-----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, KtR0wvIeBBQYWLM9YOLEEyBBxDakolsQaMNxsK64Q4oWElzZ96vlVgjx4NE0sUuG wbJJ9PEXw664gKGFQuZHDQ== 0000950144-99-006344.txt : 19990518 0000950144-99-006344.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950144-99-006344 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99627688 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 3/31/1999 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, 1999 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 March 31, 1999, 4,706,388 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, 1999 and December 31, 1998 Consolidated Statements of Income --Three Months Ended March 31, 1999 and 1998 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1999 and 1998 Consolidated Statement of Changes in Shareholders' Equity -- March 31, 1999 Notes to Consolidated Financial Statements -- March 31, 1999 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 1999 1998 ---------- ----------- Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1999 - $24,448; 1998 - $25,152) $ 24,681 $ 25,660 Equity securities (cost: 1999 - $19,336, 1998 - $18,093) 23,825 21,969 Fixed maturities held-to-maturity, at amortized cost (fair value: 1999 - $3,140; 1998 - $3,275) 3,045 3,138 Short-term investments 8,213 11,572 --------- --------- 59,764 62,339 Cash 5,528 8,120 Accrued investment income 587 579 Premiums receivable 7,970 6,660 Reinsurance balances recoverable on: Paid losses and settlement expenses 4,536 3,090 Reserves for losses and settlement expenses 26,423 27,539 Unearned premiums 2,500 2,847 Deferred policy acquisition costs 2,720 2,407 Equipment, at cost less accumulated depreciation (1999 - $2,204; 1998 - $2,153) 1,622 1,639 Other assets 5,044 2,515 --------- --------- TOTAL ASSETS $ 116,694 $ 117,735 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and settlement expenses $ 57,621 $ 60,844 Unearned premiums 11,443 10,793 Other policyholder funds 5,789 5,881 Amounts payable to reinsurers 3,411 3,233 Accrued expenses 9,122 8,527 --------- --------- TOTAL LIABILITIES 87,386 89,278 Redeemable Preferred Stock - Series B PIK 26,468 26,000 Shareholders' equity: Common Stock, par value $1 per share - authorized 1999 and 1998 - 10,000,000 shares; issued and outstanding: 1999 and 1998 - 4,706,388 shares 4,706 4,706 Additional paid-in capital 1,540 1,540 Accumulated other comprehensive income 4,722 4,384 Retained deficit (8,128) (8,173) --------- --------- TOTAL SHAREHOLDERS' EQUITY 2,840 2,457 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 116,694 $ 117,735 ========= =========
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 ------------------------ 1999 1998 -------- -------- REVENUES Premiums earned $ 14,361 $ 18,113 Premiums ceded (4,010) (7,418) -------- -------- Net premiums earned 10,351 10,695 Investment income, less investment expenses: (1999 - $109; 1998 - $91) 559 627 Realized investment gains 1,149 17 Other income 105 130 -------- -------- TOTAL REVENUES 12,164 11,469 LOSSES AND EXPENSES Losses and settlement expenses 9,629 11,706 Losses and settlement expenses ceded (2,051) (4,732) -------- -------- Net losses and settlement expenses 7,578 6,974 Underwriting, acquisition and administrative expenses 4,072 4,390 -------- -------- TOTAL LOSSES AND EXPENSES 11,650 11,364 -------- -------- NET INCOME $ 514 $ 105 ======== ======== PER SHARE DATA: Net income per share - basic $ 0.11 $ 0.02 ======== ======== Net income per share - assuming dilution $ 0.11 $ 0.02 ======== ======== 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 ---------------------- 1999 1998 ------- ------- OPERATING ACTIVITIES Net income $ 733 $ 105 Adjustments to reconcile net income to net cash used by operating activities: Policy liabilities (2,665) (2,366) Premiums receivable (1,310) (1,016) Accrued investment income (8) (190) Net receivable from reinsurers 195 (2,317) Amortization of deferred policy acquisition costs 2,471 1,876 Policy acquisition costs deferred (2,784) (2,298) Other (2,496) 1,293 ------- ------- CASH USED BY OPERATING ACTIVITIES (5,864) (4,913) INVESTING ACTIVITIES Securities available-for-sale: Purchases (4,700) (2,051) Sales 5,072 5,039 Securities held-to-maturity: Maturities 95 0 Purchases of property and equipment (554) (107) Decrease in short-term investments 3,359 2,940 ------- ------- CASH PROVIDED BY INVESTING ACTIVITIES 3,272 5,821 FINANCING ACTIVITIES Employee Stock Purchases 0 3 Cash dividends paid 0 0 ------- ------- CASH PROVIDED BY FINANCING ACTIVITIES 0 3 ------- ------- INCREASE (DECREASE) IN CASH ($2,592) $ 911 ======= =======
See notes to consolidated financial statements. 6 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) McM CORPORATION AND SUBSIDIARIES (Thousands of dollars)
Accumulated Other Common Paid-in Comprehensive Retained Stock Capital Income Deficit Total ---------------------------------------------------------------------------------- BALANCES AT JANUARY 1, 1999 $4,706 $1,540 $4,384 ($8,173) $2,457 Activity for 1999: Comprehensive Income: Net income 733 514 Change in unrealized gains on securities (195) 338 ----- Comprehensive income 852 Dividends on PIK Preferred Stock (469) (469) ---------------------------------------------------------------------------------- BALANCES AT MARCH 31, 1999 $4,706 $1,540 $4,189 ($7,909) $2,840 ==================================================================================
See notes to consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McM Corporation and Subsidiaries March 31, 1999 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, 1998. NOTE B -- INCOME TAXES No provision for income taxes has been recognized by the Company because of the utilization of net losses or tax return net operating loss carryforwards. NOTE C -- 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 4,706,388 and 4,696,479 at March 31, 1999, and March 31, 1998, 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 8 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 D -- 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. NOTE E -- SEGMENT INFORMATION The major focus of McM Corporation and its property and casualty insurance subsidiaries is providing commercial insurance protection to the trucking industry including cargo, liability and physical damage coverages and the personal automobile market providing liability and physical damage coverages. The Company , therefore, has two segments: commercial automobile and private passenger automobile. The segments are each managed separately because their insurance products are tailored to meet the specific needs of their respective clientele. The Company does not account for assets on a segment basis and does not prepare segment information as to operations by segment until after the filing of the quarterly statements. Revenues of each segment as of March 31, 1999 and 1998 are as follows:
March 31 1999 1998 ------------------------ Net premiums earned: Private passenger $ 1,520 $ 774 Commercial auto 8,831 9,921 ------- ------- Total $10,351 $10,695
9 MANAGEMENT'S DISCUSSION AND ANALYSIS McM Corporation and Subsidiaries Review of Operations Unaudited results for the three months ended March 31, 1999, reflect net income of $514,000 or basic net income of $.11 per share, compared to net income of $105,000 or basic net income of $.02 per share for the first three months of 1998. Consolidated gross revenues for the first three months of 1999 totalled $12,273,000 compared to $11,560,000 for the same period in 1998. Included in gross revenues for the first quarter of 1999 are realized investment gains of approximately $1.1 million compared to $17,000 for the same period last year. Shareholders' equity at March 31, 1999, totalled $2,840,000 or $.60 per share compared to $2,457,000 or $.52 per share at December 31, 1998. Consolidated assets totalled $116,694,000 at March 31, 1999, compared to $117,735,000 at December 31, 1998. Total net premium revenues were basically unchanged for the first three months of 1999 totalling $10,351,000 compared to $10,695,000 for the same period in 1998. This flat trend in net premiums continues to reflect highly competitive and price sensitive market conditions in both the commercial and private passenger auto market sectors experienced by the insurance industry for the last several years. Consolidated underwriting results for 1999 are in line with management's expectations and reflect the Company's decision to significantly strengthen overall loss reserves and loss ratios at year end 1998. The claims and loss settlement expense ratio (the "loss ratio") showed an 8.0 percentage point increase when compared to the same period in 1998. The loss ratio was 73.2% at March 31, 1999, compared to 65.2% at March 31, 1998. Development of prior year's loss reserves was approximately $317,000 all of which was related to the Company's participation in involuntary pools and other residual market mechanisms in which McM's property and casualty subsidiaries are required to participate by the various states in which they write business. The ratio of underwriting, acquisition and administrative expenses (including the provision for bad debts of liquidated reinsurers) decreased approximately 1.7 percentage points to 39.3% at March 31, 1999, compared to 41.0% at March 31, 1998. Year 2000 The Company completed an assessment of its computerized information systems to determine the impact of the year 2000 on the ability of those systems to accurately process information that may be date sensitive. It was found that the Company's specialized monthly commercial auto direct bill program would have to be modified to function properly with 10 respect to dates in the year 2000 and thereafter. This modification was successfully completed in 1997 at an approximate cost of $96,000. Other Company computer applications, most of which are licensed from third party program vendors, were determined to be year 2000 compliant or, based upon communication with these vendors, would be compliant before any anticipated impact resulting from the year 2000. The year 2000 project, as it relates to all of the Company's main computer platforms, was completed and fully operational on July 1, 1998. The Company continues to replace peripheral hardware and software such as personal computers, telecommunications and spreadsheet software with Year 2000 compliant products. The Company remains on target to correct all remaining Year 2000 related problem products well ahead of December 31, 1999. The Company is devoting all resources necessary to resolve any remaining Year 2000 issues in a timely manner and believes the Year 2000 will pose no significant threat to its operations. Liquidity and Capital Resources Consolidated gross investment income excluding realized investment gains showed a modest decline for the first three months of 1999 totalling $668,000 compared to $718,000 for the same period in 1998. This decline in investment income reflects a $2.6 million decline in invested assets to $59.8 million at March 31, 1999, compared to $62.3 million at December 31, 1998. The decline in invested assets is primarily attributable to reduced premium writings and the settlement of claims. Cash used by operating activities totalled $5.9 million for the first three months of 1999 compared to $4.9 million for the same period of 1998. Operating cash outflows for 1999 continue to be affected by increased settlement of claims related liabilities. Reserves for losses and settlement expenses declined approximately $3.2 million during the quarter to $57.6 million compared to $60.8 million at December 31, 1998. 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. Cash and invested assets totalled $65.3 million and $70.5 million at March 31, 1999, and December 31, 1998, respectively. 11 McM CORPORATION AND SUBSIDIARIES PART II Item 1. Legal Proceedings. 1) Reference is hereby made to Note D of the Consolidated Financial Statements provided in Part I, Item 1 of this Form 10-Q. Items 2 - 6. Nothing to report. EX-27 Financial Data Schedule (for SEC use only) 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 17, 1999 /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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 24,681 3,045 3,140 23,825 0 0 59,764 5,528 33,459 2,500 116,694 57,621 11,443 0 5,789 0 0 26,468 4,706 (1,866) 116,694 10,351 559 1,149 105 7,578 0 4,072 514 0 514 0 0 0 514 0.11 0.11 33,305 7,262 316 2,878 6,807 31,198 316
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