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
<TABLE> <S> <C>
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<LEGEND>
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.
</LEGEND>
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<NAME> AVEMCO CORPORATION
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