-----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, BlG6Z5WNrM/r3rmkoZj6It6I+KFWtRZQ24yXqBV/6iTMQ4JTQEACSCjnJyq7iDFe XLhEz2j2kdBj/wtgPFOV7g== 0000950144-98-006339.txt : 19980518 0000950144-98-006339.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950144-98-006339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-08678 FILM NUMBER: 98622481 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 3-31-1998 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, 1998 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, 1998, 4,696,651 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, 1998 and December 31, 1997 Consolidated Statements of Income --Three Months Ended March 31, 1998 and 1997 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1998 and 1997 Consolidated Statement of Changes in Shareholders' Equity -- March 31, 1998 Notes to Consolidated Financial Statements -- March 31, 1998 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 1998 1997 --------- --------- Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1998 - $22,750; 1997 - $25,755) $ 22,366 $ 25,284 Fixed maturities held-to-maturity, at amortized cost (fair value: 1998 - $3,234; 1997 - $3,235) 3,135 3,134 Short-term investments 18,582 21,522 --------- --------- 44,083 49,940 Cash 2,609 1,698 Accrued investment income 721 531 Premiums receivable 9,568 8,552 Reinsurance balances recoverable on: Paid losses and settlement expenses 2,585 1,476 Reserves for losses and settlement expenses 29,094 28,124 Unearned premiums 4,789 6,313 Deferred policy acquisition costs 3,224 2,802 Equipment, at cost less accumulated depreciation (1998 - $2,014; 1997 - $1,954) 1,782 1,833 Other assets 2,765 2,871 --------- --------- TOTAL ASSETS $ 101,220 $ 104,140 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and settlement expenses $ 54,966 $ 57,283 Unearned premiums 15,669 15,676 Other policyholder funds 6,338 6,380 Amounts payable to reinsurers 2,699 4,461 Accrued expenses 8,585 7,572 --------- --------- TOTAL LIABILITIES $ 88,257 $ 91,372 Shareholders' equity: Common Stock, par value $1 per share - authorized 1998 and 1997 - 10,000,000 shares; issued and outstanding: 1998 - 4,696,651 and 1997 - 4,695,621 shares $ 4,697 $ 4,696 Additional paid-in capital 1,532 1,530 Accumulated other comprehensive income (384) (471) Retained Earnings 7,118 7,013 --------- --------- TOTAL SHAREHOLDERS' EQUITY 12,963 12,768 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 101,220 $ 104,140 ========= =========
See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars, except per share data)
Three Months Ended March 31 -------------------------- 1998 1997 -------- -------- REVENUES Premiums earned $ 18,113 $ 18,857 Premiums ceded (7,418) (5,009) -------- -------- Net premiums earned 10,695 13,848 Investment income, less investment expenses: (1998 - $91; 1997 - $110) 627 740 Realized investment gains 17 0 Other income 130 97 -------- -------- TOTAL REVENUES 11,469 14,685 LOSSES AND EXPENSES Losses and settlement expenses 11,706 14,799 Losses and settlement expenses ceded (4,732) (5,274) -------- -------- Net losses and settlement expenses 6,974 9,525 Underwriting, acquisition and administrative expenses 4,390 4,852 -------- -------- TOTAL LOSSES AND EXPENSES 11,364 14,377 -------- -------- NET INCOME $ 105 $ 308 ======== ======== PER SHARE DATA: Net income per share $ 0.02 $ 0.07 ======== ======== Net income per share - assuming dilution $ 0.02 $ 0.07 ======== ======== 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 ------------------------ 1998 1997 ------- ------- OPERATING ACTIVITIES Net income $ 105 $ 308 Adjustments to reconcile net income to net cash used by operating activities: Policy liabilities (2,366) (821) Premiums receivable (1,016) (339) Accrued investment income (190) 167 Net receivable from reinsurers (2,317) (1,699) Amortization of deferred policy acquisition costs 1,876 3,609 Policy acquisition costs deferred (2,298) (3,820) Other 1,293 (802) ------- ------- CASH USED BY OPERATING ACTIVITIES (4,913) (3,397) INVESTING ACTIVITIES Securities available-for-sale: Purchases (2,051) (3,166) Sales 5,039 0 Securities held-to-maturity: Maturities 0 3,434 Purchases of property and equipment (107) (156) Decrease/(Increase) in short-term investments 2,940 3,108 ------- ------- CASH PROVIDED BY INVESTING ACTIVITIES 5,821 3,220 FINANCING ACTIVITIES Employee Stock Purchases 3 19 Cash dividends paid 0 0 ------- ------- CASH PROVIDED BY FINANCING ACTIVITIES 3 19 ------- ------- INCREASE (DECREASE) IN CASH $ 911 ($ 158) ======= =======
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
Accumulated Other Comprehensive Retained Common Paid-in Income Earnings Stock Capital Total --------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1998 (471) 7,013 4,696 1,530 12,768 Comprehensive Income: Net income 105 105 Other comprehensive income: Unrealized gains on securities 87 87 ------ Comprehensive income 192 Employee stock purchases 1 2 3 --------------------------------------------------------------------------------- BALANCES AT MARCH 31, 1998 (384) 7,118 4,697 1,532 12,963 =================================================================================
See notes to consolidated financial statements. 7 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, 1997. NOTE B -- NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") for years beginning after December 15, 1997. Comprehensive income is defined as essentially all changes in shareholders' equity exclusive of transactions with owners, such as capital investments, and includes net income (loss) plus changes in certain assets and liabilities which are reported directly in equity. The unrealized gain or loss on available-for-sale securities is the Company's only component of other comprehensive income and is presented on the Consolidated Statement of Changes in Shareholders' Equity. Also during June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" for years beginning after December 15, 1997. The impact of the adoption of this accounting standard is unknown at this time. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132") for years beginning after December 15, 1997. The overall objective of SFAS 132 is to improve and standardize disclosures about pensions and other postretirement benefits and to make the required information easier to prepare and more understandable. Subsequent adoption of this accounting standard will have no impact on the Company's earnings or surplus. 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. 8 NOTE D -- STOCK OPTION PLAN AND EARNINGS PER SHARE Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. The weighted-average number of common shares outstanding was 4,696,479 and 4,678,243 at March 31, 1998, and March 31, 1997, respectively. Diluted earnings per share were computed assuming that the weighted-average number of shares was increased by the conversion of fixed awards (employee stock options). The diluted per share computations reflect a change in the number of common shares outstanding (the "denominator") to include the number of additional shares that would have been outstanding if the potentially dilutive shares had been issued. In each period presented, net income or loss, the numerator, is the same for both basic and dilutive per share computations. The denominator was also unchanged for the periods presented. 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. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS McM Corporation and Subsidiaries Review of Operations Unaudited results for the three months ended March 31, 1998, show net income of $105,000 or $.02 per share, compared to net income of $308,000 or $.07 per share for the first three months of 1997. Consolidated gross revenues for the first three months of 1998 were $11,560,000 compared to $14,795,000 for the same period in 1997. Shareholders' equity at March 31, 1998, totalled $12,963,000 or $2.76 per share compared to $12,768,000 or $2.72 per share at December 31, 1997. Consolidated assets totalled $101,220,000 at March 31, 1998, compared to $104,140,000 at December 31, 1997. Total net premium revenues were $10,695,000 for the first three months of 1998 compared to $13,848,000 for the same period in 1997. This decrease in net premiums is primarily the result of an increase in the level of premiums ceded to the Company's reinsurers on private passenger business and a slight decline in overall premium production. Underwriting results for the first three months of 1998 are in line with management's expectations. An improvement in the overall claims loss and settlement expense ratio was offset by an increase in the ratio of underwriting, acquisition and administrative expenses to net earned premiums. The loss and settlement expense ratio was 65.2% at March 31, 1998, compared to 68.8% at March 31, 1997. The ratio of underwriting, acquisition and administrative expenses was 41.0% and 35.0% at March 31, 1998, and March 31, 1997, respectively. Liquidity and Capital Resources Consolidated gross investment income totalled $718,000 for the first three months of 1998, compared to $850,000 for the same period in 1997. This decline in investment income is primarily the result of a reduction of invested assets, which were $44.1 million at March 31, 1998, compared to $49.9 million at December 31, 1997. The decline in invested balances is primarily attributed to the settlement of claim-related liabilities. Net reserves for losses and loss settlement expenses declined $2.3 million to $55.0 million at March 31, 1998, compared to $57.3 million at December 31, 1997. Cash used by operating activities totalled $4.9 million for the first three months of 1998. Operating cash flows for 1998 were also affected by the settlement of claim-related liabilities discussed above. Additionally, reinsurance balances receivable increased approximately $2.3 million, primarily as a result of overpayment of ceded premium 10 related to the Company's excess of loss treaty. The Company maintains a mix of high-quality investments that provide adequate returns, while limiting credit risk and providing necessary levels of liquidity to meet projected expenditures. At March 31, 1998, approximately 48.0% or $22.4 million of cash and invested assets were comprised of fixed maturities available-for-sale, 7.0% or $3.1 million were recorded as securities held-to-maturity and 45.0% or $21.2 million represented cash and short-term investments. The distribution of the Company's portfolio was similar at December 31, 1997, with 49.0% or $25.3 million invested in fixed maturities available-for-sale, 6.0% or $3.1 million in securities held-to-maturity, and 45.0% or $23.2 million in cash and short-term investments. 11 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. 1) Exhibits 27 Financial Data Schedule (for SEC use only) 2) Reports on Form 8-K Not applicable 12 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 15, 1998 /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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 22,366 3,135 3,234 0 0 0 44,083 2,609 36,468 3,224 101,220 54,966 15,669 0 6,338 0 4,697 0 0 8,266 101,220 10,695 627 17 130 6,974 0 4,390 105 0 105 0 0 0 105 0.02 0.02 29,159 7,475 (501) 3,164 7,097 25,872 (501)
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