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
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
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.
</LEGEND>
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<NAME> AVEMCO CORPORATION
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