<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(X) Quarterly report under section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarter ended
March 31, 1997.
or
( ) Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934. For the transition
period from to .
Commission File Number: 1-11920
MMI Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3263253
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
540 Lake Cook Road, Deerfield, Illinois 60015-5290
(Address of principal executive offices)
(847) 940-7550
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a 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
There were 11,687,763 shares outstanding of the registrant's
common stock, $0.10 par value, as of March 31, 1997.
Page 1 of 12
<PAGE>
MMI Companies, Inc. and Subsidiaries
Index
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of 4
Income
Consolidated Statements of 5
Stockholders' Equity
Consolidated Statements of 6
Cash Flows
Notes to Consolidated 7
Financial Statements
Item 2. Management's Discussion 8-9
and Analysis of
Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on 10
Form 8-K
Signatures 11
EXHIBITS:
11. Statement Re Computation of Per
Share Earnings.
27. Financial Data Schedule.
</TABLE>
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS
Short-term investments.................. $ 32,344 $ 42,777
Fixed maturities........................ 696,567 727,080
Preferred stocks........................ 27,523 18,594
756,434 788,451
OTHER ASSETS
Cash.................................... 1,134 1,079
Premium and fees receivable............. 100,097 58,611
Reinsurance receivables................. 107,129 101,175
Prepaid reinsurance premiums............ 16,502 9,711
Accrued investment income............... 11,032 11,116
Cost in excess of net assets of
purchased subsidiaries,
less accumulated amortization......... 24,664 16,244
Furniture and equipment - at cost,
less accumulated depreciation......... 10,084 9,076
Deferred income taxes................... 50,772 46,459
Other................................... 19,213 16,096
$1,097,061 $1,058,018
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy liabilities:
Loss and loss adjustment expense reserves:
Medical malpractice liability..... $616,756 $620,673
Life and health................... 9,525 7,779
Other............................. 3,069 3,121
629,350 631,573
Unearned premium reserves............ 96,653 55,679
Future life policy benefits.......... 8,605 8,578
734,608 695,830
Accrued expenses and other liabilities.. 18,274 28,051
Amounts due to reinsurers............... 33,229 24,171
Long-term notes payable................. 58,000 58,000
844,111 806,052
STOCKHOLDERS' EQUITY
Common Stock, par value $.10 per share:
Authorized shares: 1997 and 1996 - 30,000
Issued and outstanding shares:
1997 - 11,688; 1996 - 11,625......... 1,169 1,162
Additional paid-in capital............... 136,560 135,183
Retained earnings........................ 108,714 102,830
Unrealized gains on investments, net of taxes:
1997 - $3,503; 1996 - $6,887.......... 6,507 12,791
252,950 251,966
$1,097,061 $1,058,018
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
REVENUES
Insurance premiums earned:
Medical malpractice liability............ $ 40,975 $ 40,180
Life and health.......................... 1,301 2,140
42,276 42,320
Consulting and fee income................... 12,067 6,370
Net investment income....................... 11,297 10,973
Net realized gains on investments........... 871 1,548
TOTAL REVENUES........................... 66,511 61,211
LOSSES AND EXPENSES
Losses and loss adjustment expenses:
Medical malpractice liability............ 33,577 33,879
Life and health.......................... 1,206 1,227
34,783 35,106
Insurance and administrative expenses....... 23,472 16,993
Interest expense............................ 884 750
TOTAL LOSSES AND EXPENSES................ 59,139 52,849
INCOME BEFORE INCOME TAXES........... 7,372 8,362
Income taxes................................ 665 951
NET INCOME........................... $ 6,707 $ 7,411
Earnings per common and
common equivalent share:
Primary............................ $ .56 $ .73
Fully diluted...................... .56 .72
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common Unrealized
Stock Additional Gains (Losses) Total
Number Par Paid-In Retained On Investments Stock-
of Shares Value Capital Earnings Net of Taxes holders'
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1995............. 9,675 $967 $82,645 $84,361 $18,490 $186,463
Year ended December
31, 1996:
Net income........... 21,015 21,015
Issuance of Common
Stock in connection
with public offering
net of expenses
of $2,866........... 1,626 163 46,162 46,325
Issuance of Common
Stock in connection
with acquisition
of subsidiaries..... 65 7 1,284 1,291
Issuance of Common
Stock in connection
with employee
benefit plans and
exercise of employee
stock options....... 259 25 5,092 5,117
Change in unrealized
gains, net of taxes
of $3,070.......... (5,699) (5,699)
Common cash dividends
($.24 per share)... (2,546) (2,546)
share)...
Balance at December
31, 1996........... 11,625 1,162 135,183 102,830 12,791 251,966
Three months ended
March 31, 1997
(unaudited):
Net income......... 6,707 6,707
Issuance of Common
Stock in connection
with acquisition of
subsidiary............ 90 9 2,141 2,150
Issuance of Common
Stock in connection
with employee
benefit plans and
exercise of employee
stock options........ 17 2 280 282
Common Stock
repurchased.......... (44) (4) (1,044) (1,048)
Change in unrealized
gains, net of taxes
of $3,384........... (6,284) (6,284)
Common cash
dividends ($.07 per
share).............. (823) (823)
Balance at March 31,
1997(unaudited)..... 11,688 $1,169 $136,560 $108,714 $6,507 $252,950
</TABLE>
See Notes to consolidated financial statements.
<PAGE>
MMI Companies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................. $ 6,707 $ 7,411
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Increase in policy liabilities......... 38,778 47,225
Change in reinsurance balances......... (3,686) (12,193)
Increase in premiums and fees
receivable............................ (41,102) (26,394)
Increase in deferred income
taxes................................. (978) (194)
Increase in accrued investment
income and other assets............... (2,859) (1,455)
Decrease in accrued expenses and
other liabilities..................... (10,416) (5,617)
Net realized gains on investments...... (871) (1,548)
Depreciation and amortization on
investments and goodwill.............. 1,329 530
Net cash provided (used) by
operating activities................. (13,098) 7,765
INVESTING ACTIVITIES
Net sale (purchase) of short-term
investments........................... 11,586 (3,201)
Purchases of available-for-sale
investments........................... (82,757) (94,105)
Sales of available-for-sale
investments........................... 81,859 68,241
Maturities of available-for-sale
investments........................... 13,982 23,720
Acquisitions of subsidiaries........... (8,281) -
Furniture and equipment additions...... (1,647) (1,335)
Net cash provided (used) by
investing activities................ 14,742 (6,680)
FINANCING ACTIVITIES
Issuance of Common Stock............... 282 2,357
Repurchases of Common Stock............ (1,048) -
Payments on notes payable.............. - (750)
Proceeds from notes payable............ - 1,000
Dividends.............................. (823) (587)
Net cash provided (used) by
financing activities................ (1,589) 2,020
Increase in cash..................... 55 3,105
Cash at beginning of period................... 1,079 439
Cash at end of period................ 1,134 3,544
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MMI Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For
further information, refer to the consolidated financial
statements and notes thereto included in the Company's 1996
Annual Report.
2. Acquisition of Equifax Medical Credentials Verification
Services and PRM, Inc.
Effective January 1, 1997, the Company purchased substantially
all of the net assets of Equifax Medical Credentials
Verification Services (EMCVS), a unit of Atlanta-based Equifax,
Inc. and acquired by merger all of the outstanding stock of
Professional Risk Management (PRM), a privately held California
third party administrator that specializes in managing
enterprise liability risk for organizations that self-insure.
Assets acquired, liabilities assumed, and the cost in excess
of net assets purchased were as follows (in thousands):
<TABLE>
<CAPTION>
<S>
<C>
Cost in excess of net assets purchased........ $ 9,177
Cash.......................................... 566
Other assets, principally investments......... 2,570
Other liabilities............................. (689)
$11,624
</TABLE>
These acquisitions were accounted for as purchases, and the
operations of EMCVS and PRM are included in MMI's consolidated
financial statements since the date of acquisition.
3. Accounting Change
In February, 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share, which is required
to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact
is expected to result in an increase in primary earnings per
share for the first quarter ended March 31, 1997 and 1996 of
$.01 and $.03 per share, respectively. The impact of
Statement 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended March 31, 1997 compared to Three Months Ended
March 31, 1996.
Revenues. Gross premiums written were increased by 1.3% to
$95,485,000 for the three months ended March 31, 1997 from
$94,222,000 for the 1996 period. Net premiums written increased by
4.0% to $76,155,000 from $73,200,000, and net premiums earned were
relatively unchanged, totaling $42,276,000 from $42,320,000.
Medical malpractice premiums earned increased by 2.0% to
$40,975,000 for the three months ended March 31, 1997 from
$40,180,000 for the 1996 period. Life and health premiums earned
decreased by 39.2%, to $1,301,000 for the three months ended March
31, 1997 from $2,140,000 for the 1996 period.
Consulting and fee income increased by 89.4% to $12,067,000 for
the three months ended March 31, 1997 from $6,370,000 for the 1996
period. The growth in consulting and fee income is attributable to
the inclusion of the results of Management Science Associates, Inc.
(MSA) from the date of its acquisition, April 1, 1996 and the
inclusion of the results of EMCVS and PRM from the date of their
acquisition, January 1, 1997.
Net investment income increased by 3.0% to $11,297,000 for the
three months ended March 31, 1997 from $10,973,000 for the 1996
period. For the three month period, the Company had net realized
gains on investments of $871,000 in 1997 compared to $1,548,000 in
1996.
Losses and expenses. Losses and loss adjustment expenses
("LAE") decreased by .9% to $ 34,783,000 for the three months ended
March 31, 1997 from $35,106,000 for the 1996 period. Medical
malpractice liability losses and LAE decreased by .9% to
$33,577,000 for the three months ended March 31, 1997 from
$33,879,000 for the 1996 period. The property and casualty loss
ratio decreased to 82.6% from 83.3% for the respective three month
periods. Life and health benefit costs decreased by $ 21,000 or
1.7% to $1,206,000 for the three months ended March 31, 1997 from
$1,227,000 for the 1996 period. The life and health loss ratio
increased to 92.7% from 57.3% due to the decline in earned premium
and an increase in losses reported in the first quarter 1997.
Underwriting results and loss ratios for the Company's life and
health segment are variable due to the relatively small volume of
business written.
Insurance and administrative expenses increased by 38.1% to
$23,472,000 for the three months ended March 31, 1997 from
$16,993,000 for the 1996 period. Almost one-half of the increase in
administrative expense is due to the inclusion of the results of
acquired businesses from the date of acquisition, including MSA in
April 1996 and EMCVS and PRM in January 1997.
Interest expense increased by 17.9% to $884,000 for the three
months ended March 31, 1997 from $750,000 for the 1996 period due
to an increase in outstanding debt of $8.0 million in 1996.
Income taxes. Income taxes were $665,000 for the three months
ended March 31, 1997 compared to $951,000 for the 1996 period.
Net income. Net income decreased by 9.5% to $6,707,000 for the
three months ended March 31, 1997 from $7,411,000 for the 1996
period.
Net income per share. Fully diluted net income per common and
common equivalent share decreased to $.56 for the three months
ended March 31, 1997 from $.72 for the 1996 period. Included in
these amounts are $.05 in 1997 and $.09 in 1996 related to after
tax net realized gains on investments. Fully diluted weighted
average shares and equivalents outstanding increased primarily due
to the issuance of capital stock in connection with a public
offering of stock by the Company in September, 1996.
<PAGE>
Liquidity And Capital Resources
As a holding company, the Company's assets consist primarily of
the stock of its subsidiaries. The principal sources of funds are
management fees and dividends from subsidiaries. In the three
month periods ended March 31, 1997 and March 31, 1996, the Company
received dividends of $2,750,000 from its subsidiaries. The
Company received management fees from its subsidiaries of
$7,338,000 for the three months ended March 31, 1997, compared to
$5,800,000 in 1996.
On a consolidated basis, the Company's principal sources of
operating funds are premiums, net investment income, fees and
recoveries from reinsurers. Funds are used to pay claims,
operating expenses, reinsurance premiums, acquisition related
expenses, debt service requirements, taxes and dividends to
stockholders.
Cash used by operating activities was $13,098,000 for the three
months ended March 31, 1997 compared to $7,765,000 provided by
operations for the three months ended March 31, 1996. Cash from
operations decreased primarily due to increased paid losses, growth
in fees receivable and a discontinued operations charge incurred in
the fourth quarter of 1996. Because of variability related to the
timing of payment of claims, cash from operations for a casualty
insurance company can vary substantially from quarter to quarter.
Cash provided by investing activities was $14,742,000 for the
three months ended March 31, 1997 compared to a use of cash of
$6,680,000 for the three months ended March 31, 1996. The increase
in cash provided by investing activities was primarily due to
investments sold to fund first quarter acquisitions.
Cash used by financing activities was $1,589,000 for the three
months ended March 31, 1997 compared to cash provided by financing
activities of $2,020,000 for the three months ended March 31, 1996
and is due principally to the repurchase of the Company's common
stock during the first quarter of 1997.
The Company invests in investment grade fixed income securities
and preferred stocks. The estimated fair value of preferred stocks
was 3.6% of fair value of total invested assets as of March 31,
1997. The estimated fair value of the Company's investment
portfolio was $756,434,000 as of March 31, 1997 compared to
$788,451,000 as of December 31, 1996. The March 31, 1997 amount
includes net unrealized gains of $10,010,000, which represent the
amount by which the estimated fair value of the investment
portfolio exceeds amortized cost. Net unrealized gains as of
December 31, 1996 were $19,678,000. The decrease in net unrealized
gains during the first three months of 1997 was due to an increase
in the general level of interest rates in 1997. The Company
maintains a portion of its investment portfolio in high quality,
short-term securities to meet its short-term operating liquidity
requirements, including the payment of claims and expenses. Short-
term investments totaled $32,344,000 or 4.3% of invested assets at
March 31, 1997. The Company believes that all of its invested
assets are readily marketable.
Long-term and short-term debt remained unchanged at $58,000,000
as of December 31, 1996 and March 31, 1997.
Stockholders' equity was $252,950,000 as of March 31, 1997
compared to $251,966,000 as of December 31, 1996. Dividends to
stockholders were $823,000 for the three months ended March 31,
1997.
Acquisition of EMCVS and PRM
Effective January 1, 1997, the Company purchased substantially
all of the net assets of EMCVS and all of the outstanding stock of
PRM. EMCVS provides credentials verification services to the
healthcare industry via on-line data access to a comprehensive
credentials database. PRM is a third party administrator that
specializes in managing enterprise liability risk for organizations
that self-insure. The combined purchase price for these two
transactions, which together accounted for revenues in 1996 of
approximately $7,000,000, was $11,624,000 including expenses.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
11. Statement Re Computation of Per Share Earnings.
27. Financial Data Schedule.
B. Reports on Form 8-K. No reports on Form 8-K were filed
during the quarter.
<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.
MMI Companies,Inc.
(Registrant)
Date: October 20, 1997
/s/B. Frederick Becker
B. Frederick Becker
Chairman and Chief
Executive Officer
Date: October 20, 1997
/s/Paul M. Orzech
Paul M. Orzech
Executive Vice President and
Chief Financial Officer
<PAGE>
MMI Companies, Inc and Subsidiaries
Exhibit 11 - Statement re Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
PRIMARY
Weighted average shares
outstanding...................... 11,686 9,730
Net effect of dilutive stock
options based on the treasury
stock method using average
market price..................... 378 406
Weighted average number of
common and common equivalent
shares........................... 12,064 10,136
Net income....................... 6,707 7,411
Earnings per common and
common equivalent share.......... $ .56 $ .73
FULLY DILUTED
Weighted average shares
outstanding..................... 11,686 9,730
Net effect of dilutive stock
options based on the treasury
stock method using ending market
price, if higher than average.... 378 494
Weighted average number of
common and common equivalent
shares........................... 12,064 10,224
Net income....................... 6,707 7,411
Earnings per common and
common equivalent share.......... $ .56 $ .72
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information
extracted from the consolidated financial statements of MMI
Companies, Inc. and subsidiaries for the three month period ended
March 31, 1997, and is qualified in its entirety by reference to
such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 696,567
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 27,523
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 756,434
<CASH> 1,134
<RECOVER-REINSURE> 11,165
<DEFERRED-ACQUISITION> 8,459
<TOTAL-ASSETS> 1,097,061
<POLICY-LOSSES> 637,955
<UNEARNED-PREMIUMS> 96,653
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 58,000
<COMMON> 1,169
0
0
<OTHER-SE> 251,781
<TOTAL-LIABILITY-AND-EQUITY>1,097,061
42,276
<INVESTMENT-INCOME> 11,297
<INVESTMENT-GAINS> 871
<OTHER-INCOME> 12,067
<BENEFITS> 34,783
<UNDERWRITING-AMORTIZATION> 3,861
<UNDERWRITING-OTHER> 19,611
<INCOME-PRETAX> 7,372
<INCOME-TAX> 665
<INCOME-CONTINUING> 6,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,707
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>