U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
XX ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-1008
M CORP
(Name of small business issuer in its charter)
Montana
(State or other jurisdiction of
incorporation or organization)
81-0268769
(I.R.S. Employer Identification Number)
110 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (406) 727-2600
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class
NONE
Name of Each Exchange On Which Registered
N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $1.00 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 XX No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year $2,870,220.
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act). As of February 28, 1996, 113,500 shares held by
nonaffiliates were outstanding. The registrant's stock is not traded on any
securities exchange. To registrant's knowledge, neither bid nor asked
quotations for registrant's stock have appeared in any established quotation
system during the past sixty business days. To registrant's knowledge,
neither bid nor asked quotations for registrant's stock are reported in any
newspapers nor are records kept by the National Quotation Bureau, Inc. There
exists no public market for registrant's stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
867,358 shares $1.00 value common stock are outstanding as of February
28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 1995. Part II, Items 5, 6 and 7
Part III, Item 12
Part IV, Item 13
Transitional Small Business Disclosure Format (check one): Yes ; No X .
<PAGE>
M CORP
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A description of the Company's business is set forth on Page 1
and in Note 14 (Page 18) of Exhibit 13, the Annual Report to
Shareholders for the year ended December 31, 1995 which
description is incorporated herein by reference.
The Company has no foreign operations.
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's properties is set forth on Page 1
and in Note 13 (Page 17) of Exhibit 13, the Annual Report to
Shareholders for the year ended December 31, 1995, which
description is incorporated herein by reference.
In addition to the properties owned by the Company, office space
is leased for the Company's title insurance agency operations in
Billings and Forsyth, Montana. The lease for office space in
Billings expires in 1997, but may be terminated upon six (6)
months notice. The lease for the office space in Forsyth expires
in 2000. See Note 9 - Commitments, of the notes to consolidated
financial statements on Page 16 of Exhibit 13, the Annual Report
to Shareholders for the year ended December 31, 1995 which note
is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings presently pending by or against M Corp and
its consolidated subsidiaries are described herein as management
believes that the outcome of such litigation should not have a
material adverse effect on the financial position of the Company
and its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1995.
I-1
1.
<PAGE>
M CORP
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION; AND
ITEM 7. FINANCIAL STATEMENTS
Items 5, 6 and 7 are set forth on Page 19, Pages 1 and 2 and
Pages 3 to 18, respectively, of Exhibit 13, the Annual Report to
Shareholders for the year ended December 31, 1995, which report
is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting principles
or practices or financial statement disclosures between the
Company and the Company's independent auditor during the two most
recent years.
II-1
2.
<PAGE>
M CORP
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
The following are the directors and executive officers of the
Company. All directors and officers serve as such until the 1996
annual meeting of shareholders or until their successors are
elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
R. Bruce Robson, 54, 1994 Director
G. Robert Crotty, Jr., 68, 1995 Director
S. M. McCann, 32, 1994 Director,
President
R. Bruce Robson is the secretary-treasurer and a director of
Medical Information Processing Systems, Inc. and a director of
TSI, Inc., a subsidiary of the Company.
G. Robert Crotty, Jr. is a director of TSI, Inc.
S. M. McCann is a director of GNI, Inc. (the Company's parent
company), UAC,Inc. and Diversified Realty, Inc., subsidiaries of
the Company.
Family Relationships
S. M. McCann is a daughter of Anne Marie and Paul J. McCann (see
item 11(a) on the following page). There are no other family
relationships among the directors and officers listed above and
there are no arrangements or understandings pursuant to which any
of them were elected as directors or officers.
Business Experience of Executive Officers
R. Bruce Robson has been a Director of the Company since
February, 1994. Mr. Robson is the Data Processing Manager,
Sletten Construction Co., Great Falls, Montana.
G. Robert Crotty, Jr. is an attorney at law and a partner in the
law firm of Graybill, Ostrem & Crotty in Great Falls, Montana.
S. M. McCann is an attorney at law and an investor residing in
San Luis Obispo, California.
Based solely on its review of reports of persons subject to
Section 16 of the Securities and Exchange Act, the Company
believes that required reports were filed in a timely manner
disclosing transactions involving the Company's common stock.
III-1
3.
<PAGE>
M CORP
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table lists the cash
compensation paid by the Company and the Company's consolidated
subsidaries to the Company's President for 1995, 1994 and 1993.
No other officer or director of the Company or the Company's
consolidated subsidaries received total cash compensation in
excess of $100,000 for 1995, 1994 or 1993.
Summary Compensation Table
Name and Calender Total Cash
Principal Position Year Compensation
S. M. McCann 1995 $ 0
President, Director 1994 $ 250
Paul J. McCann 1993 $ 36,001
President, Director
The Company does not have any stock appreciation rights plans, stock
option plans or long-term incentive plans and there was no other material
compensation paid during 1995, 1994 or 1993. The Company has not adopted a
formal plan for the compensation of directors. During 1995 the Company and
its consolidated subsidiaries paid a total of $ 1,250 to directors of
the Company and the Company's consolidated subsidaries.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known by
the Company to own beneficially more than 5% of the Company's voting shares
on February 28, 1996.
Amount and
Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$1.00 Par GNI, Inc. 700,286 80.7%
Value Common 110 Second Street South
Stock Great Falls, MT 59403
$1.00 Par Anne Marie and Paul J. 753,858 (1) 86.9%
Value Common McCann Family Members
P.O. Box 2249
Great Falls, MT 59403
(1) Includes the 700,286 shares owned by GNI, Inc., of which firm
members of the Anne Marie and Paul J. McCann family own over 50% of the
outstanding stock, 52,052 shares owned by FDC, Inc., of which company
members of the Anne Marie and Paul J. McCann family own directly or
indirectly over 50% of the outstanding stock and 1,520 shares owned by
members of the Anne Marie and Paul J. McCann family. Anne Marie and
Paul J. McCann each disclaim beneficial interest in any shares of stock
not owned of record directly by them. Neither Anne Marie nor
Paul J. McCann personally own any shares of stock in the Company.
III-2
4.
<PAGE>
M CORP
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Continued
(a) Security Ownership of Certain Beneficial Owners - Continued
S.M. McCann is the record owner of 400 shares of stock of the Company.
Paul J. McCann disclaims beneficial ownership in any shares of stock not
owned of record by him.
(b) Security Ownership of Management
The following table sets forth as of February 28, 1996, information
concerning the beneficial ownership of the Company's common stock by each
director, each executive officer named in the Company's Summary
Compensation Table and by all directors and executive officers of the
Company as a group:
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent
R. Bruce Robson 10 --
G. Robert Crotty, Jr. -- --
S.M. McCann 400 (1) --
All Directors and Officers
as a Group 410 (1) --
(1) See Note (1) item 11(a) beginning on the preceding page.
(c) Changes In Control
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GNI, Inc., owner of 80.7% of the outstanding stock of M Corp
(see Item 11(a) on page 4) was indebted to the Company and/or
its subsidiaries in the amount of $198,045 at December 31,
1995. The indebtedness has since been paid in full. The largest
aggregate amount of indebtedness outstanding at any time during
1995 was $198,045. DDI, Inc., a company which is owned more than
50% by members of the Anne Marie and Paul J. McCann family, was
indebted to the Company and/or its subsidiaries in the amount
of $108,834 at December 31, 1995. The indebtedness has since been
paid in full. The largest aggregate amount of indebtedness outstanding
at any time during 1995 was $157,882. During 1995, the Company
and its consolidated subsidiaries compensated members of Paul J.
McCann's family the total amount of $40,754.
III-3
5.
<PAGE>
M CORP
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 13 - M Corp Annual Report to Shareholders for the year ended
December 31, 1995.
No. 22 - Subsidiaries of the Registrant.
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during
the three months ended December 31, 1995.
IV-1
6.
<PAGE>
M CORP
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
M CORP
Date: February 28, 1996 By: s/S. M. McCann
S. M. McCann, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
Registrant and in the capacities indicated on February 28,
1996.
Chairman of the Board,
President,
Principal Executive
and Financial Officer s/S. M. McCann
S. M. McCann
Director s/R. Bruce Robson
R. Bruce Robson
Principal Accountant s/Jerry K. Mohland
Jerry K. Mohland
IV-2
7.
<PAGE>
M CORP
ANNUAL REPORT
1995
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
DESCRIPTION AND LINES OF BUSINESS
M Corp (sometimes referred to herein as the "Company") was
incorporated in 1958 and operates as a financial holding company.
The Company, through its wholly or majority-owned subsidiaries is
engaged in the title insurance business and the ownership and
rental of real properties.
Title Insurance - First Montana Title Insurance Company
(FMTIC, a wholly-owned subsidiary of TSI, Inc., a ninety-one
percent owned subsidiary of the Company) was organized in 1958.
FMTIC issues title insurance policies through its subsidiaries
within the State of Montana only.
Real Estate Investments - The Company, through its wholly or
majority-owned subsidiaries owns rental properties in Montana and
Florida. The Company's rental properties include one commercial
building, two apartment complexes with a total of thirty-two
units and several one to four unit residential properties. The
Company's investments in real estate are set forth in Note 13
(Investments In Real Estate) of the Notes to Consolidated
Financial Statements.
The Company operates in a competitive business environment
and the Company is not dependent upon one or a few major
customers. Information concerning the Company's industry
segments is set forth in Note 14 (Information on Segments of
Business) of the Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Title insurance premiums and related fees decreased $384,700 (20.8%) in 1995
as compared with 1994 due primarily to a decrease in the real estate economies
within which the Company operates. The Company believes that the decrease in
the real estate economies within which the Company operates was due in part to
increased mortgage interest rates.
Interest revenues increased $157,974 (64.7%) in 1995 as compared with 1994
due primarily to an increase in interest rates and an increase in amounts
maintained by the Company in interest-bearing deposits.
1
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Rent revenues decreased $29,660 (5.1%) in 1995 as compared with 1994. The
decrease in rent revenues in 1995 as compared with 1994 was due primarily to
an increase in vacancies partially offset by an increase in rental rates.
During 1995 the Company sold a parcel of real property at a net gain of
$47,239. During 1994 the Company incurred a net loss on the sale of equipment
in the amount of $1,016.
Other income decreased $1,203,744 (74.9%) in 1995 as compared with 1994.
During 1994 the Company recovered $1,060,000 of an obligation owed to the
Company which had been reserved in a previous year. In addition, during 1994
the Company realized a net gain on the sales of investments in the amount of
$195,651. During 1995 the company realized a net loss on the sales of
investments in the amount of $3,783. The decrease in other income in 1995 as
compared with 1994 was due primarily to the 1994 collection of the obligation
referred to above and the decrease in gains realized on the sales of
investments partially offset by increases in miscellaneous income and
dividend income.
Salaries and other personnel costs decreased $149,268 (16.1%) in 1995 as
compared with 1994 due primarily to a decrease in the number of personnel
employed in the Company's title insurance operations.
The provision for depreciation decreased $15,562 (9.9%) in 1995 as compared
with 1994 due primarily to certain assets being fully depreciated in 1995 and
1994.
Income tax expense decreased $586,000 (66.0%) in 1995 as compared with 1994
due primarily to the decrease in pre-tax income.
The company is involved in examining and investigating investment
opportunities available to the Company which could result in the investment
of substantial cash and which would affect the liquidity of the Company.
The Company knows of no existing trends, demands or commitments that could
result in a material change in the Company's capital resources. TSI, Inc.,
a consolidated subsidiary of the Company, intends to seek approval of
the Office of Thrift Supervision to acquire additional stock of Security
Bancorp of Billings, Montana for cash which would result in a change
in liquidity of the Company.
2
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1995
CONTENTS
PAGE
AUDITOR'S REPORT 4
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and 1994 5-6
Statements of Earnings and Retained Earnings
for the Years Ended
December 31, 1995 and 1994 7
Statements of Cash Flows for the Years
Ended December 31, 1995 and 1994 8-9
Notes to Consolidated Financial Statements 10-18
OTHER INFORMATION 19
3
<PAGE>
Report of Independent Auditors
To The Board of Directors
M Corp
Great Falls, MT 59405
We have audited the accompanying consolidated balance sheets
of M Corp and consolidated subsidiaries as of December 31, 1995
and 1994 and the related consolidated statements of earnings and
retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of M Corp and consolidated
subsidiaries as of December 31, 1995 and 1994 and the
consolidated results of their operations and their consolidated
cash flows for the years then ended, in conformity with generally
accepted accounting principles.
DWYER & KEITH, CPA's, P.C.
March 7, 1996
Great Falls, Montana
4
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
ASSETS 1995 1994
Current Assets
Cash (Note 2) $ 8,132,517 $ 7,782,896
Investment Securities (Note 3) 2,517,006 2,246,787
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts of $12,500 in 1995
and 1994 15,815 37,277
Current Portion of Long-Term
Receivables (Note 7) 3,946 3,709
Due From Related Parties 306,878 344,926
Prepaid Expenses 33,700 43,200
Income Tax Prepayments 69,575 -
Total Current Assets 11,079,437 10,458,795
Other Assets
Noncurrent Investments (Note 3) 105,000 105,000
Other Investments (Note 3) 7,448,091 6,829,342
Notes Receivable, Excluding
Current Portion (Note 7) 112,271 114,210
Total Other Assets 7,665,362 7,048,552
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 13)
Buildings 2,221,606 2,265,861
Furniture, Fixtures and Equipment 451,659 472,211
2,673,265 2,738,072
Less Accumulated Depreciation (1,658,118) (1,563,987)
1,015,147 1,174,085
Title Plants 216,715 216,715
Land 144,414 144,414
Net Property, Plant and Equipment 1,376,276 1,535,214
$20,121,075 $19,042,561
See Notes to Consolidated Financial Statements.
5
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 72,381 $ 71,238
Accrued Liabilities (Note 4) 109,589 122,319
Dividends Payable 16,310 16,319
Income Taxes Payable 60,508 712,444
Deferred Income Taxes (Notes 1 and 6) 317,500 179,900
Total Current Liabilities 576,288 1,102,220
Provision for Estimated Title and
Escrow Losses (Note 8) 1,128,030 1,198,846
Minority Interests in Consolidated
Subsidiaries 1,963,847 1,824,914
Deferred Income Taxes (Notes 1 and 6) 1,593,700 1,352,500
Excess of Fair Value of Net Assets Acquired
Over Cost (Note 1) 73,295 81,515
4,758,872 4,457,775
Commitments (Note 9)
Stockholders' Equity (Note 1)
Common Stock, $1.00 Par Value,
5,000,000 shares authorized,
3,051,004 shares issued 3,051,004 3,051,004
Additional Paid-In Capital 1,934,562 1,934,562
Retained Earnings (Note 10) 9,555,833 8,768,845
Add: Unrealized Gains on Investments
(Note 3) 2,610,860 2,091,177
Less: Cost of Common Shares in Treasury
2,183,646 Shares in 1995 and
2,181,985 Shares in 1994 (2,366,344) (2,363,022)
Total Stockholders' Equity 14,785,915 13,482,566
$20,121,075 $19,042,561
See Notes to Consolidated Financial Statements.
6
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
1995 1994
Revenue
Title Insurance Premiums and Related Fees $1,463,900 $1,848,670
Interest 401,981 244,007
Rent 554,472 584,132
Net Gain on Sale of Properties 47,239 -
Other (Note 5) 402,628 1,606,372
2,870,220 4,283,181
Operating Expenses
Salaries and Other Personnel Costs 780,462 929,730
Depreciation 142,375 157,937
Rent 35,455 32,224
Title and Escrow Losses - 875
Interest - 6
Other General and Administrative Expenses 724,513 740,806
1,682,805 1,861,578
Operating Income 1,187,415 2,421,603
Net Gain (Loss) on Sales of Noncurrent
Assets - (1,016)
Minority Share of Consolidated Subsidiaries
Net (Income) (86,867) (86,908)
Income Before Income Taxes 1,100,548 2,333,679
Income Taxes (Note 6) (302,000) (888,000)
Net Income 798,548 1,445,679
Retained Earnings, Beginning of Year 8,768,845 7,323,166
Dividends Paid (11,560) -
Retained Earnings, End of Year $9,555,833 $8,768,845
EARNINGS PER COMMON SHARE (Note 1)
NET INCOME PER SHARE $ .92 $ 1.66
See Notes to Consolidated Financial Statements.
7
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
INCREASE (DECREASE) IN CASH
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,136,494 $ 3,572,600
Cash Paid to Suppliers and Employees (1,613,955) (1,802,432)
Interest and Dividends Received in Cash 741,330 577,227
Cash Proceeds From Sales of Properties 93,762 -
Interest Paid in Cash - (6)
Income Taxes Paid in Cash (1,022,511) (312,572)
Net Cash Provided By Operating Activities 335,120 2,034,817
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Sales and Redemptions of
Property, Plant and Equipment - 4,876
Cash Received on Principal of Notes Receivable 3,702 50,102
Cash Purchases of Minority Interests (2,055) (2,319)
Capital Expenditures Paid in Cash (29,961) (51,820)
Cash Received on Disposition of
Current Investments 100,472 824,837
Cash Purchases of Current Investments (42,766) (149,230)
Cash Received on Dispositions of Noncurrent
Investments - 2,777
Net Cash Provided By Investing Activities 29,392 679,223
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid in Cash (11,569) (104)
Cash Purchases of Treasury Stock (3,322) (4,892)
Net Cash (Used) By Financing Activities (14,891) (4,996)
NET INCREASE IN CASH 349,621 2,709,044
CASH - BEGINNING OF YEAR 7,782,896 5,073,852
CASH - END OF YEAR $ 8,132,517 $ 7,782,896
(Continued)
8
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1995 and 1994
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1995 1994
Net Income $ 798,548 $ 1,445,679
Adjustments to Reconcile Net Income
to Net Cash Provided By Operating Activities:
Depreciation 142,375 157,937
Provision for Doubtful Account Receivable - (592)
(Gain) Loss on Sales of Noncurrent Assets - 1,016
Minority Share of Consolidated Subsidiaries
Net Income 86,867 86,908
Amortization of Deferred Credit (8,220) (8,220)
Net Book Value of Properties Sold 46,523 -
Realized Loss on Disposition of Other
Noncurrent Investments - 400
Realized (Gains) Losses on Dispositions of
Current Investments 3,783 (195,651)
Changes in Operating Assets and Liabilities
Decrease in Accounts Receivable 59,510 61,695
(Increase) Decrease in Prepaid Expenses 9,500 (5,300)
(Increase) in Income Tax Prepayments (69,575) -
(Decrease) in Payables and Accrued
Liabilities (81,255) (84,483)
(Increase) in Deferred Income Taxes (1,000) (6,000)
Increase (Decrease) in Income Taxes Payable (651,936) 581,428
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 335,120 $ 2,034,817
See Notes to Consolidated Financial Statements.
9
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.
(b) Title Insurance Income and Related Fees
The Company follows the practice of recording title insurance
premiums as income upon the issuance of the title insurance
policy or the collection of payment for the title insurance
preliminary commitment, whichever occurs first. All other fees
and charges are recognized as income upon the rendering of
services.
(c) Excess of Fair Value of Net Assets of Acquired Subsidiaries Over
Cost
The excess of fair value of the net assets of acquired
subsidiaries over cost is amortized over a twenty year period
using the straight-line method.
(d) Depreciation and Amortization
Property, plant and equipment is comprised of furniture and
fixtures, buildings, title plants and land. Furniture and
fixtures are carried at cost. Depreciation is computed over
recovery periods of three to ten years using declining balance
methods with a mid-quarter convention.
Buildings and building improvements are carried at cost.
Depreciation is computed over recovery periods of ten to twenty-seven
and one-half years using the straight line method with a
mid-month convention.
Title plants and land are carried at cost and are not depreciated.
(e) Earnings Per Share
The computation of earnings per share in the accompanying
statements is based on the weighted average number of shares
outstanding, as follows:
Year Ended December 31, 1995 - 867,725 shares
Year Ended December 31, 1994 - 870,497 shares
(f) Income Taxes
The Company follows the practice of recording deferred income
taxes resulting from timing differences between financial
reporting and income tax reporting.
10
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company does not provide for deferred income taxes resulting
from the undistributed earnings of wholly owned subsidiary
companies included in the consolidated statements of earnings
because the companies file consolidated federal income tax
returns and therefore any dividends paid to the Company are
nontaxable. Investment tax credits are recorded as a reduction
of the provision for federal income taxes in the year utilized.
(g) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the
Company are not included in the consolidated balance sheet.
(h) Policy of Cash Equivalents
For purposes of the statements of cash flows, cash equivalents
include time deposits, certificates of deposit and money market
accounts, all with original maturities of three months or less.
(i) Reclassifications
Certain reclassifications have been made to the prior year
amounts to make them comparable to the 1994 presentation. These changes
had no impact on previously reported results of operations or
shareholders' equity.
2. CONCENTRATED CASH BALANCES
The Company maintains accounts with various financial
institutions and stock brokerage firms. Cash balances are insured
up to $100,000 by either the Securities Investor Protection
Corporation ("SIPC") or the Federal Deposit Insurance Corporation
("FDIC"). At December 31, 1995, cash balances totalling
$6,106,298 were uninsured by either the SIPC or the FDIC.
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS
The Company adopted Statement of Financial Accounting Standards
No. 115 ("SFAS No. 115"), "Accounting For Investments in Certain
Debt and Equity Securities" effective January 1, 1994. In
accordance with SFAS No. 115, the Company has classified all of
its current and other investments as available for sale.
Following is a summary of the Company's investments, all of which
consist of equity securities:
11
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS - Continued
1995 1994
Current Assets
Cost $ 1,752,741 $ 1,814,229
Gross Unrealized Holding Gains 780,871 511,801
Gross Unrealized Holding Losses (16,606) (79,243)
Fair Value $ 2,517,006 $ 2,246,787
Other (Noncurrent) Assets
Cost $ 3,333,437 $ 3,334,585
Gross Unrealized Holding Gains 4,114,654 3,494,757
Fair Value $ 7,448,091 $ 6,829,342
Realized gains and losses are determined on the basis of specific
identification. During 1995 and 1994, sales proceeds and gross realized
gains and losses were as follows:
1995 1994
Sales Proceeds $ 100,472 $ 827,614
Gross Realized Losses $ 19,586 $ 28,883
Gross Realized Gains $ 15,803 $ 224,534
No other gains or losses, realized or unrealized, are included
in the Company's statements of income for 1995 or 1994.
Stockholders' equity at December 31, 1995 has been increased by
$2,610,860 which is the difference between the total net
unrealized gain at December 31, 1995 and deferred income taxes
and minority interests in the net unrealized gain.
At December 31, 1995, the Company owned approximately twenty-four
percent of the issued and outstanding common stock of Security Bancorp
("Security"). The Company's investment in Security is classified as an
other noncurrent investment.
12
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS - Continued
In its unaudited quarterly report as of and for the six months
ended December 31, 1995, Security reported total assets of $365,307,389,
total stockholders'equity of $32,180,745 and net income of $1,275,042.
At December 31, 1995, the Company's portion of the underlying equity in
Security's net assets exceeded the Company's carrying value by
approximately $252,400. The excess is not being amortized. Noncurrent
investments totalling $105,000 at December 31, 1995 consist of
certificates of deposit which are on deposit with the State of Montana
Commissioner of Insurance and are restricted as to use by law.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1995 1994
Property Taxes $ 45,147 $ 46,559
Compensation 32,397 44,551
Payroll Taxes 7,944 8,879
Other 24,101 22,330
$ 109,589 $ 122,319
5. OTHER INCOME
Other income consists of the following:
1995 1994
Collection of Accounts Previously
Charged-Off $ - $ 1,060,000
Dividends 339,349 333,220
Gain (Loss) on Sales of Securities (3,783) 195,651
Amortization of Deferred Credit 8,220 8,220
Other 58,842 9,281
$ 402,628 $ 1,606,372
6. INCOME TAXES
Income tax expense consists of the following:
1995 1994
Federal and State Income Taxes
Currently Payable $ 303,000 $ 894,000
Deferred (1,000) (6,000)
$ 302,000 $ 888,000
13
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. INCOME TAXES - Continued
The income tax expense reflected in the financial statements differs from
the amounts that would normally be expected by applying the U.S. Federal
income tax rates to income before income taxes. The reasons for the
differences are as follows:
1995 1994
Computed "Expected" Tax Expense $ 374,200 $ 793,500
Purchase Accounting Adjustments (4,400) (4,400)
Tax Exempt Income (6,400) (10,300)
Special Dividends Received Deduction (88,400) (86,300)
Minority Share of Consolidated
Subsidiaries Income 29,500 29,500
State Income Taxes (4,200) 150,000
Other 1,700 16,000
$ 302,000 $ 888,000
Deferred income taxes result from timing differences in the recognition of
income and expense for tax and financial reporting purposes. The sources
and tax effects of these timing differences are as follows:
1995 1994
Installment sales recognized for
financial reporting purposes
but not income tax purposes $ (21,600) $ (22,300)
Allowance for doubtful accounts 5,900 6,600
Excess of income tax depreciation
over financial reporting
depreciation (14,200) (13,200)
Unrealized Gains on Investments (1,988,200) (1,610,400)
Excess of financial reporting
reserves for title and escrow
losses over income tax reporting
for title and escrow losses 106,900 106,900
$(1,911,200) $(1,532,400)
14
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. INCOME TAXES - Continued
The amounts of deferred tax assets and liabilities as of
December 31, are as follows:
1995 1994
Deferred tax asset, net of
valuation allowance of $0 in
1995 and 1994 $ - $ -
Deferred tax liability $ 1,911,200 $ 1,532,400
7. NOTES RECEIVABLE
Notes receivable have resulted from the sale of certain assets
and are summarized as follows as of December 31:
1995 1994
14.9% Note Receivable, due in monthly
installments of $1,492,
including interest, until June, 1998 $ 106,124 $ 108,286
9% Contract For Deed, due in monthly
installments of $248 including interest
until September, 2002 15,019 16,559
Allowance for doubtful notes receivable (4,926) (6,926)
116,217 117,919
Less Current Portion of Long-Term Receivables 3,946 3,709
Long-Term Notes Receivable $ 112,271 $ 114,210
Each of the above receivables is secured by property, the sale of which
resulted in the receivable. In the events all of the receivables become
uncollectible and the underlying collateral is completely worthless, the
Company would incur losses in the total amount of $116,217.
8. PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES
The Company's subsidiary, First Montana Title Insurance Company (FMTIC,
wholly-owned by TSI, Inc.) issues title insurance policies in the State of
Montana. The terms of policies issued are indefinite and premiums are not
refundable. FMTIC is a party to various lawsuits wherein, among other
things, plaintiffs generally claim defects in insured titles, unreported
liens or improper practices. FMTIC
15
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES - Continued
is also required under many of its policies issued to provide defense
for its insureds in litigation founded upon alleged defects or other
matters insured against by the policy. Such litigation and claims are
normal occurrences within the title insurance industry. In accordance
with generally accepted accounting practices, FMTIC has established a
provision for estimated title and escrow losses which appears on the
consolidated balance sheets under the same title. FMTIC has established
the provision for estimated losses on (1) claims known to FMTIC and (2)
claims unknown to FMTIC but incurred upon issuance of policies as well
as for estimated external settlement expenses to be incurred. The
provision has been reduced for estimated recoveries.
9. COMMITMENTS
The Company and its subsidiaries are obligated under various lease
agreements for office space expiring at various dates through 2000.
Rental expense for office space for the years ended December 31, 1995
and 1994, was $30,340 and $29,340, respectively. Annual rental
commitments for the ensuing calendar years are as follows:
1996 1997 1998 1999 2000
$30,840 $30,840 $ 7,200 $ 7,200 $ 3,000
10. DIVIDEND RESTRICTIONS
M Corp, the parent company, depends in part upon cash dividends from its
subsidiaries for the funding of its cash requirements. Dividends paid by
First Montana Title Insurance Company (FMTIC), the parent company's
lower tier subsidiary, are restricted by statutes of the State of
Montana. FMTIC is required to obtain regulatory approval before making
any dividend distributions. At December 31, 1995, the amount of
consolidated retained earnings subject to such restrictions was
$5,994,029.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosure for financial instruments. The
carrying amount reported in the balance sheet for cash, accounts
receivable and due from related parties approximate those assets' fair
value. Fair values for investment securities, noncurrent investments and
other investments are based on quoted market prices. The Company believes
that the fair value of its contracts receivable approximates carrying
value due to the credit risks involved.
12. NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES
The Company is engaged in the title insurance business within the state
of Montana, in the title insurance agency business in Yellowstone,
Rosebud and Cascade Counties, Montana and in the ownership and rental of
properties located primarily in Montana. The Company's primary business,
based on revenues, is title insurance.
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of certain
types of assets, liabilities, revenues and expenses. Such estimates
primarily relate to unsettled transactions and events as of the date
of the financial statements. Actual results could differ from those
estimates.
16
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
13. INVESTMENTS IN REAL ESTATE
GROSS AMOUNT CARRIED
DATE ON BALANCE SHEET ACCUMULATED AMOUNT OF
DESCRIPTION ACQUIRED LAND BUILDINGS TOTAL DEPRECIATION ENCUMBRANCE
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
Commercial Building
Helena, Montana 1966 $ 49,700 $ 296,868 $ 346,568 $ 296,868 $ --
Apartment Complex
Polson, Montana 1983 50,000 263,566 313,566 231,936 $ --
Apartment Complex
Great Falls, Montana 1974 11,125 217,243 228,368 217,243 $ --
Rental Units 1982 1,500 1,303,559 1,305,059 352,785 $ --
-1991
Buildings Occupied
By the Company and
Miscellaneous
Properties Var. 32,089 140,370 172,459 124,351 $ --
$ 144,414 $2,221,606 $2,366,020 $1,223,183 $ --
December 31, 1994:
Commercial Building
Helena, Montana 1966 $ 49,700 $ 296,868 $ 346,568 $ 296,868 $ --
Apartment Complex
Polson, Montana 1983 50,000 263,566 313,566 218,758 $ --
Apartment Complex
Great Falls, Montana 1974 11,125 217,243 228,368 207,028 $ --
Rental Units 1982 1,500 1,347,814 1,349,314 311,654 $ --
-1991
Buildings Occupied
By the Company and
Miscellaneous
Properties Var. 32,089 140,370 172,459 117,414 $ --
$ 144,414 $2,265,861 $2,410,275 $1,151,722 $ --
</TABLE>
17
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
14. INFORMATION ON SEGMENTS OF BUSINESS
The Company is engaged primarily in the title insurance business and the
ownership and rental of properties. Through its subsidiaries, the Company
owns title plants in three Montana counties and issues title insurance
policies, through its subsidiaries, within the State of Montana. The Company
(through wholly and majority owned subsidiaries) owns property in Helena,
Butte, Billings, Polson, and Great Falls, Montana, and in Clearwater, Florida.
Sales to Operating Total Depreciation Capital
Outside Concerns Profit (Loss) Assets (Net) Expense Expenditures
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1995
Financial Holding
Company $ 337,040 $ 335,759 $ 8,838,602 $ 15,117 $ 13,398
Title Insurance
Operations 1,978,708 547,640 10,176,105 42,410 15,224
Rental Properties 554,472 304,016 1,106,368 84,848 1,339
Consolidated $ 2,870,220 $ 1,187,415 $20,121,075 $ 142,375 29,961
Year Ended
December 31, 1994
Financial Holding
Company $ 1,345,854 $ 1,304,438 $ 8,618,279 $ 3,029 $ 16,842
Title Insurance
Operations 2,353,195 894,831 9,199,674 50,949 31,172
Rental Properties 584,132 222,334 1,224,608 103,959 3,806
Consolidated $ 4,283,181 $ 2,421,603 $19,042,561 $ 157,937 $ 51,820
18
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
S. M. McCann Attorney at Law, Investor
Director and San Luis Obispo, California
President
R. Bruce Robson Data Processing Manager,
Director Sletten Construction Co.
Great Falls, Montana
G. Robert Crotty, Jr. Attorney at Law,
Director Great Falls, Montana
MARKET INFORMATION
The Company's common stock is not traded on any securities exchange, nor
are there records kept of any quotations by securities dealers or the
National Quotation Bureau, Inc. To the best knowledge of the Company, bid
and asked quotations for the Company's common stock are not reported in any
newspapers.
Dividends of $.10 per share were paid in 1995 to all shareholders except
those shareholders affiliated with the control group. No dividends were
paid in 1994.
There are approximately 800 holders of record of the Company's common
stock.
A copy of the Form 10-KSB Annual Report may be obtained upon written
request to the Company.
M Corp
P.O. Box 2249
110 Second Street South
Great Falls, MT 59403-2249
19
<PAGE>
</TABLE>
M CORP
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name Of Company Organization Registrant
First Montana Development Company
(Inactive) Montana 100.0
Century Title Company (Inactive) Montana 100.0
Century Title Insurance Company
(Inactive) Montana 100.0
Diversified Realty, Inc. Montana 83.9
TSI, Inc. Montana 90.9
UAC, Inc. Delaware (1)
TSI Business Systems, Inc. Montana (2)
TSI Leasing, Inc. Montana (2)
First Mortgage Investors, Inc.
(Inactive) North Dakota (3)
First Montana Title Company of
Great Falls Montana (4)
First Montana Title Insurance
Company Montana (2)
First Montana Title Company of
Billings Montana (5)
First Montana Title Company of
Forsyth Montana (5)
Consulting Associates, Inc. Montana (4)
(1) Owned 86.9% by TSI, Inc.
(2) Owned 100% by TSI, Inc.
(3) Owned 70% by UAC, Inc.
(4) Owned 100% by UAC, Inc.
(5) Owned 100% by First Montana Title Insurance Company
TSI, Inc. and Diversified Realty, Inc., are each registered
under the Exchange Act and each files its own Form 10-KSB
pursuant to that act.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8132517
<SECURITIES> 2517006
<RECEIVABLES> 322693
<ALLOWANCES> 12500
<INVENTORY> 0
<CURRENT-ASSETS> 11079437
<PP&E> 2673265
<DEPRECIATION> 1658118
<TOTAL-ASSETS> 20121075
<CURRENT-LIABILITIES> 576288
<BONDS> 0
0
0
<COMMON> 3051004
<OTHER-SE> 11734911
<TOTAL-LIABILITY-AND-EQUITY> 20121075
<SALES> 0
<TOTAL-REVENUES> 2870220
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1682805
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1100548
<INCOME-TAX> 302000
<INCOME-CONTINUING> 798548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 798548
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
