-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqpWD79JrEJgr1QuzJQ1mqtem4ihiXR1C+k+rMLJRn+i+1MdV+vckYpD3NyqmM3C 2ChoYSJ0fz3wQqkxtGpJqw== 0000068480-96-000009.txt : 19960816 0000068480-96-000009.hdr.sgml : 19960816 ACCESSION NUMBER: 0000068480-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTOR CLUB OF AMERICA CENTRAL INDEX KEY: 0000068480 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 220747730 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00671 FILM NUMBER: 96611482 BUSINESS ADDRESS: STREET 1: 95 ROUTE 17 SOUTH CITY: PARAMUS STATE: NJ ZIP: 07653 BUSINESS PHONE: 201-291-2112 MAIL ADDRESS: STREET 1: 95 ROUTE 17 SOUTH CITY: PARAMUS STATE: NJ ZIP: 07653-0931 10-Q 1 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 No. June 30, 1996 0-671 MOTOR CLUB OF AMERICA (Exact name of registrant as specified in its charter) New Jersey 22-0747730 (State of Incorporation) (I.R.S. Employer Identification No.) 95 Route 17 South, Paramus, New Jersey 07653 (Address of principal executive offices) Zip Code Registrant's telephone number, including area code 201-291-2000 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 period 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 . 2,046,379 shares of Common Stock were outstanding as of August 12, 1996. 1 of 15 PART I FINANCIAL INFORMATION Item 1. Financial Statements MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1996 1995 ASSETS Investments $45,774,649 $45,597,277 Cash and cash equivalents 2,535,879 2,630,909 Premiums receivable 6,621,552 7,135,231 Reinsurance recoverable on paid and unpaid losses and loss expenses 22,884,869 17,638,854 Notes and accounts receivable - net 190,951 209,953 Deferred policy acquisition costs 5,030,734 5,069,222 Fixed assets - at cost, less accumulated depreciation 1,467,808 1,219,125 Federal income tax recoverable 29,100 13,680 Prepaid reinsurance premiums 855,682 1,193,098 Other assets 1,160,556 1,251,419 Total Assets $86,551,780 $81,958,768 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Losses and loss expenses $46,436,465 $39,823,552 Unearned premiums and membership fees 16,891,408 17,363,031 Other liabilities 9,568,855 10,691,109 Total Liabilities 72,896,728 67,877,692 Shareholders' Equity: Common Stock, par value $.50 per share: Authorized - 10,000,000 shares; issued - 1996 - 2,046,379, 1995 - 2,043,004 shares 1,023,189 1,021,876 Paid in additional capital 1,728,117 1,722,539 Unfunded accumulated benefit obligation in excess of Plan assets (5,177,900) (5,177,900) Net unrealized gains on debt securities 80,110 1,392,415 Retained earnings 16,001,536 15,122,146 Total Shareholders' Equity 13,655,052 14,081,076 Total Liabilities and Shareholders' Equity $86,551,780 $81,958,768 (Financial statements should be read in conjunction with the accompanying notes)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Six Months Ended For the Three Months Ended June 30, 1996 June 30,1995 June 30,1996 June 30,1995 Revenues: Insurance premiums (net of premiums ceded totaling $3,317,078, $2,216,384, $1,714,725 and $1,238,443) $21,696,829 $16,945,127 $11,122,295 $8,499,976 Net investment income 1,486,467 1,368,696 734,018 667,984 Realized gains on sales of investments 5,410 4,132 - - Motor Club membership fees 658,104 630,787 325,986 317,427 Other revenues 69,729 66,754 43,405 32,219 Total revenues 23,916,539 19,015,496 12,225,704 9,517,606 Losses and Expenses: Insurance losses and loss expenses incurred (net of reinsurance recoveries totaling $6,467,044, $1,292,557, $3,557,003 and $328,999) 13,850,881 9,591,341 7,064,936 4,798,061 Amortization of deferred policy acquisition costs 6,210,244 5,437,549 3,182,759 2,583,919 Other operating expenses 2,445,913 2,718,281 937,369 1,405,804 Lease termination charge 359,077 - - - Motor Club benefits 146,551 168,448 70,415 80,211 Total losses and expenses 23,012,666 17,915,619 11,255,479 8,867,995 Income before Federal income tax 903,873 1,099,877 970,225 649,611 Provision for Federal income taxes 23,042 22,000 19,567 11,000 Net income $ 880,831 $ 1,077,877 $ 950,658 $ 638,611 Per common share: Net income $.43 $ .53 $.46 $.31
(Financial statements should be read in conjunction with the accompanying notes)
MOTOR CLUB OF AMERICA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended June 30, 1996 June 30, 1995 Operating activities: Net income $ 880,831 $ 1,077,877 Adjustments to reconcile net income to net cash used in operating activities: Depreciation expense 167,704 148,558 Gain on sale of investments (5,410) (4,132) Amortization on bond premium (net of accrual of discount) 57,131 9,168 Write-off of leasehold improvement (net) due to lease termination 227,077 - Loss on disposal of fixed assets 13,400 - Changes in: Deferred policy acquisition costs 38,488 189,169 Premiums receivable 513,679 478,150 Notes and accounts receivable 19,002 45,440 Other assets 89,423 398,070 Losses and loss expenses 6,612,913 (1,609,113) Unearned premiums and membership fees (471,623) (695,698) Federal income tax recoverable (15,420) 3,630 Amount due to MCA Insurance Company in Liquidation - (2,750,000) Other liabilities (1,122,254) 404,165 Reinsurance recoverable on paid and unpaid losses (5,246,015) 1,334,642 Prepaid reinsurance premiums 337,416 78,442 Net cash provided by (used in) operating activities $2,096,342 ($ 891,632) Investing activities: Investments purchased (5,192,098) (5,109,315) Fixed assets purchased (656,864) (135,983) Proceeds from sales of investments 3,650,699 6,043,192 Net cash (used in) provided by investing activities (2,198,263) 797,894 Financing activities: Common stock issued 6,891 - Repayment to Midlantic Bank, N.A. - (2,750,000) Net cash provided by (used) in financing activities 6,891 (2,750,000) Net decrease in cash and cash equivalents (95,030) (2,843,738) Cash and cash equivalents at beginning of period 2,630,909 4,826,610 Cash and cash equivalents at end of period $2,535,879 $1,982,872
Supplemental Disclosures of Cash Flow Information Note - Interest paid was $0 in 1996 and $33,432 in 1995. Federal income tax paid was $38,462 in 1996 and $18,370 in 1995. Non Cash Investing Activities: Invested assets and shareholders' equity decreased by $1,312,305 and increased by $2,047,490 in 1996 and 1995, respectively, as a result of changes in market value pertaining to the Registrant's application of SFAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities. (Financial statements should be read in conjunction with the accompanying notes) MOTOR CLUB OF AMERICA AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Preparation and Presentation The accompanying condensed consolidated financial statements of Motor Club of America (the "Registrant") include its accounts and those of its subsidiary companies and, in the opinion of management, contain all adjustments necessary to present fairly the Registrant's consolidated financial position, results of operations and cash flows. Certain reclassifications have been made to prior year financial information to conform to 1996 classification. These statements should be read in conjunction with the Summary of Significant Accounting Policies and other notes included in the Notes to Financial Statements in the Registrant's 1995 Annual Report on Form 10-K. 2. Shareholders' Equity Shareholders' equity at June 30, 1996 and December 31, 1995 include the undistributed GAAP net income of Motor Club of America Insurance Company ("Motor Club") and Preserver Insurance Company ("Preserver") (collectively referred to as the "Insurance Companies"), the net assets of which exceed the consolidated net assets of the Registrant. 3. Per Share Data Per share data for 1996 are computed based upon 2,044,255 and 2,044,755 weighted average number of shares of common stock outstanding for the six and three month periods, respectively. Per share data for 1995 are computed based upon 2,043,004 weighted average number of shares outstanding for the six and three month periods. 4. Federal Income Taxes The Registrant and its subsidiaries file a consolidated Federal income tax return. In the six and three month periods ended June 30, 1996 and 1995, the provision for Federal income taxes resulted in effective tax rates different from the expected statutory Federal income tax rates, principally as a result of (i) certain adjustments, principally those enacted under the Tax Reform Act of 1986; and (ii) utilization of Net Operating Loss ("NOL") carryforwards. The Registrant's NOL carryforward at June 30, 1996 is approximately $9.7 million. 5. Lease Obligations The Registrant relocated its headquarters during the first quarter of 1996 from Newark to Paramus, New Jersey. The Registrant and its subsidiaries were parties to an agreement with Fairmount Central Urban Renewal Corporation ("Fairmount") for the lease of the office building in Newark, which was scheduled to expire on December 31, 2011. Effective March 31, 1996, the Registrant and its subsidiaries mutually agreed with Fairmount to terminate the lease in exchange for a payment of $132,000 by the Registrant to Fairmount. At that date, the Registrant also wrote-off certain leasehold improvements on the Newark property in the amount of $227,000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview of Business Operations The Registrant provides a broad range of property and casualty insurance related services through the Insurance Companies. The Registrant also operates a motor club through Motor Club of America Enterprises, Inc. ("Enterprises"). The property and casualty insurance subsidiaries form the largest segment of operations, which accounted for 97% of 1996 revenues. The Insurance Companies provide coverage only in the State of New Jersey. The Registrant anticipates continuing its expansion program through small commercial and ancillary coverages written by Preserver in the State of New Jersey as well as new private passenger automobile ("PPA") writings by Motor Club. The Registrant expects to continue to improve its financial condition by increasing revenue through the aforementioned new premium writings and concurrently lowering its expense ratio by applying stringent expense reduction and controls. Earnings Six Months Net income for the six months ended June 30, 1996 was reduced by: (1) a $359,000 or $.18 per share non-recurring charge incurred in conjunction with the termination of the lease of the office building in which the Registrant and its subsidiaries formerly operated; (2) certain non-recurring operational expenses (totaling $328,000 or $.16 per share) relating to the Registrant's tenancy at its former office building and relocation; and (3) a $228,000 or $.12 per share increase in reinsurance costs as compared to 1995, relating to an increase in the 1996 rate assessed by the New Jersey Unsatisfied Claim and Judgment Fund ("UCJF"), which pertains to New Jersey Personal Injury Protection Claims in excess of Motor Club's statutory retention limit of $75,000. Excluding these items, net income for the six months ended June 30, 1996 increased $718,000 or $.35 per share as compared to the same period in 1995, primarily due to a 28% growth in premium revenue coupled with a lower combined ratio. The combined ratio (as adjusted for the non-recurring charges described above) for the six months ended June 30, 1996 was 100.8% as compared to 105.9% for the same period in 1995. Three Months Net income for the three months ended June 30, 1996 was reduced by $117,000 or $.06 per share for increased reinsurance costs relating to the increase in the 1996 rate assessed by the UCJF. Excluding this item, net income for the three months ended June 30, 1996 increased $429,000 or $.21 per share as compared to the same period in 1995, primarily due to a 31% growth in premium revenue coupled with a lower combined ratio. The combined ratio (as adjusted for the non-recurring charges described above) for the three months ended June 30, 1996 was 100.7% as compared to 104.7% for the same period in 1995. Revenues Insurance Premiums Insurance premiums increased $4,752,000 or 28% in the six months ended June 30, 1996 and $2,622,000 or 31% in the three months ended June 30, 1996, as compared to the same periods in 1995, the result of increases in new business written in the latter half of 1995 and to date in 1996, primarily new PPA. New PPA direct premium written in the first six months of 1996 totaled $7,165,000, as compared to $1,095,000 in the same period in 1995. New PPA net premiums earned were $5,482,000 and $245,000, respectively. In the six months ended June 30, 1996, as compared to the same period in 1995, direct premium written increased $5,987,000 or 33%; Motor Club's increased by $5,093,000 or 34%, while Preserver's increased by $894,000 or 26% ($670,000 or 75% of which emanated from its commercial lines products). In the second quarter of 1996 as compared to the same period in 1995, direct premium written increased $3,442,000 or 36%; Motor Club's increased by $2,772,000 or 36%, while Preserver's increased by $670,000 or 34% ($545,000 or 81% of which emanated from its commercial lines products). Net Investment Income Net investment income increased $118,000 or 9% in 1996 as compared to 1995. Average invested assets for the six month period ended June 30, 1996 were $44,234,000 as compared to $43,601,000 for the same period in 1995. The investment portfolio (including short-term investments and excluding realized capital gains) yielded 6.39% for the six months ended June 30, 1996 as compared to 6.28% for the same period in 1995. Losses and Expenses Losses and Loss Expenses Incurred Losses and loss expenses incurred increased $4,260,000 or 44% in the six months ended June 30, 1996 as compared to 1995. The Insurance Companies' combined loss and loss expense ratios were 63.8% and 63.5% for the six and three months ended June 30, 1996, as compared to 56.6% and 56.4% for the same periods in 1995, respectively. The increase in losses and loss expenses incurred and loss and loss expense ratio is primarily due to: (1) the increased amounts of new PPA business which Motor Club is writing; (2) 1996 winter storm related losses of approximately $635,000; and (3) poor commercial lines loss experience, primarily commercial automobile. Despite the higher loss ratios on a comparative basis, no significant adverse trends were experienced or identified during the six months or second quarter of 1996. Amortization of Deferred Policy Acquisition Costs Acquisition costs incurred increased $764,000 or 20% in the six months ended June 30, 1996 as compared to 1995. Acquisition costs incurred increased $571,000 or 33% in the three months ended June 30, 1996 as compared to 1995. The increase in acquisition related costs generally corresponds to the premium growth previously described. Other Operating Expenses During the first quarter of 1996 the Registrant incurred various non-recurring charges which affected other operating expenses. These charges included: a) the write-off of $227,000 for certain leasehold improvements on its former location in Newark, New Jersey; b) a payment of $132,000 to terminate the lease at its former location; c) approximately $220,000 in expenses related to its tenancy at its former location, while at the same time having commenced the lease for its new headquarters in Paramus, New Jersey; and d) $108,000 in relocation charges in 1996. Excluding these non-recurring charges, other operating expenses decreased $600,000 or 22% in the six months ended June 30, 1996 as compared to the same period in 1995. This decrease in expenses allowed for a decrease in the expense ratio (as adjusted for the non-recurring charges described above) to 37.3% for the six months ended June 30, 1996 as compared to 46.4% in 1995. Other operating expenses decreased $441,000 or 19% in the three months ended June 30, 1996 as compared to the same period in 1995. The Registrant remains committed to reducing its expense ratio by increasing revenues without increasing overhead expenditures. Toward this end, the Registrant has continued to reduce the number of its employees through June 30, 1996 resulting in savings in both salaries and employee benefits. The Registrant has 107 employees as of June 30, 1996 as compared to 115 as of December 31, 1995, resulting in a net savings of approximately $125,000. The aforementioned headquarters relocation has also enabled the Registrant to realize expense savings in overhead expenditures related to its facilities in both the six and three month periods ended June 30, 1996. The Registrant expects to reduce its expenses further by converting its information systems to a smaller, more contemporary computing platform which will allow for more efficient operations and by re-doubling the efforts made previously to reduce all unnecessary overhead expenditures. Motor Club of America Membership Program Motor Club membership fees written through Enterprises increased $54,000 or 9% in 1996 as compared to 1995. The increase in memberships written is due to various programs which were implemented during 1995, including incentives provided to producers to write motor club memberships with the new PPA business Motor Club is writing. Financial Condition, Liquidity and Capital Resources The Registrant's book value at June 30, 1996 is $6.68 per share, as compared to $6.41 per share at March 31, 1996 and $6.89 per share at December 31, 1995. The increase in book value from March 31, 1996 is due to the three month earnings described previously, offset by a decrease of $402,000 or $.20 per share in the market value of fixed maturity investments accounted for as available-for-sale securities under SFAS No. 115. The six month decrease in book value from December 31, 1995 is due to a decrease of $1,312,000 or $.64 per share in the market value of fixed maturity investments, offset by the six month earnings described previously. The Insurance Companies' need for liquidity arises primarily from the obligation to pay claims. The primary sources of liquidity are premiums received, collections from reinsurers and proceeds from investments. Reserving assumptions and payment patterns of the Insurance Companies did not materially change from the prior year and there were no unusually large retained losses resulting from claim activity. Unpaid losses are not discounted. Operating and Investing Activities The Insurance Companies' operations and cash flow are relatively stable in light of the new business they are writing. Net cash provided by and used in operating activities were $2,096,000 and $892,000 in the six months ended June 30, 1996 and 1995, respectively. Cash flow provided by the six months ended June 30, 1996 reflect the growth in the Insurance Companies' premium. In 1995, cash flow used by operating activities was increased by the payment of the Note due the MCAIC Receiver. No other unusual or nonrecurring operating expenditures have been incurred over these periods. Additionally, the payout ratio of losses has not fluctuated substantially over these periods. The Registrant has maintained an investing philosophy during 1996 consistent with past practices and described in detail in its 1995 Annual Report on Form 10-K. Investment mix and portfolio duration as of June 30, 1996 have remained stable as compared to December 31, 1995. Management anticipates maintaining this approach to investing for the foreseeable future. Financing Activities The Registrant paid no dividend on its common stock in 1996 or 1995. The Registrant has no material outstanding capital commitments which would require additional financing. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits None b) Reports on Form 8-K None 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. MOTOR CLUB OF AMERICA s/Stephen A. Gilbert By: Stephen A. Gilbert President s/Patrick J. Haveron By: Patrick J. Haveron Executive Vice President - Chief Financial Officer and Chief Accounting Officer Dated: August 13, 1996 EX-27 2
7 These schedules contain summary financial information extracted from Motor Club of America's Consolidated Balance Sheets for the period ending June 30,1 996 and the Consolidated Statements of Operations for the six months then ended and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1996 JUN-30-1996 45,109,619 0 0 0 665,030 0 45,774,649 2,535,879 0 5,030,734 86,551,780 46,436,465 16,891,408 0 0 0 0 0 1,023,189 12,631,863 86,551,780 21,696,829 1,486,467 5,410 727,833 13,850,881 6,210,244 2,445,913 903,873 23,042 880,831 0 0 0 880,831 .43 .43 39,823,552 17,129,659 3,188,266 5,415,990 8,289,022 46,436,465 3,188,266
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