-----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, EWTIUREDIwCItwsaQHkmAEZ2HfK41/YsUr5K+xRwbJaeOLcZ1ruyvTJR899tKfB2 8GvyvDnGzROiy/OFys54Ow== 0000950144-97-008814.txt : 19970813 0000950144-97-008814.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950144-97-008814 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCM CORP CENTRAL INDEX KEY: 0000275710 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] 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: 97656447 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 6-30-1997 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 June 30, 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: 0-8678 ------- McM Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) North Carolina 56-1171691 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation of organization) Identification No.) 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 June 30, 1997, 4,687,713 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 -- June 30, 1997 and December 31, 1996 Consolidated Statements of Income -- Six Months Ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 1997 and 1996 Notes to Consolidated Financial Statements -- June 30, 1997 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)
June 30 December 31 1997 1996 --------- --------- ASSETS Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1997 - $39,499; 1996 - $36,938) $ 39,167 $ 36,873 Fixed maturities held-to-maturity, at amortized cost (fair value: 1997 - $4,879; 1996 - $6,022) 4,824 5,938 Short-term investments 12,059 14,061 --------- --------- 56,050 56,872 Cash 1,880 1,776 Accrued investment income 724 803 Premiums receivable 9,521 9,380 Reinsurance balances recoverable on: Paid losses and settlement expenses 1,917 3,676 Reserves for losses and settlement expenses 28,873 28,768 Unearned premiums 3,408 4,068 Deferred policy acquisition costs 4,042 3,992 Equipment, at cost less accumulated depreciation (1997 - $1,832; 1996 - $1,699) 1,455 1,331 Other assets 2,283 2,204 --------- --------- TOTAL ASSETS $ 110,153 $ 112,870 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and settlement expenses $ 53,009 $ 55,300 Unearned premiums 17,128 17,925 Other policyholder funds 6,507 6,580 Amounts payable to reinsurers 3,047 3,089 Accrued expenses 8,704 8,321 --------- --------- TOTAL LIABILITIES 88,395 91,215 Shareholders' equity: Common Stock, par value $1 per share - authorized 1996 and 1995 - 10,000,000 shares; issued and outstanding: 1997 - 4,687,713 shares; 1996 - 4,678,183 shares 4,688 4,678 Additional paid-in capital 1,515 1,489 Unrealized loss on securities available-for-sale (333) (65) Retained Earnings 15,888 15,553 --------- --------- TOTAL SHAREHOLDERS' EQUITY 21,758 21,655 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,153 $ 112,870 ========= =========
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars, except per share data)
Six Months Ended Three Months Ended June 30 June 30 ----------------------------------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- REVENUES Premiums earned $ 38,363 $ 36,863 $ 19,506 $ 18,459 Premiums ceded (10,136) (11,243) (5,127) (5,597) -------- -------- -------- -------- Net premiums earned 28,227 25,620 14,379 12,862 Investment income, less investment expenses: $213 and $236 for the six months ended June 30, 1997 and 1996, and $103 and $119 for the three months ended June 30, 1997 and 1996 1,504 1,607 $ 764 $ 717 Other income 211 167 114 106 -------- -------- -------- -------- TOTAL REVENUES 29,942 27,394 15,257 13,685 LOSSES AND EXPENSES Losses and settlement expenses 28,838 25,629 $ 14,039 $ 15,303 Losses and settlement expenses ceded (9,020) (9,010) (3,746) (6,958) -------- -------- -------- -------- Net losses and settlement expenses 19,818 16,619 10,293 8,345 Underwriting, acquisition and administrative expenses 9,729 9,506 $ 4,877 $ 4,742 Provision for bad debts on liquidated reinsurers 60 0 60 0 -------- -------- -------- -------- TOTAL LOSSES AND EXPENSES 29,607 26,125 15,230 13,087 -------- -------- -------- -------- NET INCOME $ 335 $ 1,269 $ 27 $ 598 ======== ======== ======== ======== PER SHARE DATA: Income per share $ 0.07 $ 0.27 $ 0.01 $ 0.13 ======== ======== ======== ======== Dividends per share declared by McM $ 0.00 $ 0.02 $ 0.00 $ 0.02 ======== ======== ======== ========
See notes to consolidated financial statements 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
Six Months Ended June 30 --------------------- 1997 1996 ------- ------- OPERATING ACTIVITIES Net income $ 335 $ 1,269 Adjustments to reconcile net income to net cash used by operating activities: Policy liabilities (3,161) (5,058) Premiums receivable (141) (449) Accrued investment income 79 35 Net receivable from reinsurers 2,272 (1,749) Amortization of deferred policy acquisition costs 6,230 4,334 Policy acquisition costs deferred (6,280) (4,729) Other 587 1,868 ------- ------- CASH USED BY OPERATING ACTIVITIES (79) (4,479) INVESTING ACTIVITIES Securities available-for-sale: Purchases (2,886) 0 Sales 285 0 Maturities 50 4,730 Securities held-to-maturity: Maturities 1,077 7,755 Purchases of property and equipment (381) (238) Decrease/(Increase) in short-term investments 2,002 (8,771) ------- ------- CASH PROVIDED BY INVESTING ACTIVITIES 147 3,476 FINANCING ACTIVITIES Employee Stock Purchases 36 0 Cash dividends paid 0 (93) ------- ------- INCREASE (DECREASE) IN CASH $ 104 ($1,096) ======= =======
See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McM Corporation and Subsidiaries June 30, 1997 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, 1996. NOTE B -- NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which is required to be adopted on December 31, 1997. Upon adoption, the Company will be required to change the method used currently to compute earnings per share and to restate all prior periods presented. Under the new requirements for calculating basic or primary earnings per share the dilutive effect of common stock equivalents will be excluded. Currently, shares issuable under the Company's employee stock option and other stock based plans are excluded from the weighted average number of shares used in the Company's computation of primary earnings per share on the assumption that their effect is not dilutive. Consequently, adoption of FAS 128 will have no impact on the Company's computation of primary earnings per share for the quarters ended June 30, 1997 and 1996. The impact of FAS 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. NOTE C -- INCOME TAXES No provision for income taxes has been recognized by the Company because of the utilization of tax return net operating loss carryforwards. 7 NOTE D -- STOCK OPTION PLAN AND EARNINGS PER SHARE Earnings per common share are based on 4,687,713 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. 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 six months ended June 30, 1997, reflect net income of $335,000 or $.07 per share, compared to net income of $1,269,000 or $.27 per share for the first six months of 1996. Consolidated gross revenues for the first six months of 1997 increased 9% to $30,155,000 compared to $27,630,000 for the same period in 1996. Total net premium revenues were $28,227,000 for the first six months of 1997 compared to $25,620,000 for the same period in 1996, an increase of approximately 10%. This increase in net premiums is primarily the result of growth in direct private passenger automobile premium writings and a reduction in the Company's private passenger quota share reinsurance program. The overall claims and loss settlement expense ratio increased to 70.2% for the first six months of 1997 compared to 64.9% for the same period last year. The increase in the loss ratio, which includes approximately $500,000 of reserve development on prior years' claims, was partially offset by improved operating efficiency as reflected in the reduction in the Company's ratio of underwriting, acquisition and administrative expenses to net earned premium. This ratio declined 2.6 percentage points to 34.5% for the first six months of 1997 from 37.1% for the same period last year. Shareholders' equity at June 30, 1997, totalled $21,758,000 or $4.64 per share compared to $21,655,000 or $4.63 per share at December 31, 1996. Consolidated assets totalled $110,153,000 at June 30, 1997, compared to $112,870,000 at December 31, 1996. Liquidity and Capital Resources Consolidated gross investment income totalled $1,717,000 for the first six months of 1997, compared to $1,843,000 for the same period in 1996. This decline in investment income is primarily the result of a reduction of invested assets, which were $56.1 million at June 30, 1997, compared to $58.6 million at June 30, 1996. The decline in invested balances was attributed to the settlement of claims liabilities. Overall, reserves for claims losses and loss settlement expenses decreased $2.3 million to $53.0 million at June 30, 1997, compared to $55.3 million at December 31, 1996. Cash used by operating activities totalled $79,000 for the first six months of 1997, compared to $4.5 million during the same period in 1996. This improvement in operating cashflows is due primarily to a 9 decline in the level of claims severity experienced by the Company during 1997, resulting in a substantial reduction in receivable balances related to reinsured paid losses and loss adjustment expenses. Cash and short-term investments held by the Company at June 30, 1997 were approximately $13.9 million, compared to $15.8 million at December 31, 1996. The Company maintains a portfolio of cash and short-term investments which it believes is adequate to meet projected expenditures. 10 McM CORPORATION AND SUBSIDIARIES PART II Item 1. Legal Proceedings. 1) Reference is hereby made to Note E of the Consolidated Financial Statements provided in Part I, Item 1 of this Form 10-Q. Items 2 - 5. Nothing to report. Item 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) /s/ STEPHEN L. STEPHANO -------------------------- Stephen L. Stephano President and Chief Operating Officer August 8, 1997 /s/ KEVIN J. HAMM -------------------------- Kevin J. Hamm Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MCM CORPORATION FOR THE TWELVE MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 39,167 4,824 4,879 0 0 0 56,050 1,880 34,198 4,042 110,153 53,009 17,128 0 6,507 0 0 0 4,688 17,070 110,153 28,227 1,504 0 211 19,818 0 9,729 335 0 335 0 0 0 335 0.07 0.07 26,532 18,996 823 9,948 12,267 24,136 823
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