-----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, BFjk1cy+yjGXfyXMBYtftjB18xnrZOssKkBcQuXTl5jbYj1GWi+3kOJZAtgZxsDh amUSa9sZVnvTOtBHg5l+Hw== 0000933259-95-000024.txt : 19950814 0000933259-95-000024.hdr.sgml : 19950814 ACCESSION NUMBER: 0000933259-95-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 95560994 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 June 30, 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: 8,777,420 shares of common stock were outstanding as of June 30, 1995. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Note 1) AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 1995, and December 31, 1994 June 30, December 31, 1995 1994 ASSETS: Investments . . . . . . . . . . . . . . . $149,395,000 $136,378,000 Cash. . . . . . . . . . . . . . . . . . . 3,552,000 5,191,000 Accounts receivable . . . . . . . . . . . 31,342,000 23,874,000 Reinsurance recoverable . . . . . . . . . 16,769,000 16,903,000 Deferred policy acquisition costs . . . . 5,567,000 4,922,000 Prepaid reinsurance premiums. . . . . . . 6,195,000 4,924,000 Net property and equipment. . . . . . . . 8,308,000 7,532,000 Other assets. . . . . . . . . . . . . . . 3,668,000 5,468,000 Total assets . . . . . . . . . $224,796,000 $205,192,000 LIABILITIES: Unpaid losses and loss adjustment expenses $ 42,038,000 $ 41,202,000 Unearned premiums . . . . . . . . . . . . 35,933,000 27,001,000 Accounts payable and accrued expenses . . 22,367,000 21,248,000 Ceded reinsurance premiums payable. . . . 6,691,000 5,531,000 Notes payable to banks . . . . . . . . . 55,900,000 54,600,000 Total liabilities . . . . . . . 162,929,000 149,582,000 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. . . . . . . . . . . . . 3,134,000 (842,000) Foreign currency translation adjustments. (142,000) (205,000) Retained earnings . . . . . . . . . . . . 87,829,000 84,285,000 110,236,000 102,598,000 Treasury stock, at cost, 2,771,641 shares in 1995 and 2,693,041 in 1994 . . . . . (48,369,000) (46,988,000) Total stockholders' equity . . 61,867,000 55,610,000 Contingent liabilities Total liabilities and stockholders' equity . . . . . $224,796,000 $205,192,000 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended June 30, 1995 1994 REVENUES: Premiums earned . . . . . . . . . . . . . $ 39,497,000 $ 37,570,000 Commissions . . . . . . . . . . . . . . . 3,652,000 3,351,000 Net investment income . . . . . . . . . . 4,195,000 4,073,000 Computer products and services. . . . . . 4,764,000 4,156,000 Realized investment gains (losses) . . . (7,000) (66,000) Other . . . . . . . . . . . . . . . . . . 3,762,000 2,630,000 Total revenues . . . . . . . . 55,863,000 51,714,000 EXPENSES: Losses and loss adjustment expenses . . . 25,003,000 21,143,000 Selling, general, and administrative expenses . . . . . . . . . . . . . . . 17,840,000 16,452,000 Commissions . . . . . . . . . . . . . . . 3,283,000 4,062,000 Cost of computer hardware sold. . . . . . 799,000 550,000 Interest. . . . . . . . . . . . . . . . . 2,035,000 1,595,000 Total expenses . . . . . . . . 48,960,000 43,802,000 Earnings before income taxes . . . . . . 6,903,000 7,912,000 Federal and state income taxes . . . . . 1,420,000 1,943,000 Net earnings . . . . . . . . . . . . . . $ 5,483,000 $ 5,969,000 Net earnings per share . . . . . . . . . $ .62 $ .65 Weighted average number of common and common equivalent shares outstanding . 8,913,400 9,127,248 Dividends per share . . . . . . . . . . . $ .22 $ .22 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30, 1995 1994 REVENUES: Premiums earned . . . . . . . . . . . . . $ 20,774,000 $ 21,987,000 Commissions . . . . . . . . . . . . . . . 2,069,000 2,208,000 Net investment income . . . . . . . . . . 2,141,000 2,048,000 Computer products and services. . . . . . 2,813,000 2,088,000 Realized investment gains (losses) . . . 102,000 13,000 Other . . . . . . . . . . . . . . . . . . 1,960,000 1,366,000 Total revenues . . . . . . . . 29,859,000 29,710,000 EXPENSES: Losses and loss adjustment expenses . . . 14,481,000 12,675,000 Selling, general, and administrative expenses . . . . . . . . . . . . . . . 8,948,000 8,480,000 Commissions . . . . . . . . . . . . . . . 1,517,000 2,534,000 Cost of computer hardware sold . . . . . 557,000 158,000 Interest. . . . . . . . . . . . . . . . . 914,000 849,000 Total expenses . . . . . . . . 26,417,000 24,696,000 Earnings before income taxes . . . . . . 3,442,000 5,014,000 Federal and state income taxes. . . . . . 773,000 1,444,000 Net earnings. . . . . . . . . . . . . . . $ 2,669,000 $ 3,570,000 Net earnings per share. . . . . . . . . . $ .30 $ .39 Weighted average number of common and common equivalent shares outstanding . . . . . 8,896,246 9,076,341 Dividends per share . . . . . . . . . . . $ .11 $ .11 See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1995 1994 OPERATING ACTIVITIES: Net earnings . . . . . . . . . . . . . . $ 5,483,000 $ 5,969,000 Charges (credits) to operations not affecting cash . . . . . . . . . . . . 3,238,000 5,041,000 Net cash flows provided from operations . 8,721,000 11,010,000 INVESTMENT ACTIVITIES: Proceeds from sale or maturity of investments . . . . . . . . . . . . . . 22,449,000 21,714,000 Purchase of investments . . . . . . . . . (29,368,000) (26,863,000) Proceeds from sale of property and equipment . . . . . . . . . . . . . . . 21,000 2,000 Purchase of property and equipment . . . (1,497,000) (256,000) Net cash flows used by investment activities . . . . . . . . . . . . . . (8,395,000) (5,403,000) FINANCING ACTIVITIES: Proceeds from borrowings. . . . . . . . . 5,800,000 1,700,000 Principal payments on debt . . . . . . . (4,500,000) (2,400,000) Exercise of common stock options . . . . 54,000 13,000 Dividends to stockholders . . . . . . . . (1,939,000) (1,982,000) Repurchase of common stock . . . . . . . (1,380,000) (2,420,000) Net cash flows used by financing activities . . . . . . . . . . . . . . (1,965,000) (5,089,000) Net increase (decrease) in cash . . . . . (1,639,000) 518,000 Cash, beginning of year . . . . . . . . . 5,191,000 2,918,000 Cash, end of period . . . . . . . . . . . $ 3,552,000 $ 3,436,000 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 principles 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 six months ended June 30, 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 $8.7 million for the first six 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. 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 first half of 1995, the company repurchased 78,600 shares of its common stock at an average cost of $17.57 per share. The Board of Directors' current authorization allows the company to repurchase an additional 354,617 shares. Results of Operations Net earnings for the second quarter of 1995 were $2.7 million or $.30 per share compared to $3.5 million or $.39 per share for the similar period of 1994. An increased loss ratio in the aviation business and the company's reduced level of participation in a few short-term health programs were the principal factors for the reduced level of earnings. Gross premiums written for all lines of business during the 1995 second quarter were $32.0 million compared to $33.0 million in 1994. Aviation gross premiums written in the second quarter were $24.2 million, versus $22.9 million in the same period of 1994. The company's purchase of the aviation business of Aviation Underwriting Specialists (AUS) during the 1995 first quarter principally accounted for the growth in aviation premiums. Gross premiums written on non-aviation lines during the second quarter were $7.8 million compared to $10.0 million in 1994. The drop in premium is principally due to the company's reduced level of participation in one short-term health program, along with the discontinuance of another that was not meeting the company's underwriting objectives. The company views 1995 as a transitional year in the short-term health business. During the remainder of the year, the company will be building participation in certain programs managed by International Group Services (IGS), a consolidated subsidiary, acquired in December of 1994. Net investment income for the 1995 second quarter was slightly ahead of 1994. Also, in the second quarter of 1995 the company's investment portfolio continued to respond well to market conditions. For the first half of 1995, the market value of the investment portfolio increased by approximately $4.0 million on an after-tax basis, making up a significant portion of the decline experienced throughout much of 1994. Realized investment gains were nominal in the second quarter of both years. Computer product and service revenues for 1995's second quarter increased by 35 percent over 1994, reflecting increases in both software and hardware revenues. Net incurred losses for the 1995 second quarter were $14.5 million contrasted to $12.7 million in 1994. The increase was due to additional claims activity in the company's aviation business, including some large claims which the company did not experience in 1994. The aviation loss ratio for the 1995 second quarter was 74.2% compared to 1994's 56.2%. There were no significant weather-related events during the 1995 or 1994 second quarters. The statutory loss ratio for all lines of business in the 1995 second quarter was 70.1 percent versus 57.6 percent for 1994. Year-to-date, the statutory loss ratio was 63.8 percent compared to 56.3 percent for 1994. The underwriting ratio for the 1995 second quarter was 90.3 percent versus 80.9 percent for 1994. Year-to-date, the underwriting ratio was 86.6 percent compared to 83.5 percent for 1994. Selling, general, and administrative expenses were $8.9 million in the 1995 second quarter as compared to $8.4 million for the similar period in 1994. Much of this increase is attributed to the operating costs of the AUS aviation and IGS short-term health businesses acquired in January 1995 and December 1994, respectively. Interest expense increased to $914,000 million in 1995 from $849,000 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 At the Annual Meeting of Stockholders, held on May 4, 1995, the Stockholders were asked to: (1) elect two directors to serve for a term of three years, expiring in 1998 or until their successors are elected and qualified; and (2) to consider and act upon a proposal to ratify the selection of KPMG Peat Marwick as independent auditors for the company for 1995. The results of the voting on each of these proposals were as follows: (1) Election of Directors: Shares as to Which Director Nominee Shares Voted For Authority Was Withheld Michael Collins 7,873,735 45,229 John F. Shettle, Jr. 7,874,318 44,646 (2) Proposal to Ratify Selection of Independent Auditors: Shares Voted For: 7,886,194 Shares Voted Against: 16,876 Shares Abstaining: 15,893 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: August 11, 1995 /s/ William P. Condon William P. Condon Chairman of the Board and Chief Executive Officer Date: August 11, 1995 /s/ John F. Shettle, Jr. John F. Shettle, Jr. President and Chief Operating Officer Date: August 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 June 30, 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 JUN-30-1995 0 0 0 0 0 0 149,395 3,552 16,769 5,567 224,796 42,038 35,933 0 0 55,900 1,155 0 0 60,712 224,796 20,744 2,141 102 6,842 14,481 0 10,465 3,442 773 2,669 0 0 0 2,669 .30 .30 0 0 0 0 0 0 0
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