-----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, WKNsKkwjEVpuerHSa+HAvenFSiqnVuT1JvPXUYPAjvPhJWBbqbR5j0WtKwiqBt9w ESnvgXxtwHhJVvpdQU5NVw== 0001006199-96-000148.txt : 19961113 0001006199-96-000148.hdr.sgml : 19961113 ACCESSION NUMBER: 0001006199-96-000148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 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: 96658597 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 3D QUARTER FORM 10-Q 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 September 30, 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: 8,291,370 shares of common stock were outstanding as of September 30, 1996. -------------------------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Note 1) AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 1996, and December 31, 1995 September 30, December 31, 1996 1995 ------------- ------------- ASSETS: Investments...................................... $ 142,539,000 $ 149,544,000 Cash............................................. 7,465,000 3,466,000 Accounts receivable.............................. 35,324,000 24,637,000 Reinsurance recoverable.......................... 14,968,000 14,292,000 Deferred policy acquisition costs................ 6,406,000 5,511,000 Prepaid reinsurance premiums..................... 5,960,000 5,178,000 Net property and equipment....................... 8,029,000 8,051,000 Other assets..................................... 3,074,000 3,123,000 ------------- ------------- Total assets $ 223,765,000 $ 213,802,000 ============= ============= LIABILITIES: Unpaid losses and loss adjustment expenses....... $ 45,240,000 $ 42,305,000 Unearned premiums................................ 40,176,000 32,363,000 Accounts payable and accrued expenses............ 18,848,000 17,361,000 Ceded reinsurance premiums payable............... 5,617,000 5,047,000 Notes payable to banks........................... 55,167,000 54,967,000 ------------- ------------- Total liabilities 165,048,000 152,043,000 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....... 1,491,000 4,879,000 Foreign currency translation adjustments......... (186,000) (182,000) Retained earnings................................ 93,354,000 88,184,000 ------------- ------------- 114,956,000 112,329,000 Treasury stock, at cost, 3,274,441 shares in 1996 and 2,901,741 in 1995..................... (56,239,000) (50,570,000) ------------- ------------- Total stockholders' equity................... 58,717,000 61,759,000 ------------- ------------- Contingent liabilities Total liabilities and stockholders' equity... $ 223,765,000 $ 213,802,000 ============= ============= See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Nine Months Ended September 30, 1996 1995 ------------- ------------- REVENUES: Premiums earned.................................. $ 62,750,000 $ 60,287,000 Commissions...................................... 6,934,000 5,620,000 Net investment income............................ 6,173,000 6,376,000 Computer products and services................... 7,323,000 7,557,000 Realized investment gains........................ 3,122,000 203,000 Realized gain on subsidiary sale................. 3,307,000 -- Other............................................ 6,306,000 4,905,000 ------------- ------------- Total revenues............................... 95,915,000 84,948,000 ------------- ------------- EXPENSES: Losses and loss adjustment expenses.............. 46,937,000 42,951,000 Selling, general, and administrative expenses.... 27,057,000 25,963,000 Commissions...................................... 4,970,000 5,084,000 Cost of computer hardware sold................... 1,156,000 1,591,000 Interest......................................... 2,907,000 3,108,000 ------------- ------------- Total expenses............................... 83,027,000 78,697,000 ------------- ------------- Earnings before income taxes..................... 12,888,000 6,251,000 Federal and state income taxes................... 3,080,000 694,000 ------------- ------------- Net earnings..................................... $ 9,808,000 $ 5,557,000 ============= ============= Net earnings per share........................... $ 1.15 $ .63 ============= ============= Weighted average number of common and common equivalent shares outstanding.................... 8,527,283 8,875,400 ============= ============= Dividends per share.............................. $ .36 $ .34 ============= ============= See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended September 30, 1996 1995 ------------- ------------- REVENUES: Premiums earned.................................. $ 21,902,000 $ 20,790,000 Commissions...................................... 2,393,000 1,968,000 Net investment income............................ 1,983,000 2,181,000 Computer products and services................... 2,601,000 2,793,000 Realized investment gains (losses)............... (87,000) 210,000 Realized gain on subsidiary sale................. 3,307,000 -- Other............................................ 2,292,000 1,143,000 ------------- ------------- Total revenues............................... 34,391,000 29,085,000 ------------- ------------- EXPENSES: Losses and loss adjustment expenses.............. 19,647,000 17,948,000 Selling, general, and administrative expenses.... 8,719,000 8,123,000 Commissions...................................... 1,754,000 1,801,000 Cost of computer hardware sold................... 393,000 792,000 Interest......................................... 819,000 1,073,000 ------------- ------------- Total expenses............................... 31,332,000 29,737,000 ------------- ------------- Earnings (loss) before income taxes.............. 3,059,000 (652,000) Federal and state income tax (benefit)........... 640,000 (726,000) ------------- ------------- Net earnings..................................... $ 2,419,000 $ 74,000 ============= ============= Net earnings per share........................... $ .29 $ .01 ============= ============= Weighted average number of common and common equivalent shares outstanding.................... 8,363,119 8,804,944 ============= ============= Dividends per share.............................. $ .12 $ .12 ============= ============= See accompanying notes to condensed consolidated financial statements. AVEMCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1996 1995 ------------- ------------- OPERATING ACTIVITIES: Net earnings..................................... $ 9,808,000 $ 5,557,000 Charges (credits) to operations not affecting cash........................................... (7,961,000) 1,988,000 ------------- ------------- Net cash flows provided from operations.......... 1,847,000 7,545,000 ------------- ------------- INVESTMENT ACTIVITIES: Proceeds from sale or maturity of investments.... 43,649,000 33,176,000 Purchase of investments.......................... (44,934,000) (36,814,000) Proceeds from sale of property and equipment..... 179,000 39,000 Proceeds from sale of subsidiary................. 13,957,000 -- Purchase of property and equipment............... (516,000) (1,734,000) ------------- ------------- Net cash flows provided from (used by) investment activities.......................... 12,335,000 (5,333,000) ------------- ------------- FINANCING ACTIVITIES: Proceeds from borrowings......................... 29,000,000 9,500,000 Principal payments on debt....................... (28,800,000) (6,133,000) Exercise of common stock options................. 125,000 54,000 Dividends to stockholders........................ (3,030,000) (2,982,000) Repurchase of common stock....................... (7,478,000) (2,883,000) ------------- ------------- Net cash flows used by financing activities...... (10,183,000) (2,444,000) ------------- ------------- Net increase (decrease) in cash.................. 3,999,000 (232,000) Cash, beginning of year.......................... 3,466,000 5,191,000 ------------- ------------- Cash, end of period.............................. $ 7,465,000 $ 4,959,000 ============= ============= 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 nine months ended September 30, 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 $1.8 million for the first nine 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. 1996 year-to-date operating cash flow was affected by the realized gains on the sale of investments and the realized gain on the sale of a subsidiary, which were excluded from operating activities and included in cash flow from investment activities. In addition, the 1996 year-to-date operating cash flow was also 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. 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. For the year-to-date through September 30, 1996, the company has repurchased 492,700 shares of its common stock. The Board of Directors' current authorization allows the company to repurchase an additional 231,817 shares. Results of Operations Net earnings for the third quarter of 1996 were $2.4 million or $.29 per share compared to $74,000 or $.01 per share for the same period of 1995. The improvement in net earnings over the 1995 third quarter was due to the net after-tax gain recognized on the sale of a subsidiary, which amounted to $2.2 million or $.26 per share, and an improvement in net operating earnings. 1996 third quarter operating earnings were affected by claims activity associated with Hurricane Fran, which resulted in an after-tax earnings reduction of $548,000 or $.07 per share. Historically, the third quarter has been the company's most volatile from a claims perspective. It is not only the peak season for aircraft and watercraft claims due to increased use, but it is also the peak season for hurricanes, tornadoes and hail storms. There were no significant weather-related losses during the 1995 third quarter. The company had a positive quarter from a premium production standpoint with an overall increase of 14.5%. Aviation gross premiums written in the third quarter were $18.1 million versus $16.1 million in the same period of 1995, reflecting a 12.4% increase. There continues to be some improvement of competitive rates in the aviation insurance sector primarily in the areas of higher-valued aircraft hulls and pilots who are transitioning to larger or more complex aircraft. Gross premiums written on the company's non-aviation lines were $9.6 million for the quarter, increasing by 19.2% over 1995. Particularly noteworthy was the company's lenders single interest performance. Premiums written on that line were close to $6.0 million compared to $4.6 million in 1995, a 31% increase. Premiums on the short-term health business were $2.3 million, slightly under that of 1995's third quarter. The decline was principally the result of the company's earlier decision to discontinue as a reinsurer on a trip-travel insurance program. The company continues, however, to increase its participation in short-term health plans managed and underwritten by its IGS affiliate. Also in the third quarter the company commenced participation in the Hinchcliff International business it acquired in January 1996. Pleasure marine premiums written in the third quarter were up 24% over 1995. The company completed the sale of its subsidiary National Assurance Underwriters, Inc., in the third quarter. As part of the sale the company retained all of that subsidiary's insurance business. As mentioned earlier, this sale generated an after-tax gain of $2.2 million, or $.26 per share. 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: November 12, 1996 /s/ William P. Condon ----------------------------------- William P. Condon Chairman of the Board and Chief Executive Officer Date: November 12, 1996 /s/ John F. Shettle, Jr. ----------------------------------- John F. Shettle, Jr. President and Chief Operating Officer Date: November 12, 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 September 30, 1996 Form 10-Q financial statements and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 SEP-30-1996 0 0 0 0 0 0 142,539 7,465 14,968 6,406 233,765 45,240 40,176 0 0 55,167 0 0 1,157 57,560 223,765 62,750 6,173 3,122 23,870 46,937 0 32,027 12,888 3,080 9,808 0 0 0 9,808 1.15 1.15 0 0 0 0 0 0 0
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