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
March 31, 2000 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 May 8, 2000:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting) 2,318,085
Class B (nonvoting) 10,181,863
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
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities $ 224,999 $ 250,386
Equity securities 142,863 139,300
Short-term and other 30,155 32,467
---------- ----------
398,017 422,153
Cash and cash equivalents 27,955 20,115
Accounts receivable 31,266 24,991
Reinsurance recoverable 43,470 44,825
Current federal income taxes - 764
Other assets 17,899 17,829
---------- ----------
$ 518,607 $ 530,677
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 169,316 $ 173,473
Reserves for unearned premiums 30,834 24,432
Accounts payable and accrued expenses 27,764 40,289
Deferred federal income taxes 7,298 7,700
Current federal income taxes 4,411 -
---------- ----------
239,623 245,894
Shareholders' equity:
Common stock-no par value 667 702
Additional paid-in capital 37,415 39,663
Unrealized net gains on investments 25,416 24,711
Retained earnings 215,486 219,707
---------- ----------
278,984 284,783
---------- ----------
$ 518,607 $ 530,677
========== ==========
Number of common and common
equivalent shares outstanding 12,579 13,246
Book value per outstanding share $22.18 $21.50
</TABLE>
See notes to condensed consolidated financial statements.
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Net premiums earned $ 19,669 $ 15,985
Net investment income 4,937 4,668
Realized net gains on investments 4,466 2,645
Commissions and other income 831 563
---------- ----------
29,903 23,861
EXPENSES
Losses and loss expenses incurred 13,255 10,960
Other operating expenses 7,344 5,995
---------- ----------
20,599 16,955
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INCOME BEFORE FEDERAL INCOME TAXES 9,304 6,906
Federal income taxes 3,029 1,947
---------- ----------
NET INCOME $ 6,275 $ 4,959
========== ==========
PER SHARE DATA - BASIC AND DILUTED:
Income before realized net gains $ .26 $ .24
Realized net gains on investments .22 .12
---------- ----------
NET INCOME $ .48 $ .36
========== ==========
Dividends $ .10 $ .10
========== ==========
RECONCILIATION OF SHARES OUTSTANDING:
Average shares outstanding - basic 13,051 13,630
Dilutive effect of options outstanding 97 130
---------- ----------
Average shares outstanding - diluted 13,148 13,760
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
---------- ----------
<S> <C> <C>
Net cash provided by (used in)
operating activities ($ 1,946) $ 810
Investing activities:
Purchases of long-term investments (38,764) (38,800)
Proceeds from sales or maturities
of long-term investments 68,318 36,198
Net sales of short-term investments 2,752 4,996
Other investing activities (1,180) (1,195)
---------- ----------
Net cash provided by investing activities 31,126 1,199
Financing activities:
Dividends paid to shareholders (1,311) (1,364)
Cost of treasury stock (11,503) (3,318)
Repayment on line of credit (8,528) -
Proceeds from sales of common stock 2 2
---------- ----------
Net cash used in financing activities (21,340) (4,680)
---------- ----------
Increase (decrease) in cash and
cash equivalents 7,840 (2,671)
Cash and cash equivalents at
beginning of period 20,115 16,955
---------- ----------
Cash and cash equivalents at end of period $ 27,955 $ 14,284
========== ==========
</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, 2000. Interim financial statements should be read in
conjunction with the Company's annual audited financial statements.
(2) Forward-looking statements in this report 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 inherent
risks and uncertainties. Readers are encouraged to review the Company's annual
report for its full statement regarding forward-looking information.
(3) The following line items from the Statements of Income are presented net of
the reinsurance amounts shown below.
<TABLE>
<CAPTION>
Quarter Ending
March 31
2000 1999
---------- ----------
<S> <C> <C>
Net premiums earned $ 4,899 $ 4,158
Losses and loss expenses 5,563 1,108
Other operating expenses (1,754) (1,415)
</TABLE>
Deductions from losses and loss expenses shown above represent case basis
activity for the periods presented only and do not include changes in provisions
for incurred but not reported claims which will be ceded to reinsurers.
(4) Total realized and unrealized income for the quarter ended March 31, 2000
was $6,977 and compares to total realized and unrealized income of $1,972 for
the quarter ended March 31, 1999.
(5) If the Company had adopted Financial Accounting Standards Board Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, net income for the 2000
quarter would have been approximately $254 lower ($.02 per share).
(6) The Company purchased 673,200 shares of treasury stock for approximately
$11.5 million under its continuing stock repurchase program.
(7) The following table provides certain profit and loss information for each
reportable segment:
<TABLE>
<CAPTION>
Non-standard
Private Voluntary
Fleet Passenger Reinsurance
Trucking Automobile Assumed All Other Totals
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31:
2000:
Direct and assumed premium written $ 11,140 $ 14,598 $ 2,378 $ 2,820 $ 30,936
Net premium earned and fee income 6,196 9,522 2,543 1,991 20,252
Underwriting gain (loss) 1,517 (193) 393 419 2,136
1999:
Direct and assumed premium written 10,145 8,990 603 2,365 22,103
Net premium earned and fee income 6,158 7,687 926 1,596 16,367
Underwriting gain (loss) 2,211 (404) (95) (218) 1,494
</TABLE>
(8) The following tables are reconciliations of reportable segment revenues and
profits to the Company's consolidated revenue and income from continuing
operations before federal income taxes, respectively.
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUE:
Net premium earned and fee income $ 20,252 $ 16,367
Net investment income 4,937 4,668
Realized net gains on investments 4,466 2,645
Other income 248 181
---------- ----------
Total consolidated revenue $ 29,903 $ 23,861
========== ==========
</TABLE>
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
PROFIT:
Underwriting gain $ 2,136 $ 1,494
Net investment income 4,937 4,668
Realized net gains on investments 4,466 2,645
Corporate expenses (2,235) (1,901)
---------- ----------
Income from continuing operations
before federal income taxes $ 9,304 $ 6,906
========== ==========
</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 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. Cash flow is significantly impacted by the
Company's reinsurance ceded programs. Beginning in June, 1998, The Company
changed its reinsurance programs with respect to its trucking insurance whereby
more risk was ceded to others. It was anticipated that this change would
eventually result in diminished cash flows since substantial portions of
premiums on current policies are ceded to reinsurers while losses incurred in
periods prior to June, 1998, (when the Company retained much more risk) would be
settled with cash payments. For the three months ended March 31, 2000, the
Company experienced just such a negative cash flow from operations totaling $1.9
million, a decline from $.8 million in positive cash flow generated during the
first quarter of 1999. The lower cash flows resulted from a decrease in net
premiums collected, net of reinsurance payments, as discussed above, and an
increase in net losses paid resulting from the settlement of several older
claims, as reflected in a $4.2 million decrease in loss and loss expense
reserves since December 31, 1999.
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 less than 3 years at March 31, 2000.
The Company's assets at March 31, 2000 included $28.0 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 $35.3 million will mature within the twelve month period
following March 31, 2000. The Company believes that these liquid investments
are more than sufficient to provide for projected claim payments and operating
cost demands.
Consolidated shareholders' equity is composed essentially of GAAP shareholder's
equity of the insurance subsidiaries. As such, there are statutory restrictions
on the transfer of portions of this equity to the parent holding company. At
March 31, 2000, $39.6 million may be transferred by dividend or loan to the
parent company without approval by, or notification to, regulatory authorities.
An additional $182.9 million of shareholder's equity of the 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 $10.3
million at March 31, 2000.
RESULTS OF OPERATIONS
COMPARISONS OF FIRST QUARTER, 2000 TO FIRST QUARTER, 1999
Net premiums earned during the first quarter of 2000 increased $3.7 million
(23%) as compared to the same period of 1999. Net premiums from the Company's
private passenger automobile and small fleet trucking programs increased $1.7
million and $.4 million, respectively, due to both geographic expansion and
competitive changes favorable to the Company in the private passenger automobile
marketplace. In addition, premium from voluntary reinsurance assumed were $1.6
million higher due primarily to non-recurring reinstatement premiums related to
the European windstorms that occurred late in 1999. Adjusted to remove these
reinstatement premiums, net premiums earned increased by 12% from the prior year
period.
Net investment income during the first quarter of 2000 was 5.8% higher than the
first quarter of 1999 due primarily to income reported by certain limited
partnerships. Income from these partnerships is sporadic. Yields on short-term
and equity investments were higher for the quarter but were offset by a decrease
in bond holdings where yields were relatively unchanged from 1999 levels.
Overall after tax yields were higher than the prior year quarter, consistent
with the pre-tax changes.
The first quarter 2000 net realized gain of $4.5 million included net gains on
equity securities of $7.7 million and net losses on limited partnership
investments and fixed maturity investments of $2.5 million and $.7 million,
respectively.
Losses and loss expenses incurred during the first quarter of 2000 were $2.3
million higher than the first quarter of 1999 due primarily to growth in the
private passenger automobile program and losses from reinsurance assumed
covering the European windstorms (see comments relating to reinstatement
premiums, above). Loss and loss expense ratios for the comparative first
quarters were as follows:
2000 1999
--------- ---------
Fleet trucking 67.5% 57.4%
Voluntary reinsurance assumed 74.6 105.6
Private passenger automobile 71.3 71.2
Small fleet trucking 56.8 67.6
All lines 67.4 68.6
The fleet trucking loss ratio for the first quarter of 2000 was impacted by the
new reinsurance treaties effective June 1, 1998 whereby the Company has
significantly limited its exposure to loss while ceding off the majority of its
direct liability premium writings. In addition, fleet trucking losses reported
in the first quarter of 1999 included savings recognized on certain large fleet
claims, the incidence of which was not repeated in the current year quarter.
The loss ratio for small fleet trucking reflects favorable frequency and
severity for the current quarter.
Other operating expenses for the first quarter of 2000 increased $1.3 million
from the first quarter of 1999 consistent with the increase in net premiums
earned. The consolidated expense ratio of the Company's insurance subsidiaries
was 29.0% for the first quarter of 2000 compared to 29.4% for the first quarter
of 1999. The ratio of consolidated other operating expenses to total revenue
(adjusted for realized gains) was 28.9% during the first quarter of 2000
compared to 28.3% for the 1999 first quarter.
The effective federal tax rate for consolidated operations for the first quarter
of 2000 was 32.6% and is less than the statutory rate primarily because of tax
exempt investment income.
As a result of the factors mentioned above, and principally the increase in net
capital gains on investments, net income increased $1.3 million compared with
the 1999 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
(27) Financial Data Schedule 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 March 31, 2000.
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, 2000 By /s/ Gary W. Miller
------------------ ----------------------------
Gary W. Miller, Chairman and
CEO
Date May 12, 2000 By /s/ G. Patrick Corydon
------------------ ----------------------------
G. Patrick Corydon,
Vice President - Finance
(Principal Financial and
Accounting Officer)
BALDWIN & LYONS, INC.
Form 10-Q for the fiscal quarter
ended March 31, 2000
INDEX TO EXHIBITS
Begins on sequential
page number of Form
EXHIBIT NUMBER 10-Q
-------------- ----------------------------
EXHIBIT 11 File herewith electronically
Computation of per share earnings
EXHIBIT 27 File herewith electronically
Financial Data Schedule
BALDWIN & LYONS, INC.
FORM 10-Q, EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
------------ ------------
<S> <C> <C>
BASIC:
Average number of shares
outstanding 13,051,391 13,629,786
============ ============
Net Income $ 6,275,559 $ 4,958,989
============ ============
Per share amount $ .48 $ .36
============ ============
DILUTED:
Average number of shares
Outstanding 13,051,391 13,629,786
Dilutive stock options--based on
treasury stock method using
average market price 96,897 130,027
------------ ------------
Totals 13,148,288 13,759,813
============ ============
Net Income $ 6,275,559 $ 4,958,989
============ ============
Per share amount $ .48 $ .36
============ ============
</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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 224,999
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 142,863
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 398,017
<CASH> 27,955<F1>
<RECOVER-REINSURE> 7,828
<DEFERRED-ACQUISITION> 4,964
<TOTAL-ASSETS> 518,607
<POLICY-LOSSES> 169,316
<UNEARNED-PREMIUMS> 30,834
<POLICY-OTHER> 43
<POLICY-HOLDER-FUNDS> 5,738
<NOTES-PAYABLE> 0
0
0
<COMMON> 667
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 518,607
19,669
<INVESTMENT-INCOME> 4,937
<INVESTMENT-GAINS> 4,466
<OTHER-INCOME> 831
<BENEFITS> 13,255
<UNDERWRITING-AMORTIZATION> 2,378
<UNDERWRITING-OTHER> 1,588
<INCOME-PRETAX> 9,304
<INCOME-TAX> 3,029
<INCOME-CONTINUING> 6,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,275
<EPS-BASIC> .48<F3>
<EPS-DILUTED> .48
<RESERVE-OPEN> 130,703<F2>
<PROVISION-CURRENT> 12,730<F2>
<PROVISION-PRIOR> 525<F2>
<PAYMENTS-CURRENT> 5,188<F2>
<PAYMENTS-PRIOR> 11,595<F2>
<RESERVE-CLOSE> 127,175<F2>
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes cash and cash equivalents.
<F2>All loss data is presented net of applicable reinsurance recoverable.
<F3>Basic earnings per share.
</FN>
</TABLE>
