SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 7, 1996
(Date of earliest event reported)
FIRSTMARK CORP.
(Exact Name of Registrant as Specified in its Charter)
Maine 0-20806 01-0389195
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
222 Kennedy Memorial Drive, 04901
Waterville, Maine (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(207) 873-6362
<PAGE>
Firstmark Corp. (the "Registrant") hereby amends in its entirety the
following item of the Registrant's Current Report on Form 8-K dated June 12,
1996 and filed with the Securities and Exchange Commission on June 12, 1996:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
See Exhibit 99.2 attached hereto.
(b) Pro Forma Financial Information.
The Registrant's financial statements and the pro forma financial
information are being prepared, and the pro forma information
will be filed as soon as possible.
(c) Exhibits.
Exhibit No. Description
*2 Agreement and Plan of Reorganization between Southern
Capital Corp., Southern Acquisition Corp. and Firstmark
Corp. dated April 30, 1996.
23.1 Consent of Deloitte & Touche LLP
*99.1 Press Release dated June 10, 1996.
99.2 Financial Statements of Business Acquired.
* Filed Previously
-2-
<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 hereunto duly authorized.
FIRSTMARK CORP.
(Registrant)
Date: August 21, 1996 By: /s/ JAMES F. VIGUE
James F. Vigue
President and Chief Executive Officer
-3-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23.1 Consent of Deloitte & Touche LLP
99.2 Financial Statements of Business Acquired.
-4-
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated March 1, 1996
relating to the December 31, 1995 and 1994 financial statements of Southern
Capital Corp. and subsidiary which is a wholly-owned subsidiary of Firstmark
Corp., appearing in this Current Report on Form 8-KA of Firstmark Corp.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Richmond, Virginia
August 21, 1996
Exhibit 99.2
SOUTHERN CAPITAL CORP.
AND SUBSIDIARY
Consolidated Financial Statements for the
Years Ended December 31, 1995 and 1994
and Independent Auditors' Report
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994:
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders
Southern Capital Corp.
Richmond, Virginia
We have audited the accompanying consolidated balance sheets of Southern
Capital, Corp. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Southern Capital
Corp. and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Richmond, Virginia
March 1, 1996
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS 1995 1994
Cash and cash equivalents $ 407,436 $ 591,063
-------------- -------------
Investments:
Interest-bearing time deposits 118,348 104,547
Investment securities:
Investments held to maturity (at amortized cost, fair value of
$2,150,215 and $2,288,694, respectively) 2,102,894 2,330,712
Investments available for sale (at estimated fair value,
amortized cost of $896,157 and $1,006,036, respectively) 961,405 918,194
-------------- -------------
Total investments 3,182,647 3,353,453
-------------- -------------
Notes and accounts receivable:
Premiums and fees receivable (net of allowance for
doubtful accounts of $103,600 in 1995 and 1994) 784,610 761,761
Notes receivable - 7,176
Accounts receivable reinsurer 37,547 37,547
Refundable income taxes 308,734 243,850
Other receivables 162,396 201,559
-------------- -------------
Total notes and accounts receivable 1,293,287 1,251,893
-------------- -------------
Accrued interest receivable 45,424 48,058
Title plant 42,534 -
Property and equipment, net 541,724 405,562
Deferred income tax asset 442,196 439,186
Other real estate owned 158,781 158,781
Other assets 78,929 140,458
-------------- -------------
TOTAL ASSETS $ 6,192,958 $ 6,388,454
============== =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
LIABILITIES:
Accounts payable $ 198,596 $ 154,936
Reserve for policy claims 1,064,105 1,114,779
Accrued and other liabilities 66,263 56,844
Deferred income tax liability 741,059 708,052
Negative goodwill (net of accumulated amortization
of $1,010,801 in 1995 and $712,374 in 1994) 1,973,472 2,271,899
------------- --------------
Total liabilities 4,043,495 4,306,510
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share -
authorized, 5,000 shares;
issued and outstanding, 100 shares 100 100
Additional paid-in capital 204,400 204,400
Retained earnings 1,901,896 1,932,012
Net unrealized gain (loss) on investments
available for sale, net of tax of $(22,181)
in 1995 and $33,274 in 1994 43,067 (54,568)
------------- --------------
Total stockholders' equity 2,149,463 2,081,944
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,192,958 $ 6,388,454
============= ==============
</TABLE>
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C>
REVENUES:
Title insurance premiums $ 6,763,222 $ 8,460,596
Abstract and related income 1,497,045 1,148,063
Interest and dividend income 238,034 209,815
Net gain on sale of investments 91,159 32,170
Loss on sale of foreclosed property - (31,432)
Gain on sale of property and equipment 3,108 5,146
Amortization of negative goodwill 298,427 298,427
Other 208,887 110,771
------------- --------------
Total revenues 9,099,882 10,233,556
------------- --------------
EXPENSES:
Commissions to agents 3,145,028 4,244,464
Salaries and employee benefits 3,641,191 3,466,778
Provision for policy claims 319,868 201,417
Office occupancy and operations 1,156,537 920,756
Taxes and licenses 432,798 463,034
Professional fees 118,571 94,720
Other 553,660 482,603
------------- --------------
Total expenses 9,367,653 9,873,772
------------- --------------
INCOME BEFORE INCOME TAXES (267,771) 359,784
INCOME TAX BENEFIT (237,655) (56,655)
------------- --------------
NET INCOME (LOSS) $ (30,116) $ 416,439
============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Net Unrealized
Shares Paid-in Retained Gain (Loss) on
Issued Amount Capital Earnings Investments Total
<S> <C>
BALANCE, JANUARY 1, 1994 100 $ 100 $ 204,400 $ 1,515,573 $ 25,557 $ 1,745,630
Net income - - - 416,439 - 416,439
Net unrealized loss on investments
available for sale - - - - (80,125) (80,125)
----- ------ ---------- ------------ --------- ------------
BALANCE, DECEMBER 31, 1994 100 100 204,400 1,932,012 (54,568) 2,081,944
Net loss - - - (30,116) - (30,116)
Net unrealized gain on investments
available for sale - - - - 97,635 97,635
----- ------ ---------- ------------ --------- ------------
BALANCE, DECEMBER 31, 1995 100 $ 100 $ 204,400 $ 1,901,896 $ 43,067 $ 2,149,463
===== ====== ========== ============ ========= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (30,116) $ 416,439
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 91,390 58,436
Gain on sale of property and equipment (3,108) (5,146)
Gain on sale of investments (91,159) (32,170)
Net amortization of premium on bonds 10,397 10,704
Amortization of negative goodwill (298,427) (298,427)
Loss on sale of foreclosed property - 31,432
Deferred income taxes (25,461) 97,668
Change in assets and liabilities:
Premiums and fees receivable (22,849) 249,487
Accounts receivable reinsurer - (6,546)
Refundable income taxes (64,884) (112,648)
Accrued interest receivable 2,634 (7,788)
Other assets 100,692 (190,382)
Accounts payable 43,660 (48,778)
Reserve for policy claims (50,674) (685,907)
Other liabilities 9,419 (40,425)
-------------- -------------
Net cash used in operating activities (328,486) (564,051)
-------------- -------------
INVESTING ACTIVITIES:
Proceeds from sale of investments available for sale 386,961 263,359
Proceeds from maturities of investments held to maturity 317,226 206,000
Proceeds from sale of time deposits 158,337 152,813
Purchase of investments available for sale (186,147) (84,678)
Purchase of investments held to maturity (99,578) (1,152,956)
Purchase of time deposits (172,138) (156,390)
Payments received on notes receivable 7,176 14,326
Proceeds from sale of property and equipment 3,993 6,017
Purchase of property and equipment (228,437) (276,862)
Proceeds from sale of foreclosed property - 280,031
Purchase of foreclosed property - (470,244)
Purchase of title plant (42,534) -
-------------- -------------
Net cash provided by (used in) investing activities 144,859 (1,218,584)
-------------- -------------
(Continued)
</TABLE>
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C>
FINANCING ACTIVITIES - Principal repayments on borrowings - (100,000)
-------------- -------------
NET DECREASE IN CASH (183,627) (1,882,635)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 591,063 2,473,698
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 407,436 $ 591,063
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest expense $ - $ 2,701
Cash received during the year for income tax refund $ 147,313 $ -
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of
Southern Capital Corp. and its subsidiary:
Organization - Southern Capital Corp. (the "Company") was incorporated on
June 29, 1992 for the purpose of acquiring Investors Southern Corporation
("Investors Southern"). The Company purchased Investors Southern from the
Resolution Trust Corporation (RTC) as of the close of business on August
10, 1992 and commenced operations on August 11, 1992. This transaction has
been accounted for using the purchase method of accounting.
Nature of Operations - The Company issues title insurance policies through
branch offices and independent agencies in Mid-Atlantic states of the
United States. The Company's business is concentrated in the Commonwealth
of Virginia.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Basis of Presentation - The consolidated financial statements include the
accounts of Southern Capital Corp. and its subsidiary, Investors Southern
Corporation. Southern Title Insurance Corporation ("Southern"), Southern
Title Agency Corporation (formerly Commonwealth Title Corporation),
Southern Abstractors Corporation and Glasgow Enterprises, Inc. are wholly
owned subsidiaries of Investors Southern. Southern Title Services
Corporation is a wholly owned subsidiary of Southern. Glasgow Enterprises,
Inc., maintains ownership percentages in the following companies, Southern
Title Agency L.C. (formerly University Title L.C.), 100%; Southern Title
of Ohio, Inc., 75%; Southern Title of the Peninsula, Inc., 70%; Southern
Title of Chesapeake, Inc., 70%; Southern Title of North Carolina, L.L.C.,
50%; Virginia First Title and Escrow, L.L.C., 50%; Attorneys' Title
Insurance Company, L.L.C., 50%. For financial reporting purposes, the
assets, liabilities, results of operations and cash flows, of the
subsidiaries of Glasgow Enterprises, Inc., are included in the Company's
consolidated financial statements since the date of acquisition. The
outside investors' interest is reflected as minority interest in the
Company's financial statements to the extent the investor's investment
exceeds accumulated losses. All significant intercompany accounts and
transactions have been eliminated.
Investment Securities - The Company classifies its investments in debt and
equity securities with readily determinable fair values as either trading,
held to maturity, or available for sale. The Company does not have any
securities classified as trading. Securities classified as held to
maturity are accounted for at amortized cost, and require the Company to
have both the positive intent and ability to hold those securities to
maturity. All other securities are classified as available for sale and
are carried at fair value with unrealized gains and losses included in
stockholders' equity on an after tax basis. Realized gains or losses on
the sale of investments are recognized at the time of sale using the
amortized cost of the specific security sold.
<PAGE>
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is charged to expense over the
estimated useful lives of the assets and is computed using the
straight-line method for financial reporting purposes. Depreciation for
tax purposes is computed based upon accelerated methods. The costs of
major renewals or improvements are capitalized while the costs of ordinary
maintenance and repairs are charged to expense as incurred.
Other Real Estate Owned - Assets acquired in settlement of claims are
carried at estimated realizable value. Adjustments to reported estimated
realizable values and realized gains and losses on dispositions are
recorded as increases or decreases in income.
Revenue Recognition - Title insurance premiums are recognized as income
when policies are issued or liabilities are incurred under title
commitments, whichever occurs first. An allowance for credits is provided
for unearned premiums.
Reserve for Policy Claims - Liabilities for reported claims are based on
management's estimate of the ultimate loss. Reserves for losses incurred
but not reported (IBNR) are estimated based on the use of actuarial
methods. Such liabilities are reviewed and updated by management, and any
adjustments resulting therefrom are reflected in income currently. Actual
results could differ from these estimates.
Reinsurance - In the normal course of business, the Company seeks to
reduce the loss that may arise from events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas
of exposure with other insurance enterprises or reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Reinsurance is charged against title insurance premiums
for financial reporting purposes.
Escrow and Trust Deposits - As a service to its customers, the Company
administers escrow and trust deposits representing undisbursed amounts
received for settlements of mortgage loans and indemnities against
specific title risks. These funds are not considered assets of the Company
and therefore are excluded from the accompanying consolidated balance
sheet.
Income Taxes - The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
consolidated financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. The
taxable or deductible amounts are based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax
assets and liabilities.
Negative Goodwill - Negative goodwill resulted from the purchase of
Investors Southern in 1992. Negative goodwill is being amortized on a
straight-line basis over 10 years.
Statement of Cash Flows - The statement of cash flows is presented using
the indirect method which reconciles net income to net cash flows from
operating activities. The Company's definition of cash and cash
equivalents includes short-term, highly-liquid investments with maturities
of three months or less at date of purchase.
<PAGE>
2. INVESTMENTS
<TABLE>
<CAPTION>
Investments as of December 31, 1995 and 1994 consist of:
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C>
HELD TO MATURITY:
Bonds and Notes:
U.S. Government and
government agencies
and authorities $ 299,684 $ 660 $ - $ 300,344
Political subdivisions of states 1,187,014 31,619 15 1,218,618
Public utilities 616,196 15,057 - 631,253
-------------- ----------- ---------- -------------
2,102,894 47,336 15 2,150,215
-------------- ----------- ---------- -------------
AVAILABLE FOR SALE:
Common stocks:
Industrials and utilities 203,775 10,807 3,498 211,084
Financial institutions 200,671 40,291 7,904 233,058
Communication 100,000 - - 100,000
Preferred stocks:
Industrials and utilities 348,827 32,232 1,108 379,951
Financial institutions 42,884 - 5,572 37,312
-------------- ----------- ---------- -------------
896,157 83,330 18,082 961,405
-------------- ----------- ---------- -------------
Total Investments $ 2,999,051 $ 130,666 $ 18,097 $ 3,111,620
============== =========== ========== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C>
HELD TO MATURITY:
Bonds and Notes:
U.S. Government and
government agencies
and authorities $ 299,936 $ - $ 11,668 $ 288,268
Political subdivisions of states 1,293,857 869 20,829 1,273,897
Public utilities 736,919 653 11,043 726,529
-------------- ---------- ----------- -------------
2,330,712 1,522 43,540 2,288,694
-------------- ---------- ----------- -------------
AVAILABLE FOR SALE:
Common stocks:
Industrials and utilities 332,269 18,459 44,222 306,506
Financial institutions 227,904 1,354 35,696 193,562
Preferred stocks:
Industrials and utilities 402,979 - 23,853 379,126
Financial institutions 42,884 - 3,884 39,000
-------------- ---------- ----------- -------------
1,006,036 19,813 107,655 918,194
-------------- ---------- ----------- -------------
Total Investments $ 3,336,748 $ 21,335 $ 151,195 $ 3,206,888
============== ========== =========== =============
</TABLE>
Proceeds from sales of investments available for sale were $386,961 and
$263,359 in 1995 and 1994, respectively. Gross gains of $130,237 and
$31,736 were realized on sales in 1995 and 1994, respectively. Gross
losses of $39,304 were realized in 1995. No losses were realized in 1994.
The contractual maturities of bonds and notes as of December 31, 1995 are
as follows:
Estimated
Amortized Fair
Cost Value
Due in one year or less $ 435,726 $ 436,415
Due after one year through five years 978,794 995,688
Due after five years through ten years 688,374 718,112
------------- --------------
$ 2,102,894 $ 2,150,215
============= ==============
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C>
Furniture, fixtures and equipment $ 584,228 $ 357,716
Leasehold improvements 117,753 117,753
Automobiles - 1,483
----------- -----------
701,981 476,952
Less accumulated depreciation and amortization 160,257 71,390
----------- -----------
$ 541,724 $ 405,562
=========== ===========
</TABLE>
Depreciation and amortization charged to operations was $91,390 and
$58,436 for the years ended December 31, 1995 and 1994, respectively.
4. REGULATORY REQUIREMENTS
Southern is subject to certain minimum levels of capital and surplus as
required by statutes of the states in which it is authorized to do
business. Southern is also subject to regulations under which the payment
of certain dividends requires the prior approval of applicable insurance
regulatory authorities. At December 31, 1995, Southern exceeded all
minimum statutory capital requirements.
At December 31, 1995, investments and certificates of deposits with a book
value of $908,654 were either on deposit with various regulatory
authorities or held by Southern in accordance with statutory requirements
for the protection of its policyholders.
5. RETIREMENT PLAN
The Company has a 401(k) profit sharing plan (the "Plan") covering
employees who meet the participation requirements outlined in the Plan.
The Company's contribution aggregated $24,007 and $28,275 for the years
ended December 31, 1995 and 1994, respectively. Contributions to the Plan
are made based on a matching percentage of employee contributions as
designated in the Plan.
<PAGE>
6. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid known claims and claim adjustment
expense is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C>
Balance at January 1 $ 1,114,779 $ 1,800,686
Less reinsurance recoverables 37,547 31,001
------------- --------------
Net balance at January 1 1,077,232 1,769,685
------------- --------------
Incurred related to:
Current year 107,816 50,140
Prior years 212,052 151,277
------------- --------------
Total incurred 319,868 201,417
------------- --------------
Paid related to:
Current year 62,240 188,281
Prior years 308,302 705,589
------------- --------------
Total paid 370,542 893,870
------------- --------------
Net balance at December 31 1,026,558 1,077,232
Plus reinsurance recoverables 37,547 37,547
------------- --------------
Balance at December 31 $ 1,064,105 $ 1,114,779
============= ==============
</TABLE>
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expenses (net of reinsurance
recoveries of $6,546 in 1994) increased by $118,451 and decreased by
$556,166 in 1995 and 1994, respectively.
State insurance regulations require an insurer to obtain reinsurance to
limit the primary insurer's coverage. The Company has elected reinsurance
limits lower than the State requirements. Although the ceding of insurance
does not discharge an insurer from its primary liability to an insured,
the reinsuring company assumes the related liability and, accordingly, the
ceding company's liabilities do not include amounts for reinsured
exposures. Premiums earned in 1995 and 1994 exclude $162,841 and $141,385,
respectively, of charges for reinsurance ceded to reinsurance companies.
Reinsurance expected to be recovered on claims filed was $37,547 as of
December 31, 1995 and 1994.
<PAGE>
7. INCOME TAXES
Deferred tax assets recognized of $442,196 and $439,186 at December 31,
1995 and 1994, respectively, in the financial statements relate primarily
to temporary differences in the book basis and tax basis of depreciable
assets and from claims incurred but not reported calculations. Deferred
tax liabilities of $741,059 and $708,052, respectively, related primarily
to temporary differences in the premium reserve calculation.
At December 31, 1995 and 1994, the Company had capital loss carryovers for
income tax purposes of $254,124 and $345,283, respectively. For financial
reporting purposes, a valuation allowance of $188,876 and $345,283,
respectively, has been recognized to offset the deferred tax asset related
to these items.
At December 31, 1995, the Company had a net operating loss carryforward of
$180,313.
The components of the benefit for federal and state income taxes are as
follows:
1995 1994
Current:
Federal $ (212,194) $ (95,765)
State - (58,558)
Deferred:
Federal (25,461) 124,134
State - (26,466)
------------ -----------
Total income tax benefit $ (237,655) $ (56,655)
============ ===========
<PAGE>
The following is a reconciliation of the expected tax expense with the
reported expense for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
Percent of Percent of
Pre-Tax Pre-Tax
Amount Income Amount Income
<S> <C>
Expected tax expense (benefit) $ (91,216) (34.0)% $ 122,327 34.0%
State income tax, net of
Federal tax benefit - - (56,116) (15.6)
Tax exempt income (34,649) (12.9) (42,460) (11.8)
Utilization of capital loss
carryforwards - - 19,808 5.5
Depreciable assets - - (25,472) (7.1)
Amortization of negative
goodwill (101,465) (37.8) (99,486) (27.7)
Other (10,325) (3.9) 24,744 6.9
------------ ------ ----------- ------
Total $ (237,655) (88.6)% $ (56,655) (15.8)%
============ ====== =========== ======
</TABLE>
8. COMMITMENTS
The Company leases the majority of its offices and certain equipment under
noncancellable operating lease agreements. Future minimum lease payments
under these lease agreements are as follows as of December 31, 1995:
1996 $ 338,787
1997 256,644
1998 205,515
1999 4,200
-----------
Total future minimum lease payments $ 805,146
===========
Total rental expense under noncancellable operating leases was $395,916
and $238,458 in 1995 and 1994, respectively.
<PAGE>
9. DISCLOSURES CONCERNING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about
Fair Value of Financial Instruments". The estimated fair value amounts
have been determined by the Company based on available market information
and appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
Cash and short-term investments. The nature of these instruments and their
relatively short maturities provides for the reporting of fair value equal
to the historical cost.
Accounts, notes receivable and accounts payable. The nature of these
instruments and their relatively short maturities provides for the
reporting of fair value equal to the historical cost.
Investment securities. The fair value of investment securities is based on
quoted market prices. The fair value of the Company's investment
securities is disclosed in Note 2 of these financial statements.
* * * * * *
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash and cash equivalents $ 982
----------
Investments:
Interest-bearing time deposits 63
Investment securities:
Investments held to maturity (at amortized cost, fair value of
$1,994) 1,979
Investments available for sale (at estimated fair value,
amortized cost of $511) 865
----------
Total investments 2,907
Notes and accounts receivable:
Premiums and fees receivable (net of allowance for
doubtful accounts of $1) 953
Notes receivable 3
Accounts receivable reinsurer 20
Refundable income taxes 192
Other receivables 6
----------
Total notes and accounts receivable 1,174
Accrued interest receivable 61
Title plant 3,544
Property and equipment, net 984
Excess of cost over fair value of net assets acquired, net 8,55
Deferred income tax asset 442
Other real estate owned 386
Other assets 166
----------
TOTAL ASSETS $ 11,501
==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Borrowed funds $ 682
Accounts payable 99
Capitalized lease payable 158
Reserve for policy claims 945
Accrued and other liabilities 53
Deferred income tax liability 655
----------
Total liabilities 2,592
STOCKHOLDERS' EQUITY:
Common stock of $1 par value per share -
authorized, 5,000 shares;
issued and outstanding, 100 shares -
Additional paid-in capital 7,129
Retained earnings 1,788
Net unrealized gain (loss) on investments
available for sale (8)
Total stockholders' equity 8,909
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,501
==========
</TABLE>
- 21 -
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C>
REVENUES:
Title insurance premiums $ 3,350 $ 3,037
Abstract and related income 1,077 533
Interest and dividend income 117 112
Net gain on sale of investments 88 47
Gain on sale of property and equipment 19 -
Amortization of negative goodwill 124 149
Other 8 63
--------- ---------
Total revenues 4,783 3,941
--------- ---------
EXPENSES:
Commissions to agents 1,323 1,419
Commissions to underwriters 38 59
Salaries and employee benefits 2,237 1,626
Provision for policy claims 34 145
Office occupancy and operations 678 486
Taxes and licenses 255 187
Professional fees 83 40
Other 270 195
--------- ---------
Total expenses 4,918 4,157
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (135) (216)
INCOME TAX BENEFIT (22) (97)
---------- -----------
NET INCOME (LOSS) $ (113) $ (119)
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1996 1995
<S> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (114) $ (120)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 57 41
Gain on sale of property and equipment (19)
Gain on sale of investments (88) (47)
Net amortization of premium on bonds 2 3
Amortization of negative goodwill (121) (149)
Change in assets and liabilities:
Premiums and fees receivable (51) 50
Accounts receivable reinsurer 18
Refundable income taxes 117 (38)
Accrued interest receivable (16) (5)
Other assets (87) (14)
Accounts payable (101) (11)
Reserve for policy claims (119) (26)
Other liabilities (13) (46)
Net cash used in operating activities (535) (362)
INVESTING ACTIVITIES:
Proceeds from sale of investments available for sale 471 281
Proceeds from maturities of investments held to maturity 360 102
Proceeds from sale of time deposits 55 52
Purchase of investments available for sale (1)
Purchase of investments held to maturity (238) 99
Purchase of time deposits (53)
Payments received on notes receivable (3)
Proceeds from sale of property and equipment 158
Purchase of property and equipment (149) (97)
Purchase of foreclosed property (227)
Net cash provided by (used in) investing activities 427 185
</TABLE>
(Continued)
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1996 1995
<S> <C>
FINANCING ACTIVITIES - Proceeds from Borrowings 696
FINANCING ACTIVITIES - Principal repayments on borrowings (13) 0
-------------- ----------
Net cash provided by (used in financing activities 683
NET DECREASE IN CASH 575 (177)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 407 591
-------------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 982 $414
============== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest expense $ 11 $ 0
Cash received during the year for income tax refund $ 79 $ 0
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SOUTHERN CAPITAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited)
- ------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The interim financial information presented herein as of June 30, 1996 and
for the six months ended June 30, 1996 and 1995 is unaudited. The
financial information reflects all normal recurring adjustments.
Accounting policies followed by Southern Capital Corp. (" Southern
Capital"), are described in Note 1 to the audited financial statements as
of December 31, 1995. The audited financial statements for 1995 should be
read in conjunction with these interim financial statements. These interim
financial statements reflect the effects of the acquisition by Firstmark
Corp. ("Firstmark"), on June 7, 1996 as described in Note 2.
2. FIRSTMARK ACQUISITION
As part of the Firstmark merger, the shareholders of Southern Capital
received 40,000 shares of Firstmark Series B, cumulative, non-voting
preferred stock, par value $.20 per share. The preferred stock is not
convertible by the holders, but may be converted by Firstmark into not
less than 2,000,000 shares of Firstmark common stock, subject to
adjustment if the price of Firstmark stock is less than $4.00 per share at
the time of conversion. If not converted by Firstmark sooner, the
preferred stock begins accruing dividends after January 1, 1997 and is
redeemable at the option of the holders at a price of $200 per share after
June 30, 1998.
