-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKEXPXprcY7iWYuxQxlv42hN9yR2zvF1wqgeQp4HeV+dhLJEUuhXjZLNvaUb8908 4214LBAAd368uasM8lMDpg== 0000950144-95-003146.txt : 19951202 0000950144-95-003146.hdr.sgml : 19951202 ACCESSION NUMBER: 0000950144-95-003146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCM CORP CENTRAL INDEX KEY: 0000275710 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 561171691 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08678 FILM NUMBER: 95590626 BUSINESS ADDRESS: STREET 1: 702 OBERLIN RD STREET 2: BOX 12317 CITY: RALEIGH STATE: NC ZIP: 27605 BUSINESS PHONE: 9198331600 MAIL ADDRESS: STREET 1: 702 OBERLIN ROAD STREET 2: P O BOX 12317 CITY: RALEIGH STATE: NC ZIP: 27605 10-Q 1 MCM CORPORATION 10-Q 9/30/95 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 --------------------- 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: 0-8678 --------------- McM Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) North Carolina 56-1171691 - - ------------------------------- -------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) Box 12317, 702 Oberlin Road, Raleigh, North Carolina 27605 - - ------------------------------------------------------ --------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (919) 833-1600 ---------------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At September 30, 1995, 4,675,038 shares of Common Stock of the registrant were outstanding. 2 INDEX McM CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994 Consolidated Statements of Income -- Nine Months Ended September 30, 1995 and 1994 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1995 and 1994 Notes to Consolidated Financial Statements -- September 30, 1995 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Default Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 3 CONSOLIDATED BALANCE SHEETS (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
September 30, December 31, ASSETS 1995 1994 ------------- ------------ Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1995 - $9,147; 1994 - $10,291) $ 9,506 $ 10,133 Fixed maturities held-to-maturity, at amortized cost (fair value: 1995 - $42,026; 1994 - $37,370) 42,069 39,352 Short-term investments 7,850 17,678 -------- -------- 59,425 67,163 Cash 1,310 1,497 Accrued investment income 1,133 1,016 Premiums receivable 12,581 8,792 Reinsurance balances recoverable on: Paid losses and settlement expenses 8,792 6,134 Reserves for losses and settlement expenses 36,671 42,471 Unearned premiums 5,481 3,482 Deferred policy acquisition costs 3,730 3,235 Equipment, at cost less accumulated depreciation (1995 - $1,368; 1994 - $1,166) 985 1,187 Other assets 2,322 2,688 -------- -------- TOTAL ASSETS $132,430 $137,665 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Reserves for losses and settlement expenses $ 68,509 $ 80,886 Unearned premiums 17,994 14,811 Other policyholder funds 7,363 7,397 Amounts payable to reinsurers 1,117 3,105 Accrued expenses 14,537 11,059 -------- -------- TOTAL LIABILITIES 109,520 117,258 Shareholders' equity: Common Stock, par value $1 per share-authorized 1995 - 10,000,000 shares ; 1994 - 5,000,000 shares; issued and outstanding 1995 and 1994 - 4,675,038 4,675 4,675 Additional paid-in capital 1,477 1,477 Unrealized appreciation (depreciation) on securities available-for-sale 359 (158) Retained earnings 16,399 14,413 -------- -------- TOTAL SHAREHOLDERS' EQUITY 22,910 20,407 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $132,430 $137,665 ======== ========
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars, except per share data)
Nine Months Ended Three Months Ended September 30 September 30 ----------------- ------------------- 1995 1994 1995 1994 ----------------- ------------------- REVENUES Premiums earned $ 51,331 $49,783 $17,904 $16,625 Premiums ceded (18,048) (19,432) (5,989) (6,423) ----------------- ---------------- Net premiums earned 33,283 30,351 11,915 10,202 Investment income, less investment expenses: $361 and $336 for the nine months ended September 30, 1995 and 1994 and $118 and $121 for the three months ended September 30, 1995 and 1994 2,644 2,770 857 890 Realized investment gains 0 122 0 103 Other income 133 349 54 27 ----------------- ---------------- TOTAL REVENUES 36,060 33,592 12,826 11,222 LOSSES AND EXPENSES Losses and settlement expenses 34,534 37,475 14,607 12,545 Losses and settlement expenses ceded (12,562) (16,401) (6,758) (5,291) ----------------- ---------------- Net losses and settlement expenses 21,972 21,074 7,849 7,254 Underwriting, acquisition and administrative expenses 12,102 11,362 4,125 3,656 ----------------- ---------------- TOTAL LOSSES AND EXPENSES 34,074 32,436 11,974 10,910 ----------------- ---------------- NET INCOME $ 1,986 $ 1,156 $ 852 $ 312 ================= ================ PER SHARE DATA: Income per share $ 0.42 $ 0.25 $ 0.18 $ 0.07 ================= ================ Dividends per share declared by McM $ 0.00 $ 0.00 $ 0.00 $ 0.00 ================= ================
See notes to consolidated financial statements 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) MCM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
Nine Months Ended September 30, -------------------- 1995 1994 -------- --------- OPERATING ACTIVITIES Net income $1,986 $ 1,156 Adjustments to reconcile net income to net cash used by operating activities: Policy liabilities (9,228) (11,916) Premiums receivable (3,789) (870) Accrued investment income (117) (327) Net receivable from reinsurers (845) (602) Amortization of deferred policy acquisition costs 4,995 5,463 Policy acquisition costs deferred (5,490) (5,176) Other 4,371 (2,014) ------ ------- CASH USED BY OPERATING ACTIVITIES (8,117) (14,286) INVESTING ACTIVITIES Securities available-for-sale: Purchases 0 (3,639) Sales 0 3,987 Maturities 1,177 2,260 Securities held-to-maturity: Purchases (2,984) (10,291) Maturities 120 3,000 Purchases of property and equipment (211) (84) Decrease in short-term investments 9,828 19,628 ------ ------- CASH PROVIDED BY INVESTING ACTIVITIES 7,930 14,861 ------ ------- (DECREASE)/INCREASE IN CASH ($187) $ 575 ====== =======
See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McM Corporation and Subsidiaries September 30, 1995 Note A -- BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The statements include all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results. For further information regarding the significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in McM's annual report on Form 10-K for the year ended December 31, 1994. NOTE B -- INCOME TAXES The income tax provision is based upon the estimated effective tax rate for the year. This rate varies from the normal federal income tax rate of thirty-four percent (34%) because of the utilization of tax return net operating loss carryforwards. NOTE C -- SHAREHOLDERS' EQUITY On May 11, 1995, the shareholders of McM approved an amendment to the Articles of Incorporation of McM increasing the number of authorized Common Shares from 5,000,000 to 10,000,000 and authorized the creation of a new class of 1,000,000 Preferred Shares. The amendment vests in the Board of Directors the authority to issue, at such time as the Board deems appropriate, the 5,000,000 newly authorized Common Shares and to fix by resolution any designations, preferences, relative rights and limitations of the Preferred Shares. At September 30, 1995, and December 31, 1994, there were 4,675,038 Common Shares issued and outstanding. No Preferred Shares had been defined or issued at September 30, 1995. NOTE D -- STOCK OPTION PLAN AND EARNINGS PER SHARE Earnings per common share are based on 4,675,038 shares of Common Stock issued and outstanding and exclude the effect of common stock equivalents. Stock options had no effect on the computation of earnings per share. 7 NOTE E -- CONTINGENCIES Litigation: In the normal course of operations, certain subsidiaries of the Company have been named as parties to various pending and threatened litigation. While the outcome of some of these matters cannot be estimated with certainty, it is the opinion of management, after consultation with legal counsel, that the resolution of this litigation will not have a material adverse effect on the Company's consolidated financial position. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS McM Corporation and Subsidiaries Review of Operations Unaudited results for the nine months ended September 30, 1995, show net income of $1,986,000 or $.42 per share compared to net income of $1,156,000 or $.25 per share for the same period in 1994. Consolidated gross revenues for the first nine months of 1995 were $36,421,000 compared to $33,928,000 for the same period of 1994. Shareholders' equity at September 30, 1995, totalled $22,910,000 or $4.90 per share compared to $20,407,000 or $4.37 per share at December 31, 1994. Consolidated assets totalled $132,430,000 at September 30, 1995, compared to $137,665,000 at December 31, 1994. Total net premium revenues were $33,283,000 for the first nine months of 1995 compared to $30,351,000 for the same period in 1994, an overall increase of approximately 10%. This increase in net premiums is the result of management's plan for continuing growth in premium writings that was established in the fourth quarter of 1994. The overall loss and settlement expense ratio for the first nine months of 1995 was 3.4 percentage points less than that of the same period in 1994. Through September 30, 1995, the overall loss and settlement expense ratios were 66% and 69.4% for the first nine months of 1995 and 1994, respectively. Favorable loss development on reserves of prior accident years, related primarily to the Company's assumed and discontinued business, has contributed to this improvement. Favorable underwriting results of ongoing operations for the first nine months of 1995 continued to reflect the trend established in 1994. The loss and settlement expense ratio of 66.9% for ongoing lines of business improved 1.4 percentage points from the 68.3% ratio experienced for the same period last year. The ratio of underwriting, acquisition and administrative expenses to earned premium ("the expense ratio") for the first nine months of 1995 was 36.4% compared to 37.4% for the same period in 1994. This decrease in the expense ratio reflects management's continuing effort to enhance productivity and efficiency in the Company's operations through increased premium production and cost control. Included in consolidated net income for the first nine months of 1995 as a reduction of earned premium is a $500,000 charge relating to the settlement of the Company's California Proposition 103 liability. This settlement was finalized with the California Department of Insurance on July 21, 1995, and includes interest. Offsetting this charge and also included in the first nine months' results for 1995 is a $539,000 favorable arbitration settlement related to the Company's discontinued property and casualty programs. 9 Liquidity and Capital Resources Consolidated gross investment income totalled $3,005,000 for the first nine months of 1995 compared to $3,106,000 for the same period last year. Investment earnings declined throughout 1994 as a result of a reduction in invested assets and lower investment yields. Contributing to the overall decrease in invested assets during 1993 and 1994 were planned reductions in net written premiums, the Company's primary source of short and long-term liquidity, and settlement of claims related to discontinued property and casualty insurance programs. The reduction in net written premium during 1993 and 1994 is a result of management's successful strategy to reduce premium writings in unprofitable markets and to reduce the Company's net writings to surplus ratio. As mentioned previously, the Company is now experiencing planned moderate growth in premium writings. Investment earnings have also improved in the first nine months of 1995 as a result of overall higher investment yields and improved operating cashflows. Invested assets totalled $59.4 million at September 30, 1995, compared to $67.2 million at December 31, 1994. Claim liabilities decreased $12.4 million during the first nine months of 1995 and total liabilities decreased $7.7 million in the same period. Cash used by operating activities was $8.1 million for the first nine months of 1995 compared to $14.3 million during the same period last year. The cash used by operating activities reflects an overall decrease in liabilities of $7.7 million for the first nine months of 1995. Cash and short-term investments held by the Company at September 30, 1995, were approximately $9.2 million as compared to $19.2 million at December 31, 1994. The Board of Directors did not declare a dividend to shareholders during the first nine months of 1995. The Board will carefully consider the Company's earnings, capital requirements, financial condition and other relevant factors when determining whether to declare dividends in the future. 10 McM CORPORATION AND SUBSIDIARIES PART II Item 1. Legal Proceedings. 1) Reference is hereby made to the Note D of the Consolidated Financial Statements provided in Part I, Item 1 of this Form 10-Q. Items 2 - 6. Exhibits 27 - Financial Data Schedule (for SEC use only). 11 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McM Corporation ------------------------- (Registrant) GEORGE E. KING ------------------------- George E. King President and Chief Executive Officer November 9, 1995 KEVIN J. HAMM ------------------------- Kevin J. Hamm Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF McM CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 9,506 42,069 42,026 0 0 0 59,425 1,310 50,944 3,730 132,430 68,509 17,994 0 7,363 0 4,675 0 0 18,235 132,430 33,283 2,644 0 133 21,972 0 12,102 1,986 0 1,986 0 0 0 1,986 0.42 0.42 38,415 11,117 20,721 11,018 17,530 31,837 (164)
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