-----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, S6QHmK2eEoRVs4Q/sBQ1MfI+a3u4IBE3iG7he0QhnA5H36AsoVMArmOwORu24wWS eIF/5V/RCG9/oVYwyU7siQ== 0000950144-97-005969.txt : 19970520 0000950144-97-005969.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950144-97-005969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97608130 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 FORM 10-Q 3/31/97 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 March 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- ---------------- Commission File Number: 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 March 31, 1997, 4,682,284 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 -- March 31, 1997 and December 31, 1996 Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements -- March 31, 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)
March 31 December 31 ASSETS 1997 1996 --------- --------- Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1997 - $40,090; 1996 - $36,938) $ 39,138 $ 36,873 Fixed maturities held-to-maturity, at amortized cost (fair value: 1997 - $2,475; 1996 - $6,022) 2,504 5,938 Short-term investments 10,953 14,061 --------- --------- 52,595 56,872 Cash 1,618 1,776 Accrued investment income 636 803 Premiums receivable 9,719 9,380 Reinsurance balances recoverable on: Paid losses and settlement expenses 3,438 3,676 Reserves for losses and settlement expenses 29,486 28,768 Unearned premiums 3,598 4,068 Deferred policy acquisition costs 4,203 3,992 Equipment, at cost less accumulated depreciation (1997 - $1,769; 1996 - $1,699) 1,357 1,331 Other assets 2,853 2,204 --------- --------- TOTAL ASSETS $ 109,503 $ 112,870 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and settlement expenses $ 54,558 $ 55,300 Unearned premiums 17,979 17,925 Other policyholder funds 6,447 6,580 Amounts payable to reinsurers 1,400 3,089 Accrued expenses 8,024 8,321 --------- --------- TOTAL LIABILITIES 88,408 91,215 Shareholders' equity: Common Stock, par value $1 per share - authorized 1997 and 1996 - 10,000,000 shares; issued and outstanding: 1997 - 4,682,284 and 1996 - 4,678,183 shares 4,684 4,678 Additional paid-in capital 1,502 1,489 Unrealized loss on securities available-for-sale (952) (65) Retained Earnings 15,861 15,553 --------- --------- TOTAL SHAREHOLDERS' EQUITY 21,095 21,655 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 109,503 $ 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)
REVENUES Premiums earned $ 18,857 $ 18,404 Premiums ceded (5,009) (5,646) -------- -------- Net premiums earned 13,848 12,758 Investment income, less investment expenses: (1997 - $110; 1996 - $117) 740 890 Other income 97 61 -------- -------- TOTAL REVENUES 14,685 13,709 LOSSES AND EXPENSES Losses and settlement expenses 14,799 10,326 Losses and settlement expenses ceded (5,274) (2,052) -------- -------- Net losses and settlement expenses 9,525 8,274 Underwriting, acquisition and administrative expenses 4,852 4,764 -------- -------- TOTAL LOSSES AND EXPENSES 14,377 13,038 -------- -------- NET INCOME $ 308 $ 671 ======== ======== PER SHARE DATA: Income per share $ 0.07 $ 0.14 ======== ======== Dividends per share declared by McM $ 0.00 $ 0.00 ======== ========
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) MCM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
Three Months Ended March 31 ------------------------ 1997 1996 ------- ------- OPERATING ACTIVITIES Net income $ 308 $ 671 Adjustments to reconcile net income to net cash used by operating activities: Policy liabilities (821) (4,225) Premiums receivable (339) 191 Accrued investment income 167 (213) Net receivable from reinsurers (1,699) 1,452 Amortization of deferred policy acquisition costs 3,609 2,362 Policy acquisition costs deferred (3,820) (2,553) Other (802) 2,072 ------- ------- CASH USED BY OPERATING ACTIVITIES (3,397) (243) INVESTING ACTIVITIES Securities held-to-maturity: Maturities 3,434 0 Securities available-for-sale: Purchases (3,166) 0 Maturities 0 4,592 Purchases of property and equipment (156) (79) Decrease/(Increase) in short-term investments 3,108 (4,088) ------- ------- CASH PROVIDED BY INVESTING ACTIVITIES 3,220 425 FINANCING ACTIVITIES Employee Stock Purchases 19 0 ------- ------- CASH PROVIDED BY FINANCING ACTIVITIES 19 0 ------- ------- (DECREASE) INCREASE IN CASH ($ 158) $ 182 ======= =======
See notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McM Corporation and Subsidiaries March 31, 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 March 31, 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 4,682,284 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 three months ended March 31, 1997, show net income of $308,000 or $.07 per share, compared to net income of $671,000 or $.14 per share for the first three months of 1996. Consolidated gross revenues for the first three months of 1997 increased 7% to $14,795,000 compared to $13,826,000 for the same period in 1996. Shareholders' equity at March 31, 1997, totalled $21,095,000 or $4.51 per share compared to $21,655,000 or $4.63 per share at December 31, 1996. Consolidated assets totalled $109,503,000 at March 31, 1997, compared to $112,870,000 at December 31, 1996. Total net premium revenues were $13,848,000 for the first three months of 1997 compared to $12,758,000 for the same period in 1996, an increase of approximately 9%. 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. Underwriting results for the first three months of 1997 are in line with management's expectations showing a slight increase in the overall loss and settlement expense ratio being partially offset by a reduction in the overall expense ratio when compared to the same period last year. The overall claims loss and settlement expense ratio for the first three months of 1997 increased 3.9 percentage points to 68.8% compared to 64.9% for the first three months of 1996 while the ratio of underwriting, acquisition and administrative expenses to net earned premium for the current period decreased 2.3 percentage points to 35.0% compared to 37.3% for the same period in 1996. Liquidity and Capital Resources Consolidated gross investment income totalled $850,000 for the first three months of 1997, compared to $1,007,000 for the same period in 1996. This decline in investment income results from a reduction in invested assets attributed to an overall decline in claims related liabilities and balances payable to the Company's reinsurers. Cash used by operating activities totalled $3.4 million for the first three months of 1997 compared to $243,000 during the same period in 1996. The increase in cash used by operations in 1997 is primarily attributed to the payment of deposit premiums to McM's reinsurers which exceeded the actual ceded premium liability. As a result, the Company's net reinsurance balances receivable increased approximately $1.7 million 9 in the first quarter of 1997. McM received these reinsurance balances in April of 1997. Cash and short-term investments held by the Company at March 31, 1997, were approximately $12.6 million compared to $15.8 million at December 31, 1996, and in management's opinion are more than adequate to meet its current needs. 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 and Reports on Form 8-K. a) Exhibit 27 -- Financial Data Schedule (for SEC use only). b) On February 4, 1997, the Company filed a current report on Form 8-K relative to the majority shareholder's grant of an option to purchase its shares. Also contained in the same report was information relative to an agreement between the Company and the option holder as further described in the report. 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 May 14, 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 THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 39,138 2,504 2,475 0 0 0 52,595 1,618 36,522 4,203 109,503 54,558 17,979 0 6,447 0 4,682 0 0 16,411 109,503 13,848 740 0 97 9,525 0 4,852 308 0 308 0 0 0 308 0.07 0.07 26,532 9,424 101 3,689 7,296 25,071 101
-----END PRIVACY-ENHANCED MESSAGE-----