<PAGE> 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, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-8678
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McM Corporation
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(Exact name of registrant as specified in its charter)
North Carolina 56-1171691
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
Box 12317, 702 Oberlin Road, Raleigh, North Carolina 27605
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (919) 833-1600
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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
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At March 31, 1995, 4,675,038 shares of Common Stock of the registrant
were outstanding.
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INDEX
McM CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1995 and December 31, 1994
Consolidated Statements of Income -- Three Months Ended March 31,
1995 and 1994
Consolidated Statements of Cash Flows -- Three Months Ended March
31, 1995 and 1994
Notes to Consolidated Financial Statements -- March 31, 1995
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
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
McM CORPORATION AND SUBSIDIARIES
(Thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
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<S> <C> <C>
Invested Assets:
Securities available-for-sale, at fair value:
Fixed maturities (cost: 1995 - $10,135; 1994 - $10,291) $ 10,256 $ 10,133
Fixed maturities held-to-maturity, at amortized cost
(fair value: 1995 - $38,269; 1994 - $37,370) 39,189 39,352
Short-term investments 14,221 17,678
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63,666 67,163
Cash 4,624 1,497
Accrued investment income 1,732 1,016
Premiums receivable 9,221 8,792
Reinsurance balances recoverable on:
Paid losses and settlement expenses 6,128 6,134
Reserves for losses and settlement expenses 39,231 42,471
Unearned premiums 4,579 3,482
Deferred policy acquisition costs 2,931 3,235
Equipment, at cost less accumulated depreciation
(1995 - $1,233; 1994 - $1,166) 1,124 1,187
Other assets 2,192 2,688
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TOTAL ASSETS $135,428 $137,665
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserves for losses and settlement expenses $75,038 $80,886
Unearned premiums 14,397 14,811
Other policyholder funds 7,550 7,397
Amounts payable to reinsurers 832 3,105
Accrued expenses 16,331 11,059
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TOTAL LIABILITIES 114,148 117,258
Shareholders' equity:
Common Stock, par value $1 per share-authorized
5,000,000 shares, issued and outstanding: 1995
and 1994 - 4,675,038 4,675 4,675
Additional paid-in capital 1,477 1,477
Unrealized appreciation (depreciation) on
securities available-for-sale 121 (158)
Retained earnings 15,007 14,413
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TOTAL SHAREHOLDERS' EQUITY 21,280 20,407
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $135,428 $137,665
======== ========
</TABLE>
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
McM CORPORATION AND SUBSIDIARIES
(Thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1995 1994
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<S> <C> <C>
REVENUES
Premiums earned $16,636 $16,937
Premiums ceded (6,046) (6,602)
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Net premiums earned 10,590 10,335
Investment income, less investment expenses:
$125 and $92 for the three months ended
March 31, 1995 and 1994 896 914
Other income 35 206
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TOTAL REVENUES 11,521 11,455
LOSSES AND EXPENSES
Losses and settlement expenses 10,387 12,545
Losses and settlement expenses ceded (3,447) (5,708)
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Net losses and settlement expenses 6,940 6,837
Underwriting, acquisition and administrative expenses 3,987 4,204
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TOTAL LOSSES AND EXPENSES 10,927 11,041
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NET INCOME $ 594 $ 414
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PER SHARE DATA:
Income per share $ 0.13 $ 0.09
===================
Dividends per share declared by McM $ 0.00 $ 0.00
===================
</TABLE>
See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MCM CORPORATION AND SUBSIDIARIES
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 594 $ 414
Adjustments to reconcile net income to net cash used
by operating activities:
Policy liabilities (6,109) (7,212)
Premiums receivable (429) 978
Accrued investment income (716) (364)
Net receivable from reinsurers (124) (2,558)
Amortization of deferred policy acquisition costs 1,705 1,944
Policy acquisition costs deferred (1,401) (1,598)
Other 5,878 59
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CASH USED BY OPERATING ACTIVITIES (602) (8,337)
INVESTING ACTIVITIES
Securities available-for-sale:
Purchases 0 (8,657)
Maturities 165 1,524
Securities held-to-maturity:
Purchases 0 (2,010)
Maturities 110 3,000
Purchases of property and equipment (3) (23)
Decrease in short-term investments 3,457 12,980
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CASH PROVIDED BY INVESTING ACTIVITIES 3,729 6,814
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INCREASE/(DECREASE) IN CASH $ 3,127 ($1,523)
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</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
McM Corporation and Subsidiaries
March 31, 1995
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, 1994.
NOTE B -- INCOME TAXES
The income tax provision is based upon the estimated effective tax
rate for the year. This rate varies from the normal federal income tax rate of
thirty-four percent (34%) because of the utilization of tax return net
operating loss carryforwards.
NOTE C -- STOCK OPTION PLAN AND EARNINGS PER SHARE
Earnings per common share are based on 4,675,038 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 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.
<PAGE> 7
Proposition 103: On November 8, 1988, California voters passed
Proposition 103. Proposition 103 is an initiative that calls for property and
casualty insurers in California, including McM's subsidiary Wilshire Insurance
Company, to roll back their rates by 20% for certain California policies issued
for the twelve month period beginning November 8, 1988. Court decisions,
including that of the United States Supreme Court, have confirmed the
enforceability of Proposition 103, but at the same time have recognized the
need for companies to earn a fair and reasonable return, thereby prohibiting
confiscatory rollbacks. Although Wilshire has not received a rollback order at
this time, California's current rollback worksheet calculation, before
adjustments or corrections peculiar to Wilshire, produces a result of $6.1
million plus interest. Wilshire firmly believes that this worksheet
calculation is based on incomplete and erroneous data. Furthermore, since the
total earnings of Wilshire for the period in question were $4.5 million,
management believes that the unadjusted calculations are clearly confiscatory
and would prevent Wilshire from earning a fair and reasonable rate of return.
Recently elected California Commissioner of Insurance, Charles
Quackenbush, has announced his commitment to work together with companies to
resolve all Proposition 103 rollback issues within the first six months of
1995. The Company is in direct contact with the California Department of
Insurance, but, because of the preliminary stage of these discussions, the
ultimate impact, if any, of Proposition 103 cannot be determined at this time.
Inasmuch as management expects no material rollback liability for Wilshire, no
amounts have been accrued in the financial statements of the Company relating
to Proposition 103.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
McM Corporation and Subsidiaries
Review of Operations
Unaudited results for the three months ended March 31, 1995, show net
income of $594,000 or $.13 per share compared to net income of $414,000 or $.09
per share for the same period in 1994. Consolidated gross revenues for the
first quarter of 1995 were $11,646,000 compared to $11,547,000 for the first
quarter of 1994.
Shareholders' equity at March 31, 1995, totalled $21,280,000 or $4.55
per share compared to $20,407,000 or $4.37 per share at December 31, 1994.
Consolidated assets totalled $135,428,000 at March 31, 1995, compared to
$137,665,000 at December 31, 1994.
Total net premium revenues were $10,590,000 for the first of 1995
compared to $10,335,000 for the same period in 1994, an increase of 2.5%. This
increase in premium reflects the Company's plan of moderate growth in premium
writings which began in the fourth quarter of 1994.
The overall loss and settlement expense ratio for the first quarter of
1995 was relatively unchanged, falling approximately one-half of a percentage
point from the same period in 1994. The loss overall loss ratios were 65.5%
and 66.1% for the first quarters of 1995 and 1994, respectively. Favorable
loss development on reserves of prior accident years, related primarily to the
Company's assumed and discontinued business, contributed to this improvement.
Overall underwriting results for the first quarter of 1995 continue to reflect
the favorable trend established in 1994.
Underwriting, acquisition and administrative expenses for the first
three months of 1995 were approximately $200,000 less than for the same period
last year. This decrease reflects management's continuing effort to enhance
productivity and efficiency in its operations.
Liquidity and Capital Resources
Consolidated gross investment income totalled $1,021,000 for the first
three months of 1995 as compared to $1,006,000 for the same period last year.
The declining trend in investment earnings experienced throughout 1994 resulted
from a reduction in invested assets and overall investment yields. The
improvement in investment earnings for the for quarter of 1995 is attributed
primarily to overall improvement in investment yields. Invested assets
totalled $63,666,000 at March 31, 1995, compared to $67,163,000 at December 31,
1994. Claim liabilities decreased $5.8 million in the first quarter of 1995
and total liabilities decreased $3.1 million in the same period.
<PAGE> 9
Consolidated cash used by operating activities was $603,000 for the
first three months of 1995 as compared to $8,337,000 during the same period
last year. The cash used by operating activities reflects an overall decrease
in liabilities of $3.1 million for the first quarter of 1995. Cash and
short-term investments held by the Company at March 31, 1995, were
approximately $18,845,000 as compared to $19,175,000 at December 31, 1994.
The Board of Directors did not declare a dividend to shareholders for
the first quarter of 1995. The Board will carefully consider the Company's
earnings, capital requirements, financial condition, and other relevant factors
when determining whether to declare dividends in the future.
<PAGE> 10
McM CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings.
1) Reference is hereby made to the Note D of the Consolidated
Financial Statements provided in Part I, Item 1 of this
Form 10-Q.
Exhibit 27 - Financial Data Schedule (for SEC use only)
Items 2 - 6. Nothing to report.
<PAGE> 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
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(Registrant)
George E. King
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George E. King
President and
Chief Executive Officer
May 12, 1995
Kevin J. Hamm
-------------------------
Kevin J. Hamm
Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 10,256
<DEBT-CARRYING-VALUE> 39,189
<DEBT-MARKET-VALUE> 38,269
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 63,666
<CASH> 4,624
<RECOVER-REINSURE> 49,938
<DEFERRED-ACQUISITION> 2,931
<TOTAL-ASSETS> 135,428
<POLICY-LOSSES> 75,038
<UNEARNED-PREMIUMS> 14,397
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 7,550
<NOTES-PAYABLE> 0
<COMMON> 4,675
0
0
<OTHER-SE> 16,605
<TOTAL-LIABILITY-AND-EQUITY> 135,428
10,590
<INVESTMENT-INCOME> 896
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 35
<BENEFITS> 6,940
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 3,987
<INCOME-PRETAX> 594
<INCOME-TAX> 0
<INCOME-CONTINUING> 594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 594
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<RESERVE-OPEN> 38,415
<PROVISION-CURRENT> 5,465
<PROVISION-PRIOR> (734)
<PAYMENTS-CURRENT> 2,224
<PAYMENTS-PRIOR> 7,324
<RESERVE-CLOSE> 35,807
<CUMULATIVE-DEFICIENCY> (741)
</TABLE>
