and large fleet trucking liability
businesses. Management expects direct premium revenues from trucking insurance
products to remain level during 1998. Management also expects overall
insurance revenues to increase due to continued growth in the Company's private
passenger automobile program.
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 fixed income (bond and short-term
investment) portfolio was approximately 3 years at March 31, 1998.
The Company's assets at March 31, 1998 included $33.9 million in investments
classified as short-term or cash equivalents which were readily convertible to
cash without significant market penalty. In addition, fixed maturity
investments totaling $71.2 million will mature within the twelve month period
following March 31, 1998. The Company believes that these liquid investments
are more than sufficient to provide for projected claim payments and operating
cost demands.
Consolidated shareholders' equity totaled $299.5 million at March 31, 1998 and
includes $281.0 million representing GAAP shareholder's equity of insurance
subsidiaries, of which $39.5 million may be transferred by dividend or loan to
the parent company without approval by, or notification to, regulatory
authorities. An additional $216.1 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. 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 valued at $52.3 million at March 31, 1998.
RESULTS OF OPERATIONS
---------------------
COMPARISONS OF FIRST QUARTER, 1998 TO FIRST QUARTER, 1997
---------------------------------------------------------
Net premiums earned during the first quarter of 1998 increased $3.7 million as
compared to the same period of 1997. The increased premium volume is primarily
attributable to the continued growth of the Company's private passenger
automobile program. Premium earned from this program totaled $6.3 million for
the quarter, an increase of $3.0 million (93%) from the prior year. Premiums
earned for this program have increased each quarter since its inception in 1995.
The remaining increase is attributable to a $.3 million increase in voluntary
assumptions from property catastrophe pools and growth in the Company's small
fleet trucking and small business workers' compensation programs. Premiums from
the Company's fleet trucking products were level with the prior year.
Net investment income during the first quarter of 1998 was level with the first
quarter of 1997. Overall pre-tax and after tax yields were consistent with the
first quarter of 1997.
The first quarter 1998 net realized gain of $2.3 million consists of net gains
on equity securities and short-term investments of $2.0 million and $.3 million,
respectively.
Losses and loss expenses incurred during the first quarter of 1998 increased
$1.9 million from that experienced during the first quarter of 1997. The
increase is due primarily to
the continued growth from the Company's private passenger automobile business.
Loss and loss expense ratios for the comparative first quarters were as follows:
1998 1997
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Large and medium fleet trucking 46.9% 68.4%
Voluntary reinsurance assumed 67.3 45.5
Private passenger automobile 84.1 74.2
Small fleet trucking 70.6 57.5
All lines 63.1 66.5
The lower loss ratio for fleet trucking results from favorable current year
claims activity and savings recognized on the settlement of prior year claims.
Voluntary reinsurance assumed loss ratios were increased by higher than expected
losses from a single non-catastrophe treaty. Increased loss ratios for the
other lines were unusually high due to unfavorable weather conditions.
Other operating expenses for the first quarter of 1998 increased $1.6 million
from the first quarter of 1997. The consolidated expense ratio of the Company's
insurance subsidiaries was 34.1% for the first quarter of 1998 compared to 31.5%
for the first quarter of 1997. The increase in the consolidated expense ratio
reflects the effect of promotional and system development costs associated with
the Company's new product lines which, for GAAP purposes, can not be deferred
and amortized over the life of policies written. The ratio of consolidated
other operating expenses to total revenue (adjusted for realized gains)
increased to 31.0% during the first quarter of 1998 compared to 28.4% for the
1997 first quarter.
The effective federal tax rate for consolidated operations for the first quarter
of 1998 was 30.1% and is less than the statutory rate primarily because of tax
exempt investment income.
As a result of the factors mentioned above, net income decreased $1.9 million
(28%) during 1998 compared with the 1997 first quarter.
FORWARD-LOOKING INFORMATION
---------------------------
Any forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's business is
highly competitive and the entrance of new competitors into or the expansion of
the operations by existing competitors in the Company's markets and other
changes in the market for insurance products could adversely affect the
Company's plans and results of operations; (iii) other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission; and (iv) other risks and factors which may be beyond the
control or foresight of the company.
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
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 March 31, 1998.
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 May 12, 1998 By /s/ Gary W. Miller
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Gary W. Miller, Chairman and CEO
Date May 12, 1998 By /s/ G. Patrick Corydon
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G. Patrick Corydon,
Vice President - Finance
(Principal Financial and
Accounting Officer)
BALDWIN & LYONS, INC.
Form 10-Q for the fiscal quarter
ended March 31, 1998
INDEX TO EXHIBITS
Begins on sequential
page number of Form
Exhibit Number 10-Q
----------------- ---------------------
EXHIBIT 11 Filed herewith electronically
Computation of per share earnings
EXHIBIT 27
Financial Data Schedule Filed herewith electronically
BALDWIN & LYONS, INC.
FORM 10-Q, EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------
1998 1997
------------ ------------
<C> <C>
<S>
BASIC:
Average number of shares
outstanding 13,695,735 13,866,971
============ ============
Net Income $ 4,716,081 $ 6,572,869
============ ============
Per share amount $ .34 $ .47
============ ============
DILUTED:
Average number of shares
outstanding 13,695,735 13,866,971
Dilutive stock options--based on
treasury stock method using
average market price 178,129 189,336
------------ ------------
Totals 13,873,864 14,056,307
============ ============
Net Income $ 4,716,081 $ 6,572,869
============ ============
Per share amount $ .34 $ .47
============ ============
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 263,777
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 170,493
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 452,211
<CASH> 31,897 <F2>
<RECOVER-REINSURE> 6,993
<DEFERRED-ACQUISITION> 3,486
<TOTAL-ASSETS> 569,997
<POLICY-LOSSES> 197,106
<UNEARNED-PREMIUMS> 23,930
<POLICY-OTHER> 2
<POLICY-HOLDER-FUNDS> 4,505
<NOTES-PAYABLE> 0
0
0
<COMMON> 731
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 569,997
16,985
<INVESTMENT-INCOME> 4,623
<INVESTMENT-GAINS> 2,339
<OTHER-INCOME> 315
<BENEFITS> 10,722
<UNDERWRITING-AMORTIZATION> 2,017
<UNDERWRITING-OTHER> 2,545
<INCOME-PRETAX> 6,746
<INCOME-TAX> 2,030
<INCOME-CONTINUING> 4,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,716
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<RESERVE-OPEN> 151,663<F1>
<PROVISION-CURRENT> 13,476<F1>
<PROVISION-PRIOR> (2,754)<F1>
<PAYMENTS-CURRENT> 2,992<F1>
<PAYMENTS-PRIOR> 7,560<F1>
<RESERVE-CLOSE> 151,493<F1>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>All loss data is presented net of applicable reinsurance recoverable.
<F2>Includes money market cash equivalents of $31,734.
</FN>
</TABLE>
