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, 2001 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 9, 2001:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, No Par Value:
Class A (voting) 2,300,785
Class B (nonvoting) 9,860,711
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31 December 31
2001 2000
------------ ------------
ASSETS
Investments:
Fixed maturities $ 236,062 $ 211,810
Equity securities 135,221 157,951
Short-term and other 26,917 40,176
---------- ----------
398,200 409,937
Cash and cash equivalents 23,106 32,814
Accounts receivable 26,583 25,279
Reinsurance recoverable 81,874 64,690
Notes receivable from employees 1,734 1,709
Other assets 19,892 17,735
---------- ----------
$ 551,389 $ 552,164
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss expenses $ 189,088 $ 182,425
Reserves for unearned premiums 28,471 24,441
Accounts payable and accrued expenses 33,212 37,748
Deferred federal income taxes 7,259 12,547
Current payable federal income taxes 4,021 1,003
---------- ----------
262,051 258,164
Shareholders' equity:
Common stock-no par value 649 649
Additional paid-in capital 36,414 36,416
Unrealized net gains on investments 26,013 36,237
Retained earnings 226,262 220,698
---------- ----------
289,338 294,000
---------- ----------
$ 551,389 $ 552,164
========== ==========
Number of common and common
equivalent shares outstanding 12,240 12,245
Book value per outstanding share $23.64 $24.01
See notes to condensed consolidated financial statements.
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31
---------------------------
2001 2000
------------ ------------
REVENUES
Net premiums earned $ 19,037 $ 19,668
Net investment income 4,566 4,937
Realized net gains on investments 6,538 4,466
Commissions and other income 927 831
---------- ----------
31,068 29,903
EXPENSES
Losses and loss expenses incurred 14,360 13,255
Other operating expenses 6,297 7,344
---------- ----------
20,657 20,599
---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 10,411 9,304
Federal income taxes 3,235 3,029
---------- ----------
NET INCOME $ 7,176 $ 6,275
========== ==========
PER SHARE DATA - DILUTED:
Income before realized net gains $ .24 $ .26
Realized net gains on investments .35 .22
---------- ----------
NET INCOME $ .59 $ .48
========== ==========
Dividends $ .10 $ .10
RECONCILIATION OF SHARES OUTSTANDING:
Average shares outstanding - basic 12,175 13,051
Dilutive effect of options outstanding 80 97
---------- ----------
Average shares outstanding - diluted 12,255 13,148
========== ==========
See notes to condensed consolidated financial statements.
BALDWIN & LYONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31
--------------------------
2001 2000
---------- ----------
Net cash used in operating activities ($ 1,511) ($ 1,946)
Investing activities:
Purchases of long-term investments (73,804) (38,764)
Proceeds from sales or maturities
of long-term investments 59,029 68,318
Net sales of short-term investments 5,952 2,752
Other investing activities 7,467 (1,180)
--------- ---------
Net cash provided by (used in) investing activities (1,356) 31,126
Financing activities:
Dividends paid to shareholders (1,218) (1,311)
Cost of treasury stock (214) (11,503)
Repayment on line of credit (5,411) (8,528)
Proceeds from sales of common stock 2 2
--------- ---------
Net cash used in financing activities (6,841) (21,340)
--------- ---------
Increase (decrease) in cash and cash equivalents (9,708) 7,840
Cash and cash equivalents at beginning of period 32,814 20,115
--------- ---------
Cash and cash equivalents at end of period $ 23,106 $ 27,955
========= =========
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, 2001. 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 table summarizes the Company's transactions with reinsurers
for the 2001 and 2000 comparative periods.
2001 2000
----------- -----------
Quarter ended March 31:
Premiums ceded to reinsurers $ 7,684 $ 4,899
Losses and loss expenses
ceded to reinsurers 22,432 5,563
Commissions from reinsurers 2,762 1,754
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 would be covered by
existing reinsurance treaties.
(4) The total realized and unrealized loss for the quarter ended March 31,
2001 was $3,264 and compares to total realized and unrealized income of $6,977
for the quarter ended March 31, 2000.
(5) The following table provides certain profit and loss information for each
reportable segment. All amounts presented are computed based upon generally
accepted accounting principles. In addition, underwriting gain or loss for the
fleet trucking segment is computed after elimination of intercompany
commissions and, accordingly, consolidated underwriting gain or loss presented
here will not agree with statutory underwriting gains or losses which may be
quoted elsewhere in the Company's financial statements.
NON-STANDARD
PRIVATE VOLUNTARY
FLEET PASSENGER REINSURANCE
TRUCKING AUTOMOBILE ASSUMED ALL OTHER TOTALS
----------- ----------- ----------- ----------- -----------
QUARTER ENDED MARCH 31:
2001:
Direct and assumed premium written $ 14,590 $ 11,078 $ 1,018 $ 4,124 $ 30,810
Net premium earned and fee income 7,073 8,886 973 2,654 19,586
Underwriting gain (loss) 1,668 (426) 626 (283) 1,585
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
(6) 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.
Three Months Ended
March 31
---------------------------
2001 2000
------------ ------------
REVENUE:
Net premium earned and fee income $ 19,586 $ 20,252
Net investment income 4,566 4,937
Realized net gains on investments 6,538 4,466
Other income 378 248
---------- ----------
TOTAL CONSOLIDATED REVENUE $ 31,068 $ 29,903
========== ==========
PROFIT:
Underwriting gain $ 1,585 $ 2,136
Net investment income 4,566 4,937
Realized net gains on investments 6,538 4,466
Corporate expenses (2,278) (2,235)
---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES $ 10,411 $ 9,304
========== ==========
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. However, due to changes in the
Company's reinsurance programs since June, 1998, cash flow is significantly
impacted with respect to its trucking insurance business whereby more risk is
ceded to others. Diminished cash flows have occurred 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) are
settled with cash payments. For the three months ended March 31, 2001, the
Company experienced negative cash flow from operations totaling $1.5 million, a
slight improvement from the $1.9 million in negative cash flow generated during
the first quarter of 2000. The negative cash flow resulted primarily from the
settlement of a few large trucking claims as reflected in a $10.5 million
decrease in loss and loss expense reserves net of reinsurance since December
31, 2000.
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, 2001.
The Company's assets at March 31, 2001 included $42.0 million in investments
classified as short-term or cash equivalents which were readily convertible to
cash without significant market penalty. An additional $47.1 million of fixed
maturity investments will mature within the twelve month period following March
31, 2001. 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, 2001, $40.2 million may be transferred by dividend or
loan to the parent company without approval by, or notification to, regulatory
authorities. An additional $189.4 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 $11.7 million at March 31, 2001.
RESULTS OF OPERATIONS
---------------------
COMPARISONS OF FIRST QUARTER, 2001 TO FIRST QUARTER, 2000
---------------------------------------------------------
Net premiums earned during the first quarter of 2001 decreased $.6 million (3%)
as compared to the same period of 2000. The prior year quarter included $1.5
million in non-recurring reinsurance assumed reinstatement premium. In
addition, net premiums from the Company's private passenger automobile program
decreased $.6 million resulting from rate increases implemented in late 2000
and 2001. Adjusted for the aforementioned reinstatement premium, net premiums
earned increased 5% from the prior year. The small fleet trucking and small
business workers' compensation programs increased 29% and 60%, respectively,
due to geographic expansion while fleet trucking premiums increased 16% from
the prior year quarter.
Net investment income during the first quarter of 2001 was 7.5% lower than the
first quarter of 2000 due in part to a decrease in average funds invested. The
prior year quarter also included certain limited partnership distributions not
repeated in the current quarter. Overall pre-tax and after tax yields were
relatively unchanged from the prior year period.
The first quarter 2001 net realized gain of $6.5 million included net gains on
equity securities of $6.7 million and net losses of $.2 million on limited
partnership and fixed maturity investments.
Losses and loss expenses incurred during the first quarter of 2001 were $1.1
million higher than the first quarter of 2000 due primarily to an increase in
the frequency and severity of current quarter losses in fleet trucking's
independent contractor program. Loss and loss expense ratios for the
comparative first quarters were as follows:
2001 2000
---------- ----------
Fleet trucking 83.7% 67.5%
Voluntary reinsurance assumed 18.0 74.6
Private passenger automobile 74.9 71.3
Small fleet trucking 70.2 56.8
All lines 75.4 67.4
Other operating expenses for the first quarter of 2001 decreased 14.3% from the
first quarter of 2000 consistent with the increase in direct premiums earned in
the fleet trucking product. The Company cedes a large portion of this risk to
reinsurers and the associated reinsurance premiums carry significant expense
offsets. The consolidated expense ratio of the Company's insurance subsidiaries
was 27.4% for the first quarter of 2001 compared to 29.0% for the first quarter
of 2000. The ratio of consolidated other operating expenses to total revenue
(adjusted for realized gains) was 25.7% during the first quarter of 2001
compared to 28.9% for the 2000 first quarter.
The effective federal tax rate for consolidated operations for the first
quarter of 2001 was 31.1% 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 $.9 million compared with
the 2000 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, 2001.
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 14, 2001 By /s/ Gary W. Miller
-------------- --------------------------------
Gary W. Miller, Chairman and CEO
Date May 14, 2001 By /s/ G. Patrick Corydon
-------------- --------------------------------
G. Patrick Corydon,
Senior Vice President - Finance
(Principal Financial and
Accounting Officer)
BALDWIN & LYONS, INC.
Form 10-Q for the fiscal quarter
ended March 31, 2001
INDEX TO EXHIBITS
BEGINS ON SEQUENTIAL
PAGE NUMBER OF FORM
EXHIBIT NUMBER 10-Q
--------------------------- --------------------------
EXHIBIT 11 Filed herewith electronically
Computation of per share earnings