-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LR2/sYQLZNEzeCPzQlwEbO0JzP6J72QvwTkBJo650im5Dk6weUFIdaqiN8GmCGY6 UisnTLbpMczT3ZvaWQQMbQ== 0001006199-96-000075.txt : 19960515 0001006199-96-000075.hdr.sgml : 19960515 ACCESSION NUMBER: 0001006199-96-000075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96563380 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 FIRST QUARTER 1996 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, 1996 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: 8,611,070 shares of common stock were outstanding as of March 31, 1996. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Note 1) AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 1996, and December 31, 1995 March 31, December 31, 1996 1995 ------------ ------------ ASSETS: Investments...................................... $ 144,305,000 $ 149,544,000 Cash............................................. 5,206,000 3,466,000 Accounts receivable.............................. 26,638,000 24,637,000 Reinsurance recoverable.......................... 16,569,000 14,292,000 Deferred policy acquisition costs................ 5,511,000 5,511,000 Prepaid reinsurance premiums..................... 4,819,000 5,178,000 Net property and equipment....................... 8,342,000 8,051,000 Other assets..................................... 3,379,000 3,123,000 ------------ ------------ Total assets.................................. $ 214,769,000 $ 213,802,000 = =========== = =========== LIABILITIES: Unpaid losses and loss adjustment expenses....... $ 44,232,000 $ 42,305,000 Unearned premiums................................ 30,783,000 32,363,000 Accounts payable and accrued expenses............ 16,887,000 17,361,000 Ceded reinsurance premiums payable............... 5,910,000 5,047,000 Notes payable to banks........................... 56,967,000 54,967,000 ------------ ------------ Total liabilities............................. 154,779,000 152,043,000 ------------ ------------ 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; 11,565,811 issued in 1996 and 11,551,161 in 1995................. 1,157,000 1,155,000 Additional paid-in capital....................... 19,140,000 18,293,000 Net unrealized appreciation on investments....... 3,127,000 4,879,000 Foreign currency translation adjustments......... (185,000) (182,000) Retained earnings................................ 88,230,000 88,184,000 ------------ ------------ 111,469,000 112,329,000 Treasury stock, at cost, 2,954,741 shares in 1996 and 2,901,741 in 1995.................. (51,479,000) (50,570,000) ------------ ------------ Total stockholders' equity.................... 59,990,000 61,759,000 ------------ ------------ Contingent liabilities Total liabilities and stockholders' equity.... $ 214,769,000 $ 213,802,000 = =========== = =========== See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1996 1995 ------------ ------------ REVENUES: Premiums earned.................................. $ 19,693,000 $ 18,723,000 Commissions...................................... 1,973,000 1,583,000 Net investment income............................ 2,036,000 2,054,000 Computer products and services................... 2,261,000 1,951,000 Realized investment gains (losses)............... 513,000 (109,000) Other............................................ 1,902,000 1,802,000 ------------ ------------ Total revenues................................ 28,378,000 26,004,000 ------------ ------------ EXPENSES: Losses and loss adjustment expenses.............. 12,997,000 10,522,000 Selling, general, and administrative expenses.... 9,123,000 8,892,000 Commissions...................................... 1,466,000 1,766,000 Cost of computer hardware sold................... 415,000 242,000 Interest......................................... 968,000 1,121,000 ------------ ------------ Total expenses................................ 24,969,000 22,543,000 ------------ ------------ Earnings before income taxes..................... 3,409,000 3,461,000 Federal and state income taxes................... 722,000 647,000 ------------ ------------ Net earnings..................................... $ 2,687,000 $ 2,814,000 = =========== = =========== Net earnings per share........................... $ .31 $ .32 = =========== = =========== Weighted average number of common and common equivalent shares outstanding.................. 8,746,325 8,913,285 ============ ============ Dividends per share.............................. $ .12 $ .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, 1996 1995 ------------ ------------ OPERATING ACTIVITIES: Net earnings..................................... $ 2,687,000 $ 2,814,000 Charges (credits) to operations not affecting cash........................................... (2,382,000) 379,000 ------------ ------------ Net cash flows provided from operations.......... 305,000 3,193,000 ------------ ------------ INVESTMENT ACTIVITIES: Proceeds from sale or maturity of investments.... 16,079,000 11,520,000 Purchase of investments.......................... (12,926,000) (15,838,000) Proceeds from sale of property and equipment..... 12,000 5,000 Purchase of property and equipment............... (104,000) (851,000) ------------ ------------ Net cash flows provided from (used by) investment activities..................................... 3,061,000 (5,164,000) ------------ ------------ FINANCING ACTIVITIES: Proceeds from borrowings......................... 4,500,000 5,800,000 Principal payments on debt....................... (2,500,000) (3,833,000) Exercise of common stock options................. 125,000 54,000 Dividends to stockholders........................ (1,033,000) (974,000) Repurchase of common stock....................... (2,718,000) (72,000) ------------ ------------ Net cash flows provided from (used by) financing activities..................................... (1,626,000) 975,000 ------------ ------------ Net increase (decrease) in cash.................. 1,740,000 (996,000) Cash, beginning of year.......................... 3,466,000 5,191,000 ------------ ------------ Cash, end of period.............................. $ 5,206,000 $ 4,195,000 = =========== = =========== 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 three months ended March 31, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. 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 $300,000 for the first three months of 1996. Since the level of operating cash flow is highly affected 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. In addition, the 1996 first quarter operating cash flow was impacted by one-time refund payments of $2.4 million related to the settlement of California Proposition 103 matters. The company's insurance subsidiaries had fully provided for such amounts in prior years. 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 anticipated 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. Thus far in 1996, there has been a rising interest rate environment. As a result, the fair value of the investment porfolio at the end of the quarter declined by $1.7 million, or slightly above 1%. 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 1996 through April 15, the company repurchased 352,000 shares of its common stock. The Board of Directors' current authorization allows the company to repurchase an additional 373,000 shares. Results of Operations Net earnings for the first quarter of 1996 were $2.7 million or $.31 per share, similar to 1995's first quarter earnings of $2.8 million or $.32 per share. While the company experienced improved underwriting results in its short-term health and pleasure marine lines, increased physical damage claims activity on higher valued aircraft on the aviation business and an increase of 4% in the loss ratio on the lenders single interest business prevented the company from having a solid earnings performance. Gross premiums written for all lines of business in the quarter were $22.2 million, versus $23.2 million in 1995. Included in the 1995 first quarter premiums were $4.8 million in premiums associated with the acquisition of the aviation business from Aviation Underwriting Specialists. A substantial portion of that business, $3.8 million, represented non-recurring premiums. Therefore, on a going forward basis, gross premiums written in the first quarter of 1996 of $22.2 million compared to $19.5 million in 1995's first quarter, an increase of 14%. Gross premiums written on aviation using the same "apples to apples" comparison were $14.4 million in 1996 versus $13.1 million in 1995, an increase of 10%. The company is encouraged by new business growth in the aviation sector. Aviation rates continue to firm in certain categories and classes of business. Non-aviation premiums written in the quarter were $7.8 million versus $6.4 million in 1995, or a 22% increase. The company continued to make progress in its Services Group. During the first quarter the company completed the acquisition of Hinchcliff International, Inc., one of the largest and most highly regarded producers and administrators in the area of short-term health insurance for foreign students studying in the United States. This acquisition was made through the issuance of 120,000 shares of the company's common stock in exchange for 100% of the outstanding shares of Hinchcliff. The company expects to participate in the short-term health programs managed by Hinchcliff starting late in 1996. 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 14, 1996 /s/ William P. Condon ------------------- ------------------------------ William P. Condon Chairman of the Board and Chief Executive Officer Date: May 14, 1996 /s/ John F. Shettle, Jr. ------------------- ------------------------------ John F. Shettle, Jr. President and Chief Operating Officer Date: May 14, 1996 /s/ John R. Yuska ------------------- ------------------------------ John R. Yuska Senior Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from the registrant's March 31, 1996 Form 10-Q financial statements and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1995 MAR-31-1996 0 0 0 0 0 0 144,305 5,206 16,569 5,511 214,769 44,232 30,783 0 0 56,967 0 0 1,157 58,839 214,769 19,693 2,036 513 6,136 12,997 0 10,589 3,409 722 2,687 0 0 0 2,687 .31 .31 0 0 0 0 0 0 0
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