- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
For the Quarterly Period ended Commission File Number
March 31, 1995 0-12926
-----------------------
JMC GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2627415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9710 Scranton Road, Suite 100, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 619-450-0055
-----------------------
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
---- ----
As of March 31, 1995, the registrant had 6,198,898 shares of its
common stock, $.01 par value, issued and outstanding.
- -------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The balance sheet at March 31, 1995 reflects all adjustments
which are, in the opinion of management, necessary for a
fair presentation of the financial position and the results
of operations for the periods presented.
The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date. It is
recommended that these financial statements be read in
conjunction with the Company's financial statements and
notes thereto included in the Company's Form 10-K for the
year ended December 31, 1994. Certain balance sheet items
at December 31, 1994 were reclassified to conform with the
format of the balance sheet at March 31, 1995.
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1995 1994
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,396,814 $3,610,888
Short-term investments 1,000,000 536,000
Cash segregated under securities regulations 999,063 47,746
Receivables from insurance companies 1,508,963 1,425,466
Receivable from financial institution 1,080,129 -
Income taxes receivable 365,695 168,992
Deferred tax asset 358,207 424,584
Other assets 346,479 354,261
---------- -----------
TOTAL CURRENT ASSETS 8,055,350 6,567,937
Furniture, equipment and leasehold
improvements net of accumulated depreciation
and amortization of $1,410,987 in 1995 and
$1,321,307 in 1994 659,082 677,155
Asset based fees purchased - net of
accumulated amortization of $301,634 in
1995 and $261,290 in 1994 1,095,495 1,135,839
----------- ------------
TOTAL ASSETS $9,809,927 $8,380,931
=========== ============
LIABILITIES & STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accrued fees to financial institutions $ 975,015 $ 978,542
Due to customers 999,063 47,746
Accrued expenses and other liabilities 844,153 878,172
Deferred tax liability 391,961 -
Accrued restructuring expenses 203,317 294,675
Allowance for contract cancellations 372,528 390,539
Accrued payroll and related expenses 344,866 531,559
---------- -----------
TOTAL CURRENT LIABILITIES 4,130,903 3,121,233
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
5,000,000 shares - -
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
6,198,898 shares in 1995 and 1994 61,989 61,989
Additional paid-in-capital 624,851 624,851
Retained earnings 4,992,184 4,572,858
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,679,024 5,259,698
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $9,809,927 $8,380,931
========== =============
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended,
March 31,
1995 1994
----------- -----------
REVENUES
Commissions $4,554,338 $9,445,217
Interest 56,003 31,750
Other 1,343,610 49,659
---------- -----------
TOTAL REVENUES 5,953,951 9,526,626
---------- -----------
EXPENSES
Employee compensation and benefits 2,193,338 3,827,907
Fees to financial institutions 2,003,645 4,061,689
Professional fees 250,665 569,704
Rent 130,855 176,706
Telephone 101,740 142,746
Depreciation and amortization 103,018 321,393
Other general and administrative 458,822 699,346
expenses --------- ----------
TOTAL EXPENSES 5,242,083 9,799,491
--------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES 711,868 (272,865)
INCOME TAX PROVISION (BENEFIT) 292,542 (55,026)
--------- ----------
NET INCOME (LOSS) $ 419,326 $(217,839)
========= ==========
EARNINGS (LOSS) PER SHARE:
NET INCOME (LOSS) $0.07 ($0.03)
========= =========
WEIGHTED AVERAGE SHARES 6,198,898 6,517,520
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended,
March 31,
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 419,326 $ (217,839)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 103,018 321,393
Amortization of asset based fees
purchased 40,344 43,994
Deferred tax provision 458,338 276,933
Changes in assets and liabilities:
Receivables from insurance companies (83,497) (498,601)
Receivable from financial institution (1,080,129) -
Income taxes receivable (196,703) (392,413)
Other assets (5,972) (4,713)
Accrued fees to financial institutions (3,527) 81,036
Accrued expenses and other liabilities (34,019) 554,128
Accrued restructuring expenses (91,358) -
Allowance for contract cancellations (18,011) (120,576)
Accrued payroll and related expenses (186,693) 5,849
Reserve for discontinued operations - (363,206)
---------- ---------
NET CASH USED BY OPERATING
ACTIVITIES (678,883) (314,015)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and
leasehold improvements (71,191) (77,278)
Purchase of short-term investments (464,000) -
Redemption of short-term investments - 1,682,732
--------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (535,191) 1,605,454
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock - (1,963,331)
Proceeds from stock options exercised - 57,360
Dividends paid - (478,391)
--------- -----------
NET CASH USED BY FINANCING
ACTIVITIES - (2,384,362)
------------ -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,214,074) (1,092,923)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 3,610,888 1,418,936
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,396,814 $326,013
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash Paid For:
Interest $ - $ 997
Income taxes $ 23,292 $ 62,269
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
First Quarter 1995 Compared to First Quarter 1994
The Company realized net income of $419,000 (or $0.07 per share) in the
first quarter of 1995 compared to a net loss of $218,000 (or $0.03 per
share) for the comparable quarter of last year. Included in the current
quarter was revenue related to a client financial institution's payment
for the right to hire certain employees of the Company's wholly-owned
subsidiary, James Mitchell & Co. ("JMC"), and certain other services in
the amount of $1,308,000 ($785,000 or $.13 per share after a tax provision
of $523,000). See "Trends and Uncertainties--Barnett Banks, Inc."
Without this non-recurring revenue, the Company would have posted a net
loss of $366,000 (after a tax benefit of $231,000) or $0.06 per share.
Total revenues for the quarter ended March 31, 1995 were $5,954,000 a
decrease of $3,573,000 or 38% from $9,527,000 in the first quarter of
1994. As mentioned above, 1995 revenues included non-recurring revenue
of $1,308,000. Excluding this non-recurring revenue, first quarter 1995
revenues would have been approximately $4,646,000 representing a
$4,881,000 or 51% decrease from the first quarter of 1994.
The reduction in revenues is primarily a result of the following:
* Lower sales volume in the first quarter of 1995. Gross sales volume
declined $98 million or 63% from the first quarter of 1994, primarily
as a result of the reconfiguring of the Company's Florida operations.
In addition, interest rate competition particularly from
certificates of deposit ("CDs") and the ongoing regulatory climate
negatively impacted sales volume. See "Trends and Uncertainties." Annuity
sales volume decreased 67% while mutual fund sales volume decreased 22%.
* Offset, in part, by:
- An increase of approximately 16% in the gross revenue rate on
annuity sales. This increase was the result of two factors:
- A change in the mix of annuities sold. The volume of
fixed annuities, which earn a higher sales commission,
increased as a percentage of total annuity sales in the
first quarter of 1995 over the comparable 1994 quarter.
<PAGE>
- An increase in the front commission rate paid on variable
annuities beginning in the second quarter of 1994.
- A $205,000 increase in asset-based fee revenues due to an
increase since the first quarter of 1994 in the average
accumulated value of assets generating fees.
Total expenses for the quarters ended March 31, 1995 and 1994 were
$5,242,000 and $9,799,000, respectively. This $4,557,000 or 47%
decrease is primarily attributable to:
* A $2,058,000 or 51% reduction in fees to financial institutions due
to lower sales volume. The reduction in such fees is not in
proportion to the reduction in sales volume due to the increase in
fee rates paid to certain institutions which extended their contracts
with JMC during the second half of 1994. In addition, asset-based
fees to financial institutions increased due to an increase since the
first quarter of 1994 in the average accumulated value of assets on
which such fees are paid.
* A $338,000 or 57% reduction in salespersons' commissions also due to
lower sales volume. The decrease in salespersons' commissions is not
in proportion to the decrease in sales volume due to a revised
incentive compensation structure which increased the rate paid on
production to salespersons beginning in first quarter of 1995 .
* A $233,000 or 68% reduction in legal fees related to the Company's
ongoing administrative proceedings with the Florida Department of
Insurance. The Company incurred significant legal expenses in
connection with a five-week administrative hearing which occurred in
February and early March of 1994.
* A $1,928,000 or 40% reduction in the remaining base operating
expenses (which includes amortization of goodwill in the first
quarter of 1994) primarily due to restructuring and downsizing of the
Company's administrative and sales management functions during 1994
and early 1995. A restructuring charge of $557,000 was taken in the
third quarter of 1994 relative to these changes.
In March and April of 1995, the Company received approximately $290,000
in subsidies from the previously-mentioned client financial institution.
Of these subsidies, $266,000 was included in the Company's Consolidated
Statement of Operations as a reduction of the expense category to which the
specific subsidy related, primarily employee compensation and benefits. See
"Trends and Uncertainties--Barnett Banks, Inc."
First Quarter 1995 Compared to Fourth Quarter 1994
Net income for the first quarter of 1995 increased $222,000 to $419,000
from $197,000 in the fourth quarter of 1994. Included in these 1995 and
1994 quarterly results was revenue related to a client financial
institution's payment for the right to hire certain employees of
<PAGE>
the Company and certain other services in the amount of $1,308,000 and
$1,000,000, respectively ($785,000 and $600,000, respectively, after tax
provisions). See "Trends and Uncertainties--Barnett Banks, Inc."
Excluding both of these non-recurring items, total revenues for the
first quarter of 1995 would have been $4,646,000 compared to $5,384,000
in the fourth quarter of 1994. Without the non-recurring revenue in
both quarters, the Company would have realized a net loss of $366,000
(after a tax benefit of $231,000) or $.06 per share in the first quarter
of 1995 compared to a net loss of $403,000 (after a tax benefit of
$261,000) or $.06 per share in the last quarter of 1994.
The primary factors contributing to the continuing losses (excluding
non-recurring revenues) was that the sales production levels during each
of these quarters did not exceed the minimum production level required
to cover the Company's base operating expenses for the period.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of March 31, 1995, the Company had cash and cash equivalents plus
short-term investments of approximately $3,397,000, a decrease of
approximately $750,000 from $4,147,000 in cash and cash equivalents plus
short-term investments as of December 31, 1994. Significant uses and
sources of such amounts include the following:
* Payments totaling approximately $278,000 made in connection with the
Company's restructuring and for accrued vacation paid to employees who left
the Company during the first quarter of 1995. See "Trends and
Uncertainties--Barnett Banks, Inc." All of these amounts were accrued in
prior periods.
* Pre-tax amounts used in operations of $379,000 which includes receipts of
$218,000 representing the January and February installments of the
previously-described $1,308,000 payment from a financial institution
client. The March 1995 installment of $109,000 was received in April
1995. See "Trends and Uncertainties--Barnett Banks, Inc."
Due to the Company's cash position and in light of the payments due over
the remaining nine months of 1995 from one of the Company's financial
institution clients, management expects the Company will meet its
operating and capital expenditure needs for the remainder of its current fiscal
year.
TRENDS AND UNCERTAINTIES
- ------------------------
Barnett Banks, Inc.
During the first quarter of 1995, approximately sixty of JMC's
Florida-based sales and sales management personnel were hired by Barnett
Banks, Inc. ("Barnett") pursuant to the terms of a definitive agreement
entered into in December 1994. In consideration for the right to hire
these individuals and certain other services, Barnett had agreed to pay the
<PAGE>
Company up to $2.5 million. One million dollars was received by the Company
during the fourth quarter of 1994 while the remaining amount due was dependent
upon the number and type of employees actually hired by Barnett who remained in
Barnett's employ on March 31, 1995. Based on the number and type of former JMC
employees employed by Barnett on March 31, 1995, the Company became irrevocably
entitled to receive an additional $1,308,000 which was included in the
Company's 1995 first quarter revenues. A cash payment of $218,000 towards
the $1,308,000 balance owed was received in the first quarter and the March
1995 installment of $109,000 was received in April 1995. The remaining amount
is to be received in equal monthly installments during 1995.
During the fourth quarter of 1994 and the first four months of 1995, the
Company also received a total of approximately $375,000 in expense subsidy
payments from Barnett. These amounts included reimbursement for salaries paid
during these quarters by JMC to employees who were ultimately hired by
Barnett, compensation for the costs of the premature termination of the
lease for one of JMC's Florida service centers as well as payments for
certain systems support services. The primary purpose of these payments
was to offset the expenses JMC incurred in retaining the designated
sales personnel through the transition date during which time it was
anticipated that sales volume would be negatively impacted. In addition, the
subsidies eliminated costs which would have been incurred had the Company been
forced to further downsize its Florida operations due to low sales volume.
As of March 31, 1995, JMC had 24 sales specialists servicing its Florida
operations. This compares to a weighted average of 98 during the first
quarter of 1994. Half of the current sales force has been recently
hired. In addition, for the month of March 1995, the monthly base
operating expenses for this operation (including home office and other
corporate allocations) were down 58% from the first quarter 1994 monthly
average.
As a result of the reconfiguration, JMC's sales specialists now receive
referrals from Barnett's investment representatives who are located in
the bank's branches. JMC's employees no longer interact directly with
branch personnel to generate appointments. During March 1995, the first
month of operation under the reconfigured program, the number of
appointments made for JMC's specialists was significantly lower than the
1994 monthly average. On the other hand, the closing ratio and average
size of sales transaction in Florida was above the Company's average for
other clients during this period. Management is actively working with Barnett
to improve the level of appointments, but there can be no assurance that these
efforts will produce results.
Declining Revenues
During the first quarter of 1995, the Company experienced a continued
decline in revenues due to declining sales volumes. Gross sales volume
declined 20% from the fourth quarter of 1994. While production
increased at most of the Company's active financial institution clients,
sales volume decreased almost 50% at Barnett.
<PAGE>
The transition of JMC's sales personnel to Barnett was the primary
reason for the reduced sales volume in the Company's Florida operations.
The number of appointments dropped 46% from fourth quarter 1994 levels. As in
past quarters, management believes that the changing regulatory climate and
negative news media coverage about the sales of annuities, insurance and mutual
funds products through financial institutions also contributed to the low
production. The impact of interest rate competition also began significantly to
impact sales volumes during the first quarter. As long-term interest rates
declined, our financial institution clients began aggressively pursuing deposit
growth to meet loan demand by offering attractive interest rates on bank
deposits which compete with JMC's products. The spread between fixed annuity
rates offered by the Company's provider companies and one-year CD rates
available at our financial institution clients narrowed from an average of
150 basis points at the beginning of the fourth quarter of 1994 to an average
of 55 basis points at the end of the first quarter of 1995. By May 1, 1995,
the then prevailing fixed annuity rates available through the Company at these
institutions was no more than 35 basis points higher than the national average
one-year CD rate.
Most of these factors are outside the Company's control and,accordingly,
management cannot predict when or if they will change or cease to affect sales
volumes.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits.
The following exhibit is filed herewith:
27 Financial Data Schedule
b.) Reports on Form 8-K. None.
<PAGE>
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.
Date: May 12, 1995 /s/ James K. Mitchell
-------------------------------
James K. Mitchell, Chairman and
Chief Executive Officer
Date: May 12, 1995 /s/ D. Mark Carlson
-------------------------------
D. Mark Carlson, Senior Vice
President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited quarterly financial statements contained in the Company's
Form 10-Q for the quarter ended March 31, 1995 and is qualified on its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000746425
<NAME> JMC GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2397
<SECURITIES> 1000
<RECEIVABLES> 2589
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8055
<PP&E> 2070
<DEPRECIATION> 1411
<TOTAL-ASSETS> 9810
<CURRENT-LIABILITIES> 4131
<BONDS> 0
<COMMON> 62
0
0
<OTHER-SE> 5617
<TOTAL-LIABILITY-AND-EQUITY> 9810
<SALES> 0
<TOTAL-REVENUES> 5954
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 712
<INCOME-TAX> 293
<INCOME-CONTINUING> 419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
