<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 June 30, 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 June 30, 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 -- June 30, 1996 and
December 31, 1995
Consolidated Statements of Income -- Six and Three Months Ended June
30, 1996 and 1995
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements -- June 30, 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>
June 30 December 31
1996 1995
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<S> <C> <C>
ASSETS
Invested Assets:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost: 1996 - $21,378; 1995 - $31,477) $ 21,139 $ 31,942
Fixed maturities held-to-maturity, at amortized cost
(fair value: 1996 - $13,762; 1995 - $16,429) 13,828 16,230
Short-term investments 23,619 14,848
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58,586 63,020
Cash 541 1,637
Accrued investment income 805 840
Premiums receivable 10,384 9,935
Reinsurance balances recoverable on:
Paid losses and settlement expenses 5,268 3,461
Reserves for losses and settlement expenses 35,327 36,155
Unearned premiums 4,021 4,943
Deferred policy acquisition costs 3,738 3,343
Equipment, at cost less accumulated depreciation
(1996 - $1,565; 1995 - $1,437) 1,036 1,105
Other assets 1,767 2,129
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TOTAL ASSETS $121,473 $126,568
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LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and settlement expenses $61,373 $66,152
Unearned premiums 17,476 17,234
Other policyholder funds 6,726 7,247
Amounts payable to reinsurers 510 2,202
Accrued expenses 11,676 10,493
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TOTAL LIABILITIES 97,761 103,328
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 (239) 465
Retained Earnings 17,799 16,623
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TOTAL SHAREHOLDERS' EQUITY 23,712 23,240
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $121,473 $126,568
======== ========
</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>
Six Months Ended Three Months Ended
June 30 June 30
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES
Premiums earned $ 36,863 $ 33,427 $18,459 $16,791
Premiums ceded (11,243) (12,059) (5,597) (6,013)
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Net premiums earned 25,620 21,368 12,862 10,778
Investment income, less investment expenses:
$236 and $243 for the six months ended
June 30, 1996 and 1995, and $119 and $118 for the
three months ended June 30, 1996 and 1995 1,607 1,787 717 891
Other income 167 79 106 44
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TOTAL REVENUES 27,394 23,234 13,685 11,713
LOSSES AND EXPENSES
Losses and settlement expenses 25,629 19,927 15,303 9,540
Losses and settlement expenses ceded (9,010) (5,804) (6,958) (2,357)
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Net losses and settlement expenses 16,619 14,123 8,345 7,183
Underwriting, acquisition and administrative expenses 9,506 7,977 4,742 3,990
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TOTAL LOSSES AND EXPENSES 26,125 22,100 13,087 11,173
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NET INCOME $ 1,269 $ 1,134 $ 598 $ 540
====================== =====================
PER SHARE DATA:
Income per share $ 0.27 $ 0.24 $ 0.13 $ 0.12
====================== =====================
Dividends per share declared by McM $ 0.02 $ 0.00 $ 0.02 $ 0.00
====================== =====================
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MCM CORPORATION AND SUBSIDIARIES
(Thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,269 $1,134
Adjustments to reconcile net income to net cash used
by operating activities:
Policy liabilities (5,058) (9,713)
Premiums receivable (449) (1,313)
Accrued investment income 35 157
Net receivable from reinsurers (1,749) 1,945
Amortization of deferred policy acquisition costs 4,334 3,355
Policy acquisition costs deferred (4,729) (3,306)
Other 1,868 3,631
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CASH USED BY OPERATING ACTIVITIES (4,479) (4,110)
INVESTING ACTIVITIES
Securities available-for-sale:
Maturities 4,730 739
Securities held-to-maturity:
Purchases 0 (2,984)
Maturities 7,755 120
Purchases of property and equipment (238) (91)
(Increase) decrease in short-term investments (8,771) 5,482
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CASH PROVIDED BY INVESTING ACTIVITIES 3,476 3,266
FINANCING ACTIVITIES
Cash dividends paid (93) 0
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DECREASE IN CASH ($1,096) ($844)
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</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
McM Corporation and Subsidiaries
June 30, 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
No provision for income taxes has been recognized by the Company 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
MANAGEMENT'S DISCUSSION AND ANALYSIS
McM Corporation and Subsidiaries
Review of Operations
Unaudited results for the six months ended June 30, 1996, show net income
of $1,269,000 or $.27 per share, up 12% from net income of $1,134,000 or $.24
per share for the first six months of 1995. Consolidated gross revenues for
the first six months of 1996 increased 18% to $27,630,000 compared to
$23,477,000 for the same period in 1995.
Shareholders' equity at June 30, 1996, totalled $23,712,000 or $5.07 per
share compared to $23,240,000 or $4.97 per share at December 31, 1995.
Consolidated assets totalled $121,473,000 at June 30, 1996, compared to
$126,568,000 at December 31, 1995.
Total net premium revenues were $25,620,000 for the first six months of
1996 compared to $21,368,000 for the same period in 1995, an increase of
approximately 20%. This increase in net premiums is primarily the result of
planned growth in commercial automobile and private passenger automobile
premium writings. In addition, net premium revenues increased by approximately
$700,000 as a result of a change in the Company's quota share reinsurance
program. Overall, premium writings are in line with management's expectations
of controlled growth in these lines of business.
Continued improvement in underwriting results for the Company's ongoing
lines of business is reflected in the decrease of the overall claims loss and
settlement expense ratio. This ratio decreased over one percentage point from
66.1% at June 30, 1995, to 64.9% at June 30, 1996. Overall, loss reserves of
prior accident years experienced unfavorable development of approximately
$311,000 during the first six months of 1996. Most of this development relates
to the Company's discontinued workers compensation programs.
The ratio of underwriting, acquisition, and administrative expenses to net
earned premiums has also shown improvement as management continues its focus on
expense control, increased productivity and more efficient operations. This
ratio was 37.1% at June 30, 1996, compared to 37.3% at June 30, 1995.
<PAGE> 8
Liquidity and Capital Resources
Consolidated gross investment income totalled $1,843,000 for the first six
months of 1996, compared to $2,030,000 for the same period in 1995. This
decline in investment income is primarily the result of lower investment yields
on short-term investments during 1996 and a reduction in invested assets from
$64.2 million at June 30, 1995, to $58.6 million at June 30, 1996. The
decrease in invested balances is primarily attributed to the continued
settlement of claims related to discontinued lines of business, and the
acceleration of claims settlement relating to ongoing lines of business.
Overall, loss reserves decreased by $4.8 million during the first six months of
1996. In addition, the Company experienced unrealized losses of $704,000
during the first six months of 1996 on securities available-for-sale, compared
to unrealized gains of $488,000 for the first six months of 1995.
Cash used by operating activities totalled $4.5 million for the first six
months of 1996 compared to $4.1 million during the same period in 1995. The
cash used by operating activities for the period reflects an overall decrease
in liabilities of $5.6 million. Cash and short-term investments held by the
Company at June 30, 1996, were approximately $24.1 million compared to $16.5
million at December 31, 1995.
On May 23, 1996, upon careful consideration of the Company's earnings,
capital requirements, financial condition and other relevant factors, the Board
of Directors declared a dividend of $.02 per share payable on June 17, 1996, to
shareholders of record on June 3, 1996. The Board will continue to analyze
such factors when determining whether to declare additional 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
Chief Executive Officer
and Chairman Emeritus
August 12, 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 SIX MONTHS ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 21,139
<DEBT-CARRYING-VALUE> 13,828
<DEBT-MARKET-VALUE> 13,762
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 58,586
<CASH> 541
<RECOVER-REINSURE> 44,616
<DEFERRED-ACQUISITION> 3,738
<TOTAL-ASSETS> 121,473
<POLICY-LOSSES> 61,373
<UNEARNED-PREMIUMS> 17,476
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 6,726
<NOTES-PAYABLE> 0
0
0
<COMMON> 4,675
<OTHER-SE> 19,037
<TOTAL-LIABILITY-AND-EQUITY> 121,473
25,620
<INVESTMENT-INCOME> 1,607
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 167
<BENEFITS> 16,619
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 9,506
<INCOME-PRETAX> 1,269
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,269
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<RESERVE-OPEN> 29,997
<PROVISION-CURRENT> 16,207
<PROVISION-PRIOR> 413
<PAYMENTS-CURRENT> 8,478
<PAYMENTS-PRIOR> 12,093
<RESERVE-CLOSE> 26,045
<CUMULATIVE-DEFICIENCY> 413
</TABLE>
