-----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, ErCN1CC0UE9GV4K3F3eEKZon0vasEhKVedFfJBQL47kBJNSzDcgY4Ulb/+oDauio qnNDj7D0DFzIG3PZIbw+LA== 0000950144-99-013173.txt : 19991117 0000950144-99-013173.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950144-99-013173 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753423 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 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, 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 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 September 30, 1999, 4,700,910 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, 1999 and December 31, 1998 Consolidated Statements of Income --Nine and Three Months Ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1999 and 1998 Consolidated Statement of Changes in Shareholders' Equity -- September 30, 1999 Notes to Consolidated Financial Statements -- September 30, 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)
SEPTEMBER 30 December 31 ASSETS 1999 1998 --------- --------- Invested Assets: Securities available-for-sale, at fair value: Fixed maturities (amortized cost: 1999 - $23,874; 1998 - $25,152) $ 23,495 $ 25,660 Equity securities (cost: 1999 - $28,361; 1998 - $18,093) 34,419 21,969 Fixed maturities held-to-maturity, at amortized cost (fair value: 1999 - $3,652; 1998 - $3,275) 3,582 3,138 Short-term investments 8,731 11,572 --------- --------- 70,227 62,339 Cash 9,377 8,120 Accrued investment income 639 579 Premiums receivable 8,149 6,660 Reinsurance balances recoverable on: Paid losses and settlement expenses 2,174 3,090 Reserves for losses and settlement expenses 24,415 27,539 Unearned premiums 2,394 2,847 Deferred policy acquisition costs 2,868 2,407 Equipment, at cost less accumulated depreciation (1999 - $2,600; 1998 - $2,153) 1,983 1,639 Other assets 2,492 2,515 --------- --------- TOTAL ASSETS $ 124,718 $ 117,735 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Reserves for losses and settlement expenses $ 53,161 $ 60,844 Unearned premiums 12,071 10,793 Other policyholder funds 6,229 5,881 Amounts payable to reinsurers 3,106 3,233 Accrued expenses 19,356 8,527 --------- --------- TOTAL LIABILITIES 93,923 89,278 Redeemable Preferred Stock - Series B PIK 28,066 26,000 Shareholders' equity: Common Stock, par value $1 per share - authorized 1999 and 1998 - 10,000,000 shares; issued and outstanding: 1999 - 4,700,910 and 1998 - 4,706,388 shares 4,701 4,706 Additional paid-in capital 1,525 1,540 Accumulated other comprehensive income 5,679 4,384 Retained deficit (9,176) (8,173) --------- --------- TOTAL SHAREHOLDERS' EQUITY 2,729 2,457 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 124,718 $ 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)
Nine Months Ended Three Months Ended September 30 September 30 ----------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- REVENUES Premiums earned $ 43,106 $ 52,184 $ 14,535 $ 16,055 Premiums ceded (11,346) (15,419) (3,631) (4,979) -------- -------- -------- -------- Net premiums earned 31,760 36,765 10,904 11,076 Investment income, less investment expenses: ($331 and $267 for the nine months ended September 30, 1999 and 1998, and $113 and $89 for the three months ended September 30, 1999 and 1998) 1,633 1,820 469 586 Realized investment gains 2,641 17 1,063 0 Other income 293 326 91 86 -------- -------- -------- -------- TOTAL REVENUES 36,327 38,928 12,527 11,748 LOSSES AND EXPENSES Losses and settlement expenses 32,321 42,577 11,141 14,352 Losses and settlement expenses ceded (8,593) (16,034) (2,814) (4,952) -------- -------- -------- -------- Net losses and settlement expenses 23,728 26,543 8,327 9,400 Underwriting, acquisition and administrative expenses 11,550 14,557 3,772 4,527 Provision for bad debts on liquidated reinsurers (16) 595 24 421 -------- -------- -------- -------- TOTAL LOSSES AND EXPENSES 35,262 41,695 12,123 14,348 -------- -------- -------- -------- NET INCOME (LOSS) $ 1,065 ($ 2,767) $ 404 ($ 2,600) ======== ======== ======== ======== PER SHARE DATA: Net income (loss) per share $ 0.23 ($ 0.59) $ 0.09 ($ 0.55) ======== ======== ======== ======== Net income (loss) per share - assuming dilution $ 0.23 ($ 0.59) $ 0.09 ($ 0.55) ======== ======== ======== ======== 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 ------------------------- 1999 1998 -------- -------- OPERATING ACTIVITIES Net income (loss) $ 1,065 ($ 2,767) Adjustments to reconcile net income (loss) to net cash used by operating activities: Policy liabilities (6,057) (4,205) Premiums receivable (1,489) (138) Accrued investment income (60) (290) Net receivable from reinsurers 4,365 (3,578) Amortization of deferred policy acquisition costs 7,661 8,998 Policy acquisition costs deferred (8,122) (8,894) Other 9,927 1,535 -------- -------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES 7,290 (9,339) INVESTING ACTIVITIES Securities available-for-sale: Purchases (18,986) (12,593) Sales 9,222 5,683 Maturities 325 86 Securities held-to-maturity: Maturities 1,800 0 Purchases of property and equipment (1,215) (356) Decrease in short-term investments 2,841 12,950 -------- -------- CASH (USED) PROVIDED BY INVESTING ACTIVITIES (6,013) 5,770 FINANCING ACTIVITIES Employee stock purchases 0 21 Certificates of contribution 0 5,000 Purchase of outstanding common shares (20) 0 -------- -------- CASH (USED) PROVIDED BY FINANCING ACTIVITIES (20) 5,021 -------- -------- INCREASE IN CASH $ 1,257 $ 1,452 ======== ========
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 1,065 1,065 Change in unrealized gains on securities 1,295 1,295 --------- Comprehensive income 2,360 Repurchase of common stock (5) (15) (20) Dividends on PIK Preferred Stock (2,068) (2,068) ----------------------------------------------------------------------------- BALANCES AT SEPTEMBER 30, 1999 $4,701 $1,525 $5,679 ($9,176) $2,729 =============================================================================
See notes to consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS McM Corporation and Subsidiaries September 30, 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 4,700,910 and 4,701,556 at September 30, 1999 and 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 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 8 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 for the nine months ended September 30, 1999 and 1998 are as follows: September 30 1999 1998 ------------------------ Net premiums earned: Private passenger $ 4,745 $ 4,616 Commercial auto 27,015 32,149 ------- -------- Total $31,760 $36,765 9 MANAGEMENT'S DISCUSSION AND ANALYSIS McM Corporation and Subsidiaries Review of Operations Unaudited results for the nine months ended September 30, 1999, reflect net income of $1,065,000 or basic net income of $.23 per share, compared to a net loss of $2,767,000 or a basic net loss of $.59 per share for the first nine months of 1998. Consolidated gross revenues for the first nine months of 1999 totalled $36,658,000 compared to $39,195,000 for the same period in 1998. Realized investment gains of $2,641,000 were included in gross revenues for the first nine months of 1999 compared to $17,000 for the same period in 1998. Shareholders' equity at September 30, 1999, totalled $2,729,000 or $.58 per share compared to $2,457,000 or $.52 per share at December 31, 1998. Included in shareholders' equity were unrealized gains in the Company's investment portfolio totalling $5,679,000 and $4,384,000 at September 30, 1999, and December 31, 1998, respectively. Consolidated assets totalled $124,718,000 at September 30, 1999, compared to $117,735,000 at December 31, 1998. Total net premium revenues for the first nine months of 1999 totalled $31,760,000 compared to $36,765,000 for the same period in 1998. This decrease in net premiums reflects a $5.1 million overall decline in the Company's gross written premiums when compared to those for the first nine months of 1998. The reduction in premium writings for 1999 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. In addition, the Company has reduced its private passenger auto premium writings while it focuses on converting this business to new computerized premium rating and policy administration systems designed to provide better customer service and more efficient operations. Commercial premium writings totalled $38.0 million for the nine months ended September 30, 1999, compared to $39.7 million for the same period last year. Private passenger premium writings totalled $6.8 million and $10.2 million for the nine months periods ended September 30, 1999 and 1998, respectively. 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 a 2.5 percentage point increase when compared to the same period in 1998. The loss ratio was 74.7% at September 30, 1999, compared to 72.2% at September 30, 1998. Current accident year loss reserves for commercial auto liability were strengthened slightly in the third quarter of 1999 by approximately $310,000. Development of prior 10 year's loss reserves was approximately $577,000, 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) to net earned premium decreased approximately 4.9 percentage points to 36.3% at September 30, 1999, compared to 41.2% at September 30, 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 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 resolve all remaining Year 2000 noncompliant products. The Company is devoting all resources necessary to address 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 nine months of 1999 totalling $2.0 million compared to $2.1 for the same period in 1998. Cash from operating activities for the first nine months of 1999 showed considerable improvement when compared to the same period in 1998 with an increase in cash totalling $7.3 million compared to a decrease in cash of $9.3 million for the same period of 1998. Operating cash flows for 1999 were favorably impacted by an investment management agreement entered into by the Company and its affiliate, IAT Reinsurance Syndicate Ltd. For the first nine months of 1999 this agreement resulted in a $9.0 million realized investment gain which was largely offset by investment management fee of $8.4 million payable to IAT. This investment management fee was not paid at September 30, 1999, but 11 reflected as an accrued expense. Operating cash flows were adversely affected by the decline in premium writings discussed previously and the settlement of prior year claim liabilities. Reserves for losses and settlement expenses declined approximately $7.7 million during 1999 to $53.1 million compared to $60.8 million at December 31, 1998. The Company maintains a mix of high-quality fixed-maturity investments that provide adequate returns, while limiting credit risk and providing necessary levels of liquidity to meet projected expenditures. In addition, the Company maintains an equity investment portfolio to diversify overall investment risk and maximize total investment returns. Cash and invested assets totalled $79.6 million and $70.4 million at September 30, 1999 and December 31, 1998, respectively. 12 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. 13 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 November 15, 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 SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 23,495 3,582 3,652 34,419 0 0 70,227 9,377 28,983 2,868 124,718 53,161 12,071 0 6,229 0 0 28,066 4,701 (1,972) 124,718 31,760 1,633 2,641 293 23,728 0 11,534 1,065 0 1,065 0 0 0 1,065 0.23 0.23 33,305 23,152 579 13,204 15,084 28,747 579
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