(2) The Company reclassified certain premiums related to Unionamerica in 1997. There was no effect on pre-tax income. See Note 14 to the Consolidated Financial Statements.
(3) Income from continuing operations in 1996 excludes a loss from discontinued operations of $5,100,000, net of tax, related to a former affiliate. See Note 15 to the Consolidated Financial Statements.
(4) Operating income represents income from continuing operations before extraordinary losses of $707,000 in 1997 and $4,737,000 in 1995 and after-tax realized investments gains (losses) of $1,740,000 in 1998, $1,410,000 in 1997, $(596,000) in 1996, $1,106,000 in 1995 and $(23,567,000) in 1994.
(5) The Company adopted a new standard on earnings per share in 1997. All earnings per share amounts have been restated to conform to the new requirements. Per share and weighted average shares are presented on a diluted basis.
(7) GAAP ratios have been derived from the results of the Company's domestic and international insurance segments. The 1997 expense ratio includes 3.4 percentage points related to expenses incurred in connection with the Unionamerica acquisition.
(8) The expense ratio for 1997 and prior periods has been restated to exclude interest expense, consistent with the 1998 calculation.
REVENUES. Gross premiums written increased by 17.9% to $439.0 million in 1998 from $372.2 million in 1997. Medical malpractice gross premiums written increased 18.4% to $237.3 million in 1998 from $200.5 million. International gross premiums written increased 8.6% to $165.1 million in 1998 from $152.0 million in 1997 and other gross premiums written increased 86.3% to $36.7 million in 1998 from $19.7 million in 1997. Net premiums written increased by 15.6% to $354.8 million in 1998 from $306.9 million in 1997.
INCOME TAXES. Income taxes were $0.2 million in 1998 compared to $9.2 million in 1997. The decrease in income tax expense is due to a decline in pre-tax income in 1998.
Net premiums earned increased by 2.2% to $287.5 million in 1997 from $281.4 million in 1996. Medical malpractice net premiums earned decreased by 1.7% to $154.1 million in 1997 from $156.7 million in 1996. International net premiums earned increased 9.3% to $127.9 million from $117.0 million and other net premiums earned decreased 28.6% to $5.5 million from $7.7 million. An extremely competitive environment continued to exist in the medical malpractice and international insurance marketplaces which exerts a negative influence on price levels. The small decline from 1996 to 1997 in the Company's net earned premiums reflects this pricing environment. Other premiums decreased due to the Company's non-renewal of a large account.
Consulting and fee income increased by 49.6% to $51.6 million in 1997 from $34.5 million in 1996. Of the growth in consulting and fee income, 28.9 percentage points of the 49.6% increase is attributable to the inclusion of the results of Equifax Medical Credentials Verification Services (EMCVS) and Professional Risk Management, Inc. (PRM) from their date of acquisition, January 1, 1997. The balance of the increase is due to internally generated growth. Consulting and fee income as a percentage of net premiums earned and consulting and fee income was 15.2% in 1997 compared to 10.9% in 1996.
LOSSES AND EXPENSES. Losses and loss adjustment expenses (LAE) increased by 0.3% to $209.4 million in 1997 from $208.8 million in 1996. Medical malpractice liability losses and LAE decreased by 1.5% to $128.9 million in 1997 from $130.8 million in 1996. International losses and LAE increased 4.7% to $76.4 million in 1997 from $73.0 million principally due to the Company's downward revision of estimates for prior years surplus lines premium and losses as well as an increased percentage of casualty business, which tends to have lower loss ratios and higher expense ratios than property business. Other losses and LAE decreased 18.0% to $4.1 million in 1997 from $5.0 million in 1996 due to a decease in other earned premium.
Insurance and administrative expenses increased by 32.3% to $156.6 million in 1997 from $118.4 million in 1996. Of the increase in administrative expense, $15.4 million is attributable to internal growth in the Company's consulting and fee segment and the inclusion of acquired consulting and fee businesses while $23.6 million is attributable to a 7.3 percentage point increase in the insurance segment expense ratio. The increase in insurance expenses includes $9.7 million of expenses related to the Company's acquisition of Unionamerica, which was completed in December 1997 as well as an $8.0 million increase in commission expense.
Interest expense increased by 6.6% to $6.5 million in 1997 from $6.1 million in 1996 due to an increase in outstanding debt relating to the Company's increased investment in a Lloyd's managing agency in July, 1997.
LOSS FROM DISCONTINUED OPERATIONS. In 1997, MMI settled two lawsuits related to its former subsidiary, Ludgate Insurance Company, Limited and recorded the settlement in its 1996 financial statements as a loss from discontinued operations. The pre-tax loss was $7.8 million, with a corresponding tax benefit of $2.7 million, resulting in a charge of $5.1 million.
As a holding company, the Company's assets consist primarily of the stock of its subsidiaries. The Company's principal sources of operating funds are management fees and dividends from its subsidiaries. In 1998, the Company received dividends from its subsidiaries of $6.6 million, compared to $29.8 million in 1997 and $11.0 million in 1996. Of the 1997 dividend, $20.0 million was a special dividend paid by Health Providers Insurance Company to the Company in connection with an intercompany assumption reinsurance transaction. The Company then contributed the $20.0 million to American Continental Insurance Company's statutory surplus. The Company received management fees from its subsidiaries of $24.0 million in 1998, $28.5 million in 1997 and $24.6 million in 1996. The Company's principal uses of funds are operating expenses, acquisitions, debt service and dividends to stockholders.
On a consolidated basis, the Company's principal sources of operating funds are premiums, investment income, fees and recoveries from reinsurers. Funds are used to pay claims, operating expenses, reinsurance premiums, acquisition related expenditures, debt service requirements, taxes and dividends to stockholders.
CASH FLOW. On a consolidated basis, the Company has had positive cash flow from operations in each of the last three years. The level of positive cash flow has increased in the most recent year due to the growth in premiums written and collected. In prior years, cash flow from operations is also affected by the difference between the collection of premiums and payment of claims and expenses. Because of uncertainty related to the timing of payment of claims, cash from operations for a casualty insurance company can vary substantially from year to year and quarter to quarter. Cash provided by operating activities was $39.2 million in 1998, $6.5 million in 1997 and $25.0 million in 1996. Cash from operations increased principally due to an in increase in the growth rate of net premiums written and improved collections of premium and fee balances.
Financing activities used $3.7 million in cash in 1998 and provided $19.8 million in 1997 and $54.0 million in 1996. In July 1997, the Company increased its borrowings by $10.0 million to finance an investment in additional Lloyd's underwriting capacity. In December 1997, the Company completed a private placement of Capital Securities and received net proceeds of $118.7 million. Concurrent with the receipt of the proceeds, the Company repaid the full outstanding amounts under its credit agreements totaling $103.0 million. The Company had no outstanding bank debt at December 31, 1998 and 1997.
Cash provided by financing activities in 1996 includes $53.6 million, net of expenses, from the issuance of Common Stock, of which $46.3 million related to the Company's stock offering in September and October 1996. In April 1996, the Company increased its borrowings by $8.0 million in connection with the acquisition of its employee relations consulting subsidiary.
INVESTED ASSETS. The Company invests in investment grade fixed income securities and preferred stocks. The estimated fair value of preferred stocks was less than 5.0% of the fair value of total invested assets as of December 31, 1998. The estimated fair value of the Company's short-term, fixed maturity and preferred stock investments was $1,259.4 million as of December 31, 1998, compared to $1,230.8 million as of December 31, 1997. The December 31, 1998 amount includes net unrealized gains of $44.2 million, which represent the amount by which the estimated fair value of the investment portfolio exceeds amortized cost. Unrealized gains were $37.1 million as of December 31, 1997. The increase in unrealized gains during 1998 was due to an decrease in the general level of interest rates.
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 $50.8 million or 4.0% of invested assets as of December 31, 1998, compared to $52.2 million or 4.2% of invested assets as of December 31, 1997. The Company believes that all of its invested assets are readily marketable.
RISK-BASED CAPITAL. The NAIC has adopted risk-based capital solvency standards for domestic insurers. Under these standards, several solvency thresholds are calculated based on the underwriting, credit, and investment risks of a company. As of December 31, 1998 the statutory capital and surplus of each of the Company's domestic insurance subsidiaries exceeded its risk-based capital requirements.
MINIMUM SOLVENCY MARGIN. Under the Insurance Companies Act of 1982, the Department of Trade and Industry (DTI) authorizes companies in the United Kingdom to engage in the insurance business. Under the 1982 Act, companies authorized to transact business are required to maintain a minimum solvency margin. As of December 31, 1998, Unionamerica's minimum solvency margin was estimated at $16.3 million and its net assets were estimated at $143.3 million. The DTI typically expects an insurance company to maintain net assets at least 2.5 times greater than its solvency margin.
In a series of transactions in 1998, the Company acquired a 49% interest in Marketform Holdings Limited, a London-based underwriting agency specializing in non-U.S. medical malpractice insurance and 90% ownership of Marketform Corporate Member Limited, a dedicated Lloyd's corporate member. The total consideration was $4.5 million in cash and $1.3 million in short-term notes payable.
On December 11, 1997, the Company acquired all of the capital stock of Unionamerica. MMI issued 7.1 million shares of Common Stock at the exchange ratio of 0.836 MMI shares for each Unionamerica American Depository Share. The acquisition was accounted for as a pooling of interests, and, as such, the Company's 1997 consolidated financial statements, and for all prior periods presented were restated as if the acquisition had occurred at the beginning of the earliest period presented. Founded in 1971, Unionamerica is a specialty casualty and property reinsurer and insurer operating in the London-based reinsurance and insurance market.
On July 23, 1997, MMI acquired a 39% interest in JMA Holdings Limited, the parent company of Jago Managing General Agency Limited, a Lloyd's managing agency, for consideration of $9.1 million. The consideration was comprised of $5.9 million in cash and $3.2 million of short-term notes payable.
The Company has implemented an enterprise-wide plan to address Year 2000 ("Y2K") issues across all of its technology platforms as well as to reasonably assure that its critical business partners are prepared for business continuity beyond January 1, 2000.
The Company has completed the modifications, testing and implementation of its main insurance and financial systems, making these applications Y2K compliant. Additionally, system-wide Y2K simulations are scheduled throughout 1999. The cost to address Y2K issues is expected to be less than $600,000, and is being expensed as incurred. Costs associated with Y2K were $85,000 in the fourth quarter of 1998 and have totaled $510,000 through December 31, 1998.
The majority of identified critical internally developed IT systems have been modified, tested and implemented. The remaining systems are scheduled for implementation during the first half of 1999.
The Company relies on continued normal operations of entities such as brokers, reinsurers, banks, money managers and benefit plan administrators. Plans have been developed to ensure alignment with these business partners, even though disruption relating to these institutions would not have a material effect on operations or financial performance.
The Company is exposed to various market risks, most specifically changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices. The Company does not utilize derivative or other similar financial instruments for trading or speculative purposes. The following analysis presents the hypothetical loss in fair value of the financial instruments held by the Company at December 31, 1998 that are sensitive to changes in interest rates and/or foreign currency exchange rates. The range of changes in interest rates used in the analysis reflects the Company's view of changes that are reasonably possible over a one year period. This discussion of market risks related to the Company's consolidated balance sheet includes estimates of future economic environments caused by changes in interest risks. The effect of actual changes in these risk factors may differ materially from the Company's estimates. In the ordinary course of business, the Company also faces risks that may be either non-financial or non-quantifiable, e.g., credit risk. Such risks are not included in the following analysis.
The Company has a comprehensive and diversified investment portfolio. The Company's invested assets are held primarily as fixed maturities which are available for sale, short term investments and preferred stocks. Accordingly, these assets are subject to various market risk exposures such as interest rate risk.
The fair value of the Company's short term investment portfolio at December 31, 1998 approximated its carrying value due to its short term duration. Market risk was estimated as the potential decrease in fair value resulting from a hypothetical 100 basis point increase in interest rates for the issues contained in the short term investment portfolio, and was not materially different from the December 31, 1998 carrying value.
At December 31, 1998 the fair value of the Company's fixed maturity and preferred stock portfolio was $1,208.6 million versus an amortized cost basis of $1,164.4 million. The estimated fair value of the fixed maturity and preferred stock portfolio resulting from a hypothetical increase in interest rates of 100 basis points at December 31, 1998 would be approximately $1,159.0 million or a decrease of 4.1%. The Company utilizes several outside investment advisory companies in the management of the portfolio. This portfolio, which is not hedged, consists primarily of U.S. dollar denominated, investment grade, taxable and tax advantaged fixed maturity securities. The primary objectives of the portfolio are to provide the Company with a stable, long term, after tax yield with sufficient quality and liquidity to meet its cash flow needs and to provide an after tax total return to meet its profit objectives.
As of December 31, 1998 the Company estimates that overhead and other payables of approximately $1.5 million per month which must be paid in British pounds sterling are to be paid throughout the next year by its UK subsidiaries. The British pounds sterling are to be purchased periodically throughout the year, usually with U.S. dollars; and a hypothetical strengthening of the British pound sterling versus the U.S. dollar of 10% would increase the cost of these
The primary effect of inflation on the Company is implicitly considered in pricing and estimating reserves for unpaid losses and loss adjustment expenses, particularly for claims where there is a long period between reporting and settlement. The actual effect of inflation on the Company's results cannot be accurately known until claims are ultimately settled. Based on actual results to date, the Company believes that loss and LAE reserve levels and the Company's rate-making process adequately incorporate the effects of inflation.
In our opinion, based on our audits and, for 1996, the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MMI Companies, Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) and include the accounts and operations of MMI and its majority owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation. MMI's participation in Lloyd's Non-Marine Syndicate 205 through its majority investment in Jago Capital Limited is consolidated with the international insurance segment results.
The fair values of investments are reported in Note 4. The fair values of other financial instruments, principally accrued investment income, premiums and fees receivable, accrued expenses and other liabilities and amounts due to reinsurers approximate their December 31, 1998 and 1997 carrying values. The fair value of mandatorily redeemable preferred capital securities is reported in Note 6.
Commissions and other costs that vary with, and are primarily related to, the production of new and renewal business have been deferred and are amortized over the period of the related insurance policies. Such unamortized amounts included in other assets amounted to $28,300,000 and $26,500,000 at December 31, 1998 and 1997, respectively. Amortization of such costs are included in insurance and administrative expenses and amounted to $56,200,000 in 1998, $49,000,000 in 1997 and $41,800,000 in 1996.
Reinsurance premiums, commissions, expense reimbursements and liabilities related to reinsurance, assumed and ceded, are accounted for on bases consistent with those used in accounting for the original policies issued and with the terms of the reinsurance contracts. Premiums assumed from other companies have been reported as an increase to premium revenues. Premiums ceded to other companies have been reported as a reduction of premium revenues. Expense allowances received and paid in connection with reinsurance ceded and assumed, respectively, have been accounted for as an adjustment of the related deferred policy acquisition costs and are deferred and amortized accordingly. Reinsurance receivables and prepaid reinsurance premiums are reported as assets in the accompanying balance sheets.
As of December 31, 1998, MMI adopted Statement of Financial Accounting Standards (SFAS) 131, "Disclosure about Segments of an Enterprise and Related Information", which superseded SFAS 14, "Financial Reporting for Segments of a Business Enterprise". SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS 131 had no impact on MMI's consolidated operating results or financial position, but did affect the disclosure of segment information. Prior year segment information has been reclassified to conform to the requirements of SFAS 131. See Note 13 to the consolidated financial statements.
As of January 1, 1998, MMI adopted SFAS 130, "Reporting Comprehensive Income". SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on MMI's consolidated net income or total stockholders' equity. SFAS 130 requires unrealized gains or losses on MMI's available for sale securities, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. Prior year consolidated financial statements have been reclassified to conform to the requirements of SFAS 130.
In the consolidated statements of cash flows, cash includes principally demand deposit accounts. Also, sales and purchases of short-term investments presented on a net cash basis include investments with original maturities of three months or less.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal years beginning after June 15, 1999. MMI has not completed the analysis to determine the full impact, but does not anticipate the adoption of SFAS 133 will have a significant effect on the Company's consolidated operating results or financial position.
In a series of transactions in 1998, MMI acquired for total consideration of $5,800,000, a 49% interest in Marketform Holdings Limited, a London-based underwriting agency specializing in non-U.S. medical malpractice insurance. The purchase price consisted of $4,500,000 in cash and $1,300,000 in short-term notes payable.
On July 23, 1997, MMI acquired a 39% interest in JMA Holdings Limited (JMAHL), the parent company of Jago Managing General Agency Limited, a Lloyd's managing agency, for total consideration of $9,100,000 . The consideration was comprised of $5,900,000 cash and $3,200,000 of short-term notes payable. JMAHL's financial results are included in the Company's consolidated financial statements on the equity basis.
3. REINSURANCE (CONTINUED) MMI evaluates the financial condition of its reinsurers and monitors the geographic spread of risk to minimize the exposure to losses from reinsurer insolvencies. The reinsurers with the largest receivable balance due to MMI are identified as follows (in thousands):
The amortized cost and fair value of investments, which are available for sale, are as follows (in thousands):
The changes in unrealized gains and losses, which are recorded in stockholders' equity as accumulated other comprehensive income, were as follows (in thousands):
Net realized gains (losses) on investments are comprised of the following (in thousands):
The components of other comprehensive income are as follows (in thousands):
5. INCOME TAXES (CONTINUED) Significant components of the provision for income taxes are as follows (in thousands):
A reconciliation of income tax computed at the United States federal statutory tax rate of 35% to income tax expense in the accompanying financial statements is as follows (dollars in thousands):
6. TRUST PREFERRED CAPITAL SECURITIES AND NOTES PAYABLE (CONTINUED) second and fourth quarters of 1997, costs of $700,000, net of taxes of $400,000, that were deferred when paid and amortized over the terms of the notes were expensed and are classified as an extraordinary item in the 1997 financial statements.
In February 1998, MMI obtained a $100,000,000 unsecured bank line of credit. The interest rate called for by this agreement is equal to the Interbank Offer Rate for periods of up to one year plus a margin of 20 to 40 basis points. The bank agreement subjects MMI and its subsidiaries to certain covenants and restrictions with respect to minimum net worth and statutory surplus, maximum debt to total capitalization, and minimum risk-based capital levels. The agreement also restricts MMI's ability to pay stockholders' dividends and repurchase shares in a single year in excess of 50% of the average of the prior three years' net income. The credit agreement expires on February 20, 2003.
Total interest paid in 1998, 1997 and 1996 was $9,800,000, $6,400,000 and $5,900,000, respectively.
The following table presents a reconciliation of beginning and ending property/casualty loss and loss adjustment expense (LAE) reserve balances for the years indicated (in thousands):
The portion of the provision for losses and LAE in the foregoing schedule for 1998 in connection with prior years are a result of loss reserve strengthening of $20,800,000 recorded in the third quarter 1998 relating to three specific areas of operations: long-term care and a disparate group of clinic accounts for the domestic insurance segment and asbestos exposures in the international insurance segment. MMI's loss and LAE reserves and related provision for prior years' losses attributable to health business are immaterial.
The statutory accounting practices prescribed or permitted by regulatory authorities for MMI's insurance subsidiaries differ in some respects from GAAP. Prior to 1997, ACIC discounted loss and LAE reserves for statutory reporting
8. STOCKHOLDERS' EQUITY (CONTINUED) purposes as permitted by regulatory authorities. Reconciliations of statutory-basis capital and surplus and net income of its domestic insurance operations to MMI's GAAP-basis amounts included in the accompanying financial statements are as follows (in thousands):
The above statutory-basis capital and surplus amounts relate to MMI's direct domestic insurance subsidiaries, ACIC and Health Providers Insurance Company (HPIC). The capital and surplus amounts for ACIC include the capital and surplus of American Continental Life Insurance Company (ACLIC), a life insurance company owned by ACIC, in the amount of $16,000,000 at December 31, 1998 and $15,500,000 at December 31, 1997. Statutory net income of ACLIC amounted to $500,000 in 1998, $300,000 in 1997 and $400,000 in 1996.
ACIC and HPIC's combined GAAP-basis net assets amounted to $271,000,000 at December 31, 1998. The excess of these combined net assets over ACIC and HPIC's maximum dividend amount represents restricted consolidated net assets.
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
MMI has an employee stock plan that authorizes the issuance, subject to directors' approval, of nonqualified stock options, incentive stock options and restricted stock, and a nonqualified stock option plan for non-employee directors. In addition, MMI has adopted the Long-Term Incentive Formula Plan (LTIP) of 1997 under which it has issued restricted stock and stock options to non-executives. The directors plan provides for the issuance of 1,375 options annually for each director and 4,125 options to a new director joining MMI's Board of Directors, with exercise prices equal to fair value at the grant date. In addition, performance options for 2,500 shares are granted to each non-employee director on January 1 of each year. All options, other than options issued in replacement of Unionamerica options, have 10-year terms and generally vest and become fully exercisable six months after the date of grant.
10. STOCK OPTION PLANS (CONTINUED) A summary of the MMI stock option activity, and related information for the years ended December 31 follows:
Pro forma information regarding net income and net income per share has been determined as if MMI had accounted for its stock option grants since January 1, 1995 under the plan using the fair value method of SFAS 123, "Accounting for Stock-Based Compensation." For these purposes, the fair value for the stock option grants was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998, 1997 and 1996, respectively: risk-free interest rate of 5%, 6% and 6%, a volatility factor of 33%, 29% and 29%, expected life of the option in years of five, four and four, and an annual dividend yield of 2%, 1% and 1%.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because MMI's employee and director stock options have characteristics significantly different from those of traded options, and because changes in the selected input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee and director stock options.
The pro forma disclosures only include the effect of options granted subsequent to January 1, 1995. Accordingly, the effects of applying the SFAS 123 pro forma disclosures to future periods may not be indicative of future effects.
In 1998, MMI adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." Presentation of MMI's operations has been classified and summarized into three reportable segments: domestic insurance, international insurance, and consulting and fees. Reportable segments are classified by the product lines of insurance and consulting and fees with insurance segments classified along geographic lines of domestic and international. The domestic insurance segment principally includes professional and general liability insurance for hospitals, healthcare systems and healthcare providers. The international insurance segment, principally located in the United Kingdom, includes casualty insurance, principally professional and general liability insurance and property insurance. The consulting and fee segment includes clinical risk management, strategic healthcare, and employee relations consulting, and other services consisting of claims administration, healthcare credential verification, and billing, compliance and reimbursement services. Investment income and expense allocations are based on estimates, and certain assets have been allocated to segments by formulas. Segment revenues and segment income (loss) exclude realized gains and losses on investments. Intersegment revenues are not material. All revenues generated and assets held outside of the United States are disclosed in the international insurance segment. There are no individual customers that account for ten percent or more of MMI's revenues (in thousands).
MMI reclassified certain international insurance revenues, resulting in an increase of $9,260,000 to revenues in the three months ended September 30, 1997. There was no effect on net income.