FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2001
Commission file number 0-24000
ERIE INDEMNITY COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0466020
- -------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania 16530
- -------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(814) 870-2000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
Not applicable 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 periods 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 practical date.
Class A Common Stock, no par value, with a stated value of
$.0292 per share-- 64,013,723 shares as of July 13,
2001.
Class B Common Stock, no par value, with a stated value of
$70 per share-- 3,070 shares as July 13, 2001.
The common stock is the only class of stock the Registrant is presently
authorized to issue.
1
INDEX
ERIE INDEMNITY COMPANY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Position--June 30, 2001 and
December 31, 2000
Consolidated Statements of Operations--Three and six months ended
June 30, 2001 and 2000
Consolidated Statements of Comprehensive Income--Three and six months
ended June 30, 2001 and 2000
Consolidated Statements of Cash Flows--Six months ended June 30, 2001
and 2000
Notes to Consolidated Financial Statements--June 30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Item 11. Statement Regarding Computation of Per Share Earnings
SIGNATURES
2
PART I. FINANCIAL INFORMATION
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands)
June 30, December 31,
ASSETS 2001 2000
---------- ----------
(Unaudited)
INVESTMENTS
Fixed maturities at fair value
(amortized cost of $506,024 and
$524,172, respectively) $ 519,843 $ 531,546
Equity securities at fair value (cost of $216,040
and $184,968, respectively) 234,541 204,446
Limited partnerships (cost of $73,096 and
$60,661,respectively) 72,953 68,242
Real estate mortgage loans 5,762 6,581
---------- ----------
Total investments $ 833,099 $ 810,815
Cash and cash equivalents 39,906 38,778
Accrued investment income 8,915 9,087
Premiums receivable from Policyholders 176,786 156,269
Prepaid federal income tax 0 3,604
Reinsurance recoverable from Erie Insurance
Exchange 445,266 412,050
Note receivable from Erie Family Life
Insurance Company 15,000 15,000
Other receivables from Erie Insurance
Exchange and affiliates 158,906 119,959
Reinsurance recoverable non-affiliates 281 712
Deferred policy acquisition costs 15,412 13,202
Property and equipment 14,448 13,856
Equity in Erie Family Life Insurance Company 45,088 42,331
Other assets 56,470 44,936
---------- ----------
Total assets $1,809,577 $1,680,599
========== ==========
(Continued)
<FN>
See Notes to Consolidated Financial Statements.
</FN>
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands)
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
----------- ----------
(Unaudited)
LIABILITIES
Unpaid losses and loss adjustment expenses $ 501,065 $ 477,879
Unearned premiums 293,367 263,855
Commissions payable and accrued 101,903 96,823
Accounts payable and accrued expenses 36,271 30,476
Federal income tax payable 3,050 0
Deferred income taxes 8,800 7,161
Dividends payable 9,833 9,839
Employee benefit obligations 15,330 15,551
---------- ----------
Total liabilities $ 969,619 $ 901,584
---------- ----------
SHAREHOLDERS' EQUITY
Capital Stock
Class A common, stated value $.0292 per share;
authorized 74,996,930 shares; 67,032,000 shares
issued; 64,013,723 and 64,056,323 shares
outstanding in 2001 and 2000, respectively $ 1,955 $ 1,955
Class B common, stated value $70 per
share; authorized 3,070 shares;
3,070 shares issued and outstanding 215 215
Additional paid-in capital 7,830 7,830
Accumulated other comprehensive income 23,089 23,182
Retained earnings 893,799 831,552
---------- ----------
Total contributed capital and retained earnings $ 926,888 $ 864,734
Treasury stock, at cost 3,018,277 shares
in 2001 and 2,975,677 shares in 2000 ( 86,930) ( 85,719)
---------- ----------
Total shareholders' equity $ 839,958 $ 779,015
---------- ----------
Total liabilities and shareholders' equity $1,809,577 $1,680,599
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
4
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
2001 2000 2001 2000
(Amounts in thousands, except per share data)
MANAGEMENT OPERATIONS:
Management fee revenue $167,828 $147,174 $313,497 $276,272
Service agreement revenue 6,838 4,936 13,250 10,170
-------- -------- -------- --------
Total revenue from management operations 174,666 152,110 326,747 286,442
Cost of management operations 121,562 108,800 230,443 206,514
-------- -------- -------- --------
Net revenue from
management operations $ 53,104 $ 43,310 $ 96,304 $ 79,928
-------- -------- -------- --------
INSURANCE UNDERWRITING OPERATIONS:
Premiums earned $ 33,917 $ 30,677 $ 66,091 $ 60,568
Losses and loss adjustment expenses incurred 26,096 23,301 53,057 47,964
Policy acquisition and other underwriting
expenses 9,607 8,966 18,358 17,397
-------- -------- -------- --------
Total losses and expenses 35,703 32,267 71,415 65,361
-------- -------- -------- --------
Underwriting loss ($ 1,786) ($ 1,590) ($ 5,324) ($ 4,793)
-------- -------- -------- --------
INVESTMENT OPERATIONS:
Net investment income $ 12,365 $ 12,026 $ 24,508 $ 23,637
Net realized gain on investments 2,013 5,936 2,725 11,441
Equity in earnings of Erie Family
Life Insurance Company 1,442 1,272 2,186 2,679
Equity in earnings of limited partnerships 2,911 1,424 1,508 2,416
-------- -------- -------- --------
Net revenue from investment operations $ 18,731 $ 20,658 $ 30,927 $ 40,173
-------- -------- -------- --------
Income before income taxes $ 70,049 $ 62,378 $121,907 $115,308
Provision for income taxes 22,920 19,860 39,992 36,605
-------- -------- -------- --------
Net income $ 47,129 $ 42,518 $ 81,915 $ 78,703
======== ======== ======== ========
Net income per share (b) $ 0.66 $ 0.59 $ 1.15 $ 1.09
======== ======== ======== ========
Operating income (a) $ 45,821 $ 38,660 $ 80,144 $ 71,267
======== ======== ======== ========
Operating income per share (b) $ 0.64 $ 0.54 $ 1.12 $ 0.99
======== ======== ======== ========
Weighted average shares outstanding (Note B) 71,388 72,107 71,402 72,204
<FN>
(a) Operating income excludes net realized gain on investments and related federal income taxes.
(b) Based on weighted average shares outstanding.
See Notes to Consolidated Financial Statements.
</FN>
5
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- ----------------------
2001 2000 2001 2000
(In thousands)
Net Income $ 47,129 $ 42,518 $ 81,915 $ 78,703
--------- ---------- --------- ----------
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising
during period ( 625) ( 5,488) 2,582 21,327
Less: reclassification adjustment for
gains included in net income 2,013 5,936 2,725 11,441
--------- ---------- ---------- ----------
Net unrealized holding (losses) gains
arising during period ($ 2,638) ($ 11,424) ($ 143) $ 9,886
Income tax benefit (expense) related to
unrealized gains or losses 923 3,999 50 ( 3,460)
--------- ---------- ---------- ----------
Other comprehensive (loss) income, net of tax ($ 1,715) ($ 7,425) ($ 93) $ 6,426
--------- ---------- --------- ----------
Comprehensive income $ 45,414 $ 35,093 $ 81,822 $ 85,129
========= ========== ========= ==========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
6
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
2001 2000
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,915 $ 78,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,533 1,280
Deferred income tax expense (benefit) 2,425 ( 182)
Amortization of deferred policy acquisition costs 11,680 11,678
Realized gain on investments ( 2,725) ( 11,441)
Net amortization of bond (discount) premium ( 109) 8
Undistributed earnings of Erie Family Life ( 1,389) ( 1,943)
Deferred compensation 261 328
Decrease (increase) in accrued investment income 172 ( 551)
Increase in receivables ( 92,250) ( 54,375)
Policy acquisition costs deferred ( 13,890) ( 12,344)
(Increase) decrease in prepaid expenses and other assets ( 11,407) 1,221
Increase in accounts payable and accrued expenses 5,312 4,224
Increase (decrease) in commissions payable and accrued 5,080 ( 1,592)
Increase in income taxes payable 6,655 2,956
Increase in loss reserves 23,186 22,453
Increase in unearned premiums 29,512 20,354
--------- ---------
Net cash provided by operating activities $ 45,961 $ 60,777
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of investments (Note C) ($ 21,698) ($ 14,057)
Purchase of property and equipment ( 1,640) ( 1)
Purchase of computer software ( 484) ( 496)
Loans to agents ( 1,356) ( 861)
Collections on agent loans 1,230 889
--------- ---------
Net cash used in investing activities ($ 23,948) ($ 14,526)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders ($ 19,675) ($ 17,660)
Treasury stock ( 1,210) ( 14,959)
--------- ---------
Net cash used in financing activities ($ 20,885) ($ 32,619)
--------- ---------
Net increase in cash and cash equivalents 1,128 13,632
Cash and cash equivalents at beginning of period 38,778 24,214
--------- ---------
Cash and cash equivalents at end of period $ 39,906 $ 37,846
========= =========
Supplemental disclosures of cash flow information:
Income tax payments $ 31,552 $ 33,822
Dividends declared per share:
- ----------------------------
Class A non-voting common $ 0.305 $ 0.270
--------- ---------
Class B common $ 45.75 $ 40.50
--------- ---------
<FN>
See Notes to Consolidated Financial Statements.
</FN>
7
ERIE INDEMNITY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which include the
accounts of the Erie Indemnity Company and its' wholly owned subsidiaries Erie
Insurance Company (EIC), Erie Insurance Company of New York (EINY) and Erie
Insurance Property & Casualty Company, have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles (GAAP) for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended December 31, 2000.
NOTE B -- EARNINGS PER SHARE
Earnings per share is based on the weighted average number of Class A shares
outstanding (64,034,046 and 64,835,690 at June 30, 2001 and 2000, respectively),
giving effect to the conversion of the weighted average number of Class B shares
outstanding (3,070 in 2001 and 2000) at a rate of 2,400 Class A shares for one
Class B share. Weighted average equivalent shares outstanding totaled 71,388,014
for the quarter ended June 30, 2001 and 72,107,369 for the same period a year
ago. For the six months ended June 30, 2001 weighted average equivalent shares
outstanding were 71,402,046 compared to 72,203,690 for the six months ended June
30, 2000.
NOTE C -- INVESTMENTS
Management considers all fixed maturities and marketable equity securities
available-for-sale. Marketable equity securities consist primarily of common and
non redeemable preferred stocks while fixed maturities consist of bonds, notes
and redeemable preferred stock. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, net of deferred tax, reported as a
separate component of comprehensive income and shareholders' equity. Management
determines the appropriate classification of fixed maturities at the time of
purchase and reevaluates such designation as of each statement of financial
position date.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE C -- INVESTMENTS (Continued)
The following is a summary of available-for-sale securities:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- --------- ---------
June 30, 2001
Fixed maturities:
- ----------------
U.S. treasuries & government
agencies $ 11,213 $ 433 $ 0 $ 11,646
States & political subdivisions 42,157 1,854 0 44,011
Special revenue 104,527 3,871 0 108,398
Public utilities 26,493 734 155 27,072
U.S. industrial & miscellaneous 276,150 7,392 1,851 281,691
Foreign 32,083 543 241 32,385
-------- -------- -------- --------
Total bonds $492,623 $ 14,827 $ 2,247 $505,203
Redeemable preferred stock 13,401 1,251 12 14,640
-------- -------- -------- --------
Total fixed maturities $506,024 $ 16,078 $ 2,259 $519,843
-------- -------- -------- --------
Equity securities:
- ------------------
Common stock:
U.S. banks, trusts &
insurance companies $ 3,651 $ 751 $ 0 $ 4,402
U.S. industrial &
miscellaneous 65,240 34,532 14,040 85,732
Foreign 6,855 447 2,862 4,440
Non redeemable
preferred stock:
U.S. banks, trusts &
insurance companies 20,103 572 293 20,382
U.S. industrial &
miscellaneous 92,948 2,387 3,830 91,505
Foreign 27,243 1,071 234 28,080
-------- -------- -------- --------
Total equity securities $216,040 $ 39,760 $ 21,259 $234,541
-------- -------- -------- --------
Total available-for-sale
securities $722,064 $ 55,838 $ 23,518 $754,384
======== ======== ======== ========
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE C -- INVESTMENTS (Continued)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ----------- ---------- ---------
December 31, 2000
Fixed maturities:
- ----------------
U.S. treasuries & government
agencies $ 11,216 $ 420 $ 24 $ 11,612
States & political subdivisions 50,337 1,656 34 51,959
Special revenue 110,855 3,779 68 114,566
Public utilities 23,221 550 207 23,564
U.S. industrial & miscellaneous 267,231 4,770 5,940 266,061
Foreign 30,082 238 406 29,914
-------- -------- -------- --------
Total bonds $492,942 $ 11,413 $ 6,679 $497,676
Redeemable preferred stock 31,230 3,341 701 33,870
-------- -------- -------- --------
Total fixed maturities $524,172 $ 14,754 $ 7,380 $531,546
-------- -------- -------- --------
Equity securities:
- ------------------
Common stock:
U.S. banks, trusts &
insurance companies $ 3,651 $ 422 $ 275 $ 3,798
U.S. industrial &
miscellaneous 63,662 38,286 15,343 86,605
Foreign 7,100 581 2,719 4,962
Nonredeemable
preferred stock:
U.S. banks, trusts &
insurance companies 22,094 97 66 22,125
U.S. industrial &
miscellaneous 62,266 1,987 3,119 61,134
Foreign 26,195 217 590 25,822
-------- -------- -------- --------
Total equity securities $184,968 $ 41,590 $ 22,112 $204,446
-------- -------- -------- --------
Total available-for-sale
securities $709,140 $ 56,344 $ 29,492 $735,992
======== ======== ======== ========
In the third quarter 2000, the Company began participating in a securities
lending program whereby certain securities from its portfolio are loaned to
other institutions for short periods of time through a lending agent. A fee is
paid to the Company by the borrower. Collateral that exceeds the market value of
the loaned securities is maintained by the lending agent. The Company has an
indemnification agreement with the lending agents in the event a borrower
becomes insolvent or fails to return securities. At June 30, 2001, the Company
had loaned securities with a market value of $44.9 million secured by collateral
of $45.9 million. The borrower of the securities is not permitted to sell or
replace the security on loan.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE C -- INVESTMENTS (Continued)
Limited partnerships include U.S. and foreign private equity, real estate and
fixed income investments. The private equity limited partnerships invest in
small-to medium-sized companies. The private equity limited partnerships are
carried at estimated market value with unrealized gains and losses, net of
deferred taxes, reflected in shareholders' equity in accumulated other
comprehensive income. Investment income or loss is recognized on the sale of the
equity investment. Real estate and fixed income limited partnerships are
recorded using the equity method, which approximates the Company's share of the
carrying value of the partnership. The components of equity in earnings of
limited partnerships as reported on the Consolidated Statements of Operations
are as follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- --------------------
2001 2000 2001 2000
Private equity $ 2,261 ($ 151) $ 588 ($ 68)
Real estate 601 1,346 862 1,555
Fixed income 49 229 58 929
------- ------- ------- -------
Total equity in earnings of
limited partnerships $ 2,911 $ 1,424 $ 1,508 $ 2,416
======= ======= ======= =======
The Company began using forward currency contracts to hedge the risks related to
foreign limited partnership investments in 2001. These contracts are being
recorded at fair value on the Consolidated Statements of Financial Position. The
Company recognized a loss on these contracts of $20 during the quarter ended
June 30, 2001. For the year losses on these contracts totaled $46 and are
included in the Consolidated Statements of Operations.
Mortgage loans on commercial real estate are recorded at unpaid balances,
adjusted for amortization of premium or discount. A valuation allowance would be
provided for impairment in net realizable value based on periodic valuations as
needed.
Net purchases of investments as presented in the Consolidated Statements of Cash
Flows consist of the following:
Six Months Ended June 30,
2001 2000
--------------------------
Purchase of investments:
Fixed maturities ($ 99,975) ($ 75,307)
Equity securities ( 29,466) ( 31,676)
Limited partnerships ( 14,775) ( 7,573)
--------- ---------
Total purchases ($ 144,216) ($ 114,556)
--------- ---------
Sales/maturities of investments:
Sales of fixed maturities $ 51,170 $ 38,175
Calls of fixed maturities 46,152 28,126
Equity securities 22,029 29,470
Mortgage loans 819 1,573
Limited partnerships 2,348 3,155
--------- ---------
Total sales/maturities $ 122,518 $ 100,499
--------- ---------
Net purchase of investments ($ 21,698) ($ 14,057)
========== =========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D -- SUMMARIZED FINANCIAL STATEMENT INFORMATION OF AFFILIATE
The Company has a 21.63% investment in Erie Family Life Insurance Company (EFL)
and accounts for this investment using the equity method of accounting.
The following represents condensed financial statement information for EFL on a
GAAP basis:
Six Months Ended June 30,
2001 2000
------- -------
Revenues $55,680 $58,582
Benefits and expenses 40,227 39,642
------- -------
Income before income taxes 15,453 18,940
Income taxes 5,347 6,553
------- -------
Net income $10,106 $12,387
======= =======
Comprehensive income $16,431 $19,745
======= =======
Dividends paid to shareholders $ 3,544 $ 3,260
======= =======
Net unrealized appreciation on investment
securities at June 30, net of deferred taxes $10,012 $ 5,014
======= =======
NOTE E -- NOTE RECEIVABLE FROM ERIE FAMILY LIFE INSURANCE COMPANY
The Company is due $15 million from EFL in the form of a surplus note. The note
bears an annual interest rate of 6.45% and all payments of interest and
principal of the note may be repaid only out of unassigned surplus of EFL and
are subject to prior approval of the Pennsylvania Insurance Commissioner.
Interest on the surplus note is scheduled to be paid semi-annually. The note
will be payable on demand on or after December 31, 2005. EFL paid $484 in the
second quarter of 2001 and 2000 to the Company.
NOTE F -- TREASURY STOCK
In December 1998 the Board of Directors of the Company approved a stock
repurchase plan beginning January 1, 1999, under which the Company may
repurchase as much as $120 million of its outstanding Class A common stock
through December 31, 2002. At June 30, 2001 the Company had repurchased almost
$87 million in stock. Treasury shares are recorded on the Consolidated
Statements of Financial Position at cost.
NOTE G -- eCOMMERCE PROGRAM AND RELATED INFORMATION TECHNOLOGY INFRASTRUCTURE
During March 2001, the Company and the insurance Companies of the Erie Insurance
Group entered into the Cost Sharing Agreement For Information Technology
Development ("Agreement"). The Agreement describes how member companies of The
Erie Insurance Group will share the costs to be incurred for the development of
new property/casualty policy administration and customer relationship management
systems. The Agreement further specifies how related enabling technology costs,
such as technical development and architectural tools will be shared among the
group. The Agreement provides that such costs will be shared among the
property/casualty insurance companies in a manner consistent with the sharing of
insurance transactions under an existing intercompany pooling agreement.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE G --eCOMMERCE PROGRAM AND RELATED INFORMATION TECHNOLOGY INFRASTRUCTURE
(Continued)
The Company's share of these costs, incurred by the insurance subsidiaries of
the Company, amounted to $136,388 during the second quarter of 2001. These costs
are included in the Policy Acquisition and Other Underwriting Costs in the
Consolidated Statements of Operations.
Certain other costs of the eCommerce Program are related to Information
Technology Infrastructure costs not included under the Agreement. The Company's
share of the expenses amounted to $131,630 during the second quarter 2001 and
are included in the Cost of Management Operations in the Consolidated Statements
of Operations.
NOTE H -- SEGMENT INFORMATION
The Company operates its business as two reportable segments - management
operations and property/casualty insurance operations. The Company's principal
operations consist of serving as attorney-in-fact for the Erie Insurance
Exchange (Exchange), which constitutes its management operations. The Company's
property/casualty insurance operations arise through direct business of its
subsidiaries and by virtue of a pooling agreement between its subsidiaries and
the Exchange. The performance of the personal lines and commercial lines is
evaluated based upon the underwriting results as determined under statutory
accounting practices (SAP) for the total pooled business of the Group.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE H - SEGMENT INFORMATION (CONTINUED)
Summarized financial information for these operations is presented below:
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- ------------------------------
2001 2000 2001 2000
Management Operations:
----------------------
Revenue:
Management fee revenue $ 167,828 $ 147,174 $ 313,497 $ 276,272
Service agreement revenue 6,838 4,936 13,250 10,170
------------ ------------ ------------ ------------
Total revenue from management
operations 174,666 152,110 326,747 286,442
Net revenue from investment
operations 13,498 15,771 21,201 30,988
------------ ------------ ------------ ------------
Total revenue $ 188,164 $ 167,881 $ 347,948 $ 317,430
============ ============ ============ ============
Income before taxes $ 66,602 $ 59,081 $ 117,505 $ 110,916
============ ============ ============ ============
Net income $ 44,459 $ 40,066 $ 78,523 $ 75,094
============ ============ ============ ============
Property/Casualty Operations:
-----------------------------
Revenue:
Premiums earned:
Commercial lines $ 8,651 $ 7,036 $ 16,585 $ 13,628
Personal lines 24,263 22,510 47,359 44,366
Reinsurance 1,980 1,716 4,266 3,989
------------ ------------ ------------ ------------
Total premiums earned (SAP) 34,894 31,262 68,210 61,983
GAAP adjustments ( 977) ( 585) ( 2,119) ( 1,415)
------------ ------------ ------------ ------------
Total premiums earned (GAAP) 33,917 30,677 66,091 60,568
Net revenue from investment
operations 5,233 4,887 9,726 9,185
------------ ------------ ------------ ------------
Total revenue $ 39,150 $ 35,564 $ 75,817 $ 69,753
============ ============ ============ ============
Losses and expenses:
Commercial lines $ 9,199 $ 7,855 $ 18,465 $ 15,865
Personal lines 25,940 22,950 51,302 44,345
Reinsurance 2,092 2,047 3,858 5,817
------------ ------------ ------------ ------------
Total losses and loss expenses
(SAP) 37,231 32,852 73,625 66,027
GAAP adjustments ( 1,528) ( 585) ( 2,210) ( 666)
------------ ------------ ------------ ------------
Total losses and loss expenses
(GAAP) $ 35,703 $ 32,267 $ 71,415 $ 65,361
============ ============ ============ ============
Income before taxes $ 3,447 $ 3,297 $ 4,402 $ 4,392
============ ============ ============ ============
Net income $ 2,670 $ 2,452 $ 3,392 $ 3,609
============ ============ ============ ============
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE H - SEGMENT INFORMATION (CONTINUED)
The following information further describes the financial results of the Company
by segment, as presented on the previous page.
Management fee revenue by line of business:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
Private Passenger Auto $ 90,125 $ 82,321 $170,094 $156,849
Commercial Auto 13,847 11,437 26,956 22,477
Homeowner 28,276 24,928 47,457 41,915
Commercial Multi-Peril 16,927 13,326 32,482 25,679
Worker's Compensation 13,448 10,656 27,151 21,305
All Other Lines of Business 5,205 4,506 9,357 8,047
-------- -------- -------- --------
Total $167,828 $147,174 $313,497 $276,272
======== ======== ======== ========
Policy counts for Erie Insurance Group property/casualty operations:
Private All other
Passenger CML* CML* Worker Lines of
Date Auto Auto Homeowner Multi-Peril Comp. Business Total
----------- ----------- -------- ---------- ----------- ---------- -------- ----------
12/31/99 1,274,869 82,760 917,902 174,085 43,508 196,725 2,689,849
03/31/00 1,287,868 83,534 931,971 178,191 44,235 199,580 2,725,379
06/30/00 1,305,888 85,089 952,325 184,913 45,408 204,412 2,778,035
09/30/00 1,324,104 86,592 971,213 190,120 46,529 208,832 2,827,390
12/31/00 1,337,280 87,567 986,654 195,137 47,156 211,759 2,865,553
03/31/01 1,356,651 89,388 1,003,517 200,671 48,104 215,747 2,914,078
06/30/01 1,382,419 91,794 1,029,339 208,388 49,711 221,993 2,983,644
Retention rates for Erie Insurance Group property/casualty operations:
Private All other
Passenger CML* CML* Worker's Lines of
Date Auto Auto Homeowner Multi-Peril Comp. Business Total
----------- ---------- ------- -------- ----------- --------- ---------- -------
12/31/99 91.58% 89.27% 90.47% 87.42% 87.59% 86.85% 90.45%
03/31/00 91.83 89.52 90.66 88.08 88.52 87.23 90.72
06/30/00 92.03 89.53 90.89 88.19 88.62 87.57 90.92
09/30/00 92.19 89.90 90.88 88.38 88.67 87.75 91.03
12/31/00 92.31 89.80 90.75 88.14 88.48 87.64 91.01
03/31/01 92.24 90.29 90.71 88.59 89.06 87.75 91.03
06/30/01 92.25 90.35 90.68 88.44 88.76 88.00 91.01
<FN>
*CML = Commercial
</FN>
NOTE I -- RECLASSIFICATIONS
Certain amounts previously reported in the 2000 financial statements have been
reclassified to conform to the current period's presentation.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Item 1 of this Quarterly
Report on Form 10-Q and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2000 as filed with the Securities and Exchange
Commission on March 23, 2001.
OPERATING RESULTS
Financial Overview
Consolidated net income for the second quarter of 2001 increased to $47,129,396
or $.66 per share, from $42,518,485 or $.59 per share, earned during the second
quarter of 2000. Net income per share, which was positively impacted by the
Company's share repurchase program, rose by 12.0% for the second quarter of
2001. Improved management operations resulting from a 14% increase in management
fees were somewhat offset by increased losses experienced in the Company's
insurance underwriting operations as well as decreased revenue from investment
operations. For the six months ended June 30, 2001 consolidated net income was
$81,914,701, a 4.1% increase from the $78,703,461 earned in 2000 for the same
period. Net income per share increased 5.3% to $1.15 per share in the first half
of 2001 compared to $1.09 per share recorded a year earlier.
Operating income (net income less realized gains and related federal income
taxes) increased 18.5%, or $7,161,138, to $45,820,927 for the second quarter
2001 from $38,659,789 for the same period in 2000. Operating income per share
increased 19.7% to $.64 per share in the second quarter of 2001 from $.54 per
share for the same period one year ago. For the six months ended June 30, 2001,
operating income increased 12.5% to $80,143,708 from $71,266,832 reported for
the same period in 2000. Operating income per share increased 13.1% to $1.12 per
share in the first half of 2001 from $.99 per share for the same period in 2000.
RESULTS OF OPERATIONS
Analysis of Management Operations
Management fee revenue derived from the management operations of the Company
serving as attorney-in-fact for the Exchange, increased to $167,827,662 for the
three months ended June 30, 2001 from $147,173,682 for the three months ended
June 30, 2000. Management fee revenue for the first six months of 2001 increased
13.5% to $313,496,767. The management fee rate charged the Exchange was 25% for
all periods presented. The Company's Board of Directors has the authority to
change the management fee rate at its discretion, but cannot exceed a rate of
25%.
The property/casualty direct premium written by the Erie Insurance Group
(Group), upon which management fee revenue is based, grew 14.0% to $671,310,649
in the second quarter of 2001 from $588,694,727 for the same period in 2000. For
the year, premiums written increased 13.5% to $1,253,987,067 compared to
$1,105,088,753 written for the first six months of 2000 (see also Note H,
"Segment Information" which displays management fee revenue by line of
business).
Continued new policy growth, improved commercial lines pricing and more stable
personal lines pricing drove the gains experienced in the Group's direct written
premium. Policies in force increased an annualized 7.4% to 2,983,644 at June 30,
2001 from 2,778,035 at June 30, 2000. Policy retention (the percentage of
current Policyholders who have renewed their policies) was 91.01% and 90.92%
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
for the periods ended June 30, 2001 and 2000, respectively, for all lines of
business (see also Note H, "Segment Information" which contains additional rates
by line of business).
Service agreement revenue grew by 38.5% to $6,838,265 in the second quarter of
2001 from $4,936,576 for the same period in 2000. Included in service agreement
revenue are service charges the Company collects from Policyholders for
providing extended payment terms on policies written by the Group. Such service
charges amounted to $4,069,932 and $2,918,407 for the quarters ended June 30,
2001 and 2000, respectively. Also included in service agreement revenue is
service income received from the Exchange as compensation for the management and
administration of voluntary assumed reinsurance from non-affiliated insurers.
The Company receives a service fee of 7.0% of non-affiliated assumed reinsurance
premiums. These fees totaled $2,768,333 and $2,018,169 for the three months
ended June 30, 2001 and 2000 respectively, on net voluntary assumed reinsurance
premiums of $39,547,608 and $28,830,982 for the second quarters of 2001 and
2000, respectively.
For the six months ended June 30, 2001 service agreement revenue increased 30.3%
to $13,250,614 from $10,169,495. Service charges increased 48.1% to $7,732,177
from $5,221,462. In June of 2000, these service charges increased from $2 to $3
per installment for policies renewing in most states. Service agreement income
rose by 11.5% to $5,518,437. Net voluntary assumed reinsurance premiums, upon
which the service agreement revenue is based, also increased 11.5% to
$78,834,810 from $70,686,179 for the first six months of 2001 and 2000,
respectively.
The cost of management operations increased 11.7% for the second quarter of 2001
to $121,562,179 from $108,800,520 during the second quarter of 2000. For the six
months ended June 30, 2001 the cost of management operations grew by 11.6% to
$230,443,375 compared to $206,514,065 for the same period in 2000.
Commissions to independent Agents are the largest component of the cost of
management operations. Included in commission expenses are the cost of scheduled
commissions earned by independent Agents on premiums written as well as
promotional incentives for Agents and Agent contingency awards. Agent
contingency awards are based upon a three-year average of the underwriting
profitability of the direct business written and serviced by the independent
Agent within the Erie Insurance Group of companies. Commission costs totaled
$85,644,046 for the second quarter of 2001, a 13.2% increase over the
$75,667,663 reported in the second quarter of 2000. The provision for Agent
contingency awards totaled $4,126,067 and $5,056,617 for the quarters ended June
30, 2001 and 2000, respectively. Commission costs grew more slowly than the
growth in direct premium written in 2001 due to lower accruals for agent
contingency awards relative to 2000. Commissions grew by 12.5% to $159,237,033
from $141,483,733 recorded for the first six months of 2000.
The cost of management operations excluding commission costs increased 8.4% for
the three months ended June 30, 2001 to $35,918,133 from $33,132,857 recorded in
the second quarter of 2000. For the first six months of 2001, the cost of
operations excluding commission costs increased 9.5% to $71,206,342 from
$65,030,332 recorded for the same period in 2000. Personnel costs, including
salaries, employee benefits, and payroll taxes, are the second largest component
in cost of operations. The Company's personnel costs totaled $21,629,068 for the
three month period ended June 30, 2001, compared to $19,721,821 for the same
period in 2000, an increase of 9.7%. Personnel costs were impacted by increases
in salaries and employee benefit costs. Salaries and wages increased in the
second quarter 2001 due to staffing increases and employee pay rate increases
while employee benefits increased due to rising medical expenses from growth in
plan enrollment and claims costs. The Company's share of information
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
technology infrastructure expenditures related to the Company's recently
announced eCommerce initiative were $131,630 for the second quarter 2001 as the
program is in its initial phase. These expenditures will continue to grow over
the next five years (see "Factors That May Effect Future Results").
Net revenue from the Company's management operations increased 22.6% to
$53,103,748 for the three months ended June 30, 2001 from $43,309,738 for the
same period in 2000. For the six months ended June 30, 2001 net revenue from
management operations totaled $96,304,006, an increase of 20.5% when compared to
the first six months of 2000. The gross margin from management operations (net
revenue divided by total revenue) improved to 30.4% in the second quarter of
2001, compared to the gross margin of 28.5% reported in the second quarter of
2000.
Analysis of Insurance Underwriting Operations
The underwriting loss from the insurance operations of the Company's
property/casualty insurance subsidiaries, EIC and EINY, which together assume a
5.5% share of the underwriting results of the Erie Insurance Group under an
intercompany pooling agreement, increased slightly during the second quarter of
2001 when compared to the same period in 2000.
The Company's insurance underwriting operations recorded underwriting losses of
$1,786,331 and $1,590,083 in the second quarters of 2001 and 2000, respectively.
The Company recognized premiums earned of $33,916,874 for the quarter ended June
30, 2001 a 10.6% increase over the $30,676,646 reported in the second quarter of
2000. The 2001 underwriting loss resulted from increased losses in the direct
business of the Company's property/casualty subsidiaries, primarily in private
passenger automobile and homeowners insurance. Commercial insurance loss ratios
have improved in 2001 versus 2000 due to firmer pricing in those lines of
insurance. The Company had an underwriting loss of $5,324,238 for the first six
months of 2001 compared to an underwriting loss of $4,792,997 for the same
period in 2000. Included in the Company's underwriting expenses are the
Company's share of eCommerce initiative expenses totaling $136,388 as explained
in the "Factors That May Effect Future Results" section, herein. These shared
costs will continue to increase as the program develops.
EIC and EINY have in effect an all-lines aggregate excess of loss reinsurance
agreement with the Exchange to limit their net retained share of ultimate net
losses in any applicable accident year. This reinsurance treaty is excluded from
the intercompany pooling agreement. The premium paid to the Exchange for the
agreement totaled $909,617 and $748,523 for the six months ended June 30, 2001
and 2000, respectively. For the quarter ended June 30, 2001, the Company's
property/casualty insurance subsidiaries recorded loss recoveries through this
agreement with the Exchange amounting to $201,301 and loss recoveries amounting
to $553,580 for the six months ended 2001. Loss recoveries in 2001 related to
the development of accident year 1999 losses under the agreement. No recoveries
were recorded under this agreement in 2000. Catastrophe losses were $49,953 and
$953,758 for the quarters ended June 30, 2001 and 2000, respectively.
The GAAP combined ratio for the Company's property/casualty insurance operations
was 105.3% and 105.2% for the three months ended June 30, 2001 and 2000,
respectively. The GAAP combined ratio increased slightly to 108.1% for the six
months ended June 30, 2001 compared to a ratio of 107.9% for the same period in
2000. The GAAP combined ratio represents the ratio of loss, loss adjustment,
acquisition, and other underwriting expenses incurred to premiums earned.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Analysis of Investment Operations
Net revenue from investment operations for the second quarter of 2001 decreased
9.3% to $18,731,053 from $20,658,313 in the second quarter of 2000. During the
second quarter of 2000 the Company took advantage of strong equity markets
producing realized gains of $5,936,455. In the second quarter of 2001, with
equity markets much weaker, the Company's realized gains on the sale of
available for sale securities was $2,013,029. Equity in earnings of limited
partnerships increased $1,487,052 in the second quarter of 2001 when compared
with the same period in 2000 as a result of partnership gains in private equity
limited partnerships.
Net revenue from investment operations for the six months ended June 30, 2001
declined 23.0% to $30,927,137 from $40,173,108 for the same period in 2000. This
decrease resulted from a $8,716,362 decrease in realized gains on investments
combined with a $907,967 decrease in equity in earnings of limited partnerships.
FINANCIAL CONDITION
Investments
The Company's investment strategy takes a long-term perspective emphasizing
investment quality, diversification and superior investment returns. Investments
are managed on a total return approach that focuses on current income and
capital appreciation. The Company's investment strategy also provides for
liquidity to meet the short- and long-term commitments of the Company. At June
30, 2001, the Company's investment portfolio of investment-grade bonds, common
stock, preferred stock and cash and cash equivalents totaled $774 million, or
42.8%, of total assets. These investments provide the liquidity the Company
requires to meet the demands on its funds.
At June 30, 2001, 90.6% of total investments consist of fixed maturities and
equity securities. Mortgage loans and limited partnerships, represented 9.4% of
total investments at that date. Mortgage loans on real estate and limited
partnerships have the potential for higher returns, but also carry more risk,
including less liquidity and greater uncertainty in the rate of return. Fixed
income and real estate limited partnerships at June 30, 2001, which comprise
30.6% of the total limited partnerships, produce a predictable earnings stream
while private equity limited partnerships, which comprise 69.4% of the total
limited partnerships at June 30, 2001, tend to provide a less predictable
earnings stream.
The Company's investments are subject to certain risks, including interest rate
and price risk. The Company monitors exposure to interest rate risk through
periodic reviews of asset and liability positions. Estimates of cash flows and
the impact of interest rate fluctuations relating to the investment portfolio
are monitored regularly.
The Company's objective is to earn competitive relative returns by investing in
a diverse portfolio of high-quality, liquid securities. Portfolio
characteristics are analyzed regularly and market risk is actively managed
through a variety of techniques. Portfolio holdings are diversified across
industries and concentrations in any one company or industry are limited by
parameters established by management and the Company's Board of Directors.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure an entity's ability to secure enough cash to meet its
contractual obligations and operating needs. Operating cash flows are generated
from management operations as the attorney-in-fact for the Exchange, the net
cash flow from the EIC's 5% and the EINY's .5% participation in the underwriting
results of the reinsurance pool with the Exchange, and the Company's investment
income from affiliated and non-affiliated investments. With respect to the
management fee, funds are generally received from the Exchange on a premiums
collected basis. The other receivable from Erie Insurance Exchange and
affiliates represents the management fee receivable from premiums written but
not yet collected as well as the management fee receivable on premiums collected
in the current month, net of operating expenses paid by the Exchange. The amount
of this receivable due from the Exchange to the Company at June 30, 2001 was
$2.4 million. The Company pays commissions on premiums collected rather than
written premiums. Cash outflows are variable because of the fluctuations in
settlement dates for liabilities for unpaid losses and because of the potential
for large losses, either individually or in aggregate.
The Company generates sufficient net positive cash flow from its operations to
fund its commitments, repurchase its common stock, and build its investment
portfolio, thereby increasing future investment returns. The Company also
maintains a high degree of liquidity in its investment portfolio in the form of
readily marketable fixed maturities, equity securities and short-term
investments. Net cash flows provided by operating activities for the six months
ended June 30, 2001 and 2000, were $45,961,028 and $60,776,981, respectively.
Dividends declared and paid to shareholders for the quarter ended June 30, 2001
and 2000, totaled $9,835,752 and $8,807,299, respectively. Dividends declared
and paid for the six months ended June 30, 2001 were $19,674,569 compared to
$17,660,249 for the same period ended in 2000. There are no regulatory
restrictions on the payment of dividends to the Company's shareholders, although
there are state law restrictions on the payment of dividends from the Company's
insurance subsidiaries to the Company. Dividends from subsidiaries are not
material to the Company's cash flows.
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to deferred tax assets and
liabilities resulted in net deferred tax liabilities at June 30, 2001 of
$8,800,346 and at December 31, 2000 of $7,161,544. The primary reason for the
increase in the deferred tax liability is an increase of $786,532 in unrealized
gains from available-for-sale securities resulting in an increased deferred tax
liability in 2001.
At June 30, 2001 and December 31, 2000, the Company's receivables from its
affiliates totaled $604,171,635 and $532,008,287, respectively. These
receivables, primarily due from the Exchange, as a result of the management fee,
expense reimbursements and the intercompany reinsurance pool, represent a
concentration of credit risk.
STOCK REPURCHASE PLAN
Beginning in 1999, the Company established a stock repurchase program. The
Company may repurchase as much as $120 million of its outstanding Class A common
stock through December 31, 2002. During the second quarter of 2001, 25,500
shares were repurchased at a total cost of $734,295 or an average price of
$28.80. The Company repurchased 149,957 shares at a total cost of $4,300,216
during the second quarter of 2000. The Company may purchase the shares from time
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
to time in the open market or through privately negotiated transactions,
depending on prevailing market conditions and alternative uses of the Company's
capital.
FACTORS THAT MAY EFFECT FUTURE RESULTS
Rate Increases
- --------------
The Erie Insurance Group has filed for rate increases in the following lines of
business in the following states:
Private passenger auto - Pennsylvania, Maryland, Indiana, North Carolina and
Virginia
Commercial auto - Pennsylvania
Workers compensation - Pennsylvania and Maryland
Home protector - Pennsylvania, Indiana and North Carolina
These increases were sought to offset growing loss costs in these lines of
business. The subsequent approval by state regulators will result in an
estimated $14.9 million increase in direct written premiums of the Group for the
last six months of 2001 as well as an estimated $8.3 million increase in written
premium for 2002.
eCommerce Program and Related Information Technology Infrastructure Expenditures
- --------------------------------------------------------------------------------
In 2001, the Company began the development of several eCommerce initiatives in
support of the Erie Insurance Group's business model of distributing insurance
products exclusively through independent agents. The eCommerce program includes
initiatives to replace property/casualty policy administration systems as well
as customer interaction systems. The eCommerce program also includes significant
information technology infrastructure expenditures. The program is intended to
improve service and efficiency, as well as result in increased sales. Total
five-year expenditures for the program are estimated at $150 to $175 million.
The cost of these initiatives will be shared among several companies of the Erie
Insurance Group, including the Company. Based on preliminary estimates, which
will be further refined in the second half of 2001, the after-tax effect on net
income of the Company is estimated to reduce earnings per share between $0.08
and $0.12 for 2001 and between $0.05 and $0.07 per share for each of the next
four years of the program.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk is primarily related to fluctuations in
prices and interest rates. Quantitative and qualitative disclosures about market
risk resulting from changes in prices and interest rates are included in Item
7A. in the Company's 2000 Annual Report on Form 10-K. There have been no
material changes in such risks or the Company's periodic reviews of asset and
liability positions during the six months ended June 30, 2001. The information
contained in the Investments section of Management's Discussion and Analysis of
Financial Condition and Results of Operations is incorporated herein by
reference.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995: Certain forward-looking statements contained herein involve risks and
uncertainties. Many factors could cause future results to differ materially from
those discussed. Examples of such factors include variations in catastrophe
losses due to changes in weather patterns or other natural causes; changes in
insurance regulations or legislation that disadvantage the members of the Group
in the marketplace and recession, economic conditions or stock market changes
affecting pricing or demand for insurance products or ability to generate
investment income. Growth and profitability have been and will be potentially
materially affected by these and other factors.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning the legal proceedings of the Company is incorporated by
reference to pages 20 through 22 in the section "Legal Proceedings" in the
Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Shareholders to be held on April 24, 2001 filed with the Securities
and Exchange Commission on March 28, 2001.
On April 5, 2001, a Stipulation among Mrs. Hagen, Bankers Trust, and the Company
was filed with the Court whereby these three parties agreed to accept the April
24th Ruling as a final adjudication of this matter. As a consequence of this
Stipulation agreement, Mrs. Hagen withdrew her Motion for Judgment on the
Pleadings. The Company's execution of the Stipulation did not bind any other
parties other than the signatories to the Stipulation. As a result of the
Stipulation, the hearing scheduled for April 10, 2001 was ordered cancelled by
the Court.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held April 24, 2001.
a. The following directors were elected at the Annual Meeting of
Shareholders for a one-year term and until a successor is
elected and qualified:
Samuel P. Black, III Claude C. Lilly, III
J. Ralph Borneman, Jr. Stephen A. Milne
Patricia Garrison-Corbin Henry N. Nassau
Susan Hirt Hagen John M. Petersen
F. William Hirt Jan R. Van Gorder
Samuel P. Katz Robert C. Wilburn
b. The following other matter was voted upon at the meeting and the
following number of affirmative votes were cast with respect to
such matter:
The proposal to ratify the selection of Brown, Schwab, Bergquist
& Company as independent public accountants to perform the
annual audit of the Company financial statements for the year
ending December 31, 2001. This proposal received 3,008
affirmative votes with no negative votes or abstentions.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.41 - Cost Sharing Agreement for Information Technology Development
dated March 14, 2001 between Registrant and member companies of the Erie
Insurance Group.
The Company did not file any exhibits or reports on Form 8-K during the three
month period ended June 30, 2001.
22
Item 11. Statement Regarding Computation of Per Share Earnings:
Three Months Ended June 30 Six Months Ended June 30
---------------------------- ------------------------------
2001 2000 2001 2000
Class A weighted average common shares
outstanding (stated value $.0292) 64,020,014 64,739,369 64,034,046 64,835,690
Class B common shares outstanding
(stated value $70)
Conversion of Class B shares
to Class A shares (one share
of Class B for 2,400 shares of
Class A) 7,368,000 7,368,000 7,368,000 7,368,000
----------- ----------- ----------- -----------
Total weighted average shares outstanding 71,388,014 72,107,369 71,402,046 72,203,690
=========== =========== =========== ===========
Net income $47,129,396 $42,518,485 $81,914,701 $78,703,461
=========== =========== =========== ===========
Net income per share $ .66 $ .59 $ 1.15 $ 1.09
=========== =========== =========== ===========
23
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.
Erie Indemnity Company
----------------------
(Registrant)
Date: July 19, 2001
\s\ Stephen A. Milne
Stephen A. Milne, President & CEO
\s\ Philip A. Garcia
Philip A. Garcia,
Executive Vice President & CFO
24