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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, 1996
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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, 1996, 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, 1996 and
December 31, 1995
Consolidated Statements of Income -- Three Months Ended
March 31, 1996 and 1995
Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements -- March 31, 1996
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 1996 1995
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<S> <C> <C>
Invested Assets:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost: 1996 - $28,938; 1995 - $31,477) $ 28,843 $ 31,942
Fixed maturities held-to-maturity, at amortized cost
(fair value: 1996 - $14,291; 1995 - $16,429) 14,196 16,230
Short-term investments 18,936 14,848
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61,975 63,020
Cash 1,819 1,637
Accrued investment income 1,053 840
Premiums receivable 9,744 9,935
Paid losses and settlement expenses 4,282 3,461
Reserves for losses and settlement expenses 34,339 36,155
Unearned premiums 4,395 4,943
Deferred policy acquisition costs 3,534 3,343
Equipment, at cost less accumulated depreciation
(1996 - $1,499; 1995 - $1,437) 1,032 1,105
Other assets 1,927 2,129
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TOTAL ASSETS $ 124,100 $ 126,568
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LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and settlement expenses $ 62,381 $ 66,152
Unearned premiums 17,083 17,234
Other policyholder funds 6,944 7,247
Amounts payable to reinsurers 2,111 2,202
Accrued expenses 12,230 10,493
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TOTAL LIABILITIES 100,749 103,328
Shareholders' equity:
Common Stock, par value $1 per share - authorized 1996 and 1995 - 10,000,000 shares;
issued and outstanding: 1996 and 1995 - 4,675,038 shares 4,675 4,675
Additional paid-in capital 1,477 1,477
Unrealized (loss)/gain on securities available-for-sale (95) 465
Retained Earnings 17,294 16,623
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TOTAL SHAREHOLDERS' EQUITY 23,351 23,240
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 124,100 $ 126,568
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</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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1996 1995
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<S> <C> <C>
REVENUES
Premiums earned $ 18,404 $ 16,636
Premiums ceded (5,646) (6,046)
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Net premiums earned 12,758 10,590
Investment income, less investment expenses:
$117 and $125 for the three months ended
March 31, 1996 and 1995 890 896
Other income 61 35
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TOTAL REVENUES 13,709 11,521
LOSSES AND EXPENSES
Losses and settlement expenses 10,326 10,387
Losses and settlement expenses ceded (2,052) (3,447)
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Net losses and settlement expenses 8,274 6,940
Underwriting, acquisition and administrative expenses 4,764 3,987
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TOTAL LOSSES AND EXPENSES 13,038 10,927
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NET INCOME $ 671 $ 594
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PER SHARE DATA:
Income per share $ 0.14 $ 0.13
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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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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 671 $ 594
Adjustments to reconcile net income to net cash used
by operating activities:
Policy liabilities (4,225) (6,109)
Premiums receivable 191 (429)
Accrued investment income (213) (716)
Net receivable from reinsurers 1,452 (124)
Amortization of deferred policy acquisition costs 2,362 1,705
Policy acquisition costs deferred (2,553) (1,401)
Other 2,072 5,878
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CASH USED BY OPERATING ACTIVITIES (243) (602)
INVESTING ACTIVITIES
Securities available-for-sale:
Maturities 4,592 165
Securities held-to-maturity:
Maturities 0 110
Purchases of property and equipment (79) (3)
(Increase)/decrease in short-term investments (4,088) 3,457
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CASH PROVIDED BY INVESTING ACTIVITIES 425 3,729
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INCREASE IN CASH $ 182 $ 3,127
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</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
McM Corporation and Subsidiaries
March 31, 1996
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, 1995.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
McM Corporation and Subsidiaries
Review of Operations
Unaudited results for the three months ended March 31, 1996, show net
income of $671,000 or $.14 per share, up 13% from net income of $594,000 or
$.13 per share for the first three months of 1995. Consolidated gross revenues
for the first three months of 1996 were $13,826,000 compared to $11,646,000 for
the same period in 1995.
Shareholders' equity at March 31, 1996, totalled $23,351,000 or $4.99 per
share compared to $23,240,000 or $4.97 per share at December 31, 1995.
Consolidated assets totalled $124,100,000 at March 31, 1996, compared to
$126,568,000 at December 31, 1995.
Total net premium revenues were $12,758,000 for the first quarter of 1996
compared to $10,590,000 for the first quarter of 1995, an increase of
approximately 20.5%. This increase in net premiums reflects growth in
commercial automobile and private passenger automobile premium writings and is
in line with management's expectations of controlled growth in these lines of
business.
The overall claims loss and settlement expense ratio for the first three
months of 1996 decreased to 64.9% compared to 65.5% for the same period in
1995. This decline in the overall loss ratio is attributed to improvement in
ongoing lines of business. Overall, development of prior years' loss reserves
was not significant during the first quarter of 1996. Losses incurred relating
to prior accident years totalled approximately $340,000, most of which related
to the Company's discontinued workers compensation programs.
Management's continuing focus on expense control, increased productivity,
sustained growth in premium writings and more efficient operations continues to
be reflected in the ratio of underwriting, acquisition, and administrative
expenses to net earned premiums. This ratio declined one-half of a percentage
point to 37.3% for the first quarter of 1996 compared to 37.8% for the same
period in 1995.
<PAGE> 8
Liquidity and Capital Resources
Consolidated gross investment income totalled $1,007,000 for the first
three months of 1996, compared to $1,021,000 for the same period in 1995. This
decline in investment income is primarily the result of lower investment yields
on short-term investments during the first quarter of 1996 and a small
reduction in invested assets. Invested assets totalled $62.0 million at March
31, 1996, compared to $63.0 million at December 31, 1995, and $63.7 million at
March 31, 1995. As previously disclosed, the decline in invested asset
balances experienced by the Company during 1993 and 1994 slowed significantly
in 1995. The decline resulted from planned reductions in net written premiums
and the settlement of claims related to discontinued property and casualty
insurance programs. The decrease in invested balances for the first quarter of
1996 is attributed to the change in the unrealized gain/loss on fixed maturity
securities available-for-sale and continued settlement of claims related to
discontinued property and casualty insurance programs. The Company experienced
unrealized losses of $560,000 during the first quarter of 1996 on securities
available-for-sale and overall loss reserves decreased by $3.8 million during
this period.
Cash used by operating activities was $243,000 for the first three months
of 1996 as compared to $602,000 during the same period last year. The cash
used by operating activities reflects an overall decrease in liabilities of
$2.6 million for the first quarter of 1996. Cash and short-term investments
held by the Company at March 31, 1996, were approximately $20.8 million as
compared to $16.5 million at December 31, 1995.
The Board of Directors did not declare a dividend to shareholders during
the first three months of 1996. 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> 9
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.
Items 2 - 6. Nothing to report.
<PAGE> 10
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)
/s/ George E. King
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George E. King
President and
Chief Executive Officer
May 13, 1996
/s/ Kevin J. Hamm
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Kevin J. Hamm
Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF McM CORPORATION FOR THE THREE MONTHS ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 28,843
<DEBT-CARRYING-VALUE> 14,196
<DEBT-MARKET-VALUE> 14,291
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 61,975
<CASH> 1,819
<RECOVER-REINSURE> 48,365
<DEFERRED-ACQUISITION> 4,395
<TOTAL-ASSETS> 124,100
<POLICY-LOSSES> 62,381
<UNEARNED-PREMIUMS> 17,083
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 6,944
<NOTES-PAYABLE> 0
0
0
<COMMON> 4,675
<OTHER-SE> 18,676
<TOTAL-LIABILITY-AND-EQUITY> 124,100
12,758
<INVESTMENT-INCOME> 890
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 61
<BENEFITS> 8,274
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 4,764
<INCOME-PRETAX> 671
<INCOME-TAX> 0
<INCOME-CONTINUING> 671
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 671
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<RESERVE-OPEN> 29,997
<PROVISION-CURRENT> 7,895
<PROVISION-PRIOR> 379
<PAYMENTS-CURRENT> 3,008
<PAYMENTS-PRIOR> 7,221
<RESERVE-CLOSE> 28,042
<CUMULATIVE-DEFICIENCY> (131)
</TABLE>
