-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GCTGCK681TFCJr7RP20CwwXp3eD43Z0ZUHygZXbR2wD/q+hDxEMA1LkKtiN2uHrF 63Sm+uBoWUp0mR5nLrbayA== 0000933259-95-000022.txt : 19950512 0000933259-95-000022.hdr.sgml : 19950512 ACCESSION NUMBER: 0000933259-95-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950511 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVEMCO CORP CENTRAL INDEX KEY: 0000008802 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 520733935 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06271 FILM NUMBER: 95536546 BUSINESS ADDRESS: STREET 1: 411 AVIATION WAY CITY: FREDERICK STATE: MD ZIP: 21701 BUSINESS PHONE: 3016945700 MAIL ADDRESS: STREET 1: 411 AVIATION WAY CITY: FREDERICK STATE: MD ZIP: 21701 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) 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 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 1-6271 AVEMCO CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 52-0733935 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 411 Aviation Way Frederick, Maryland 21701 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (301) 694-5700 N/A Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 8,851,720 shares of common stock were outstanding as of March 31, 1995. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Note 1) AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 1995, and December 31, 1994 March 31, December 31, 1995 1994 ASSETS: Investments $144,555,000 $136,378,000 Cash 4,195,000 5,191,000 Accounts receivable 26,694,000 23,874,000 Reinsurance recoverable 16,466,000 16,903,000 Deferred policy acquisition costs 4,923,000 4,922,000 Prepaid reinsurance premiums 4,570,000 4,924,000 Net property and equipment 8,103,000 7,532,000 Other assets 3,748,000 5,468,000 Total assets $213,254,000 $205,192,000 LIABILITIES: Unpaid losses and loss adjustment expenses $40,932,000 $41,202,000 Unearned premiums 28,268,000 27,001,000 Accounts payable and accrued expenses 21,701,000 21,248,000 Ceded reinsurance premiums payable 5,718,000 5,531,000 Notes payable to banks 56,567,000 54,600,000 Total liabilities 153,186,000 149,582,000 STOCKHOLDERS' EQUITY: Preferred stock, par value, $10.00 per share; 500,000 shares authorized; none issued -- -- Common stock, par value, $.10 per share; 20,000,000 shares authorized; 11,549,061 issued in 1995 and 11,543,361 in 1994 1,155,000 1,154,000 Additional paid-in capital 18,260,000 18,206,000 Net unrealized appreciation (depreciation) on investments 1,782,000 (842,000) Foreign currency translation adjustments (194,000) (205,000) Retained earnings 86,125,000 84,285,000 107,128,000 102,598,000 Treasury stock, at cost, 2,697,341 shares in 1995 and 2,693,041 in 1994 (47,060,000) (46,988,000) Total stockholders' equity 60,068,000 55,610,000 Contingent liabilities Total liabilities and stockholders' equity $213,254,000 $205,192,000 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1995 1994 REVENUES: Premiums earned $18,723,000 $15,583,000 Commissions 1,583,000 1,143,000 Net investment income 2,054,000 2,025,000 Computer products and services 1,951,000 2,068,000 Realized investment gains (losses) (109,000) (79,000) Other 1,802,000 1,264,000 Total revenues 26,004,000 22,004,000 EXPENSES: Losses and loss adjustment expenses 10,522,000 8,468,000 Selling, general, and administrative expenses 8,892,000 7,972,000 Commissions 1,766,000 1,528,000 Cost of computer hardware sold 242,000 392,000 Interest 1,121,000 746,000 Total expenses 22,543,000 19,106,000 Earnings before income taxes 3,461,000 2,898,000 Federal and state income taxes 647,000 499,000 Net earnings $2,814,000 $2,399,000 Net earnings per share $ .32 $ .26 Weighted average number of common and common equivalent shares outstanding 8,913,285 9,181,911 Dividends per share $ .11 $ .11 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1995 1994 OPERATING ACTIVITIES: Net earnings $2,814,000 $2,399,000 Charges (credits) to operations not affecting cash 379,000 29,000 Net cash flows provided from operations 3,193,000 2,428,000 INVESTMENT ACTIVITIES: Proceeds from sale or maturity of investments 11,520,000 13,056,000 Purchase of investments (15,838,000) (12,947,000) Proceeds from sale of property and equipment 5,000 2,000 Purchase of property and equipment (851,000) (156,000) Net cash flows used by investment activities (5,164,000) (45,000) FINANCING ACTIVITIES: Proceeds from borrowings 5,800,000 1,700,000 Principal payments on debt (3,833,000) (1,900,000) Exercise of common stock options 54,000 13,000 Dividends to stockholders (974,000) (997,000) Repurchase of common stock (72,000) (711,000) Net cash flows provided from (used by) financing activities 975,000 (1,895,000) Net increase (decrease) in cash (996,000) 488,000 Cash, beginning of year 5,191,000 2,918,000 Cash, end of period $4,195,000 $3,406,000 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principals for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1995, are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. These statements should be read in conjunction with the financial statements and notes thereto included in the company's annual report to shareholders and Form 10-K for the year ended December 31, 1994. Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The company's primary sources of operating funds are insurance premiums, investment income, reinsurance recoveries on paid losses, computer product sales and other service revenues. Principal uses of operating funds include claim payments to insureds, commissions, and other operating expenses. Overall, these operating activities produced positive cash flow of $3.2 million for the first three months of 1995. Since the level of operating cash flow is highly effected by premium production, paid loss activity, the sale of investment securities, and reinsurance recoveries received, operating cash flow can vary significantly from period to period. The company follows investment guidelines, which, in addition to providing for an acceptable after-tax return on its investments, are structured to preserve capital, maintain sufficient liquidity to meet obligations, and retain an ample margin of capital and surplus to assure the unimpaired ability to write insurance. The company's fixed income portfolio holdings consist primarily of high investment grade securities. The company does not use derivative instruments, such as mortgage derivatives, options, and structured notes to leverage its investment portfolio. Currently, the largest single portion of the investment portfolio is invested in tax-advantaged securities given the company's current tax position. In developing its investment strategy, the company establishes a level of cash and highly liquid short and intermediate term securities which, when combined with expected cash flow, is believed adequate to meet anticipated payment obligations. The company's common stock repurchase program reflects continued efforts to effectively manage its capital base and enhance shareholder value. During the 1995 first quarter, the company repurchased 4,300 shares of its common stock. The Board of Directors' current authorization allows the company to repurchase an additional 428,917 shares. Results of Operations Net earnings for the first quarter of 1995 were $2.8 million or $.32 per share compared to $2.4 million or $.26 per share for the similar period of 1994. The principal reason for the continued improvement in operating earnings is the increase in the earned premium coupled with a lower combined ratio on the business. The loss ratio on all lines of business at the end of 1995's first quarter was 56.2 percent, versus 1994's 54.3 percent. The loss ratio on the aviation book of business was 47.5 percent compared to 54.4 percent in 1994's first quarter. The underwriting ratio for 1995's first quarter was 83.5 percent contrasted to 87.6 percent in 1994's first quarter. Gross premiums written for all lines of business in 1995 were $23.2 million versus $18.8 million in 1994, representing an increase of 23 percent. Aviation gross premiums written in the 1995 first quarter were $16.8 million versus $11.8 million in the same period of 1994. The company's purchase of the aviation business of Aviation Underwriting Specialists ("AUS"), a division of RLI Insurance Company, along with the modest growth in the company's direct aviation insurance activities, accounted for the growth in aviation premiums. Rates in the aviation insurance sector remain competitive. Gross premiums written on non-aviation lines were $6.4 million compared to $7.2 million in 1994. The decline was principally due to the company's reduced level of participation in a few short-term health programs. The company anticipates adding several new short-term health programs during the remainder of 1995. Net premiums written for all lines of business, after reinsurance, were $20.3 million, versus $16.0 million in 1994, representing a 27 percent increase. That growth is primarily related to the retention of premiums associated with the company's recent purchase of AUS's aviation business. As a result of this growth in net premiums written, earned premiums were up substantially over the same period in 1994. Net investment income for 1995 was level with 1994. During 1994 the company selectively started buying equities, foregoing some short-term income, but looking for longer-term capital appreciation. In the first quarter of 1995, the company's investment portfolio responded well to market conditions. The market value of the company's investment portfolio increased by approximately $2.6 million on an after-tax basis, making up a significant portion of the decline experienced throughout much of 1994. Realized investment losses were nominal in both year's first quarter. Computer product and service revenues for 1995 were about equal to 1994's first quarter. Software revenues increased and hardware sales declined. Hardware sales can vary greatly from quarter to quarter, while software revenues, the company's main product in this area, are more predictable and continue to grow. Net incurred losses and loss adjustment expenses for the 1995 first quarter were $10.5 million versus $8.5 million in 1994. This increase was due to the substantial growth during 1994 of the company's lenders single interest and short term health insurance programs as well as the growth in the company's aviation insurance business during the first quarter of 1995. The increase was commensurate with the premium increases in those various businesses. Selling, general, and administrative expenses were $8.9 million in the 1995 first quarter as compared to $8.0 million for the similar period in 1994. Much of this increase is attributed to the operating costs of AUS and International Group Services, a third-party administrator of short-term health insurance programs, purchased by the company in December 1994. Interest expense increased to $1.1 million in 1995 from $746,000 in 1994, primarily as the result of higher variable interest rates on the company's revolving credit facility. AVEMCO CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings None, except in the ordinary course of business in connection with the insurance subsidiaries' operations. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AVEMCO CORPORATION (Registrant) Date: May 11, 1995 /s/ William P. Condon William P. Condon Chairman of the Board and Chief Executive Officer Date: May 11, 1995 /s/ John F. Shettle, Jr. John F. Shettle, Jr. President and Chief Operating Officer Date: May 11, 1995 /s/ John R. Yuska John R. Yuska Senior Vice President and Chief Financial Officer EX-27 2
7 This schedule contains summary financial information extracted from the registrant's March 31, 1995 Form 10-Q financial statements and is qualified in its entirety by reference to such financial statements. 0000008802 AVEMCO CORPORATION 1,000 3-MOS DEC-31-1994 MAR-31-1995 0 0 0 0 0 0 144,555 4,195 16,466 4,923 213,254 40,932 28,268 0 0 56,567 1,155 0 0 58,913 213,254 18,723 2,054 (109) 5,336 10,522 0 10,658 3,461 647 2,814 0 0 0 2,814 .32 .32 0 0 0 0 0 0 0
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